All Forum Posts by: Gary Leonard

Not bad my friend.  Keep up the great work. 

Numbers are always important when it comes to real estate transactions and investments, however, do not get paralyzed. It needs to be a certain speed, certain smoothness to your due diligence and underwriting procedure, you really shouldn’t get too much into the weeds, especially when calculating monthly costs.  

Whatever your PITI is per month {PITI * 25% +{PITI} = Monthly Expenses.

Let's say your PITI is $2,500 and you want to find total expenses. Thus, $2500 x 25% =$625 + $2500 = $3,125.00

Let’s say you book out 25 k days in a month at $310 per night

 No No NO! It's not "risky" as most on this thread make it sound.

It's not a "risky business" opportunity because the "LLC" must only be created for that transaction ONLY (w/ a partnership agreement with the seller).    NO OTHER BUSINESS practices should be conducted by either party except for that property only.  You rather have an LLC agreement in which the seller holds the guarantor of the LLC (of which is the buyer) of the transaction.  

 You're incorrect above but close:

Your example of a 1 million dollar purchase price would go like this:

80%- Non-recourse loan or $800,000 

20%- Transactional Lending or $200,000

First leg:  All funds are sent to escrow (from both the non-recourse and transactional lenders respectively) Thus $1 million is received in escrow and closed. 

Second Leg: Seller enters into a business partnership agreement with the buyer.  The seller loans 40% back to the seller (on a partnership agreement)  Thus, 40% of $1 million is $400,000.

That $400,000 pays off your transactional lender ($200,000 plus closing costs and 2 % point) = $215,000

$50,000 is utilized to renovate the property

You will keep the remaining balance.

Since you are giving the seller a large sum upfront, you should negotiate at least a 60-month 0 interest and 0 payments on or before(5 years).  

 Yes, I have completed this Method of purchasing, well before the glorified King of the creative finance space, Pace Morby, gave it a name.

I have done well over 150 deals of which I applied this method of purchasing.  The last deal in which we utilized this method was back in Jan of 2024 (this year).

Purchase Price: $700,000

- 80% non-recourse loan coverage @ a 4.5 % interest rate fixed for 30 years 

- 20% transactional lending partner {usually 1.75-2% regardless of market conditions}. 

The seller was willing to loan me 30% on the second leg of the transaction or $210,000- Paid off my transactional lender of $140,000 and pocketed the difference.  

Remember this, and I hope I'm clear " DO NOT DISCLOSE TO THE NON-RECOURSE LENDER THAT YOU'RE CONDUCTING THE MORBY METHOD". Not that it's "not allowed" but rather it will mitigate a lot of confusion.  For all your non-recourse lender is concerned, you are providing the 20% plus closing costs to the table (your skin in the game as far as the non-recourse lender is concerned).

Trick to becoming a successful investor:  DON'T OVERTHINK, JUST DO IT!  FAIL FORWARD.  

 Best thing to do is first, hire a transaction coordinator (constant close or equivalent), along with a third-party note servicing company ( like Evergreen or equivalent).

First, secure the sellers equity payments by executing A) Promissory Note and B) Mortgage Deed of Trust for the seller's second position. 

Second: You will need C) Executory agreement (add clause that if you default on the payment, seller can take back ownership D) In addition, a purchase an sales agreement reflecting the subject to the existing mortgage note, under the seller's name

Get title insurance with the seller as a secondary in addition to the insurance already on the property.

The purchase agreement reflecting both the equity payments and mortgage subject shall be executed and held deed to property, via this hybrid transaction be transferred into the buyer name..

The deed, instead of being recorded at the registry, triggering a potential risk of a due on sale clause, shall be held in a mutual accessed safety deposit box along with the executory contract. This contract shall give instructions to record the underlying deed (showing the buyer "you" as the owner on public record) once the equity payments and subject to mortgage balance is paid off in full on a undisclosed date, or, if both parties prematurely sign the executory contract prior to mortgage balance being paid off in full/ and/or the equity payments full paid.  

 

Why talk like that? Honestly man do you even know what you're talking about? Have you ever heard of a mirror lone rap before? Yeah it's located. Almost every mortgage contract. It's the little gray lettering. That nobody cares to read page after page? I've been doing subject to for over a decade now, and I am a real estate broker. Trust me, and this is coming from somebody that was loan agent, it is NOT fraud. If you do it right, always utilize a third-party note, servicing company, and have that representative work directly with your sellers mortgage provider. What will happen before title closes, a mirror loan will be conducted between the note, servicing company, and the sellers mortgage provider wrapping it. After the closing, although the sellers name will still be on the mortgage, their DTI will be as if they sold the property in full and paid off the loan. They'll be no longer obligated or responsible for that loan. The reason being is that the buyer is utilizing a note servicing company, who is MCC certified, and FDIC insured to handle note payments, and conducted a wraparound with your sellers provider. This eliminates the due on sale clause, as well as the seller having problems getting a loan. It was mirrored

Are use Evergreen note servicing

Well first you need to determine your overall approach.  Too often I see new investors who are all over the map, ready to take on the world, but never even begin.  

It sounds like you are trying to invest in multi units with little or no money down, rather than being a syndicate.  In syndication, your job would primarily be A) Find Multi Family Homes B) Analyze multi family deals and their proforma info etc.  C) Present investment opportunity to a pool of viable passive cash investors.  

example:

Lets say a 12 unit complex is for sale and all of the numbers checked out as being a "great deal".  Let's say the seller wants $1,500,000, the facility needs roughly $700,000 in renovations and upgrades and the fair market value of the property comps out at $7,500,000.

You negotiate with the seller and agree on a purchase price of $900,000 instead of $1,500,000.   

You create a report with real time data, photos etc.  and present this information to passive investors.  You will need, in this example:

$900,000 purchase

$54,000 closing admin costs 

$700,000 for renovations 

Total money needed: $1,654,000 for this investment that has a proven top of market value of $7,500,000.  

Ensure you determine then specify your exit strategy.  Have a timeline and payment methods to investors.  Since you don't have the funds, you need investors looking for returns who dont want NO management responsibilities.  

So you market this deal to investors for shares.  Let's say for this example 1000 investors have given you $1,654.00  

Money needed: $1,654,000

Money collected from interested passive investors: $1,654.00 × 1000 investors = $1,654,000.00

You collect the money and make the purchase, oversee renovations and watch your budget.  

Budget: 

Projected  $1,654,000

Actual $1,250,000.00

Relisted for $7 million 8.5 months later the multifamily sells for $6.5 million

Money made: $6.5 mill - $1.250 mill = $5,250,000 profit made

Now, since you used crowd funding through syndicating 1000 investors your split overall is 70/30 split.  

You receive: $1,575,000 for syndicating the deal

The investors overall made $3,675,000 /1000 investors = $3,675.00 return on $1654 investment.  Each investor within your syndication pool made a profit of $2,021 over their $1,654 initial investment.  

You will need to sharpen your understanding on analyzing deals, leveraging help in areas you suck or are "so-so" in doing, and have a great market approach. Syndication is basically you collecting other investors money to invest in real estate that will yield them a medium to high ROI. You may spend $0 on the actual investment since your using OPM, however, your responsibility is to manage the investment from the beginning to the end.

Now creative financing is different and has nothing to do with syndication.  

Lets use the same example and you negotiate with the seller.  The seller has a $500,000 note on the property at a monthly payment of $5000 to bank of America.  Although the seller tells you they at least want to walk away with $400,000 but they are in no need for the money and have concerns of tax implications on this capital gain.  

YOU OFFER 

$400,000 CASH PAYMENT TO SELLER amortized into 1000 payments at a 6% interest rate- Balance due in full whenever you the buyer resells the property.

With subject to the existing mortgage balance of $500,000 payment of $2,100 per month. 

If you dont have money you assign the structured deal for a $50,000 fee.  The assigned investor will then be responsible for the renovations, monthly equity and mortgage payments, and managing  when filling occupants.  Your efforts are all done up front, and when all the structuring and signing is completed and  then it's time to put money up, you assign to investor who wouldn't mind stepping in this Hybrid deal.  Thus, both syndication and creative financing strategies are two completly different concepts of investing.  All strategies leverage another person's funds and abilities however almost never 0 money down.  I think you mean 0 money down from you.  

I see what you are trying to do here.  You are doing this probably because your contract is non-assignable, therefore you created an entity to mask the transfer.  This tactic is legal and done ALL THE TIME.

1) Create an Entity

2) Register the Entity in the state you are operating

3) Ensure LLC created is BRAND NEW and has not been used on any other transactions nor is attached to any business liabilities such as debt or connected to other deals or transactions.

4) Recieve the articles of incorporations and operating statements etc.

5) Find a cash buyer for your deal 

6) Once a cash buyer is found you now transfer your LLC (100% of your membership rights and ownership) over to your cash buyer. The cash buyer, under your former entity (LLC), will close on the deal as that entity. Thus, the buyer on the document never changed, the ownership interest of the "Buyer Entity" had changed separately from the deal itself. If Walmart has a written contract that's legally binding with Shaw's, and then Shaw changes their Management position internally, it does not affect the underlying binding contract with Walmart. At least not directly in this example.

Usually, this is the explanation you receive when being explained how to transfer the owner's interest when doing such a deal.  Question is "OK so I get the overall layout, but how to do it?"

HOW TO ASSIGN 100% OF YOUR MEMBERSHIP RIGHTS OF AN LLC TO ANOTHER CASH BUYER (TRANFERRING LLC TO BUYER TAKING TITLE)

RECAP
Because the original contract with the seller has a "no assignment clause, and to avoid (2) closings, you decide to utilize the LLC transfer method. You set up a Single Member LLC which will be the buyer on the executed contract with the seller. You will then sell 100% interest in that LLC to a cash buyer interested in the deal. The cash buyer will then become the new Sole Member of your newly created LLC. Then on the day of closing, your cash buyer can then, step in and close directly with the seller.

HOW TO TRANSFER TO BUYER:

A) LLC MEMBERSHIP PURCHASE AGREEMENT will need to be executed immediately with your cash buyer (you can find a template online). After the cash buyer signs the, LLC MEMBERSHIP PURCHASE AGREEMENT, give them a copy of the original P&S between yourself and the seller of the property.

B) About two or three days before the closing date, you and your buyer will sign the SECOND DOCUMENT known as "LLC TRANSFER OF MEMBERSHIP INTEREST" where the cash buyer becomes the new 100% sole member of your LLC.

C) Once the LLC TRANSFER OF MEMBERSHIP INTEREST is signed by both yourself and your cash buyer, you will give them the operating agreement (which should be sent to you once you registered your entity with the state's attorney general you are doing business in).

D) THERE ARE TOTAL DOCUMENTS ASSOCIATED WITH THIS KIND OF DEAL (SEE BELOW)

1) THE PURCHASE AGREEMENT (BETWEEN YOUR ENTITY AND THE SELLER)

2) A LLC MEMBERSHIP PURCHASE AGREEMENT (BETWEEN YOU AND CASH BUYER)

3) TRANSFER OF MEMBERSHIP INTEREST (BETWEEN YOU AND CASH BUYER)

4) LLC'S OPERATING AGREEMENT (SIGNED BY YOU ONLY BUY GIVEN TO THE CASH BUYER)- THEY WILL NEED THIS FOR THE CLOSING. ONCE YOU REGISTER YOUR ENTITY WITH THE STATE ATTY GENERALS OFFICE, IT USUALLY TAKES 5-7 BUSINESS DAYS (SOMETIMES IMMEDIATELY) FOR YOU TO BE EMAILED OR SNAIL-MAILED PAPER OR DIGITAL OPERATING AGREEMENT DOCUMENT. YOU WILL SIMPLY GIVE THIS TO YOUR CASH BUYER ONCE THEY SIGN THE TRANSFER OF INTEREST DOCUMENT (SEE # 3 ABOVE).

5) THAT'S IT! THE BUYER IS NOW EQUIPPED WITH EVERYTHING. THE TITLE AGENT WILL SEE ON THE OPERATING AGREEMENT YOUR NAME, HOWEVER, WILL KNOW, THROUGH THE EXECUTED ENTITY PURCHASE AGREEMENT AND ASSIGNMENT OF MEMBER INTEREST (WHICH IS 100% OF THE MEMBER INTEREST) WILL NOW BE BELOW TO YOUR CASH BUYER WHO WILL THEN BE RECOGNIZED AS THE SOLE OWNER OF THE LLC WHO IS THE BUYER ENTITY OF THE P&S

ADVICE:

MAKE SURE, WHEN BUDGETING FOR YOUR DEAL THAT IS NON-ASSIGNABLE, TO ADD THE PRELIMINARY AND AFTER-DEAL EXPENSES TO YOUR BUY PRICE:

FOR EXAMPLE:

ARV X 70% - (REPAIRS + WHOLESALE FEE) = YOUR BUY PRICE WITH THE SELLER

ARV X 70% - (REPAIRS) = YOUR SELL PRICE TO THE CASH BUYER

BOTH OF THE ABOVE WOULD WORK FOR ASSIGNABLE CONTRACTS BUT NOT FOR ONE WHEN TRANSFERRING LLC INTEREST. INSTEAD, USE THE FOLLOWING CALCULATION FORMULA:

✅ ARV X 70% - (REPAIRS + WHOLESALE FEE + COST OF ENTITY + BUFFER)= YOUR BUY PRICE WITH THE SELLER

EXAMPLE: LET'S SAY A DEAL ARV IS $300,000 AND IT NEEDS $20,000 WORTH OF RENO. IT'S A BANK-OWNED PROPERTY AND IS A FORECLOSURE BEING LISTED FOR $205,000 AND IS NON-ASSIGNABLE.

YOU WILL KNOW IMMEDIATELY THAT SINCE IT'S A FORECLOSURE, AUTOMATICALLY IT WILL BE A NON-ASSIGNABLE CONTRACT. THE REASON IS THAT EVER SINCE 2008-09 THE BANKS MADE ALL OF THEIR DOCUMENTS NON-ASSIGNABLE TO AVOID UNSCRUPULOUS INVESTING PRACTICES. ALSO, THEY NATURALLY HAVE A HUGE MISUNDERSTOOD CONCEPTION OF WHOLESALING REAL ESTATE AND IGNORE ALL THE BENEFITS. INSTEAD, THE BANKS LOOK AT ALL THE NEGATIVES. THEREFORE, SINCE THEN, SAVVY INVESTORS NEEDED TO FIND A "WORKAROUND" THAT WAS EFFICIENT BUT SIMULTANEOUSLY, LEGAL WHEN THESE DEALS AROSE. THAT'S WHEN THE ENTITY LLC TRANSFER WAS CREATED.

EXAMPLE CONTINUE:

ARV= $300,000

RENO= $20,000

PRICE: $205,000

BUFFER DOLLAR FIGURE: $20,000 (NEGOTIATING WINDOW)

WHOLESALE FEE: LET'S SAY YOU WANT TO MAKE $10,000 OFF OF THIS DEAL 

TYPE: FORECLOSURE- NON-ASSIGNABLE

FIRST- WHEN CALCULATING, ESTIMATE ALL PERIPHERAL COSTS FIRST.  ANSWER THE QUESTION "HOW MUCH WILL IT COST TO CREATE AND REGISTER MY ENTITY WITH THE STATE.  THIS COST IS USUALLY ANYWHERE BETWEEN $300-$1500 DEPENDING ON WHAT SERVICE YOU USE.  TO BE SAFE, SIMPLY ACCOUNT FOR $1,500 REGARDLESS (YES EVEN IF YOUR ENTITY AND EVERYTHING ELSE WAS MUCH MUCH LOWER). 

THUS, THE UNIVERSAL DOLLAR AMOUNT TO CALCULATE (MY RULE OF THUMB) IS ADDING $1,500.00 TO THE FORMULA. 

IT WILL LOOK LIKE THIS (WHEN DETERMINING YOUR BUY PRICE WITH THE SELLER OF THE FORECLOSURE DEAL WHICH WILL BE THE BANK): 

$300,000 X 70% - ( $20,000 + $10,000 + $1,500 + $20,000) = PRELIMINARY NEGOTIATED PRICE
210,000 - (51,500)

=$158,500 WILL BE YOUR ASKING PRICE-  REMEMBER YOU CAN EXHAUST THE $20K BUFFER AND CAN EAT INTO SOME OF YOUR WHOLESALE FEE IF NEEDED OR IF DEALING WITH A TOUGH SELLER.  THE HIGHLIGHTED FIGURES WITHIN THE ABOVE FORMULA ARE THOSE THAT CAN BE ADJUSTED WHEN NEGOTIATING.  THE FIGURES NOT BOLDED ARE FIXED AND CAN NOT BE CHANGED THROUGHOUT THE NEGOTIATION PROCESS.  

No I personally have never purchased a course because at the end of the day, ACTION- is what comes down to it.  Sean Terry is far from a scam artist though, he knows his stuff. However, even if you get one of his courses, nearly 85-90% of those who do don’t do much with it.  Why? Because most want a magic bullet without taking action and the results are the same.  For instance, most of what he teaches can be found on YouTube and the internet without even buying his program. For example, I’ve done 12 deals that would reflect his “retail buyer program”. The program is $997.00 and I didn’t both buying it. Why? Not so much the people who are representing the program, but more so they charge that upfront because they are assuming most won’t do anything with the info given.  Let’s say they provided it for 100% free retail Buyer profits in exchange for a percentage of your profit.  Well, so many people will learn the info and a very small fee will actually go and do it.  Thus, I don’t blame them for charging that price.  my best advice is to take the information you’re learning piece it all together. Yes Sean Terry’s “Retail Buyer profits system“ does have ironclad contracts to use, Scripps, and other fluff that some may find useful. For example they have a script where you can position the seller and agreeing to the “Retail Buyer profit system“. For me I use my own strategies and just followed their paperwork. I told seller that I am a real estate Wholesaler however I have the income to guarantee that the deal will close on the date given. I also told them I’ll pay $5,000 additional at closing just to add them to the program.  Once they agreed here’s how it was broken down:

The home was fairly furnished with little to no work. The ARV was $189,000.00 and the home was in great shape. The owner had a divorce and was in the process of liquidating his rental portfolio. He didn't care how long just that he had to sell-off this property. I contacted him before he even listed with an agent @ $105,000. The home needed maybe $2-$5,000 of quick paint, touch ups, etc. Now, the seller didn't care how long, just as long as he could get $105,000. I was able to secure the deal with him for $105,000 then, a few days later I used Sean Terry's real estate retail buyer program script he intermittently gave away during his explanation video.

“hey Mr Seller, now I’m not charging commissions, fees  not do you have to pay any closing costs if you would like to join my retail buyer program”

Seller: Huh?

Me: Lol, basically for $5,000 additional, you will allow me to market your property through an agent (whom I will pay) and will get this place sold at retail.  If he can’t, I buy it for $110,000 anyway just for joining.  

Seller: OK but you were selling my property at retail now even though I’m selling it to you at a discount so how is that fair?

Now with that question above most people regardless if they took Shaun Terry's course or not will probably freeze up not know what to say become confused and probably say something they shut it and then lose the deal in the first place. This is when your job begins not ends then responded "totally understand where you're coming from and your concern about that, yes I will be selling this for retail and I will get some profit out of it however you have to understand most of that profit that is made through the retail system I'm paying for all the appraisals I'm paying for the closing expenses I'm playing for the agency fees I'm paying for everything else in between as well as all the demands from the bank you don't have to worry about anything you'll be getting that same amount regardless if you wanna go with a realtor I bet you well however if you do go with that realtor at the end of the day you may even receive less than what I'm offering you at $110,000. After a couple of days thinking about it, the seller said let's do this"! Now I made sure I remembered and wrote down what Schein Terry's Retail Buyer program asked for, so I created two templates 1) Power of attorney on behalf of the seller for a certain timeframe 2) Notice of Interest against the property for a certain timeframe. The notice of interest coupled with the power of attorney allowed me to embed myself within the deal where the seller couldn't go around me and sell to any Buyer nor could a buyer bring an offer to the seller behind my back and buy the property without me releasing the notice of interest. I then, being a licensed realtor myself, put it up on the MLS with their permission. Remember now they're receiving $5000 more of what we originally agreed upon for me to do this if this fails I still have to buy the property at $110,000. Now this is an example of someone taking "action" and I didn't need a $997 program to do it however there was some bumps along the way and some edge of your seat type of stuff. But just like everything it was a learning curve that I conquered. So I then posted the advertisement on the MLS to a vast area of hungry Retail Buyer‘s within a market with very low inventory. Within three days I found a pre-qualified buyer retail looking for a home that loved it. I showed the home to them and they show me the preapproval and they wanted to go forward at $180,000 . I told him I will get right back with them within a day. Again I am playing the REALTOR hair because I have my license, however a wholesaler would just communicate to a licensed real estate agent of what to say when an offer is given to them. Always give about a day or two between the offers yes you could lose that offer to that buyer moves on but do you want to keep it open for the highest possible bidder in this type of market. Not even a day later somebody came with $195,000, when the buyer who asked to purchase it at 180 K called I told them we had a higher offer in place and I apologize. It became a bidding war between these two buyers where the last buyer won the contract at $210,000. The whole process took about 35 days kind of drawn out mostly the bank which was Chase I believe. Chase did the appraisal had an inspection and they came up with something in regards to the outside walkway which only cost $500 to repair. The appraisal came out to be $215,000.00. I then told the bank that I will pay for all of that at closing and they agreed. I told them and the title agent to take the 500 out of my fee as well as all the closing expenses, as well as our preferred costs accrued during this closing process. Their entire closing bill was $18,570.76 at closing. My contract with the seller was $110,000, on the disposition side with the bank and the Retail Buyer obviously I couldn't assign the deal to them. I executed another buyer side sales agreement with the seller with an addendum. The addendum basically broke down the difference between the original purchase and sales agreement for $110,000 and the purchase and sales agreement with Chase and their client a.k.a. the borrower for $210,000. I broke down the math and how the profit will be used to pay for the inspections, appraisals, closing costs for both buyer and seller, the $500 requested bank repairs, and my cost to release the notice of interest so that their buyer can move forward with the purchase.
After a few days of back-and-forth of signing the addendum attached to the purchase agreement the bank conceded, and we entered into the agreement. Now on day 37 I believe we finally closed escrow the buyer got his $110,000 of net payment, the buyer got their dream home, and I was paid.  The break down:

-Closing Costs: $12,500

-Inspection: $225.00

Appraisal: $345.00

Repairs: $500.00

Updates to home: $5,000.76

Total cost: $18,570.76

Buyer Paid: $210,000

Purchase Agreement: $110,000

Total left over: $100,000.00

Total Costs: $18,570.76

Payment by Chase bank to investor for releasing notice of interest for subject property:

My Profit Fee: $81,429.24

i repeated this process and got better everything time.  I did roughly 15-16 of these deals with only 12 being successful (not bad for not buying the program). I’m sure if I bought the program it would’ve been a much smoother process in the beginning and probably would’ve help me with the ones I lost because some loopholes didn’t allow me to do what I wanted to do which I’m sure there was a way around them which I found out after the fact. However just like everything I learned as I went . Now you have to look at Sean Terry’s position. He’s banking on you to fail not because he’s a bad guy he’s actually a great guy but he just knows how humans are these days. You’ll buy all of this fluff all these shiny objects even though his is a value, however, he knows that  most will not take action steps to actually execute what is being taught.