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Hypothetical Zero Down Deals – Part 1 of 6
Hey, it’s Joe Crump. Hypothetical zero down deals. This is a six-part series that I’m doing to explain all the different ways you can make offers on real estate with zero down. We’re going to go into it in great detail. And I actually did this with my class, with my mentor students on a Zoom call and we walked through these different exercises together. I hope you enjoy it.
What this is, I’ve got a bunch of these different sort of hypothetical situations and they all will have different answers based on you know, what the numbers are. And we’re mainly looking here not at what to say to the seller, but we’re looking at how to actually structure the deal. Up in the right hand corner here is the buy strategy. There’s the purchase strategy and then there’s the exit strategy, the sell strategy. So the buy strategy are – there’s five different zero down structures. If you have these five structures, these are all you will ever need. And there’s different variations on each one, you know, slightly different variations on each one, but they basically all fall under these five categories. And we’re going to talk about what each one of these ease.
The exit strategy is you can either hold the property and rent it or lease option the property, so these are long term where you keep it for your portfolio. Or, there’s two types of flips. You can either flip it on terms, say on a land contract or, you know, a lease option, or you can flip it for cash out which is a cash out assignable deal, or also known as wholesaling. So you can flip it a couple of different ways.
So, you’re exit strategy is determined by your purchase strategy. So you purchase knowing what your exit strategy is going to be, or at least knowing what your options are going to be. And the way the hierarchy is set up, at the top of the hierarchy, the subject to, that gives you more options than the bottom structure. So if you – you want to have as many options as possible so you want to try to get the most control which is at the top of the hierarchy, and the most options which is also the top of the hierarchy. Your options diminish and your exit strategies diminish as you go down this hierarchy. So let’s talk specifically about what those things are.
Subject to is where you’re transferring the deed to the property. Typically, this is with a property that already has a mortgage on it. So, let’s say you have, and I’ll just use $100K property because it’s a nice round number. Say you’ve got a $100K property that has a $100K mortgage on it. It’s worth $100K, it’s got a mortgage and that person is willing to let you take over the payments on their existing loan. So you’ve got 30 years left on this mortgage and the payment on it is $800 a month.
They can deed you that property. So they’ll sign a warranty deed that you can then record and then you become the owner of that property. The mortgage is still on that property and that mortgage still has to be paid. If you don’t pay it then the bank takes it back. But as long as you make the payments you’re in good shape. You did not have to qualify for that mortgage. You didn’t have to sign anything with the bank. All you had to do was have the seller sign a deed, a document that transfers it to you. The deed transfers the title of a property. A deed is the paper document that transfers the title of the property and then you record that at the county recorder for a few bucks or you have a title company record it for you which is typically how we do it these days.
[Bill] I want to butt in for one second. So subject to means subject to the underlying mortgage parameters, like, whatever the original seller agreed to, like, the interest and the terms and all that. So, it’s subject to those agreements. That’s where the slang comes from.
[Joe] Subject to the existing loan. That existing loan is there first. Now, every property you buy is subject to something. Even if you buy a property with cash it’s still subject to pay taxes. If you don’t pay taxes they take it back from you. So every property is subject to something. But this is specifically talking about subject to an existing loan.
[Bill] And you’re agreeing to keep those agreements with the bank when you take it over.
[Joe] Exactly. And if you don’t, it doesn’t hurt your credit. But you screw the credit of the seller that you’re working with. So you never take over a property that you cannot make payments on. If you do, you’re doing something that’s unethical. And there are people that have done that. I actually heard about a guy here in Indianapolis that took a bunch of subject to properties and then he didn’t make payments on any of them but he collected rent. And he did this for a year, two years, the properties went into foreclosure. He collected the money, screwed up the credit of the people he bought from and they did a class action against him and he got sent to jail for fraud. So, don’t take a property that you can’t pay. And, if you ever get to a point – and one of the things in our documents on the subject to documentation that we’ve got, because we have disclosures for it, we tell our sellers, if I ever get to a point where I can’t make this payment, I’m going to give this property back to you. And if I can’t make it I’m not going to let it go late. I’ll give it back to you. So you make sure that you can make the payment and always give it back to them before the next payment is due. If you know that you’re not going to be able to make the payment, give it back to them before that next payment is due and let them deal with it. It’s still their property. That’s what you promised you would do and it’s what you have to follow through with. Don’t ever get to a point where you give it back to them late.
[Bill] And don’t worry about any of this right now because Joe’s going to show you a document later on that he’s laid it out on two pages of everything that you’re going to promise the seller. It’s all written out. You read that document, subject to will make total sense to you. So he’ll show you that document later on because he has a document that says this is what you’re promising and the seller actually signs it.
[Daniel] How many people are brand new here?
[Bill] What’s that?
[Daniel] How many people are brand new here, that are just really focused on the For Rent and making some money.
[Joe] Most of them here.
[Daniel] Most everybody? Okay. Well, don’t – don’t freak out and think that you won’t learn this because there’s so much. Because let me tell you, I’m not the smartest person here and I figured it out. Anybody can do it. And I do it from a wheelchair by the way. You guys might not realize that. But anybody can do this. This is not – it all builds on top of it, you know, just learn one basic thing, do that, learn another basic thing, you’ve got time. Do it right.
[Bill] You make that one phone call you’ll find somebody that will allow you to do the subject to which Joe will show you later. And you’ll do that one deal, you’ll have experience, and then the next time you might do a land contract. The next time you might do a lease option. Your job is to lean on Joe. Lean on Joe with your numbers and let him guide you through it. That’s what your job is, is to get Joe to help you with these deals. He’ll walk you through it and you won’t have to worry about it. That’s why you’re here.
[Daniel] And my advice is to do as much as possible. That way you can come up with as many questions as possible and just bother Joe constantly. He loves it. Send him emails all the time and make them a good page or two. That’s what I did. Joe loved it.
[Bill] He’s setting you up, Joe!
[Joe] Actually, I do like it. I do want me to send me your questions. And what I usually do is, is do a LUME recording and just record my answer. So I’ll give you detailed answers to your questions as you go. Or bring them to the conference calls that we do every two weeks and we’ll do it that way. Those are the best ways.
[Ayesha] Is it okay if I ask a question right now?
[Daniel] I like it so much that you ask so many questions, like, that’s the best. Otherwise it’s just me and Bill talking and everybody’s just kind of looking at the screen. It’s like, are we doing something wrong? What are we doing? I like questions.
[Bill] Not even the fact that she’s writing a check. She’s got a notebook there. She’s like taking massive notes, like she’s going to write this stuff out.
[Daniel] That’s how you do it. That’s how you do it. That’s how you become a millionaire in two years.
[Ayesha] That’s my goal. Hey!
[Daniel] You’re going to do it.
[Ayesha] So, the question I had is why on earth would I – why would a seller want to do this? Like, if they don’t have a mortgage, right, like, the mortgage is zero and I only need $30K, why would they want – why would they allow me to just take their property?
[Daniel] Oh, there’s as many reasons for that as there are sellers.
[Daniel] So, most of the time it’s emotional. But there’s financial reasons. I mean, people are not looking at – they’re wanting the problem solved and they don’t want to deal with anything of it, you know, basically. So you’re solving their problem, you know? Plus they’re getting paid.
[Joe] Yeah, they’re just done. And if they see a solution, if they see a solution and they believe that you’ll actually follow through with what you promise, they’ll let you, they’ll abdicate their power to you and they’ll let you take it over.
[Bill] I think you have a little bit of a confusion. So, the only time that you do subject to is if there’s an underlying mortgage. If it was free and clear you would not do subject to.
[Ayesha] Okay, got you. I was looking at mortgage zero and I’m like, why would they – okay. I got you. If there’s an existing mortgage that’s when you would offer subject to as a possibility.
[Bill] Because it’s subject to the existing mortgage.
[Daniel] Well, here’s what’s cool, too. Earlier Bill talked about refinancing the property. And that was one of the things that I, you know, I’m like, well, they need the money now. So what if you financed the property and then turn the loan over to me and I take over the payments. You don’t have any of the headaches, you don’t have any of the responsibilities, you don’t have to deal with tenants. And you get all your money and you go away. It’s the best of both worlds. So, if it’s free and clear, they can refinance with the bank, maybe, and take out all their money, then turn it over to you subject to. So everybody wins.
[Bill] So you’re taking a free and clear house and turning it into a subject to deal because you got a loan on it.
[Ayesha] And this sounds great to me. Now that’s what I’m going to be doing.
[Valerie] So, can I just add that I’m a case in point. So, I have some property. I inherited it. It’s four hours from where I live. I don’t know anything about that area. The properties are free and clear. But I don’t want to – I’m not going to be running down there and it’s in the country –
[Daniel] Joe’s going to teach you how to get boots on the ground –
[Valerie] But I said that to say – I mean, I’m a case in point. I feel like – I know I have to take care of the property. They were left to me by somebody I love, so I’m emotionally attached to them, but I don’t want to do the day-to-day stuff and I don’t know what to do with them. But I know I’m supposed to let them sit.
[Bill] How many are there?
[Valerie] You know, it’s not many. It’s just two.
[Daniel] I think Bill wants to buy them.
[Bill] No, Valerie, you should sell those house on lease options, what we’re talking about. We can get Joe to help you with that.
[Valerie] Okay. On the other hand, I’m a potential – I’m a person who needs some help. I’m just not sure what kind of help I need, but, and I know I’m supposed to do something. So –
[Ayesha] Got you.
[Valerie] If you came to me I would be like, this is my situation, this is what I’m trying to do, does this make sense, or do you have something better, you know, that could help me.
[Bill] What state are you in?
[Valerie] Oh, I’m in – the properties are in Virginia. I’m in Maryland, but I’m not from either place. I’m from Chicago. So, I’m, you know…
[Bill] Yeah, I just want to make sure, because North Carolina is a little bit different. But Virginia, you’re fine.
[Valerie] Yeah. So, okay, that was it for me. Thank you.
[Bill] So you should definitely send Joe an email after the event asking him how you can – and you should also come to our weekly call which I think is this week, our bi-weekly call, and we should help you sell those properties on rent to own and you should turn them into income.
[Valerie] Got it. Thank you.
[Joe] Valerie, are you – do you have other siblings that are also sharing in this or is it just you?
[Valerie] Nope. It’s just me.
[Joe] So you have control over them completely?
[Joe] And the income that you can make from these is going to be much higher and the profit that you make from them will be much higher if you keep them. And the headache that it’s going to take to get them set up to do this is probably going to be worth it for your long term portfolio. And I would encourage you to probably keep those properties, but you might want to talk about the condition of them, and what still needs to be done and who’s going to be able to manage them for you, or handle them for you, and whether or not you need a manager or not.
[Bill] So, Valerie, I would strongly, strongly, strongly suggest that you send him an email and then this Tuesday on the coaching call you get on there and we’ll talk about it.
[Valerie] Okay. Thank you.
[Bill] Perfect content for that coaching call.
[Joe] Yeah. All right. So, let’s go back to the hierarchy.
[Bill] Joe, you’ve got Esther with her hand up.
[Joe] Oh! Esther – go ahead.
[Esther] Thanks – thank you. Quick question I have is how do you, say if they let me talk to them about all the stuff, the seller, and they ask you, oh, just send the lease option, the rent option, rent to buy option, memo, to me, I’ll look at it. And they don’t ever call back. I think I’ve asked that question before.
[Daniel] They’re just trying to get off the phone.
[Joe] Their yes is a no. That’s why you don’t take yes for an answer. So, you don’t take no for answer. You ask them five times, you get five no’s. And when they say yes, you make sure you get five yes’s. So when you get that yes the next thing is, you say, well, are you good with this, you want $210K for the property, are you good with that number? And they’ll say yes if they’re serious. And then you say, so, and we’re doing this as a three-year term, are you good with that? Okay, just type that in there. Okay, are you good with that? Yes. Okay, you’ve got a second yes, you know, so, and you keep going through this process to get yes’s to find out where the problem is. Because if they’re saying yes to get you off the phone, which they may be doing here, then they’re going to say well, I really have to go right now. I’ll call you back later. That’s probably a no.
[Esther] So try to get as many yes’s to solidify that it’s a real yes before you send it?
[Bill] Earlier we talked about the no, people say no when they don’t understand something and that’s a red flag for you to explain it. Yes is insidious. They’re lying to you because they may want to get you off the phone. So, if you notice when I talk to Daniel, if I can get him to sign the memorandum when I’m on the phone that’s going to cut through whether they’re lying on the yes’s or not.
[Joe] and people are comfortable with white lies. But they’re hard with compound white lies. You know, if you just keep asking them, you know, they’ll eventually, look, I’m really not interested. And then you find out why. Or, the answer, or the problem, will come out. They’ll say, look, I just really need this money because of this, you know, and then you can address that issue because that’s why they’re not taking your call because they think that there’s – it’s not a solution. They don’t think what you’ve got is a solution. And if you don’t discover what the real problem is you’ll never get them to say yes.
[Esther] Okay. Sounds good. Thank you.
[Bill] It’s only two things. One, you haven’t tickled their pain point and they feel like you have a solution, or they just – they think you’re a scam and don’t believe it. It’s usually one of those couple things. So you just keep poking around until you figure out what it is.
[Esther] Thank you, Joe. Thank you, Bill.
[Bill] I just wanted to say when we’re looking at this screen here, on the left side are all the numbers. That’s what the potential deal could do mathematically. When Joe’s talking about the buy strategy, then that’s what the seller’s willing to do. And they don’t match all the time. So, like, if they’re willing to let you take it subject to, as long as the numbers on the left work, that’s fine. So, don’t think you look at the numbers on the side and you say, oh, this is subject to deal and then you get on the phone with them and they’re like, no way I would put the deed in your name and keep the mortgage in my name. So there are two – when you’re looking at the strategy, look at them differently. Like, the numbers are the math, math doesn’t lie. That’s what the potential of the deal could do. And then when you start talking to them and talking about their problems and what they want, that’s where the buy strategy comes in because they’re willing to do it or not willing to do it. And that’s where the yes’s and no’s come in. Does that make sense?
[Joe] Also look at the zero down structure hierarchy as, you know, as a level of control. At the very top you have the most control, at the very bottom you have the least control. And so when you’re the buyer of a deal, you always want to be in a situation where you have the most control. So you’re at the top of the hierarchy. If you’re a seller, you always want to give the least control to the other party. So that’s why we sell on a lease option at the bottom of the hierarchy.
[Bill] That’s really good, Joe.
[Joe] All right, so subject to is simply a transfer of the deed and you taking over the payments on the mortgage. And typically you’re not giving them any money for the equity, you know, and there’s usually not much equity in those types of deals anyway.