Unmotivated Sellers Like These Creative Offers With Eddie Speed
Episode 415: Unmotivated Sellers Like These Creative Offers With Eddie Speed
Cash does not solve everybody’s problem, especially when you’re dealing with unmotivated sellers. Not all sellers are so eager to solve their money troubles that they would sell their property for a discount. However, even unmotivated sellers have a price – if you know how to creatively structure your offers. Texas real estate investor and NoteSchool founder, Eddie Speed illustrates how you can do this and still have a good deal through a creative seller financing strategy in this conversation with Mitch Stephen. Having closed more than 50,000 note deals himself and looked at hundreds of thousands more, Eddie has educated himself of the patterns in the terms that get unmotivated sellers to jump in. Make sure to take notes because Eddie is going to throw us a huge nugget in this episode. Plus, Eddie and Mitch also share their thoughts on what is happening in the real estate market right now and what we can expect in the near future.
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I’m here with the world-renowned Eddie Speed. I’ve known this guy since the late ‘90s. We became friends. We met at a three-day bootcamp someplace in New Jersey or New York. We hit it off from the beginning. We’ve been friends ever since. Eddie and I have watched each other go through the throes, and the ups and downs of this business. Between the two of us, there isn’t anything we haven’t seen but there still could be something else coming because how that is.
I’d like to thank our sponsor, Livecomm.com. There’s a reason why I’m averaging nine days on the market and 12% down on my seller finance homes. Watch the video on the homepage and get an inkling of what it can do. It is a very powerful program, affordable, and you’ll be impressed. You’re tying it to Facebook which is a free place to post all your inventory and start a community. To give you a hint, I have 24,000 people that refused to opt-out of my text messaging list because they are interested in the next seller-financed house I have in my area. San Antonio is a population of about two million people. When I have a new house come on the market for $0.02 a piece, I can hit people that have already raised their hand, called my signs, and inquired about seller-financing homes so they can quit paying rent and start to be an owner. Twenty-four thousand, I can hit for $0.02 apiece. It’s right between the eyes. It’s the most affordable advertising you can get.
Eddie, I got the bills paid. It’s time to get on with the good stuff. For you that don’t know Eddie, he’s done over 40,000 notes himself. His students have collectively purchased and hand over $3.5 billion worth of transactions that they can directly say thanks to Eddie. They were able to figure out and complete. When I tell you this guy has been in the business, I don’t know anyone else that deep in the business that’s willing to educate someone on it. If you’re like me, it’s a bigger and faster gun somewhere but I don’t know anyone who’s willing to teach you and has spent the years teaching. How long have you been educating people on this subject, Eddie?
I’ve been doing it for about twenty years. I started 1980 and then around 2000 before I started doing that. I don’t exactly write down the date for some reason. You don’t know where it’s going, but right around 2000 is when I started teaching.
The point is if 10,000 hours is what it takes to be one of the best in the world at what you do, Eddie and I both have about 50,000 hours in whatever the hell we’re doing. A little bit of it was the wrong direction, but then we figured out it was the wrong direction so we come back. We have a lot of hours in this. Eddie, we were talking about the market. Buying houses at $0.65 and $0.70 on the dollar is getting tough for multiple reasons. One, it was getting tough to begin with because A&E, HGTV, Radio, TV and cable show were about flipping houses and they make it look so easy, glorious, and pretty. They show you all these big checks. They’re not talking about the downside of any of this. Everybody I know is trying to do a house flip or buy a note or something.
COVID comes along and MLS listings are way down because people don’t want people in their house because of the COVID. Number two, they keep extending the evictions of the foreclosures then the courthouses are shutting down. We can’t get to any of those problem properties. There’s no pressure for these people to make a move. A lot of people are sitting for free in houses because they know that they can’t get punted. We’re going to talk about how to up that inventory. Eddie, do I have the reason for the tightness in the market or you’ve got other reasons?
I think you nailed it. Those are all the reasons. As long as you and I’ve been doing this, it’s the weirdest time in the market I’ve ever seen.
There are a lot of us out there explaining to people that there’s a way to get fired by your boss and get a job. There’s a whole multitude of reasons. It’s got very competitive and inventory has dried up for certain reasons. We’re going out and we’re making these cash offers. People are saying no or they’re slow to react, but Eddie has been working on a positive angle. Talk to us a little bit about what you’re teaching now.
Mitch, as you and I know we have circles of people that are our peers in the business. We’re in masterminds and those kinds of things where people do hundreds of deals a year. Those are great because you get to be with high-volume guys. If the market is trending, you get to know it’s trending. Years prior to the virus, I was listening to these guys in masterminds. They were all saying the same thing, “My conversions are dropping.” In other words, the number of offers they make to get one bought or buying a house for cash at a discount, and their margins were shrinking. Meaning that there was more competition. Their competition would raise the price and there’s a ceiling on what they could wholesale it for.
They were wholesaling houses. They were making less margin per transaction and they were buying less transactions for every 25 deals that they were offering. I said, “Why don’t these guys buy on terms?” I said, “You could pay retail.” These are a seasoned bunch of guys. They looked at me like I had two heads. They’re like, “What do you mean you could pay retail?” I’m like, “You can go pay anything for the property. It depends on how you pay it back.” Mitch, you have run with a circle of people and stuff. Most of the top 5% of every real estate investor feels like they’ve got in their war chest, they know how to make terms offers. Get the seller to carry creative financing for you. What I figured out was when I interviewed a lot of those guys is, they had an offer and a structure or maybe two.
They weren’t backing into how to make an offer and with the story. I started taking some of these case studies, reworking them, taking close deals and say, “You could structure it this way, this way or this way.” All of a sudden, they’re like, “We didn’t think about it.” Here’s the answer. In my own study here, I figured out that about 50% of people that have a house for sale, motivated, and need to sell it, they have a money situation. About 50% of the people that had a house for sale and wanted to sell it had a real estate problem. A real estate problem, I discovered was way different than a money problem. They needed to get rid of their property. They were not going to sell the property at a deep discount to do it. As long as they psychologically could go the closing table and in the closing statement say they sold it at retail or almost retail, $0.90 of retail or $0.95 to retail, they felt like they accomplished everything. How did I figure out people were willing to do that? Because for many years, I’ve closed over 50,000 deals. It didn’t matter.
Who’s counting a lot?
I believe I’ve looked at 300,000 deals because most of the stuff we look at, we didn’t buy. The pattern is people have been showing up at my doorstep for the many years with a seller finance note and trying to sell us the note. I’ve seen what they’ve agreed to. I’ve seen the terms and the conditions that they thought was a good deal.
The seller thought it was a good deal and took it.
They don’t know that we’re probing this but we’re asking them, “Why did you agree to this?” Do you know the number one reason they agreed to it? They got their price. They gave the farm away because they got their price. I zeroed in on that.
You’ve got to qualify that. They gave the farm away because they got their price. It sounds like an oxymoron. What you’re saying is they gave the farm as far as terms away because the bottom line price was market price or below market price barely or whatever. When you say gave the farm away, you mean they gave whatever terms they needed to give but they’re focused on that sales price at the top of the page. That’s why they agree. I like what you said, they either have a money problem or they have a real estate problem or a little bit on that money problem.
If people have a money problem, the wolves are at the door. They need money. They’re willing to sell the house at a discount. Real estate brokerage doesn’t solve every problem or Mitch and I wouldn’t exist. If real estate brokerage solved every real estate problem known to man, there would be no need for a house buyer and no need for a creative finance guy. There’s some reason that they didn’t list it and sell it through a realtor. It could be because they’re weird and they don’t want anybody buying their house. It could be the house needs repairs. It’s just a myriad of reasons. The most obvious is the house needs repairs but that’s not exclusively true. They need to sell the house.If real estate brokerage solved every real estate problem known to man, there would be no need for a creative finance guy. Click To Tweet
If the wolves are at the door and they’re willing to go sell at a discount because I got to have the cash, that’s one customer. I figured out in probing a lot of people that are big operators like you and Mike, that was a reason but it wasn’t exclusively the reason that somebody marketed their house to sell. The other side is somebody has got a real estate problem. I saw a case study with Mike. You guys closed a killer deal that you guys did. That deal is the money. It’s the warehouse, the land, and all that stuff. In my mind, that guy had a real estate problem. It was weird enough that nobody knew how to sell it because they didn’t have a vision of how to reposition the property like you guys did.
Let me tell you what the real problem is that we found out. There’s no water. You can’t get water on that. You have to go 1,800 feet and it’s a $200,000 well. We saw right off the bat that it had 6,000 square foot metal roof building. A water capture system solves the problem, and it’s not that big of a deal. It’s a $25,000 deal now instead of a $200,000. He didn’t tell us that. We didn’t let him know that we knew that he wasn’t telling us. We knew what the problem was and we knew how to solve the problem.
That’s the whole story over and over. Entrepreneurs solves problems and cash doesn’t solve everybody’s problem. It solves some people’s problem but not everybody’s problem. The other side of the equation is if you approach the people that you made a cash offer to and you gave it a solid try. You didn’t give up the first time you made him an offer, but you work that funnel, you work that selling cycle, and they still didn’t convert. I’m saying most guys that are buying houses, they’re blowing through leads. They’ve got a follow-up system, but at some point, the follow-up system is, “It should be this.” Mitch, we got another department in the company. I don’t know whether this makes sense or not but if we could buy this property, creative financing, where you helped us with the financing of the property, that would be a very likely situation that we could increase the price we paid. Would that be of interest to talk about to you?
This is my whole thing. I was telling you before and you’ve been watching me as I did this. Because I’m in and around these masterminds, I’ve got about twenty of these guys that I call Ninja Real Estate Investors. They’re hotshots. I’m around a whole bunch of them more than that. I got about twenty of these guys that I brought in and got into like, “What do creative terms mean? What does that look like?” All of a sudden they started realizing, “You are totally right.” We can’t believe the people that would consider selling their house for a higher price. Even though seemingly they initially said, “I got to have all cash.”
When people can’t wrap their mind around anything but you’re buying a property from them, how can they see anything other than you’re going to pay them cash upfront? That’s the only method they could think of. When they started introducing the idea of you can get a higher price for your property because the customer liens says, “Tell me more.” I think the most critical thing is learning some patterns with people. Every top 5% real estate investor in the country completely understands, “I like to make my terms offer with no interest.” These principal-only payments. We’ve all heard this and you can do that.
Statistically, we price 3,001 off-notes a year on our trade desk. I got a bunch of ex-big box shop guys that all ran the institutions for the seller finance industry that run my operation side as you know Mitch. Bob Repass runs my operation. They were buying $400 million in seller finance notes a year. We’ve seen a lot of volume and we’ve had a lot of patterns. Only 18% of people at seller finance carry a 0% interest. That’s not zero but only 18% of them do that. Some people have a mental block, they’re not going to care carry the 0% interest. How do you do that? What do you do? They won’t carry the 0% interest, you’re like, “I got to put an interest rate on it.” Let me give you a good solid nugget.
I might say, “Mitch, I have to get you to carry this for me for twenty years because I’m going to do what I’m asking you to do. I’m asking you to sell your property for more money but be smart like the furniture store and not discount your property. You got to take your payments over time.” I’m going to do the same thing, Mitch. I’m going to go find some good customer that deserving for financing because the banks have left them behind. By the way, 30% of the people that could get a mortgage in January can’t get one now. That’s a legitimate statement for sure. I’m going to go find this person, I’m going to resell it to them. I’m going to carry my profit over time just like you are, but in order to do that, you’re saying you insist on an interest rate. What seems fair to you? You say 4%.
I’ll tell you exactly what I say. I say, “The banks are offering 1%, I’m willing to be more than fair. I set the bar low. What’s fair to you?” I already slapped them with that low expectation.
I named an above-market rate and that was acting as if you insisted on above-market rate. That makes the seller financing bargain go away. I say, “Mitch, if you will help me do what I need to do, I would even be willing to pay you more interest than you’re asking for.” You’re asking for above-market rates. You lien up and go, “Tell me more.” What I get you to do is a twenty-year note. The first ten years are 0% interest. You got to remember, Mitch, I’m solving off the principal of this loan. Now I say, “I give you 5% interest but I’m paying you 5% on about half of the principal I would normally be paying.”
You offer the higher rate but because of the terms, you’re paying less than what they even wanted to begin with.
It’s a smoking deal. That’s an example of what I’ve learned. There are nerds that can get on a whiteboard and do financial modeling but they can’t do it in a way that somebody will agree to it. If you can’t get somebody to stay at the sandbox with you, you’re out.
It looks good on paper but if people don’t say yes, fill that away.
I’ve worked at doing stuff that I know financially is to a great advantage but positioning in such a way that I can help people and get it closed. That’s my old specialty.
If you’re reading this, you got a tremendous nugget and Eddie is full of them. I love talking to the guy because he jars my memory of what I should be doing. Sometimes, we heard all this stuff and we think we know this stuff but we get stuck in our routine and we don’t make or think about certain kinds of offers. You’re offering them more interest than their asking but tell them their interest rate won’t kick in for ten years. During that first ten years, you’re knocking the tar out of the principal balance so that when you finally get to the year that you have to start paying interest, you’re not paying interest on nearly the balance. I haven’t done the math here but in a lot of cases, you’ll be paying less than the initial interest offer that your seller made. It’s a great strategy.
That deal, if it stays in place, is huge economic advantage for you. Here’s the other stat. This makes us unique because as far as I’m aware of, there’s no executive team that’s seen more seller finance transactions than ours. I’m fairly sure of that. We’ve closed on billions of dollars of seller finance notes. God knows how many we’ve seen. Here’s a pattern. Mom and pop, not Mike and Mitch, not professional guys like you but amateur seller financers. If they own a note in the past ten years, the odds of them selling their note at a discount go out of sight. I agreed to pay 5% interest, but the truth of the matter is I won’t ever pay 5% interest because I’m going to buy my own debt at a discount from them because I’m going to put a first right of refusal in there that’s tight. I’m going to buy my own notes. They gave me unbelievable terms of seller financing. When the interest rate kicks in, the odds are they’re going to sell me the note at a discount anyway because some life event comes along.
When our sellers finance us, every year, we offer them some discount if they want to cash out. One year will go by and they don’t have that life event. Two years will go by or 3, 4 years or something, they’d say, “I need that money now.” They take the discount. The other thing that dawned on me is you got that twenty-year note at ten years interest-free, then you start paying 5% for the last ten years. You could set yourself up on a ten-year payout and interest-only.
You and I know a lot of people that get enamored with 0% interest. I tell them, “Here’s a mathematical question. Would you rather pay 3% interest for twenty years or 0% interest for nine years?” Everybody goes, “I’d rather pay 0%.” I show them an excel graph and I show them that if you sold that loan at the same yield, that 3%, twenty-year note is worthless cash now than that 0%-interest rate in a nine-year note. I’ve learned that the most valuable thing is to push the money out. We all got our propeller head-on. Mathematically, that’s true but psychologically, the more money I owed them in the future, the more likely I am to buy my own note at a discount.If you understand where the customer’s objection is, it gives you all kinds of ways to angle your offer. Click To Tweet
Have they perfected that calculator where you can run the cash-on-cash versus the notes and it’ll tell you, “You can pay cash for this or you can use these terms and it’s exactly the same ROI?”
We got it. That’s an application that we give people down the road. Ross, our guy built that for us. It’s cool. You can do all kinds of crazy stuff with it. Sometimes, I’ll help people structure what I call a generic seller finance deal. A lot of times, if I understand where the customer’s objections are, and usually it’s about price, that’s number one, it gives me all kinds of ways to angle it. I love the model that you perfected well which is buying with private money. About half of the time, there’s some private money involved so you simply borrow a lower amount of money from a private investor. The top end of the deal is seller finance. The seller then subordinates their lien position to a private lender. The private lender could include cash to the seller, repairs, and your down payment. To think in terms of you might do it something like this, you got a $100,000 purchase price, you borrowed $50,000 from a private lender and $50,000 seller-financed. You can come up with all kinds of creative terms of how to pay that seller $50,000 back, but you’re doing it in a way to your advantage.
People say, “I’ve tried to make seller finance offers but they needed some cash up front.” I figured that out. About 50% of the time, that’s true so you got to go come up with some strategy to do it. I had a guy that brought a deal to me and they owed about $60,000 on an existing mortgage. The property at retail was going to be worth $175,000. He had to go do some repairs to it and some things like that. I said, “Don’t fool with doing a sub-to on that $60,000 mortgage. It’s a pain in the tail.” You can do sub-tos and I teach that. To do a $60,000 sub-to, just go get private money. “The difference between you’re paying 6% on private money in 4.3 quarters is taking over somebody’s existing mortgages payments.”
This guy was a fairly high volume guy. He says, “Eddie, it’s a great idea. How do I go find the money?” I said, “Don’t you have some ridiculous buyers list?” He said, “Yeah, we flipped thousands of houses.” I said, “There’s your lender. There are a whole lot more people who love HGTV on your buyer’s list that would rather make you a loan and not have a headache than you go sell them a house and sell them a headache. They’ve already had a headache. You’re going to make them a loan. You’re going to borrow $60,000, the house has got to be worth $180,000. What’s their risk?” I said, “Now you’re using your buyer’s list for a totally different purpose. You’re sourcing private money with it.”
We’ve always had the theory that we can pay almost anything for a house if you’ll give me my term. It doesn’t matter the price. I could take a $200,000 house. I can pay you $1 million for it if you’ll give me my terms. It’s a way out example but if you’ll carry the $1 million in my first payments for 30 years, then we’re good because I’m going to be dead. That’s an extreme example but there’s always a set of terms you can win on no matter the price. That’s your point. The question is, that example of ten years, no interest, and then the next ten years, I’ll pay you more than you’re asking in interest, that’s a beautiful example of not knowing what you don’t know. I know that terms a win but I never thought about that set of terms. That set of terms wins on a bunch of levels. One, they get their price. Two, it looks good. As you said, we’re emotional about 0%. They’re emotional about that 5%. Even though the other way would be better for them, they’re fixed on the visual of that number five in that slot.
Do you know why I came up with that idea?
No, tell me, please.
I was helping people do this and understand. You know the type of people I’m dealing with. They’re smart but they’re a little bit insecure about structuring these deals. They would come to me and they say, “The guy will not carry terms over ten years. He won’t do it. He’ll carry it 0% even a 30-year term but in ten years, he wants all his money.” I said, “The problem is in ten years, your loan unless you have a balloon on the other side of your wrap, you got to struggle with that. The odds of buying your own note at a discount go down. What if past ten years, I paid you a ridiculous interest rate, would you consider it?”
Consistently those guys started saying, “Yes, they liened up and said, ‘Tell me more.’” That’s how I got to that idea. I was trying to get longer-term because I’m a terms guy, not a rate guy. I believe that if you’re negotiating your debt, the longer-term that the seller carries the terms for you, that is excessively more powerful than the other side of the equation which is, “He gave me 0%.” You and I have seen a zillion guys walk in there and think they killed it because they got 7 or 8 years 0% interest. I’m like, “How much money do you save?” They feel like they did good but the modeling is not there. It’s weird how you figure this stuff out.
It’s certainly not good if you don’t get the deal because then you got 0%. How many of them could you have saved? What I find interesting is this should be perking up the audience to say, “You got all those people that turned you down.” This is another way to readjust your thinking and get to know some of these creative offers. Three, four, five or six of them in your pocket, ways to run at it, and then call them back and say, “I’ve been thinking about that house. I could get much closer to the market price that you’re asking. If you would make a few concessions and if you’re interested in hearing about it, I can get you close to the market price.”
I don’t know anybody who’s going to say no to that. There are always the loons out there but you have a good chance. This is an opportunity to take this whole long list of dead leads in your CRM and handpick who this person is that calls them. Make sure they understand exactly how to make offers on terms and have more than one offer. That’s the cool thing about terms. There’s no limit to the amount of ways you can structure it. You got to do what you said. You’ve got to smell out your seller. You got to figure out what his problem is, what his objections are, and then you got to tailor that offer to them. Is it the money problem or is it a real estate problem?
Is he too old and doesn’t want to go out? Where is his objection to financing the property? He might say, “No, I got to have my money work.” “Do you need all of this money to solve your problem?” “I need $25,000 of it. I need 50,000 of it.” “We cut it down now.” You’re only dealing with that part of the bigger picture. It’s just the $50,000 part he needs now. What can you do to get him $50,000 and still make the deal a winner for you? You’ve stopped how you used to do things and you’ve gone way into teaching people about the seller finance offers.
We still have 1,200 or 1,500 assets under management on any given day. I’ve got a note shop and I still teach people a lot of retirement strategies. Here’s how I look at it, Mitch. Somebody like you that knows me this well. You say, “What is Eddie’s unique skill? Eddie is good at financial modeling.” I’m good at structuring a way to do something, to control it, to leverage it, to position it. That’s what I feel like my skillset is. I hadn’t bought as many houses as you, although I’ve owned thousands of properties that we exited in some way on our financing. First of all, I’m an asset agnostic. We are entering a market condition that is going to look a lot closer to the ‘80s and the ‘90s in a certain part of the country than in 2008. In 2008, the rest of the real estate wasn’t dented. Residential housing was the dent.
We’re entering a market condition that is back in the old RTC days. Maybe 1/3 of every deal you do is going to be on something other than a regular house because that stuff is going to get insanely cheap but you got to go safety it up. I have a lot of people that are concerned. We’re at a crash in slow motion. There are some lurking problems. You can say, “Eddie is crazy. He wants the market to go bad because he thinks he’s going to make more money in a Black Swan market.” Let me give you some stats. Fannie Mae, Freddie Mac, National Association of Realtors, National Home Builders Association, CoreLogic, all vote that we are going to experience in 2021 a decline in real estate values.
They do not agree upon the percentage. They all agree it’s going to happen. You’re saying, “That’s impossible. There’s no inventory. There are no houses for sale. There is a pinup demand for houses.” I hope everybody understands. There’s been a decline in who can qualify for a mortgage. About 30% of the people that could get a mortgage in January cannot get a mortgage now. The mortgage banking industry is already bracing up for this. Where’s the inventory? What breaks the market? There are five million loans in forbearance. Meaning they’re not making a payment. They’re frozen in time. They’re not paying taxes and insurance. The problem is the clock is ticking. At the end of this forbearance, they got to write a check and bring it current. More of these loans have equity than not. They’re not mortgaged up to the hilt. Here’s another fact. There are 1.9 million loans that are 90-plus days delinquent. That’s seven million loans.Everybody has a price, even unmotivated seller, if you know how to get creative in structuring your offers. Click To Tweet
It’s coming. You can’t be handing out all this money and closing these businesses for this long. I couldn’t even fathom how you don’t have a repercussion from what’s been going on. I don’t even fathom how it would be possible.
Embracing up for that, your fear would be, who am I going to sell to? How are they going to pay me? I’m obligated to pay somebody else. How do I know I can pay them back? One of the things that became obvious for me and this has worked out this way is one of the clauses that we put in the loan is the vacancy non-income clause. If I’m not getting any money on the property, I have a built-in forbearance for the seller finance note that they carried for me.
The first thing that comes to my mind, do people sign that stuff? People tell me all the time like, “They owe you money and you owe a bank. If you don’t pay your bank, everyone could lose the house. Do people buy a house under that condition?” I say, “Yes, every day. It stated right in the wrap-around mortgage words that they have this inherent risk if they’re going to buy this house.” They send the money to Mitch. If Mitch doesn’t send the money to the underlying lienholder then the underlying lienholder can wipe us all out.
I didn’t think of that until the virus and all this forbearance. I understood the concept but I didn’t think of it. All of a sudden, I’m like, “Their number one fear is that I don’t pay them and they have to go take some legal action.” I’m saying, “I do not want us to be in a situation that due to something that I didn’t cause that I’m somehow in a position where I’m sure I’m paying you.” In a catastrophic situation, if something happened where I’m not collecting money then we’re both not going to collect money for a period of time. That’s a temporary thing and we solve the problem.
It’s a unique parallel here. Our minds think alike but we express it differently. With my private lenders, I have on the street in San Antonio about $26 million of private money that I owe. They checked it. They’re spitting out of the deal, $200,000 somewhat worth of payments every month on the first. It’s the same thing you said. I’m non-recourse collateral only. I tell my private lenders every day of the week, if you agree to make me this loan on this property, be sure because I have two rights every day of my life. I have the right to pay as agreed and I have the right to walk my position on that property over to you and assign it to you. Whether that means I’m the owner, then I’ll deed it to you.
If I had a note then I’ll deed you the note, whether the note is paying or not paying. It’s what you said. I have that right. I’ve never said this before, I’ve never given a house back, and I’ve never made the payment but I’m doing it for the same reason. In case there’s a cataclysmic event that has nothing to do with me that I could have no more prevented or had the foresight at all, a meteor, a nuclear dirty bomb in downtown San Antonio, some act of terrorism that pollutes land, water, whatever. What do you think the doctor says when I walk up and say, “I can’t make the payments on this. I’m thinking strongly about walking you over the deed to this house or you could forego the payments for a while, while I try to work it out, but right now I can’t make the payment. What do you want to do?”
The doctor is going to say to me, “For God’s sake, don’t give me that house. Let’s postpone until you start collecting payments again or just don’t make a payment.” That’s what they’re going to say. I completely relate. I was looking at it differently than you. You’re putting it blatantly in their face. I know that 99.9% of the time, if I want to give this 80-year-old or 70-year-old lady back the house or you could work with me, they’re going to work with me.
We just put it in there. Once again, being around the note space, buying a lot of distressed notes, rework notes, modified loans, we’ve seen all these crazy clauses and agreements. I had to get my mind wrapped around it because I had a student who was panicky. He said, “I can’t commit to the cashflow if something happened to my cashflow.” He was an engineer, technical type person, not as risky as you and I would be. I’m like, “Make the agreement. You don’t have to pay if you’re not getting paid.” He’s like, “You can do that?” I’m like, “You can.” I didn’t tell him I’d never thought of that before.
My point is a lot of my students did the same thing. They say, “I don’t like to borrow money. I like to do my house all cash.” I say, “It’ll take you forever to get where you’re going if you don’t use the power of leverage. What you’re afraid of is failing on your commitment to someone.” Make your offers to where the worst thing can happen is, you’ll walk the deed back over to them or you hand them your position in the property. Whatever your position is, you disavow yourself and say, “You don’t have to sue me in a court. You don’t have to go through a foreclosure. This is my promise to you. You’ll never have to come take this from me. If I can’t pay you, I will give you this. I will fly to your house if I have to and I will hand it to you.”
That’s how I can sleep with the amount of money that I owe. I know there are people out there that owe more money than I owe by a long shot. I’m saying for little old Mitch Stephen, that’s how I sleep at night owing $26 million to private people at 8%, 9%, and 10%. It’s because I know that the worst thing that can happen is, I give them my position. They can’t pursue me in a court of law. They can’t take my storages and my other assets. They can only come at me for that one property. Once people who are scared like your engineer guy get to that conclusion, all of a sudden, this world opens up to them because moving with straight cash is a long, hard road. Do you agree?
There’s no doubt. Once again, we reached a pinnacle in real estate investing. It’s the biggest wholesaling and house buying. It became the biggest it had ever been and the most competitive, Mitch, has ever seen by far. They all did it with one strategy in mind which was trying to buy a house at a discount. If you could break the mole and try to approach that your competition doesn’t try, that’s what entrepreneurs do. The creative financing to me, honestly, is more entrepreneurial than offering cash every time which Mitch has built such a portfolio doing it.
One of the greatest books I ever read was Nothing Down by Robert Allen. He explained all these ways to do something when you don’t have any money. A lot of it was very creative along these levels. If you think about it, I don’t have any of my money in any of those houses. My private lenders don’t disallow me to take money out or take rehab money upfront. If you go to an institution, they’re going to dictate you the terms that you’re going to get. When you’re finding private money or when you’re talking to a seller, you get to describe the terms that are acceptable to you. It’s a completely different game. You have a giveaway for our audience and I appreciate it. Describe a little bit about what you’re giving away and then I’ll give the link for them to get to it.
You mentioned a book of ideas, a book of different ways to structure deals so I wrote a book. It’s an eBook. It’s not terribly long. It’s about 50 pages. It’s about five chapters. That eBook is about this. If you ever remember the movie Moneyball about the baseball story and stuff. I patterned this book after that movie because we’re looking at real estate through a different set of lenses like you looked at baseball through a different set of lenses. We called it It’s A Whole New Game With Creative Financing.
Specifically, the subtitle of the book is post-COVID. We rewrote this book after the virus understanding there were some things that were slightly different. They’re going to get a book. The best way I have learned to teach is by case studies. We’ve got a little mini-course and we do case studies. It explains concepts. Here’s how you would apply this. I’ve learned that it’s easier where they can see the numbers and they can follow the process and stuff. This isn’t super advanced but this is hopefully, going to be a little different level than the basic I make offers with 0% interest. It’s a little more creative than that.
You need to learn when Eddie is having his dry, sarcastic sense of humor, that was it right there. It’s a little more complex than that. It’s called It’s a Whole New Ball Game With Creative Financing. I want you guys to go to 1000Houses.com/NoteStrategies. There will be a lot of other stuff there. You’ll know how to contact Eddie, get with him, see all the different things he offers. We like to deliver a lot of content on this show and that’s the intent. Eddie has been an educator for a long time. He’s taught thousands of students in his career. If you want to see how a creative mind works, go sit in that room because it’s amazing.
Sometimes it’s almost too much. One time I was in the class of Peter Fortunato and I could understand everything he said and it was blowing my mind, but I could not repeat it or redo it on a piece of paper to myself. I could not remember it. I thought I could follow it when he went. Several years passed by and he was in town, I thought, “I’m going to go see him again and see if I can follow him now.” I could follow him now. That was the way I was with you. The very beginning when you were talking this stuff, I thought, “This guy is over my head. I understand but I don’t understand. I can’t retain it. It’s like drinking from a fire hose. It was too much.”
You told me for the longest time, “If you created these little seconds or if you sold partials and you kept all these little pieces of notes in your back pocket.” Ten years later, I called Eddie and says, “Eddie, I’m starting to do these things.” He goes, “I told you about that ten years ago.” I said, “I know. It became real for me. I got the concept owned in my heart.” I can watch you all the time. I can hear what you’re saying. To understand the concept is one thing, to own the concept is when you get it. Normally how you get it is when you do it one time on accident or you’re forced to do something and then you say, “Why haven’t I been doing that all the time? That’s what Eddie’s been talking about. That’s what Robert Allen was trying to tell me.”
Go to 1000Houses.com/NoteStrategies and get your free eBook. It’s about 50 pages. It’s centered around case studies which is always fun because there’s a finite set of parameters. They show you what you do with those finite set of parameters. It is way better than the hypothetical because the hypothetical can branch so much that we even forget what the deal is about. I love case studies. It’s called It’s a Whole New Ball Game With Creative Financing and check it out. Is there anything else you want to say to the people out there before we wrap it up, Eddie?
Mitch, I say to you personally, we’ve had quite a ride for a long time.
It has been quite a ride. We’ve seen a lot of ups and downs. We had a lot of late-night conversations where one of us was sweating hard. The good news is entrepreneurs solve problems. Even sometimes when we were scared, markets were turning, and things were happening on the surface were petrifying. If you calm down enough and start to talk to enough smart people, you start to figure out this is where we got a morph to. If we’ll morph to this over here. My situation was when all the note buyers quit buying. We call it Black Tuesday.
2002 is when associates went out. I had some influence on you doing this. You were doing some before but I became very convinced after the 2008 crisis. I was not going to be in any way, shape or form reliant on institutional money. Institutional money is awesome, it’s easy when it’s plentiful, and it’s a backbreaker when it’s not. I’m very focused on private capital and I know you are. When two guys with some gray hair and experience, there’s a reason that we’re zeroed in on private capital. I got no problem with the banks. I don’t want to owe them a lot of money when things don’t go good.
My banker is one of my best friends. He was my high school quarterback and he’s the CEO of the bank. I borrowed and paid back to him at least $50 million in my career. That’s the bank money. That’s not the private money. He would hand me these papers to sign for the loan. All I would look at is the interest rate and the term. I signed the papers. He goes, “You’re not going to read the document.” I said, “I don’t need to read the document.” He goes, “I find that amazing you’re not going to read the document. Why aren’t you reading the document?”
I said, “I already know what it says. It says you have my testicles over a high line wire. Whenever you want to flip the switch, I’m fried. That’s what it says, right?” He goes, “Pretty much.” I said, “I’m trusting that you and I are going to have a relationship. I’m going to get this thing done before it will be the last resort. You won’t do that to me.” That’s what it was. I’m now a little more sophisticated and I have enough behind me to go negotiate some of those clauses out or demand that I don’t want these clauses in there. Sometimes they do it, sometimes they don’t. I don’t have to take their loan anymore. Before, I needed the money so bad, I had to go out there and take the chance that they were going to not call my note.
Every note that I ever signed with a bank, if you look hard enough, you’ll find the clause that says they can call the note for almost anything in the world. If not, they have so many regulatory things that you have to do to keep the note in compliance that there’s no way you can comply. If you’ve got to miss one of those dates of supplying them something and then they can call the note. I’d like to thank everybody for stopping by to get you some Eddie Speed, my good friend from way back. If you want to learn the note business, this guy is a pro. It’s in-depth. He’ll take you the way down the road from the beginning to the end. Go to 1000Houses.com/NoteStrategies and get your free eBook, about 50 pages of case studies, It’s a Whole New Ball Game With Creative Financing. I’d like to thank my sponsor, Livecomm.com. Check it out. It’s a little piece of gold you can put in your pocket and carry for a long time. It will pay.
About Eddie Speed
Since 1980, W. Eddie Speed has dedicated his professional life to the seller financing and non-performing note industry. Over the years, he has introduced innovative ideas and strategies that have positively impacted the way the industry operates today.
Eddie founded NoteSchool which is a highly recognized training company specialized in the teaching of buying both performing and non-performing discounted mortgage notes. He is the owner and president of Colonial Funding Group LLC, which acquires, and brokers discounted real estate secured notes. In addition, he is also a principal in a family of Private Equity funds that acquires bulk portfolios of notes.
He has been a leader and innovator in the Note Business for over 30 years. He will tell you that those 30 plus years have prepared him for the incredible opportunities of this current real estate market.