300 Doors, 100% Creative Financing with Pace Morby

Brandon:
This is the BiggerPockets Podcast show, 527.

Dave:
This is what’s cool about seller finance. Why did she sell? Well, because I paid her 40 grand more than anybody else. That’s the answer. So many people are like, “Why are sellers doing this?” I’m like, “There’s 40,000 reasons why she did it.”

Voiceover:
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Brandon:
What’s going on? Number one, it’s Brandon Turner host of the BiggerPockets Podcast here with my co-host, Mr. David Greene. David, man, it is an honor to be in the room with you again today. Digitally anyway.

Dave:
The honor is mine. My big bearded battle buddy brother.

Brandon:
We’ll talk more about that. Today’s show, okay look, I know I say this a lot, I know I say it a lot, but this is one of my favorite shows we’ve ever recorded. I’m not kidding. When it comes to negotiation and talking with sellers and making deals happen and creative finance and no and low money down, you’re going to love it. In fact, if you’re watching this on YouTube right now, you’ll see I’m going to hold it up, but if not, y’all just explain what I’m holding up here. This is my notebook of notes that I took. Literally notes that I took while recording this episode. I have five pages of tiny handwriting notes from our guest today.

Brandon:
His name is Pace Morby. If you haven’t heard of him, you will today. Phenomenal real estate investor. Kills it on the creative finance side, buys almost all of his deals with creative financing. In fact, the deal deep dive today he goes into how he… He does amazing creative finance on a mobile home park, you’re going to love that. He also flips houses. He does wholesale stuff a little bit, but he does a lot of these super creative seller financing and subject to, and he’s going to go into what those are and how to make them work.

Brandon:
You guys, I literally wrote The Book on Investing In Real Estate with No (and Low) Money Down, like I wrote that book, and I learned so much today about no and low money down financing it makes me want to go and make a third edition of that book now to put in everything that I just learned from today’s episode. So grab a pen and paper, take some notes today. We go through, I mean, what is subject to and seller financing, how to get 0% interest on your seller financing. He goes into specific phrases to use when talking with sellers, that was one of the most phenomenal parts of this thing. Just so much good stuff.

Brandon:
He’s also got a TV show coming out. Out on A&E, actually, I think it just launched in the last week or two so you may have seen his name or him around there. He’s got a new show called Triple Digit Flips or Flipping Triple Digit Flips or Flipping, on A&E. So all that and more to come.

Brandon:
David, how’d I do on a intro for that one? Was that a good explanation of Pace?

Dave:
That was a flawless execution.

Brandon:
Flawless. Wow. All right. Well, thanks, man. Anything you want to add?

Dave:
I would say that Pace is giving such good tactical information. Anyone could take this and actually go use it if they’re in contact with direct to seller. And that Pace actually, from what I hear, has a lot of content that shows him actually negotiating with the people directly. So understanding the concept is where it starts, that’s what we talk about on today’s show, but that’s not the same as being able to execute it. Pace is a very good communicator, he’s a great storyteller like he mentioned. So I would encourage anyone who’s listening to this who thinks, “Man, this is really cool, I could do that,” go practice how you communicate. Practice how you listen. Pace gives very good examples during the interview of “I said this: What number would make you smile? What would make you happy?”

Dave:
Catch me up to speed with what’s been going on, right? We always want to step in and tell people, “Here’s my offer, here’s what we’re going to do.” Every single one of these examples, he starts off by listening to the other person. So just keep in mind this is a double-edge sword. Half of it is the information that we give you today, the other half is learning how to execute.

Brandon:
That’s great, man. Great. I said earlier this is one of my favorite shows we’ve ever done. Here’s what I mean by that. Years in the future from now, people are going to look back on this show and this is going to be one of those defining shows. When I look back on the past, 520 some episodes we’ve done, there’s a handful that people bring up to me all the time. Like, “Oh yeah, I remember when that guy came out, or that story that, that person told.” This, when we get to episode 1,000, people are going to look back and be like, “Remember when you interviewed that guy Pace who did this and this and this?” This is going to be one of those game-changing episodes.

Brandon:
So grab a pen and paper. Please grab a pen and paper, it’s going to help. Listen to this one two or three times through. This episode will change your life. Let’s get to it.

Brandon:
All right, Pace, welcome to the BiggerPockets Podcast, man. Awesome to have you here.

Pace:
Guys, I am such a huge fan, just an unbelievable fan of everything you’re doing. I can’t believe you guys are well past 500 episodes now, it’s unbelievable.

Dave:
Crazy, man.

Brandon:
Well, thank you, appreciate that a lot. And likewise, I’m excited to dig into your story. I’ve heard the name uttered in the halls of real estate, so now we get to hear the man behind the myth. So tell us about yourself. How’d you get into real estate?

Pace:
I got into real estate, basically kind of similar to Ken McElroy, same way that he was talking about it on a previous show where he was working in real estate but he was on the opposite side of the desk. So I was a contractor for a very long time, grew up in a blue-collar family. And I was the first contractor that Opendoor hired when they launched their company. And then I was the first contractor that OfferPad hired when they launched. And then I was the first contractor Zillow hired when they started fixing and flipping.

Pace:
And so what I would do is I would do all their turns, do all their big renovations, and then I would open up markets for them because it was challenging for them to find contractors that understood their process and their systems. So I would travel around the country, and I just woke up one day, it was just the craziest thing where I go, “Man, I’m making good money, but I’m not building wealth. And here I am flipping a thousand homes a year for other people?” A thousand. And I’m not making any of that money. I’m basically providing a service and I’m doing… At the time, I thought that was the hardest part of real estate was the construction. And so I did my first flip. And I just got addicted and I had to jump into it.

Pace:
And then I got addicted to one thing where I go, every time somebody said you couldn’t do something, I said, “Okay, well, let’s try that.” And so I started doing all sorts of things and I ran into creative finance, I ran into wholesaling, I did a whole bunch of that. Still do it to this day. And so our business today looks… we have about 300 doors, nothing like your 2,000, I’m super blown away and impressed by that. We got about 300 doors, every one of them was purchased with either subject to or seller finance. We’ve got Airbnbs and mobile home parks and we also do a lot of fixing and flipping, and we’ve got a TV show coming out all about that on A&E pretty soon too.

Dave:
That’s awesome.

Brandon:
All right, do you’re killing it in a few different ways here and I want to go into that. Before we jump into the, hey, about 300 doors with subject to and seller financing, which is super cool, how did you get even connected with… And by the way, let clarify something. Opendoor that you’re talking about is not the open door that I have. So I have Open Door Capital. Yeah, that’s Opendoor.

Pace:
Yeah. You’re Open Door Capital, right?

Brandon:
I’m Open Door Capital, correct. And I was originally Open Door Property so it’s kind of weird, I’m like… I was Open Door Properties in ’07 then Opendoor was founded in ’13. They’re the world’s biggest wholesaler, one of the world’s biggest, basically, wholesalers for lack of a better term. I don’t know, fix and flippers. They’re a huge company. And then I started Open Door Capital afterwards. So I don’t know. Eventually, they’ll probably yell at me for having the name Open Door Capital, but I’ll be like-

Pace:
Not if you yell at them first.

Brandon:
I know. No, I’ve heard they’re good people so I think we’re fine. Anyway, how’d that happen? I mean, how do you get connected and it start working as a contractor on a thousand homes a year? That’s crazy. What does that even look like?

Pace:
Honestly, here’s the answer. The answer is I posted… When I was just a contractor doing remodels and additions for homeowners, I would post everything on Instagram and I would do a lot of before and afters. And so when Opendoor came into Phoenix, they were looking for contractors and because Opendoor’s a really progressive company, we call them an iBuyer in our industry. They understand social media so they hashtagged contractor in Phoenix. They found me, called me in, and interviewed me, and I became one of the first two contractors hired.

Dave:
That’s great.

Brandon:
I mean, how many people-

Pace:
On Instagram.

Brandon:
Never underestimate Instagram. I always like to say I raised $75 million in the past year and a half, all Instagram. It flows through Instagram. It’s insane. Obviously, the podcast is a big piece of that, but even that, it flows to Instagram and then Instagram’s where they get to know me and they like me. And same thing with you, they saw you, they saw your work, they saw how you operate, what you do, and got to know you a little bit through social media. Yeah, a lot of power there.

Pace:
People say that people do business with people they like, and I agree with that. But people really do business with people who do business, right? I can like you all day long but if you’re not active in the business, then what are we doing? And when you’re highlighting and you’re showing people what you’re doing, people are like, oh my gosh, they’re actually doing transactions, or they’re actually doing it fix and flips. And so you got to talk about what you’re doing or else you’re missing a pretty valuable opportunity there.

Dave:
Yeah. That’s such a great point.

Brandon:
I mean, how many employees did you have and what did that organization look like doing that many houses and remodels? I mean, you must have multiple layers of a business here.

Pace:
Yeah, we do. We’ve got a handful of different businesses so the way we’re structured is my fix and flip entity is completely separate. So even if I buy a deal, let’s say I get a wholesale deal here in Phoenix, I will take that cash deal and I will assign that deal to my fix and flip business. They are so separate, it’s ridiculous. Same thing with a subject to deal or a seller finance deal. If that lead comes into my wholesale business and I decide I want to keep it, I will assign that to my portfolio LLCs, right?

Pace:
And so we own a property management company. Once we got up to about 30, 40 houses, we ended up having to just create our own property management company. Because we have our own construction crews and we have all of those guys that are already working in our fix and flip business, it just made sense for us to self-manage that stuff. We have between all of our entities, I think last time I counted, we have a little under 700 employees. But 700, I’d say 500 of them are with my virtual assistant business. So in my real estate business specifically, we have about 75 employees.

Dave:
Okay.

Brandon:
Virtual assistant business, you help people with virtual assistant stuff. Is that what you mean?

Pace:
Wide variety. It’s like truck drivers coordinating, we’ve got cold callers and texters, and we’ve got all the things that a virtual assistant can do, our business does all that.

Brandon:
Very cool. What’s it called that company?

Pace:
Startvirtual.com. Start Virtual.

Dave:
Start Virtual.

Brandon:
I would like that business model to own in a virtual-

Pace:
It’s crazy because you get a lot of people are like, “Should I…” Especially wholesalers, they say, “How do I choose a market? Should I go virtual?£ And I go, “You should start virtual,” and that’s where the name came from, it’s just start virtual. It’s like what you’re doing, Brandon, you’re in Hawaii, you’re doing everything virtually.

Brandon:
Yeah. It’s amazing what you can get done. Even in a non-virtual world of real estate, right? Real estate’s not… Owning a whatever, a internet marketing company, which is a lot easier. But 99% of things you can do are on the internet, or hiring somebody or they can hire somebody that’s local if they need to, it’s [crosstalk 00:11:08]-

Pace:
In a weird way, I actually think it’s better to do it virtually because then you don’t get the tendency to want to go to the property or you want to do the work yourself. You got to delegate this stuff. And especially coming from a blue-collar background, I want to physically do everything myself. And so when it’s virtual, I’m forced to have to delegate it.

Brandon:
Yeah, my two biggest weaknesses when I was building my early rental portfolio in Washington State was that I knew how to fix everything and everything was within driving distance. And so when you have those two problems-

Pace:
It’s a horrible thing to put yourself into.

Brandon:
Yeah. Because then you… I ain’t going to pay $80 for a plumber to fix that, I can do that in 20 minutes.

Pace:
Yeah, let me drive over there. Two-hour drive and two hours back. And go to Home Depot six times.

Brandon:
Yeah. My record was nine trips to Home Depot. Nine trips to Home Depot. Yeah, that was a rough day.

Pace:
There was a quote I had where I was like, is it really Saturday if you haven’t gone to Home Depot 12 times?

Brandon:
Yeah, that’s it. And this what actually David instilled this in me when he wrote that book Long-Distance Real Estate Investing, is by being a virtual or a long-distance investor it forces you basically to be good at systems and processes, and management and people, and virtual assistance, and all that. It’s sink or swim, you have to get good at it. And those are the skills that help you scale and work less anyway so you might as well do it. So I love that.

Pace:
Yeah, I think if you read the book Rocket Fuel and you talk about how you really need to have a vision and you need to have integration. I spend half my day… I had my bookkeeper call me today and she goes, “Hey, I need to know the seller on this property that we just closed. Can you put me in touch with him?” And I’m like, “That’s not my job. That’s not my…” I find myself saying, “That’s not my job,” 12 to 15 times a day.

Dave:
Yeah. That’s good, man. And you have to because anything less than that and it will creep back in and you will just do it by default.

Pace:
Yeah, you have to be an unapologetic jerk about that one specific topic where you just go… And then the challenge too is when you’re hard-working and you’re red-blooded and you’re just like, “Let’s go, go, go,” you want to put all those monkeys on your back, and you want to put all that burden on yourself because you want to show people you’re a hard-working person. But then the results are now I’ve got to get myself out of that, and you also train your employees and your team to rely on you for every little thing. And it takes years to get out of that.

Dave:
Yeah. And then there’s even resentment when you try to get out of it because now they expected that you’re the one who’s [crosstalk 00:13:26]-

Pace:
David, that is probably the most perfect statement I’ve heard all year long is because we… David, here’s what we’ve had to do. We’ve had to let go of employees because of the resentment that came from… At one point I was in the sales department and I was calling the sellers and I was doing stuff, and then when I exited to work on higher-level things, some of our sales guys they were addicted to that process. Or they resented me and they would say stuff like, “I’m the one closing the deals now. Pace is not in here closing the deals anymore,” and we just had to let them go. And then when we brought on new people, it was like none of that existed. They were like, “Well, yeah, it’s my job to close deals,” it’s just… But I did that. That’s the thing is I’m the one that created that situation, it wasn’t them. And I feel bad because I just didn’t understand that back then.

Dave:
And that’s why I think Brandon’s point, and maybe your point, Pace, in the beginning, that you want to start it the right way. Sometimes you think I’ll adjust later, and you can but it comes with the price. And the longer you take before you do it, the higher that price is. We deal with that all the time is David’s… when the client’s really unhappy, I can just go get David and he can talk them down. And when oh no, there’s leads… they’re not coming in, David has to get it. Now they start to think that… We think we’re helping them because we’re like John Stockton, I know you’re a Utah Jazz fan, dishing the ball and putting them in a position to score.

Pace:
Oh, great reference. But I don’t wear that short of shorts.

Dave:
Yeah, I’m glad. Nobody should wear that short of shorts, right? But when you get used to playing with the John Stockton and you think it’s your job to just catch a ball, lay it up and you don’t have to do anything. Now it’s, oh, I got to actually dribble it twice before I score, that’s ridiculous. And it’s very hard to dig out of that hole and it hurts, right? It hurts relationship, that resentment is real and those expectations get set there. And that’s why we keep hammering this point. I know people listen to the podcast and they go, why are you talking to me about how to build a business? I just want to get a deal. No, you’re going to get that deal. Then you’re going to get two and three and you’re going to get locked into however you do it. And it is hard to get out of it.

Pace:
Yeah, and then you have to pay a business coach a ton of money to figure out how to get you out of your business. And it’s going to take you two years. And the people ask me what’s the hardest part of real estate? It was not getting my first deal or even getting my first 50 deals, it was scaling out of my business and actually turning it from a hobby to an actual business and dealing with the interpersonal stuff. It’s like, David, everything you’re teaching is stuff people need to start that way.

Brandon:
Can I just reemphasize this point? Because this is so powerful is what you just said is, most people and what they do is they start a business, they work in every single piece of it and then they work that way for years, whether it’s real estate or something completely different. And then eventually they have to pull themselves out of it. But it doesn’t have to be that way. A person could literally build a real estate empire, not being any of those roles.

Brandon:
I mean, again, there’s lots of caveats to this, right? You might have to have money to hire people or partners or whatever. But when you think that way from the beginning is I am building an engine, I’m building a machine and there’s these 12 different parts and they all work together and they all move. And I’m the tinker. I’m on top tinkering with this little engine because that’s my job. And when you have that framework or that mindset going into a brand new business, then you’re never… from day one, you’re not working 60, 70, 80 hours a week potentially.

Brandon:
I feel like that’s how I built Open Door Capital is I’m not the one involved in this. I’m not perfect at it, I’m still involved with a lot of it. But it’s just such a difference that I… I don’t know, I’m glad you guys brought that up because that’s why we harp on it so much here is because you don’t have to be everything in the beginning.

Brandon:
Let’s jump into some specifics about how you’re doing the seller financing and the subject to. First of all, for those who have never heard this before, what the heck is subject to?

Pace:
Oh, what is subject to? Okay, so subject to is essentially… Let’s say that a seller has a mortgage on their house, and a lot of times in a subject to scenario, the seller doesn’t have a lot of equity or maybe they’re in a tough position, and they’re getting lowballed by wholesalers and other investors and so they need a specific number. The way that I buy their house is I go to them and say, “Hey, I’ll take over the payments on your existing mortgage instead of going and getting a loan to pay off your loan where basically the only people who make money in that situation are two lenders. Why don’t I just make payments on your loan? We go through a title company and the title company transfers the deed over to me. So I control the asset, right? I have full ownership and the mortgage stays in your name.” And that is subject to.

Pace:
We’ve subject to’ed cars, we’ve subject to’ed air conditioning units, we’ve subject to’ed a whole bunch of stuff, but primarily subject to is used in real estate to acquire real estate without, I call them the three Cs, cash, credit or credentials. And credentials specifically for people, it’s like I don’t have to have a W2. Actually, I bought my current home from one of your guys’ previous guests. Jerry Norton, do you guys remember Jerry Norton?

Brandon:
Vaguely, yeah.

Pace:
Okay, so I bought this current home from Jerry. $3 million home. Nobody even looked at my credit, they never looked at my bank records, they never asked for tax returns. I literally just went through a title company, transferred the deed into my name and it costs 2,500 bucks for a closing to transfer the deed to my name but keep the mortgage in the seller’s name. That is what subject to is.

Brandon:
This goes against a lot of what we always hear in real estate, and some people maybe have never heard the idea of subject to before. And they’re thinking, “Wait, when you buy a property, you have to pay the mortgage off. That’s how it’s always done, right?” So how are you getting around that or how are you not doing that?

Pace:
Well, they’re two exclusive things. You’ve got a deed and you’ve got a mortgage. They’re not tied to each other whatsoever. Now, there is a due-on-sale clause which a lot of… it’s one of the five bogeymen that people talk about with subject to, it’s like, “Oh my gosh, what about the due-on-sale clause?” Which we can jump into that for a long time, I love the due-on-sale clause. So I can take over anybody’s debt. All I’m doing is making their payments on their behalf, right? So they’re not tied to each other. I can transfer deed as many times as I want, no matter who has the actual debt in their name. They’re completely non-related, they don’t touch each other. None of that stuff actually stops you from buying a house subject to.

Brandon:
So what about the due-on-sale clause? Due-on-sale clause says if you sell the property, so the original owner, if you sell the property, we have the right to have you pay us off in full.

Pace:
Right. So you said it perfectly, Brandon, you said… So the mortgage company… So this is what due-on-sale clause is for everybody. And I’ve got a whole bunch of examples, we can go through them. Let’s say that I buy somebody’s house subject to, which means… I mean, I’ll give you guys an example. I’ll actually pull one up if you guys don’t mind. Love giving addresses, I love giving all the stuff and showing HUDs and all the things.

Pace:
So 2720 North Sterling in Mesa, Arizona, I’ll actually pull this up on screen share if you guys don’t mind. And this house, I bought it for 372,788 on 11/26/2019. Okay, why did I buy it for such a specific dollar amount, $372,788? Why was it such a specific dollar amount? Well, because that’s what the seller owed on their mortgage. That’s what they owed on their mortgage. And why did they sell this beautiful home to me is because this seller was going through… Essentially, he was in the process of buying a brand new home and the lender on the brand new home told him, he said, “You have to go sell that other house because your debt-to-income ratio will not allow you to have two properties.” So Dave, the seller of Sterling, lists the property on the market. And unfortunately, he owed $380,000 on that house. So if the seller owes 380 and the value of the house, let’s say, is 390, how is it that, that seller’s going to sell that property?

Pace:
Well, we all know in real estate that at 390, that seller’s going to walk away with probably… What would you say? Probably 360 maybe?

Brandon:
Yeah. Yeah, I was going to say 355, 360.

Pace:
Okay, 355, 360. So if he walks away with 355, 360 that means he’s got to cut a check to sell his property. This is where a lot of times with subject to this is where the opportunity arises. So his real estate agent comes to him and says, “Dave, I’ve got an offer, but essentially you’re going to have to write a check for about $25,000.” And in that process, Dave says, “Are you kidding me? I got a down payment on this new build I’ve got, I’ve got furniture I’m ordering. I can’t cut a check for $25,000.” So the real estate agent knows me in town, real estate agent calls me up and says, “Pace, the seller owes too much money on this house to sell it. I know you’re this creative guy, is there any strategy that we can utilize to have him sell the property and get the house out of his name so he can get qualified for the other mortgage?”

Pace:
And so I go, “Yeah, we can buy subject to. What does he owe?” I find out he owes 372,788 and I go, “I can take over that debt and I can give Dave, let’s say 2,500 bucks.” So I bought that $372,000 house which now in a year and a half has appreciated $200,000. That house is an Airbnb for us and we make, I don’t know, 3 or 4,000 net on it a month. But that house I bought it for $2,500 is what I gave to Dave. Dave’s number one question is he says, “What do I have to worry about with this? I’ve never even heard of this. And why didn’t my real estate agent not even bring this to me?”

Pace:
I said, “Dave, here’s the number one thing you have to worry about is the due-on-sale clause. The due-on-sale clause means that Wells Fargo, which is your bank who gave you the loan that you owe $372,788 on, they’re going to want to be paid if we transfer the deed from you to me and I’m now the owner, but I never qualified for that 372,788.” And Dave’s like, “Oh my gosh, does that actually happen?” I said, “Dave, yes, it does happen. The due-on-sale clause does happen. And it has happened to me. I have actually had the due-on-sale clause happen to me, so here’s what we do when that happens.” And he’s like, “Well, what is the due-on-sale?”

Pace:
“The due-on-sale, Dave, means if the bank finds out that you sold the house to me, I now have the deed but your name is still on the mortgage. They will send me a letter and they will say, we demand all $372,788 is paid to us right now immediately, or we’re going to foreclose on the house. That’s the due-on-sale clause. It means you owe the money, the money is due upon the sale of the property. And since you sold the property to me and you transferred the deed to me through the title company, we owe that money to that bank.” And he says, “Oh my gosh. Oh my gosh. So what assurances do I have that if the due-on-sale clause happens I don’t damage my credit or something bad doesn’t happen?”

Pace:
I said, “Well, there’s five ways to handle that. One of them, just like you didn’t understand what subject to was or due-on-sale clause was, a lot of people don’t know that there’s actually multiple companies out there that provide due-on-sale insurance, which is an interesting concept.” A lot of people that talk about due-on-sale, don’t ever talk about the insurance companies that provide insurance for due-on-sale. So they come along and they say, “Hey, for 1% of the purchase price,” so in that situation 372,788, I pay 3,720 bucks, or whatever it was, to an insurance company and they will provide insurance against the due-on-sale clause in the event that Wells Fargo comes along, which they still haven’t to this day, we will buy out the first mortgage and we will then turn into the bank and seller finance the house back to you, at this same rate, same term, same everything to you. So that’s the first way, I purchase due-on-sale clause insurance for this transaction.

Pace:
Another way is we could do it with an agreement for sale, right? So an agreement for sale essentially keeps the deed in your name but I have ownership rights to the property. We could do it that way. A lot of people in different states it’s called the contract for deed, or Arizona it’s called agreement for sale. So contract for deed or land contract is another way people discuss it, it’s the same exact things, it’s just said differently. And then I told him three other ways that the due-on-sale clause gets handled. And he was like, “Oh my gosh, I love it.” And so I bought due-on-sale clause insurance for that transaction to provide safety and security that just in case the due-on-sale clause gets called. We have the ability to get him out of that situation.

Brandon:
I’ve never heard of due on sale insurance, that’s awesome.

Pace:
So many people have not. It’s crazy.

Dave:
And that’s the kind of information you can expect on the BiggerPockets Podcast. Pace, how would someone go about finding due on sale clause insurance?

Pace:
I’m actually a partner in one of them because when I found out about it about seven years ago, I was like, “Oh my gosh. Why do people not talk about this, right?” But just like on your guys’ podcast, it’s like there’s things I learned in episode 400, in episode 480, in episode 500 that even in the business I’d never heard before, right? Creative ways people are doing deals or marketing or whatever. Due-on-sale clause insurance is one of those things. So there’s a company that we own, it’s called Equity Assurance. Equity Assurance.

Dave:
That’s assurance?

Pace:
Yeah. Assurance, A-S-S-U-R-A-N-C-E. Equity Assurance.

Pace:
Now, here’s the funny thing about due-on-sale. Do I purchase due-on-sale clause insurance on every subto that I buy? No. 99% of the time I don’t. I only do that when a seller is really, really worried about it. So here’s another example. We buy a house, okay, this is an interesting story. So we buy a house about two years ago, it’s on Lost Dutchman Road or Lost Dutchman Street, and we buy the house subject to. The reason the seller let us take over their mortgage is because they were behind on their mortgage so they had like $15,000 in arrears. So we catch up their arrears. We wired the money to their bank, we get everything reinstated, everything’s good. We get the reinstatement letter and then we close escrow two days later.

Pace:
Well, two weeks later we get a letter from Johnson Bank. They have six branches, right? Super small branch. We get a call or we get a letter from them saying they’re foreclosing and they’re moving forward with the due-on-sale clause. And we go, “Oh my gosh.” And for me, I love documenting everything so what I did is I go, “Watch me, guys, I’m going to call the bank and I’m going to see what we can do to negotiate the due-on-sale clause.” So I called the bank, I record this whole thing, it was fun. We end up getting ahold of the actual owner of the six branches of the bank, and I go, “Hey, you know what? We caught up this seller’s mortgage, we took it over subject to. We didn’t do anything illegal.” He’s like, “Oh no, no, no, we know that but it’s just our policy, we call everything due-on-sale when we find out.”

Pace:
I was like, “Okay, well, if it’s bank policy is there anything we can do to change that?” He’s like, “Nope. My dad started the company 100 years ago, or whatever it was, 60 years ago, and I’m just following protocol and policy. And so we’re going to keep going forward with the due-on-sale clause.” And I go, “Okay, well, what have your other clients done? Because I’m nowhere near new to this subject to game, people have been doing this for 100 years. What have your other clients done to avoid due-on-sale?” And he goes, “Well, you could deed the property back to the seller and then just purchase it on a lease option with the option price is the mortgage balance at the end of 30 years.” Which would be what? It would be zero, right? So essentially we paid the house down and our option price would be zero. So essentially at the end of the lease option, it just transfers to our name.

Brandon:
I even wrote the book on, right, Investing In Real Estate with No (and Low) Money Down, and I have a whole chapter on lease options. I have never thought about making the lease option price the mortgage balance or whatever [crosstalk 00:29:14]-

Pace:
I know. And you know what’s funny, Brandon? I didn’t learn that from a real estate investor, I learned it from the bank that was calling the due-on-sale clause to me.

Brandon:
Yeah, that’s genius.

Pace:
I paid this guy, I don’t know, years ago. I paid this guy to teach me about creative finance like 40-something thousand dollars, some crazy thing. And man, when I brought this thing to him, he was like, “There’s nothing you can do.” And I said, “No, there is. There always is something we can do.” There’s always something we can do. And I could tell you story after story well beyond this Lost Dutchman Street one.

Pace:
So we ended up, what we did is all of my documents, all of my purchase contracts with the seller, whenever we’re buying on subject to, it states that there might be a chance that due-on-sale clause happens. In that event, we have the right to deed the property back and then repurchase it on either an agreement for sale, contract for deed, land contract, depending on what state you’re in. We buy in multiple states so we do all three. Or we can turn into a lease option where our option is automatically renewed every year. And then our option price is the mortgage balance at the end of the term of the mortgage.

Brandon:
Yeah. That’s crazy smart.

Pace:
The only challenge there, Brandon, is that now I don’t have fee title, right? So the challenge is I don’t have the ability to go and use depreciation on that asset which… Okay, fine, I’ve got cashflow, I’ve got appreciation, I’ve got mortgage paydown, I’ve got all the magical things except the one thing that I love more than anything which is depreciation, I lose that on that one asset. And for that, I’m okay with that, I can lose the depreciation at that point, when I then own the property I can then go forward and do that.

Brandon:
Yeah. Yeah, that makes a lot of sense. It really illustrates well, also the wealth generators of real estate, right? Cash flow, appreciation, loan paydown, and tax benefits. And the fifth you could say is leverage, which you kind of get all of those, you just might not get the tax benefit if you have to do the lease option. Yeah, that’s really smart.

Brandon:
Now, one thing to consider, I’m curious to your thoughts on, if the loan is still in the seller’s name because you never pay the loan off, that shows still on their credit report, right? So that-

Pace:
This is the second most common worry that people have is how can I go buy another car? How can I go buy another house? How can I go do whatever? So one of the things that we figured out about six, seven years ago is that I would have sellers come to me and a lot of them were in the process of buying a brand new home. And they’re like, “I need to sell this to go buy that. And my debt-to-income ratio doesn’t justify two homes in my name.” So what we did is we went to somebody that knew what they were doing, we actually went to somebody who had worked with Fannie Freddie for a long time, and we figured out that these mortgage companies could wipe out people’s debt-to-income ratio on their previous mortgage if it was serviced.

Pace:
So what do I mean by that? If I buy a house subject to, and I have it serviced by a professional servicing company, which could cost 27 to 50 bucks a month, that servicing company’s documentation is enough money to go to a mortgage broker and say, “This seller is no longer paying this, it’s being serviced and here’s proof of payment that’s being received by a third party.” And for their first 12 months, they can take 75% of that mortgage payment off their DTI, after 12 months and one day, 100% of that mortgage payment comes off their DTI.

Brandon:
Interesting. And certain lenders will do this or you found that most lenders?

Pace:
Every lender. I’ve never once, and I’ve thousands of people that I teach all this stuff to, I’ve never ran into a scenario where I haven’t been able to overcome somebody get their mortgage… Like Dave, the guy who I told you about on 2720 North Sterling. He was in the process, he already put 20 grand down on a new build. He was in a stressful situation because he was at the point where the builder’s like, “Dude, you’re going to lose your $20,000 deposit until you sell that house. You got to hurry and sell that house and you’d better tell your real estate agent to crack the whip, let’s get this thing done.”

Pace:
That’s the lender that told him, “Dave, you can’t have both houses in your name.” That’s the lender I went to and I showed him, here’s how we do it. And the lender’s like, “This is genius.” Goes to the underwriter, goes to the mortgage broker company, and says, “Yeah, we can do that no problem.” I’ve never, not one single time not been able to overcome that.

Dave:
That’s cool, man.

Brandon:
That’s very cool. Yeah, I never really knew about that either. So I will say, going into this, I’m in it for years, I deliberately didn’t put a subject to section into The Book on Investing In Real Estate with No (and Low) Money Down because I didn’t do it. I never understood how you overcome these three things. And I will say-

Pace:
Yeah, and there’s five other bogeymen that people talk about but we don’t need to get into them. I love them. I love this stuff. I could talk about it for hours.

Brandon:
Well, dude, I’m a believer now. You’ve converted me over to the subject to world, I like it. But I don’t want to leave the show there, we got more to talk about.

Brandon:
So let’s jump over to the idea of seller financing. So can you explain what that is for people who may not know what seller financing is? And then how do you convince a seller, that’s probably the biggest question I get from people when I teach seller financing, is how would you convince a seller to even do that? So what is it and why would somebody do that?

Pace:
So here’s the thing about wholesalers, right? Wholesalers are looking for what? Wholesalers are going out and they’re looking for sellers with pain, right? Somebody with motivation. And I would say that subject to is also in that same category where people have pain, but in seller finance, it’s not pain that you’re looking for, it’s gain. Typically, sellers selling to you on seller finance, they’re looking for a number. They have a specific number. They have no financial hardship typically, right? Their house is usually paid off. And there’s a combination, I don’t want to get in too much into the weeds with the listeners, but I call it a hybrid where I’ll do half subject to, half seller finance. We have one from a couple weeks ago where I bought it for 200 grand, seller owes $100,000 to their bank. I took that over subject to. And then they seller-financed their $100,000 sell equity to me at 0%. So that’s a hybrid, right? Part subto, part seller finance.

Pace:
So seller finance typically is somebody who’s looking for a very specific number and they want to win. In their mind, they want to win. I want to win this battle with you on price. Which is so interesting to me because I’m usually, 80% of the time I’m getting 0% seller financing and I’m getting a lot of time 0% down, right? I’ve got a really good story, actually, if you guys don’t mind.

Pace:
I’ve got a house… Check this out. This one’s really good. So check out this, this is a note, it’s from a year ago, but why I really like this one… Check it out from a year ago, March 31st, 2020, a little bit over a year. The seller seller-financed the house to me for $100,000, right? This is the note, or anybody that doesn’t know what a note is, it’s basically just an adult IOU. I owe you money so I’m going to write it on a note, right? So Dale and Susan, this is public records so I don’t mind sharing this with you, Dale and Susan Poer are the sellers.

Pace:
This is how I got the deal. Every wholesaler was offering these sellers 60,000 and $50,000 on this deal, and the ARV at the time was $100,000. And so the seller in her mind, she looks at Zillow or Redfin, and what does she want? She wants 100,000 bucks. Guys, ask yourself this question if you’re a listener to this. How many times are you talking to sellers that they just look at Zillow and they go, “That’s the number I want.” And there’s nothing you can do, no negotiating tactics, nothing you can do to convince them otherwise that they’re going to get that 100,000 bucks. Well, the good thing is most of the time where I’m buying seller finance, I’ve already had wholesalers beat these sellers up on price. Lowballing them at 40, 50, $60,000. So really seller finance is way easier. It’s probably the easiest strategy of all time because you’re giving the seller exactly what they want.

Pace:
So here’s what I did. I told Susan, and I have this call recorded by the way and I’ve gotten Susan’s permission to share this, so if you want I’ll share this with your listeners, they can hear me in her living room, negotiating this exact deal. I’m at her kitchen table recording it on my phone, I’ll share it with your audience, happy to do it.

Brandon:
Sweet, yeah. Yeah, we’ll put it in the show notes. Biggerpockets.com/show527, by the way. We can [crosstalk 00:37:32]-

Pace:
Cool, yeah, your team said that they would do biggerpockets.com/pace.

Brandon:
Oh, that’s even easier. Even easier, perfect.

Pace:
So what she really wanted, Brandon, she wanted $10,000 down, okay? So I said, “No problem, Susan. Can I give you $10,000 down over time?” So not only did she seller finance to me, she has the house paid off, right? So seller finance is somebody who has the house paid off free and clear, they don’t owe anything on the house. And we tell them, this is my closing line for a seller, is I said, “You know, all I’m trying to do, Susan, is I’m trying to upgrade you from being a landlord to a lender.” Everybody wants to be the lender. Nobody wants to be the landlord. And luckily she was Native American so I brought up the totem pole. So I said, “Who’s at the top of the totem pole?” She’s like, “The eagle.” I go, “Is it surprising why so many banks have an eagle as their logo? They are the top of the totem pole. They have the least responsibility, they make the most amount of money. So I’m trying to upgrade you to the lender.”

Pace:
So what I did in this situation is I said, “What’s the magic number for you?” And she said, “$100,000. Me and my husband,” this is why, this is her why because everybody’s like, “Why would a seller do this?” Because Dale and Susan, there’s always a why, right? Dale and Susan are traveling around the country in their RV, they don’t want to be bothered by tenants or calls about toilets or any of that kind of stuff. They’re like, “If we get our number, we will sell the house to you, no problem.” So I said, “If we give you $100,000, can we move forward on this deal?” She says, “Yes.” I go, “Okay, great. What kind of down payment do you want?” She says, “I want 20 grand down.” And I go, “Okay, I’m not going to give you 20 grand down, I could buy two houses or three houses with 20 grand down. I’ll give you 10 grand down if you even seller finance your down payment to me.”

Pace:
So this is a really interesting thing. So check it out, I bought the house on March 31st, right here. My first down payment portion was due six months later on September 19th. My second down payment portion was due March 19th, roughly a year after. Why is that so cool? This is why it’s so cool is because when I bought the house Susan paid the closing costs, okay? Susan pays closing and then Susan left her tenant in the property. So I had no renovation, the tenant was paying about 1,600 bucks a month. And what’s my payment to Susan? My payment to Susan, you guys can see in the note right here, it’s $375 a month at the magical number of 0%. Okay? So what happens is out of that $1,650, I pay my $375 to her, I pay roughly another $275 a month in other miscellaneous expenses and whatever else. And I was netting on this deal, I was netting about $1,000 a month on this deal. So my first payment of $5,000 is due six months later for five grand. Her tenant paid for my down payment.

Pace:
We do deals like this all the time. This one’s really pertinent because we just finalized her down payment just a couple months ago. But this is what’s cool about seller finance. Why did she sell? Well, because I paid her 40 grand more than anybody else, that’s the answer. So many people are like, “Why are sellers doing this?” I’m like, “There’s 40,000 reasons why she did it.” Right? She then continues to receive that payment for 375. They’re a little bit older, so they said, “We’ll finance you at 0%,” which 0% going at 30 years was just too small of a payment for us, so we did 20 years at 0%, and she asked for a 15-year balloon. So we actually told her no. We told her no on the balloon, we said we want to have it amortize all the way through, we want to have it pay off. And so we kept it that way, there’s no balloon on it.

Pace:
So at the end of the day, the question is why would a seller sell to you on seller finance? Well, why does a seller sell to you here? Here’s my question. Most of the people asking me that are wholesalers. I go, “Why would a seller sell you a 60 cents on the dollar, or 70 cents on the dollar?” To me, that doesn’t make as much sense as somebody wanting 100% of the value of their home and just being willing to do it.

Pace:
So here’s my story real quick. I’m very sorry, I’m being so loquacious. So Susan says, “I don’t understand what seller finance means. I don’t know what that means.” And I said, “Well, you’re going to be the bank.” And she’s like, “I don’t comprehend that, I’m not a real estate investor, Pace. What are you talking about?” I said, “Okay, Susan, let me tell you my infamous F-150 story.” So this is what I told her, I said, “Look, I was a contractor for a very long time and we had this F-150 in our fleet. And this F-150 hit 320,000 miles and it just came time we needed to sell it, go get something different because it was starting to have little issues here and there, and it would cause issues on job sites, and whatever else.

Pace:
So I go on Kelley Blue Book, which you guys know what Kelley Blue Book is, it just tells you the value, it’s like the Zillow for cars, basically. And I go on Kelley Blue Book and I go, “What the heck, my truck is only worth $5,000? Screw that.” So I go, “Susan, I did what you did. I asked for basically an insane amount of money or what I think it’s worth, and I actually put it on Craigslist for 10,000 bucks. Do you think I got $10,000, Susan?” She goes, “No, you probably got an offer at 7,500.”

Pace:
I go, “No, I didn’t even get a phone call.” And after three months of trying to sell this truck for more than anybody was willing to pay, my wife came into my office, touched me on the shoulder, and says, “Hey, sweetheart, is there any way we can get that stupid truck out of the driveway?” I’m like, “What do you want me to do? The truck is worth more than $5,000 to me, and if I put it on Craigslist for $5,000 then I’m probably going to get lowballed at 3,500 bucks. And I’m just not willing to sell it for that.” I’m like, “Susan, does that make sense? You’re kind of in that situation right now with your house, it’s like you are getting people lowballing you and it’s just not worth it for you.” She goes, “Yeah.”

Pace:
So my wife says, “Well, Pace, you’re the creative finance guy, why don’t you put it on Craigslist and tell them that you’ll take payments for the $10,000?” And I go, “Oh my gosh, where were you three months ago, sweetheart?” So I go back to Craigslist, I change one thing. I change F-150, will take payments. And I said, “Susan, do you think I sold that truck for $10,000?” She goes, Oh, probably.” I go, “I had to turn my Craigslist ad off in 45 minutes, I was being overwhelmed with calls. I ended up selling it for $12,500 because I gave somebody the ability to give me payments.” And I said, “That’s what we’re doing here, is if you’re willing to take payments for your home, I’m willing to pay more than anybody else. But your terms have to make sense for me. I give you the price you want, you give me the terms I need.” And that’s my line and she’s like, “Genius.”

Pace:
And so what was so great is I recorded that call, or it wasn’t a call, it was an in-person appointment in her house. I recorded it and I’ve used that multiple times with other sellers where they maybe won’t get on the phone with us or they’ll say something like, “Hey, can you send us a testimonial of other people you’ve done this with?” I’m like, “Yeah, go listen to this call with me talking to Susan of what seller finance is. And then here’s Susan’s phone number.” And I tell Susan I’ll pay her 50 bucks every time she gives a testimonial to another seller, and so she’s probably done that 30 or 40 times.

Brandon:
Yeah. That’s cool, man. I do the same thing. I explain the seller financing as a car model. For some reason, everyone can grasp that. I always say imagine you’re going to sell your truck to your brother-in-law. He doesn’t have enough money so you’re like, “Hey, just take the truck. It’s your truck now but you got to pay me 200 bucks a month for a couple years.” And everybody understands that because everyone I feel like has either done that or knows somebody who’s done that. It’s like, “Oh yeah, that makes perfect sense.”

Pace:
Everything has to be a third grader story.

Brandon:
Yeah, exactly, and it makes so much sense.

Brandon:
I want to bring up a couple points about the seller financing that your story earlier illustrated so well, and how it ties in a lot with what I’ve done. For example, my very first apartment complex was a 24 unit. The reason they sold to me is not because they were trying to… I was trying to rob them of some deal, I wasn’t trying to pull one over them. In fact, it was his suggestion though. The owner’s suggestion, “Why don’t we do seller financing?” Why? Because he was an older guy who wanted to travel in his RV. So it’s funny how we have that similar, that’s a common thread is people have owned a real estate piece for a long time. They go sell that property, well, now what? They got to pay all these taxes on it, they got to go and try to find some investment to put it in. They’re terrified of the stock market, they’re terrified of everything, but they’re happy to get payments, that helps them get into retirement for years and years and years. So it really is a win-win which I love to see.

Pace:
Yeah. You’re explaining it so well because obviously you’ve done it and it’s amazing. I call it the Tacoma effect. It’s like I bought a Toyota Tacoma when I was 25 and I thought I was so cool because I never knew anybody else who had a Toyota Tacoma. The second I bought the stinking Tacoma, it was like everybody and their dog had a Tacoma. I was like, “Where are these things?” So it’s kind of the same thing with seller finance is that your audience might say, “Well, this isn’t that common.” I find more of these opportunities than anything else. Subto, seller finance, all these things, I find them so frequently because I think maybe I just am aware of them and I’ve done a few so I know what to look for.

Brandon:
Well, this goes to my analogy that I use all the time when it comes to creative finance. Creative finance is like tools in your tool belt or in your toolbox. The more tools you have in your toolbox, the more projects you can take on. If all you have with a hammer, all you have is 20% down bank loan, that’s all you have in your head. You can do very limited projects because most people just… You can’t talk people into necessarily seller financing or subject to, you’re not going to make someone do something that they don’t want to do. But when you got the hammer and the saw and the drill and all that stuff, all these ideas, like, oh yeah, maybe this is a good opportunity for seller financing. Oh, you have a mortgage? Well, maybe it’s a good opportunity for a subject to. Oh, you’re just looking for a rock bottom price, oh, this might be a good wholesale opportunity here because they just need to get out tomorrow. So by just understanding the basics here, it’s huge.

Brandon:
So when you’re going into a situation where you’re with a seller and you’re in their living room, let’s just say, and you’re talking with them. I mean, how do you navigate that conversation to figure out… This is a broad question so I’ll let you take it where you want, but how do you just get from that “hey, nice to meet you, Mrs. Johnson” to you got a contract signed? Where do you go, how do you get them there to figure out what the best creative strategy is?

Pace:
So I promised your team that I would do this for your audience. I love calling sellers, even though I’m no longer really in my sales department, my team runs without me and I’m not really going on physical appointments. The only time I go on physical appointments now is when a seller has a tax-related question and my team can’t answer it, and I’ve done it so much that can answer those questions. But I call sellers frequently so what I’ll do is I’ll gift you guys a bunch of recordings of me on the phone. I call with video, I’m on the phone and I explain all of this stuff and I start the conversation, the first thing I say… People in the audience, you want to write this down. The first thing I say is, “Catch me up to speed.”

Pace:
Catch me up to speed. Because if I’m in your home, it means you’re in the market to sell your house, right? And what I know right now with the advent of technology and all these ways for people to get a hold of sellers, like text blasting and RVMs, and all this stuff, it’s so easy that there’s usually 20 or 30 people that the seller’s juggling behind our conversation. At least three, at least four. And so I just say, “Catch me up to speed. What are you trying to accomplish?” Those are the first two questions I ask. And they go, “What do you mean?” I go, “Well, I’m sure you’re talking to other investors, why haven’t you sold the house to another investor? Because we’re all basically trying to buy it for the same price.”

Pace:
And I always go for cash first, Brandon, always go for cash. And the reason I go for cash is because sellers will typically… Right when I go into it, I go, “Well, I’m sure you’re talking to other people, why haven’t you sold?” And you get those open-ended questions going. Oh my gosh, you start getting the word vomit of like, “Well, this guy’s lowballing me here, and this guy’s lowballing me here.” And, “Okay, well, how does that make you feel? And does that accomplish everything you’re looking for?” Okay, great. So they then give me their price. I have never once, this is another thing that in some of my seller recordings you’ll get sellers that will say stuff like, “I’m not going to give you my price. Why don’t you tell me what you’ll pay for my house?” I have never once not been able to overcome that objection of “I’m not going to give you my price”. So some of these recordings-

Brandon:
Yeah. I mean, real quick, how do you do that? I mean, what are some of the ways you can over… Because I get that sometimes.

Pace:
Back to Craigslist, it’s one of my favorite basic things because everybody understands Craigslist. I’m like, “Would you imagine ever putting your car on Craigslist and not listing a price, and you just say give me your best offer?” And they’re like, “No.” And I go, “Well, then why would you do it with the largest asset you have? You’ve got to tell me where you need to be before we get going because I have three or four different strategies I’d love to come to you with to help you get to the number you need. But I don’t know what that is and I don’t know what strategy to give you unless I know where you’re trying to be. So give me your perfect number. Give me the number that makes you smile.” And that’s usually how I get the price.

Brandon:
You know what that illustrates really well? Something I found about human nature is people will oftentimes have… they will go into, let’s say a negotiation like that. And they’ll be like, “I’m not going to tell him my price, I’m going to make him tell me my price.” And that’s as far as they have thought. But as soon as you push them on it, all of a sudden they will drop that quickly because people don’t like conflict. And when you hold them to like, “No, I need you to give me a price. You need to give me a price,” most people aren’t going to fight you indefinitely on that. They just go, “Well, I tried. I said I wasn’t going to, I tried.” And then they will quickly-

Pace:
They’ll quickly fold, yeah, for sure.

Brandon:
Quickly fold, quickly fold because nobody likes that conflict or that stress in the air or that weird feeling. That’s one thing the Never Split the Difference guy, what’s his name? I can’t think of his name.

Pace:
Chris Voss.

Brandon:
Yeah, Chris Voss talks about nobody likes that tension.

Pace:
Yeah, they don’t. And it’s an interesting world, and the great thing is I walk into a seller appointment and what’ll happen is I’ll get people that will go… Like I’ll post something on Instagram and I’ll go, “Hey, I’m leaving this house or I’m heading to this house for a seller appointment,” something like that. And I’ll get somebody that DMs me and goes, “Oh my gosh, you’re going to that appointment? I just left that house two days ago.” I’m like, “Yeah, there’s no way you’re buying this house. With creative finance, there’s no way you can even come close to what I have to offer. Not even close.” So for me, it’s just that people think like, “Oh, Pace is a great closer. Pace is an amazing salesperson.” I would say I’m a great storyteller.

Pace:
But at the end of the day, the creative finance is paying way more money to these sellers and giving them way more than what they were hoping for, or giving them exactly what they’re hoping for. I’m just asking for something in return, right? And we’re letting both of us win, rather than in a cash transaction I got to buy that at 60 cents on the dollar, or sometimes 50 cents on the dollar, depending on how much renovation the house needs. So it’s actually pretty easy.

Pace:
So this is what I tell them, this is how I convert the conversation from cash to terms is I’ll say, “So it looks like you’re looking for more than most people are willing to offer. If I was willing to come up to that number, would you be willing to give me terms?” That’s the question. Now, most people don’t know what terms are which is a very intentional reason why I use that word because I want them to pause for a second and then ask me, “What are terms?” And then what story do I tell them? I tell them my Craigslist F-150 story. Or in your situation, Brandon, my brother-in-law wants a car, doesn’t have credit story. And then boom, a light bulb goes off and they go, “That’s it?” I’m like, “Yeah, that’s it.” It’s not that magical, honestly.

Brandon:
Yeah. I love the storytelling stuff. I’m a huge, huge fan of storytelling. Have you ever read the book Storyworthy? By a guy named Matt, Matthew Dicks. Phenomenal. I think you’d love it. It’s [crosstalk 00:53:10]-

Pace:
What’s it called? Storyworthy?

Brandon:
It’s called Storyworthy. One word, Storyworthy, by a guy named Matthew Dicks. I’ve thought about bringing him on the podcast trying to reach out to him. I’ve never thought it’s very real estate-related which is why I haven’t. But now that you talk about storytelling maybe it is. This guy’s the world champion for competitive storytelling through The Moth Podcast and that kind of world. One of, I would say, my top 10 favorite books of all time. And he’s just like this is how you tell a good story. This is how you get people engaged. This is how you have the hooks in there. And I feel like my storytelling skill’s improved tenfold.

Pace:
I would say that your analogy skills, personally… Because I’m a fan of the show, I truly consume the show, your analogy skills and your ability to draw parallels is incredibly high, it’s amazing.

Brandon:
Well, I’m no David Greene but I’m working on the analogy side. But thank you. Yeah, it’s such a way to communicate to people is by telling stories. I like acronyms, I like all that stuff. If you can take a concept that takes more than three or four or five words to explain, put it into a framework that people can understand, and the framework could be a story, it could be a BRRRR, an acronym like that, it could be a phrase like house-hacking. Those things make people remember them and then get excited about them. And you’re doing exactly that with the sellers. So good job, man.

Pace:
Yeah, so for any of your audiences paying attention, we’ll put in a bunch of my seller recordings, start to finish. I had this deal, I just closed on it last week, it’s a deal in North Carolina. Seller gets locked up in a contract with a wholesaler. And the wholesaler, kind of brand new, just learning on YouTube, which there’s nothing wrong with that but they didn’t know how to comp the property. So what they did is they locked the seller up in a contract at retail, right? The seller says I want this number because they were willing to sell, the wholesaler gets her into a contract, she then believes I’m taken care of, everything’s good. She gets a u-haul, she puts all her stuff in a u-haul, she spends all her money and expects “I’m going to have a big fat juicy check on closing day in three days so I’m fine”.

Pace:
So she’s sleeping in a sleeping bag inside of her house, getting ready to move across the country in her u-haul, right? And one of my people come to me and go, “Hey, Pace, this wholesaler came to me and said he’s in a bad situation, he doesn’t know what to do.” And I then go to that seller and this is where subto, or subject to is so beneficial because you can pay full retail and you can take over people’s debt without any cash, without any credentials or without any credit. And so I go to this lady and we solve her situation, turns out it’s her birthday, of course, it had to have been her birthday. We solve her situation, we transfer the contract from that wholesaler to me, I pay the wholesaler $1,000 and I said, “Here’s what I want to do with you.” Because he was like, “You’re going to yell at me and scream at me. I don’t want to get on the phone with you because I didn’t take care of the seller. And I did this, this, and this.”

Pace:
I was like, “No, no, no, no. I just want to spend a day with you and teach you how to comp so that you don’t put any seller in this situation ever again.” What I love up about subject to and seller finance is that I can pick up the pieces from a wholesale situation where wholesalers are like, “I locked this up in a contract, I don’t know what to do with it, it’s falling apart, the sellers are in a bad situation, and I thought my number was good, but it’s not selling.” Subject to and seller finance comes into play there and picks up all the pieces. So most of my outside of the state deals that I buy, mobile home parks, all my Airbnbs that are all over the country, every one of them has come from a wholesaler coming to me and going, “I put a seller in a bad situation and I don’t know what to do. Can you help me out?” So for those leads, I’m not even paying money for them. So knowing creative finance, you don’t even have to have leads. It’s crazy what can happen with creative finance.

Dave:
That’s so good, man. That’s really good.

Brandon:
Well, dude, we could talk for hours and hours and hours, but we got to get you out of here pretty soon. So we got a couple more segments of the show to hit. Why don’t we next get to the deal deep dive?

Dave:
Deal deep dive.

Brandon:
All right. We haven’t done a deal deep dive in a while so let’s see if we can remember how to do this. The deal deep dive is a part of the show where we dive deep into something that you’ve recently bought and we can just go through all the details on it. Do you have something in mind that we can dig into?

Pace:
Sure. I mean, we just did a deep dive on that note, the 0%, but we can do another one just real quick.

Brandon:
Okay. Yeah, if you got something else in your head, we-

Pace:
Cool. I’ve got a mobile home park.

Brandon:
We got eight questions to ask you in a row but go ahead and go [crosstalk 00:57:38]-

Pace:
I’ll let you ask the question because I could talk all day long.

Brandon:
All right, I’ll start it and you’ll… Hopefully, we’ll cover it all. First one was just basically what kind of property is it? And where’s it located? So we know it’s a mobile home park. Where’s that located?

Pace:
Mobile home park, Yuma, Arizona, where a lot of Californians are leaving to go to Arizona to get out of California, but still want to be close by. So rents are going crazy all over Yuma so Yuma’s a great spot to buy property right now.

Brandon:
How big is that? How many lots?

Pace:
It’s 35 pads.

Dave:
And how did you find it?

Pace:
Same way. Wholesaler came to us. They were in a wholesale program. A good strategy is I just go to people that are taking wholesale education, and I go to them and I go, “If you guys ever run into a seller that needs full retail or they have no pain or maybe they have no equity, I’m your guy.” And so this wholesaler comes to me, brings the deal to me. Still to this day I’ve never even spoken to the seller. I just coached the guy on how to negotiate it, I’d send him videos and I’d send him stuff. To his credit, he did all the negotiations. And what I did because he lives in Yuma, as a reward… I’ll tell you what I did towards the end.

Pace:
Seller goes, “You’re not going to buy my house cash anymore?” The wholesaler says, “Well, I paid too much and I’m in a bad situation. I either have to cancel the contract or I need you to give me seller finance.” And the seller says, “Okay, if you can still give me the number I’m looking for, I’m okay with seller finance, it actually will help me out with my capital gains and some other things as well.” So it’s [crosstalk 00:58:59]-

Brandon:
Here comes my next question, how much was it?

Pace:
The purchase price of the property was $600,000.

Dave:
For 35 pad mobile home park, cool.

Brandon:
And that’s what you ended up actually getting it for.

Pace:
I got it for 600 and I paid the guy an assignment fee $30,000 for it. So I didn’t give the seller any money. The guy who brought the deal to me is the one who made all the money. I paid him $30,000. He originally wanted 60. And I was like, “How about this? I’ll pay you 30 and then on top of it, I want you to be my partner. I want you to be a 5% owner so you can be boots on the ground because I’m just getting started in Yuma.” And so he’s my partner on the deal, I kept him with 5% ownership so he deals with any of the headaches, and we have an onsite tenant there as well. And that property brings in, I’m pulling it up right now, that property brings in $15,000 a month in income. It’s about $15,400 in income.

Pace:
My payment to the seller, who I still have never spoken to, my payment seller is $4,500 a month. And here’s the magical thing. It’s 0%. So the seller wanted a specific number, he wanted 600,000 because he was getting offered from wholesalers and other investors, he was getting offered 450, right? And so he is like, “Nope, I want 600. If I’m not getting 600, I don’t even care.” So we gave him 600, we got it for 0 down, 0% interest.

Pace:
The way we worked at that price on the monthly income is I always ask, or I tell people to ask, I go, “What would you like to receive on your property per month?” And in his mind, $4,500 is the number. I don’t even know why, I never spoke to the seller, I don’t know why he wanted 4,500 bucks, but we wrote it in the note that he gets $4,500 a month until the loan is paid off. With that $4,500 and then another miscellaneous about $4,000 a month with landscape and capex and all the things, right? Actually, Brandon, you had such a good post on your Instagram the other day, like breaking down all of the things that you, I don’t… Are you the one posting that stuff? Because that was a genius post.

Brandon:
Yeah, I got a virtual assistant as well who helps me with it. But yeah, I think he actually took from one of my books.

Pace:
That was such a great post. So many people don’t understand what it takes. Anyway, that mobile home park, here’s what we net. This is net, net in my pocket after… This is my sushi money, I get to buy sushi with it and not even have a care in the world about it. We end up netting about $6,100 a month on that property. I’ve never been there. Never spoke to the seller. I didn’t have to raise money, use credit, use any credentials whatsoever. I did come up with $30,000 to pay the wholesaler and I paid closing costs for about 5,000 bucks. So for $35,000 payment, I now own that 35-unit mobile home park and my net income on that is 6,100 bucks a month.

Brandon:
Yeah, you probably could have done, I’m sure you thought about this and maybe the wholesaler didn’t want it, but I bet you could have seller-financed that payment to the wholesaler too.

Pace:
Freaking thought of it but what I really wanted is I wanted the story. And now that you’re saying that the story of that would’ve been way better.

Brandon:
It’s like you pay him 500 bucks a month for 10 years.

Pace:
What I really wanted is I wanted a story of… I wanted a story that showed wholesalers, “Hey, I can pay you hefty assignment fees even at full retail, as long as you negotiate the way I want you to negotiate.” And now it’s you’re saying that, I’m like, “Holy crap, how smart would that have been?” The story of that would’ve been even way better than the story of the 30 grand.

Brandon:
What I like about that idea, I never thought of this at all before, I like this kind of group brainstorming thing. But wholesalers, one of their biggest things is they all… I mean, they listen to shows like this and other real estate shows so they know they want passive income and they know what they’re doing is not passive income. So if you’re like, “Hey man, I know you wanted that $60,000. Instead of having it…” Yeah, you could be like, “How about I gave you the $60,000, but I’m going to pay you $6,000 a year for the next 10 years, 0% interest.” Now you’re getting-

Pace:
I should have done that.

Brandon:
Yeah. Now they get their full amount that they want, you’re paying them 500 bucks a month and they get… you would have that for no money down then. That’s fascinating. I’m going to see if I can play with that.

Pace:
Freaking genius. Honestly, I closed it a week ago, I wonder if I can go back to them and…

Brandon:
Offer him more. It’s the exact same concept, but you’re just explaining the paying more because of terms and…

Pace:
Yeah, and I let my cash flow pay him instead of… And that’s a great point for anybody that’s paying attention because a lot of people go to… they listen to subject to or seller finance conversations and they go, “I can’t do that.” I look at subject to and seller finance and I see more people doing their first deal on subject to or seller finance. Even flips. I don’t really hear a lot of people talk about novation agreements, but we do a lot of our fix and flips where we don’t actually purchase the home. We just fix and flip it, and when we sell it, we give the seller the number we agreed to. So a novation agreement.

Pace:
I seller finance the houses on fix and flips, and we’ll even do it on a… We call it a subtail where we’ll buy it subject to and we’ll ticket retail. We call that a subtail where we’re fixing and flipping without getting hard money, we’re fixing and flipping without getting bridge loans, we’re and flipping without any of this kind of stuff. And so guys, I’m telling you, creative finance for me, if I could’ve started all over, I would’ve started with understanding, not just cash, but also terms because I would’ve… When you’re generating leads, you’re going to double or triple your conversion rate when you’re spending money on leads.

Brandon:
Easy. Yeah, I’m also fascinated that more people don’t flip with the seller financing or subject to because I feel like it’s… There’s even opportunities I’ve heard of a few people ever doing it where you partner with a seller. Like the seller’s, “No, I want my $600,000.” And you’re like, “All right, well, we’re going to flip this property. So let’s partner together on it and we’ll split profits some way at the end of the day.”

Pace:
Yeah, we’ve got one in Houston right now, same exact situation. Seller wanted 500 grand, it was tight and I go, “Look, if I don’t have to acquire and pay closing costs and hard money fees and all the things and utilities and blah, blah, blah, blah, blah. And then when we sell it at, let’s say 650, you get 575 and I get everything over that. Yeah. So we call that a novation agreement, or at least in my world, and it’s so easy and people don’t ever talk about it.

Brandon:
No, it’s not common at all. But I love that. I love it, man. All right. Are we missing any questions from the deep dive David?

Dave:
No. Honestly I think Pace got… he saw what we were going to ask and answered every single question on there.

Pace:
I did. I did my homework.

Dave:
Yep, absolutely. You funded it with seller financing-

Pace:
Your guys’ team is amazing. The organization before you get on your guys’ show, it’s like you guys are amazing.

Brandon:
Well, that’s all Kevin and Eric. They’re smart dudes. They make our life much, much easier. All right, dude. Well, that’s amazing. So let’s head over to the last segment of the show. It’s time for our…

Voiceover:
(singing).

Brandon:
This is the famous four, the same four questions we ask every guest, every week, and we’re going to throw them at you right now. So number one, Pace, what is your either all-time or current favorite real-estate-related book?

Pace:
I’d say the last couple of years and I’ve been trying to get this guy to hang out with me a little bit, and you guys know him, Matt Faircloth. His how to raise [crosstalk 01:06:01]-

Brandon:
… funding. Or I mean, private… Yeah, yeah. Sorry, I said the wrong name, yeah.

Pace:
It’s a genius book because some of it I was already doing and it just reconfirmed that I was not being crazy. And utilizing social media, some of the stuff he talked about in there, I’m like, “Okay, so people are doing this.” And then I also opened my eyes to what Grant Cardone was doing on his Instagram. I’m like, “Oh, that’s what he’s doing.” So it was really impactful.

Pace:
And what I’m trying to do right now is I’m trying to create a 16-hour challenge just for fun, just something we do on YouTube Live, where I get two or three known money raisers and we find a deal in two hours and we then go and have to raise capital in 14 hours after that, so 16 hours total. And just show people how you can do it with public record and you can do it all sorts of fun things. And so I’m trying to link in with Matt, my team’s been talking to him. That’s one of the best books I’ve read. Yeah.

Brandon:
Yeah. Matt’s amazing, I love that guy. I was just hanging out with him… Actually, Dave and I were both just hanging out with him in Colorado couple weeks ago. It was awesome.

Dave:
Yeah, he was at the [inaudible 01:07:02] event we were doing. I’ll introduce you, Pace, if you want to meet Matt.

Pace:
Please, please. My team’s communicated with him but I don’t think… It’s like I look like a gnat on a horse’s butt, he doesn’t care maybe. I don’t know, but I’m like, “Oh my gosh, this guy is so dang good.” That book is amazing.

Dave:
All right, what about your favorite business book?

Pace:
Rocket Fuel. All day long, Rocket Fuel. It helped me realize that not everybody’s born to be a closer, not everybody’s born to be systems, and so many people wear way too many hats in their first couple years of business thinking that that’s the way it’s supposed to be. It wasn’t until I brought in partners in my business, they’re all my integrators, you’ll never really see of them, but they’re equity owners. And I just say I might be the face of the organization but these people are the backbone. I did not understand it and it’s so simple after you read that book, Rocket Fuel. It should be common sense and it should be taught but it just isn’t. And so many people, even all these integrators that are good at computers and great at organization, when they get into business or into real estate, they feel like they have to learn how to be a closer and go into living rooms and get deals and contracts. And that’s just not the case.

Pace:
Read Rocket Fuel, it will change your whole perception of who you are as an individual.

Brandon:
Awesome. All right, when you’re not being a gnat on a horse’s butt, what are some of your hobbies?

Pace:
I heard you guys talking about golf with Ken McElroy and… And then I’ve heard Brandon say analogies about golf, by the way, and about how you just got to get out there and swing. But golf really is a sport that you have to utilize multiple different strategies and multiple different shots to actually accomplish a whole. And so it feels like I’m playing real estate to some weird degree. It’s like, okay, well, this isn’t going to work with this strategy, I got to use this strategy, which is why there’s a putter and a driver, you’re not trying to drive a ball with a putter. So I play a decent amount of golf. And most of the time, honestly, when I have free time is I’m doing weird challenges like that 16-hour live, or we did this thing where we go how fast can we get to deal with no money? We just do fun challenges like that. Just me and my buddies. And that’s really what I do in my spare time.

Brandon:
Other than when the TV show comes out, I may have mentioned that earlier.

Pace:
Oh, the TV show premieres on October 2nd on A&E. And the name of the TV show is Triple Digit Flip, so it’s all about fixing and flipping. Little, teeny bit of creative finance. The first episode I am out knocking doors, authentically, which is great because when A&E reached out to us we were like, “Guys, we don’t want to be on a TV show. Most of these TV shows are so full of it. You don’t talk about closing costs, you don’t talk about lender fees, you don’t talk about anything, anything that actually is important that could teach people what this business is about. Well, actually the most important thing was you guys don’t show people where these houses come from. How do people get these houses? Where’s the story of the seller? Where’s the story of the situation.”

Pace:
And so they were like, “Well, what do you want to do?” I go, “I’ll show the audience how to knock doors.” So here I am, have three cameras following me along as I’m knocking doors. And the first guy, I knock his door for the whole entire series, the first guy I knock on his door, I knock knock knock three times, I go to his side yard. I go back a fourth time because I’m showing the audience like don’t give up just because they didn’t answer the first knock, go back. So I go back a fourth time, guy walks out naked, like naked. So they’re going to have to blur that all out. And he goes, “Mr. Pace Morby.” I go, “What?” He goes, “Oh yeah, I see you all the time, you’re the subject to guy.” I’m like, “Oh my gosh, how do you know me?” He goes, “I bought this house subject to in 1986 and I’m always researching subject to and this, that and the other.”

Pace:
So there’s certain aspects of that stuff in the TV show which you’ve never seen in any other TV show. So I’m excited for those things. But at the end of the day, it’s just a fix and flip show.

Brandon:
Awesome. All right, well, my last question. What do you think separates successful real estate investors from those who give up, fail, or never get started?

Pace:
I call it the campfire effect. It’s like if you’re trying to get warmed up and you’re cold, you don’t look at a picture of a campfire. You go stand next to a campfire. And so it’s the same thing in business, in real estate is what you need is you need a battle buddy. You need a community, you need friends, you need people that you actually get around because we are all undisciplined. We are all non-motivated every once in a while. I don’t feel like this ultimately comes down to discipline, I think it comes down to being around people that are willing to help you. And for example, BiggerPockets, in the forums, those are all battle buddies. Those are people that are trying to get into the business and they develop relationships.

Pace:
I feel this is the reason why people hire personal trainers. And this is why people go to REAS, and they go to meetups, and they go do that stuff because they yearn for somebody to go to battle with. And so I tell people if you’re going to be in real estate get a battle buddy. Don’t just be on YouTube consuming, go get a friend, go meet up at Starbucks, go cold call together, go door knock together, read books together. Get a battle buddy because it will cut a lot of the discipline and the non-motivated moments out of your life because you’re looking forward to hanging out with your friend the next weekend, rather than being fearful of doing something you’ve never done before.

Brandon:
Yeah. That’s a phenomenal answer. Phenomenal, man. I love it.

Dave:
All right. Last question of the day. Pace, where can people find out more about you?

Pace:
I think people can find out about me on biggerpockets.com/pace. What I’ll do for you guys is I have seller recordings, I have all sorts of stuff I’ll give over to you guys. Me closing sellers, me explaining terms to sellers. I’ve got deep dives and all sorts of stuff. I’ll let you guys just put on your website and I just am so grateful to be here. I was talking to your team and they said that there was a possibility of doing some cool stuff for your pro members. So maybe in the future, you guys will see me do some stuff for the pro members talking about all sorts of cool stuff. But between now and then biggerpockets.com/pace.

Brandon:
Perfect man, I love it. Well, this has been phenomenal, one of my favorite shows ever. I got five pages of notes. I’m not kidding, I took notes the whole time, I got five pages of little handwriting notes. So I’m excited to get this out to the world. Thank you.

Pace:
Guys, thank you. I’m just so grateful, thank you so much.

Dave:
This is the David Greene for Brandon my-big-bearded-battle-buddy-brother Turner.

Pace:
Ooh, battle buddy. I saw you pull that in, I love it.

Voiceover:
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