Creative Financing Strategies with Pace Morby

Pace, what do you do online? You have a huge following.

Pace: I started in construction a long time ago. The way I got all my business was through Instagram, believe it or not. When Instagram first blew up 8-9 years ago, I was sitting pool-side with my wife and I go, what’s this Instagram thing? She’s like, it’s going to be another Facebook. I started posting two weeks from when Instagram started, and I built up a really good following in my construction business.

Through that—during, before, and after photos of backsplashes and all the things that we were doing as a contractor—I ended up landing three really big clients. I landed Open Door, which is a nationwide fix and flipper. They’re essentially a retail/wholesaler. Zillow, and then another company called Offerpad. I got all of those guys from my Instagram and I was like, oh my gosh the power of social media is insane. Back in 2013, 2014, 2015, I was going around the country setting up these guys’ operations in individual states as they were scaling their business and going around. Every time I’d open a new market, they’d cut me a $50,000 check and go, thank you. Now, it’s on autopilot and you can go set up the next one. I had a lot of fun doing that.

Toby: Were you still doing construction at this point or were you just putting their operations in place?

Pace: No, we were still doing construction. We had 265 employees back in 2015. What happened was, roughly in 2013-2015, in that time frame, I was doing a lot of fix-and-flips as a contractor for other fix-and-flippers. I was the one operating and running their construction. I ended up coming into contact with a company named HomeVestors. We buy ugly houses. You’ve seen their billboards. You probably even have some of them as clients. I ended up buying a franchise. It’s how I got into real estate because I was fixing and flipping these guys’ houses. I’m like, you made how much money? I made $7000 and you made $170,000. Oh my gosh.

Toby: Were you actually a HomeVestors franchise then?

Pace: Yeah. I was the head of the marketing committee for two years at HomeVestors.

Toby: That’s awesome.

Pace: I would fly out to Dallas every quarter and I was in these three-day extravaganza meetings, all about how much money they’re spending on billboards and blah, blah, blah. I was one of the top three guys that they would go to and say, you’re tied in with the wholesale network and all your buddies. You know everybody in the industry. What is everybody else doing? That’s why they brought me on the marketing committee.

I was one of 1100 franchisees, but I was in the top 3% of closers in the nation. I looked at it and I was like, man this is crazy. If I’m in the top 3% of the closers in the nation—I was probably only making, at the time $400,000-$500,000 a year—I’m thinking, how are all the other guys in the bottom 3% doing? Or the bottom 30%? Or the bottom 70%?

That’s when I started jumping into creative finance because I said, I need to take the same lead flow that’s coming into my business. I need to double, triple, and quadruple my conversion rate. I started doing a lot more stuff to seller finance, and a lot of lease option acquisitions at the time. I went away from acquiring lease options. I don’t have the deed in a lease option. I just want to go straight for the Sub2 or the seller finance.

I started having disagreements with HomeVestors on the way that I was doing my business because they can’t make royalties on my portfolio. We separated back in 2018. I sold my franchise, and I’ve been out on my own. I started a company called Subto.com. I’ve been doing content since 8-9 years ago. My content is a little bit more visceral. It’s a little more in the flesh.

I remember the first time I did it for real estate. I go, I talk a lot about my construction projects but what I’m going to do today is I’m going to go on my Instagram and I’m going to go, who wants to jump in my car with me. Let’s go to appointments today. You’re going to go with every appointment with me. You’re going to meet my private lenders, my business attorney, three sellers, because I have three appointments today, and you’re just going to see the day in the life of Pace.

I started doing this back in 2016-2017 where I just would get 7-8 people in a big truck with me, and they would go with me for free. I wouldn’t charge anybody anything. I did this for two years. I just built out a name for myself here locally as the guy that just wanted to help everybody.

Toby: Where are you located?

Pace: We’re in Phoenix. I do a lot of investing. Most of my portfolios are here in Phoenix. I have a couple of properties in Vegas. You’re in Vegas, right?

Toby: Yeah. I’m in Vegas.

Pace: Vegas is awesome. I have a couple of properties—Airbnbs in Vegas, Dallas, and Atlanta. But most of our marketing endeavors are all here in Phoenix.

Toby: Keep it in your backyard.

Pace: Yeah. I’m crazy about content. I have a lot of fun doing it. I’m one of these guys who tell people, I have a shirt that I actually made called, HUD up or shut up. Either you show me the HUDs or shut up because there are so many people out there talking about this business but they’re just not doing it.

Toby: You’ve got to give me a time out on that because we do the tax returns on so many of these folks and I always laugh. They really make most of their money doing something else. Like the TV folks, all these folks. I don’t want to say names. The people that you see on TV that are doing flip shows and stuff—there’s a number of them—don’t make any money. Those numbers are weird.

They’re going, yeah […]. You didn’t make any money. When you look at their tax returns, it’s the same thing. But they’re out there trying to make a name for themselves. They’re like, look how much money I made. You actually show your HUD statements and say, this is exactly what we did. That should make people do that if anybody.

Pace: If you don’t mind, I’ll show you one. We just closed on one this last week. I do three podcasts myself. One on Sunday nights called Sunday Service. It’s not religious. It’s all creative finance. The only thing I talk about for two hours straight is creative finance. I have another one on Monday night that’s in a couple of hours. It’s called Wholesale Hotline where a couple of my buddies, we get 1000 live people showing up every week. It’s great. I have another one called Get Creative, very short-framed, 20-30 minutes. All it is is talking to people that I’ve done deals with. I go, hey let’s talk about how you and I got creative on this deal, and let’s show our HUDs. This is a deal we just closed on the other day. I go through it. I’ll show people my notes, I’ll show people, this is my private lender and the second position, loaned me $70,000. Here’s my note.

I’ll show people my title docs. I’ll show them my final settlement statement. The cool one on this one is actually the recorded. My seller, a lot of people think oh man this is crazy. There’s no way seller finance really works out that great. I’m like, dude look how great this is. I bought this property with a 2% seller carry, and I put $10,000 down on a $475,000 home. I put 2.5% down on the house.

People just don’t understand how powerful this business really can be. I got nothing against the guys that are doing the BRRRR strategy. But it just takes so much time. You have to refinance multiple times. This will be another Airbnb that we exit on. I showed this one the other day. This is one of my favorite ones, check this out. I’ve got a property on 78th, and why it’s so pertinent to this conversation is because, the house we bought, I still haven’t even paid all the downpayment to the seller and I’ve owned it for almost a year.

Toby: Have you been fixing up during that time? What did you do?

Pace: No, I took over a tenant. Check this out. This is what’s crazy about this seller. These sellers on this deal—Dale and Susan Poyer, as you can see on this screen—were just having tenants in the property. They’re like, they’re always two or three days late. We’re always chasing them for money. Dale and Susan are a little bit older. They don’t really set up technology to collect money. They’re waiting on checks. I just said I’ll take over your tenants. The tenants, Toby, are paying $1650 a month on this deal. What I did is I bought the house, 0% seller finance.

Toby: Hold on a second. You bought the house, and you’re paying 0% interest at all?

Pace: Yeah. My payment to her is $375 a month for 240 months. This one’s not Sub2. This is seller finance. We created a note for $100,000.

Toby: Woah.

Pace: Right. What did she want originally? What she wanted originally was this. At the time, retail was $100,000. I paid retail. Every wholesaler on planet Earth—I do wholesale too, I’m not disrespecting wholesalers by any means—was giving her $60,000-$70,000 and I don’t even think they could have made a deal out of that.

They would have had to close on the deal, kick the tenants out, clean it up. They couldn’t have made money at $60,000-$70,000. They probably would have had to pay $50,000. I told her, I’ll pay you $100,000 but I want terms. You give me terms, I’ll give you the $100,000 that you want. She comes back to me with the original thing she wanted and she goes, I want $20,000 down and I want 8% carry for a 10-year balloon. I’m like, Susan I’m giving you full retail, give me something in return. What I did with her is I worked out a deal.

This is probably my favorite part of this. I closed escrow on March 31st of 2020. I’m coming up on a year of owning this property. My down payment, the way I structured this downpayment—I truly bought this house with no money out of my pocket—is I structured my down payment. Down payment due six months after I own the property, $5000, and then six months after that, another $5000.

Toby: I have to do some of the math on this thing.

Pace: Yeah. Let’s do it.

Toby: You’re getting $1650 a month?

Pace: Yeah, $1650. I’ll break down how I look at my numbers real quick. If I’m at $1650 a month and I take out my $375, I have another $150 a month in insurance and taxes, and then I pull out about $200 a month in miscellaneous vacancy repairs, all that kind of stuff. I didn’t have to renovate the property because I took over the tenant. I’m at $725 a month.

Toby: Yeah, $725. So $1650 minus $725 gets you $925.

Pace: I’m at $925, multiply that by six, every six months.

Toby: That’s $5550.

Pace: Right. I structured a deal where I didn’t have to give her a down payment upfront. I paid her a $5000 down payment after I’ve cash flowed a net of $5400.

Toby: These people must have other money.

Pace: Right, yeah. The way I look at it is seller finance. With my seller finance, it’s typically tired landlords that have a ton of money, or they’re retired and they’re just done with it. They don’t want to pay penny taxes by selling it right now. I have this lady that we just closed escrow on and we’re in contract on 51 of her homes right now. She’s selling her homes to us.

This is why I love talking to you. A couple of weeks ago when I met you in Miami, you basically took the whole floor. There were five other speakers that were supposed to speak that day and they all relented. They all went, I’m forfeiting my time because Toby’s a badass.

Toby: That was really nice of them. I liked the job.

Pace: It was fun for me. I gobbled it up, I immediately hired you guys. I’ve been working with your team, and then I signed with Greg Boots as well. It was valuable for me, tremendously. I’m a client forever. The value you gave was amazing.

For me, I look at these seller finance deals, and I didn’t quite understand until I spoke to you. I’ve been doing this for years, and I didn’t quite understand the importance of setting up your estate, because June, this lady I’m buying 51 homes from does not trust her son to take over her estate. This is an interesting thing. I think she currently has 55 houses left, she’s going to keep 4 of them for family members.

Toby: What computer are you on, by the way?

Pace: Oh, this is my iPad.

Toby: You’re just using an iPad? That’s really awesome.

Pace: I’ll show you how I do this. I’ll send you a video or something, I’ll show you how I do it.

Toby: I have a surface—whatever this thing is. I have a big screen that I can draw over. I love it when you do, and I hate it when people can’t.

Pace: I know, this is the way to do it for sure. For me, I use a product called an ATEM Mini Pro ISO. It’s like $1500 and it allows me to switch between, do all sorts of cool stuff.

Anyway, June is selling these 51 homes to us. They’re completely paid off. She’s 91 years old. Because she did improper estate planning, she didn’t set up anybody like a charity or anybody else to donate these properties to or to have somebody else manage them for her, she goes, my idiot son is going to inherit 51 properties which he’ll never be able to manage, or I’m going to create 51 seller finance notes where he’ll collect about $150,000 a month for 30 years and then he’ll be out of money. But at that point, I’ve been dead and off this earth for 30 plus years, or 25 years. She’s anticipating her death. She’s also anticipating her son’s inability to manage those properties.

A lot of times, you’ll get this. I’m sure you guys have been in real estate for a long time. There’s always a reason a seller sells to you at a discount or sells to you on seller finance. Typically, with my Sub2 deals, it’s one of two things. It’s either A, they have zero equity. I have a Vegas property down near the street on Whispering Grove. The seller buys a house, three months later gets a job opportunity in a completely different state, is inept when it comes to managing real estate, and he goes, I just need someone to take over the property. Because he bought it with a VA loan, there was no stinking equity. I just take over the property, sub2, easy, no equity. Or, they have arrears or major financial pain. That’s sub2.

With seller finance, it’s quite the opposite. Somebody’s like, I don’t have pain but I do have a motivation to get top dollars. I don’t mind paying close to retail, but as long as I’m at 2% or lower on my interest rate, we make it work.

Toby: It’s interesting because we’ve done the exact same thing. What’s the gal’s name again?

Pace: June.

Toby: June doesn’t want the big ass, monstrous tax. You’re going to have it big if you sell all those properties. She also doesn’t want to give a huge amount of cash to her kid. One thing I would caution June on— it’s just the lawyer in me—is to make sure that kid can’t sell the notes because he’ll discount it by 80%. You know he’ll sell it.

Pace: Oh my gosh, that’s 100% right. That’s a good thought.

Toby: You put it on the notes, or you lock him and it’s closed. That’s what June might want to do.

Pace: That’s super, super smart because she is deathly afraid of her son mismanaging the money. Basically, all he does all day long—because he’s never had to work, his mom has enough money—he just plays video games all day long.

Toby: He’s probably good at it.

Pace: Yeah, he’s got to be. That’s a really smart thing. He could just go liquidate all those notes and sell them to somebody else. I might just go buy those notes from him.

Toby: Yup, that’s the thing. I’ve been in this exact scenario because I used to work in a guardianship firm and you take over people’s estates. Sure enough, if you had a liquidity event where you needed to get money, put somebody into a buy-into, like in Seattle, a buy-in to some of the high-end facilities where they could retire so they weren’t in a nursing home. They’re in a really nice place. They always wanted cash up front.

Sometimes you’re liquidating up to millions in notes, about 80%-90% of a dollar, and he could go to the same place and say, I want the cash. If she doesn’t want him to do that, that’s what you do. You lock him up into a situation where he doesn’t manage it. Somebody else manages it. You can go to a bank and say, I’m going to put a trustee over it. So she uses it. He is a living trust, literally, and just says that the trustee is not him. He’s the beneficiary. Then they’ll manage it in his best interest.

Pace: Do you know any bank that does that kind of stuff?

Toby: Every bank does it. They all have a wealth management department.

Pace: Oh wow, that’s so interesting.

Toby: Yeah. Any large bank or there are actually trust companies, or she could go find your local bank or somebody, most do it. There are actually guardianship firms that will do it. They usually do it for about 1%. It’s not free but it’s not horrifically expensive. Then they handle the tax filings.

Pace: Will just somebody end up having to form a family office type of situation?

Toby: Family office is more. I have so much wealth that I need to have somebody who is basically managing the managers. You have so much that the individual doesn’t want to do it themselves. With June, a family office scenario would be, hey I just don’t want to manage those properties and I have so much other money. How about I hire somebody who just makes sure that I’m getting a decent return? Then they go out and diversify and handle all her assets. But it doesn’t sound like she’s doing that. She’s just saying.

I just had this exact same scenario. I’m in the middle of one where the gal’s husband had passed away. She’s sitting on 46 houses and we’re buying them. She just wants enough money down to pick out the existing note that’s on it. Her biggest worry is running out of money. She doesn’t want to tax […] on these properties, just appreciation, recapture. They’ve had them for well over 20 years. She just wants an installment sale. The same scenario, she’s carrying the note. That’s all it is, and she’s going to recognize the tax […] over a period of years. We’re just going off of life expectancy, 20- or 30-year note on these properties. She’s happy because she has cash coming in guaranteed and secured.

She doesn’t have any more debt and she doesn’t have to worry about managing properties and she doesn’t have to worry about outliving her money. There’s enough money coming in where it’s actually an excess of her life expectancy. Sometimes there are scenarios where they just want to exit it out. Where do you find this deal?

Pace: With June?

Toby: Yeah.

Pace: We find all of our deals through the same exact facet, which is just texting, cold-calling. We have two driving for dollars guys. I have a team. This is also one of the businesses I own. We had so many cold-callers at one point, two years ago, that I said, let’s just create our virtual assistant business. Now we have over 300 clients there. I think that’s going to end up being a big exit for me, probably a $25 million, $30 million exits on that deal.

Toby: That’s very forward-thinking.

Pace: Yeah. That one’s good. People look at the acronym REI as real estate investing. I look at it as replace expenses with income. We’ve bought title companies, we’re on the verge of buying another four title companies because that’s completely passive for me. I go to a company like Title Alliance who has 900 branches and I go, I want to start another branch. Because I already have a brand, I just tell people, yeah I use Title Alliance. Next thing you know, they go from 0 files to 50 files in a month.

Toby: I’m scaling that.

Pace: Yeah, smart. You should. That’s a good one. I call it, replace expenses with income. A title company, transaction coordinating business. We do transaction coordination for all 50 states. I have a team of five girls, cold-callers, texters. We now have our own team, but we do it for 300 other people. I have a driving for dollars SaaS company, a software company. Anything that I spend money on we go, how do we turn that into a business?

Toby: That’s smart. Do you offer that to other people too?

Pace: Yeah, we offer all of that to other people.

Toby: We have a ton of wholesalers that are always saying, how do I learn, how do I do this. I’m like, sometimes it’s elbow grease. We find our deals by calling our property managers.

Pace: Yeah, this is a smart one. I would say there are three ways that I get deals. I do direct-to-seller. It’s so competitive in the wholesale world that I would say if you’re not using creative finance, you’re probably leaving half the money on the table. The second way I find deals is through referrals like other wholesalers. I go to other wholesalers and I JV with them.

June was actually brought to me by a wholesaler. I just call it reviving dead leads. I go on my Instagram and I go, hey wholesalers if you have any dead leads, let my team work them. We call the sellers and go, looks like you need a higher number, what did that look like? We can work out terms. We just start sifting through them.

Toby: How did the deal with June end up? If you don’t mind me asking.

Pace: No, I want you to. Anything, I’m an open book.

Toby: All right. With June, what’s your scenario? How much are the properties worth on average? Is it in the $100,000, $200,000, $300,000 range?

Pace: This particular house is actually worth $497,000, which is completely an outlier in her portfolio. It’s a really good house. I’ll pull this house up. I just got this from my Airbnb manager, Sonnet. This is when I was under contract with him where he was basically going through and just saying, you know what here are the fees, here’s what this is all going to look like. He was looking at $8000 a month.

We realized it’s about $12,000 a month on average because we’re on the blue wavelength, which is a higher point. Let’s see, this is the deed. Here’s the market report. My guy goes through, gives me the market report. We go through all this kind of stuff, and we figure out our nightly average. Our nightly average on this house will be somewhere on the green wavelength. Our bottom is about $300 a month. Our average goes all the way up to $475.

We average about $400 a month on this property. If I go back to my notes, I’ll break this down. I’ll show you guys how I structure these deals, and this is the fun part about creative finance. If $497,000 is my purchase price, I have to give this seller $10,000. I gave the wholesaler $5000. I have a closing cause, let’s say $4000 as well. Then I have $15,000 in furnishings, but I have a $35,000 renovation. This total dollar amount—actually, my numbers are a little bit off—but that total dollar amount that we raised was $70,000. I raised this, I have a private lender, second position. I showed that a little bit ago, second position deed of trust and his promissory note.

Toby: He just said hey Pace, when you give me that money, interest rate, is it a one-year, two-year, three-year?

Pace: Eight percent, five-year with an option to extend.

Toby: Nice. It’s good to have private lenders in your pocket.

Pace: Yeah, it’s really good. You know this. You walk around Vegas and get all the private lenders you would ever want, especially being in your position and your brand, all that kind of stuff.

Toby: That’s a little bit more. You’re getting a pretty good deal. Most of the guys I know want two points.

Pace: Oh yeah. All my money is like nurses. You and I can talk about that for hours. I can talk about all private money but the number one place I actually get my private money is from previous sellers because I’ve already done business with them. They’ve already gone to my title company. They know my process.

I call them back up and go, hey you know that $110,000 that we did? Would you want to invest that money into something else or did you just go buy a minivan with it? A lot of them are those people that don’t know that you could charge points. They don’t even know they could charge points. They become a lender for me, 8%-10% interest only. This is interest only, a lot of people think, is that amortized? It’s not, it’s interest-only.

Toby: You have a five-year balloon and then you just keep adding interest. A lot of times, they probably want you to extend. They’re just like, oh I like that interest.

Pace: Right. A lot of them will even forget they even gave us the money. Let’s say I bring in a $10,000 average income. I’m going to have months where it’s $8000 and I’m going to have months where it’s $12,000 depending on the time of year. If I average at $10,000 of income, I take out my note to the seller, $1900. I take out my $800 in property taxes and insurance tax.

I have an Airbnb manager that actually charges me only 10%. I feel like this is the great deal that I get, a 10% management fee. This guy is so great, all he does is he flies into the town, Whispering Grove, the property I own in Vegas, I’ve never seen the house. He goes in, sets up the utilities in his name. He goes and finds the furniture. He goes and does all the stuff and gets it set up. All the Airbnb goes through his account, he gets five-star ratings. I just get a check every single month which is great.

Toby: He’s the host.

Pace: Yeah, he’s the host, not me. I don’t deal with any of that stuff. I’ve got $10,000 in income, $1900 to seller note, $800 there. Let’s say my private lender is about $600 a month. I’ve got about $1000 a month in utilities, repairs, maintenance. Then I’ll put another deal in here for my private lender.

Toby: […] the 8%, $70,000, miscellaneous.

Pace: I’m going to do another $1000 for utilities and other stuff along those lines, cleaning fees, whatever. When you start talking about yield, I get guys that are like, what’s your yield on your properties? I’m like, my yield technically is infinite because I have $0 involved in my deal. I’ll break this down for your audience, some people are like, when do you pay? The number one lesson or question I get when people see me talking about this is when do you pay the private lender back. People are deathly afraid of private money for some reason. They know they need it but asking somebody for money and then not knowing exactly when you’re going to pay them back gets people really scared.

Toby: You still have the first note too, right?

Pace: Yeah. Here’s the first note here.

Toby: Oh, seller note, I’m sorry.

Pace: Yeah, seller note, my private lender here, management fee, insurance taxes, miscellaneous, and then just for good measure, I put good measure here for utilities, all that kind of stuff. My total net cash flow on this deal is $3700 a month in net, that’s after everything. That’s even after my good measure account where I basically just put money in there and wait for pillows to rip and things that need to be replaced, and all that stuff.

You have three choices, you can either live on the cash flow which I’d never do. Two, you can reinvest which is what we typically do. We’ll go bundle this money and go buy another deal. Three, you can just pay down your lender. We can number one, make the minimum payment because it’s interest-only.

Toby: But they don’t really want you to pay them down.

Pace: No, that’s the thing. I don’t have a single lender that asked me, when am I getting paid back? It’s just not something that lenders do.

Toby: They wouldn’t do a carry if they wanted to be paid back.

Pace: No.

Toby: Usually they want the money over a long horizon so that again, their cash gets spread out. They have the bases returned with a zero tax. They have the interest, which is ordinary income. They have capital gains which, if their income is low enough, is zero. If they’re below $80,000, they’re married, or $40,000 and they’re single, it’s zero. Then you have a little depreciation recapture which is their ordinary bracket capped at 25%. A savvy person who’s done this for a while is saying, don’t pay me. Hey Pace, don’t pay me, hang out.

Pace: What I’ve learned recently because of you and here’s what I’ll do. Her property is a range. We just got five more under contract. Basically, as she has tenants moving out of the properties. It is when we’re acquiring and closing, and turning those into either Airbnbs or lease option exits. I’d say the average home is $350 or under, but that was a higher-priced home. It’s on a lake in a golf community, a great Airbnb exit. It was a no-brainer.

With her, I think she’ll pass away before we get to buy all her properties. I think she’s at the end of her lifespan. Anyway, the main thing I took away from you, this is the thing I cannot stop talking to my buddies about, and I get people to be like, dude get me Toby’s information. I gave them to Cory. Essentially, the conversation of okay, once I depreciate the asset. I’m going to go through, I’m going to do my bonus depreciation my first year, and then I’m going to finish out my depreciation over a long term. Now I have no depreciation left on this house. I’ve bled that depreciation dry. Most people are like, what do you do?

I can 1031, but at some point, you get to a point in your life where you’re like, dude, I can’t just keep buying properties. I don’t have the energy for this. Oh my gosh, it feels like a job sometimes. That’s one, yes 1031 exchange, but the charity dude. The charity was such a big key for me. I feel like spending that day listening to you talk about this stuff gave me no joke millions and millions of dollars of value. Now, I know where to put my properties.

I know now how to allocate the type of charity I’m going to have to make sure that I’m doing veteran housing or low-income housing, section eight, whatever, to keep myself in that good standing. Then the freaking part about—I don’t know if you were there when Greg Boots was there the next day. Greg was going on about, yeah you have your public charity. Is it a private charity or a public?

Toby: Public charity, what you’re doing with the low-income and moderate-income housing.

Pace: There you go. The public charity then loans money to my whole life insurance policy.

Toby: Yeah, you’re talking about a split down.

Pace: Dude, I’m sitting here thinking, these guys are like—here are the Jedi knights, these guys at Anderson Business Advisors are like the Jedis of the Jedi. It’s insane.

Toby: We didn’t invent it, just so you know.

Pace: I know, but you guys articulate it. That’s the thing that a lot of people don’t value is that taking all this information. I know it’s been around for hundreds of years or 50 years or whatever it is, but the ability to articulate it in a way that other people can understand it and condense that learning curve from 10 years to 10 days or 10 hours? Dude, it’s a gift.

Toby: What you just went through is because you do it. It’s simple to you and people are probably, their heads just popped. People are like, you have to have money to make money. You have to have some opportunities and know how to take advantage of them. You don’t have to have the money to make the money. You have to have access to money to make the money but it doesn’t have to be yours necessarily.

In the actual and in this room, there are incentives that the government gives us to do certain activities. One of the things is there’s a complete lack of low- to moderate-income housing. It’s been dropping because everybody’s been putting houses in play for the people making more than $75,000 a year. Even that can be considered moderate-income housing. But that’s a charitable activity if you want it.

All they’re doing is saying if you’re willing to do this, here’s the incentive we’ll give you. They’ll let you write it off at fair market value, for an unappreciated asset. They limit it to 30% of your adjusted gross income, that’s how much you can write off, but you can give away a ton. The beautiful part is that, like we were talking about with June’s son, when charities don’t die and nobody owns them. They’re run by people.

Here’s June, who’s obviously scratching her head about what to do with her son, and she probably hasn’t talked to anybody who’s been through this scenario. If they did, or she was lucky enough to meet you. You gave her a solution. Because if they did, they would say, your son won’t know how to manage the money so don’t give it to him. Give him some of the income, but whatever you do, don’t give him that pressure. Because money is pressure.

It’s like I’ll give somebody a cup of coffee and I’ll say, isn’t that heavy? They’ll go, no. I’ll say, put it out there at the end of your arm. Let’s talk in about an hour, and tell me if it’s heavy. They’re like, holy crap. After about five minutes, they’re doing a little shaky thing. That’s money, that’s pressure. If somebody’s not ready for it, they don’t know where to put it. They’re going to be holding it out there. They’re going to get the shakes, and somebody’s going to walk up and say, hey do you want me to hold that for you. Then you’re going to hand it to them.

Pace: Great analogy.

Toby: That person will usually get some sophisticated bank who’s just going to rip them off. So if you care about people, you’re not going to give them something they’re not prepared for. You don’t give them the coffee, still. You just let them pick up the cup and sip. You don’t let them sell it. You don’t let them get rid of it or do anything else. That’s a bottomless coffee cup if you don’t let them sell it. That’s one of those things. There are only two ways that you could really go about it—trust and charitable organizations. That will last for a long, long time. They can go pretty much infinitely and the foundations never die.

Pace: Yeah, that was a big takeaway for me. I actually deep-dove on the Hershey Foundation and what’s his name? Hughes.

Toby: Howard Hughes?

Pace: Howard Hughes is insane.

Toby: That was 50 years ago. It’s now the largest medical philanthropic organization—500 million a year that it gives up. It was set up because the government was scared because he was going nutty. He got some taxpayers, the society getting a huge benefit, and it wasn’t wasted. There was always fund. What you’re doing is very simple, people can understand it. It’s like, I want to make sure we talk about your backdrop there, the mural behind you.

You are able to tell a story from experience, and it’s no different in tax. It’s no different in real estate. It’s no different in the stock market. If the people that tell stories from non-experience, and then they have to fill the gaps in where those lack of experience with made-up BS, and that’s what a lot of the TV stuff is. That’s what a lot of the gurus that run around out there are telling you to do something, and they’d never done it themselves. They’re telling somebody else’s story. Speaking of stories, we have to hear about the mural behind you.

Pace: Atlanta is one of my favorite cities of all time. I love Atlanta. I know you’ve probably spoken at events there a hundred times. It’s a great city, great food, amazing people. I go out there. I buy a $1.5 million home on seller finance, 2%, 30-year carry, and I fly out there to go see the property. I’m going to turn it into an Airbnb, and I cruise around for a couple of days, and I see this mural. It’s in Little Five Points. If anybody ever wants to Google it, it’s Little Five Points Atlanta. Type in Outkast.

Essentially, I go there. I’m just blown away because I love these two guys. It’s Andre 3000 and Big Boi from the rap duo, Outkast. They’re just the greatest storytellers. They talk about the things they went through, how they built up their marketing, how they did this—everything they do, they tell a story. It’s not just some rapping about drugs or this, then the other. It’s always telling a story. In fact, they have two songs called The Art of Storytelling Part 1, and The Art of Storytelling Part 2.

That’s how important storytelling is for them. For guys like you and guys like me, essentially what do we do all day long? We figure out how do I craft a story? Or how do I take a third-party story of something I’ve gone through, and adapt it to somebody’s life so that they either A, take action or B, they understand something in five minutes that took me five years?

We’ve had to essentially go through a lot of this stuff. That’s why you can go on for nine hours and not run out of content because you have story after story after real-life story. I’m sitting there, I’m not a note-taker normally, but I actually took down notes. I’m like, I’m going to go through line by line by line in my hotel room tonight. I started going through stuff. I watched a YouTube video you guys did two years ago. You personally did it two years ago. I think I’ve watched it four times. I’m like, these guys are great storytellers, amazing storytellers.

Toby: You guys love tax and asset protection.

Pace: I do, right now yeah. In the last couple of years, we’ve made good money. The goal for me is how do I have every business that I’m a part of, I can say, turn off all the other 12 businesses and this one business could operate my income for the rest of my life. Okay great, let’s go do that 10 times, or let’s do that 12 times.

I also just look at buddies of mine. I had this buddy sitting next to me in this mastermind where you were speaking for nine hours. He turns over to me and goes, I spent $480,000 last year on taxes, why didn’t anybody tell me this stuff? I go, how have you not known what depreciation is? How have you not known that? I felt like I was probably in the top 1% of intelligent people in terms of understanding depreciation and why you should buy properties and all the tax incentives and all that kind of stuff. But I had no idea the stuff that you had gone into. I absorbed it for the last six weeks. Just absorbed them and it’s been so fun.

It’s all I’m talking about with all my students and other people that I talk to. They’re like, Pace, what are the things you’re working on? I’m like okay, you guys have to go to this YouTube channel, you got to go research Toby, you got to go see what Clint and those guys were doing. They’re crushing. These guys are freaking geniuses. I appreciate everything you guys are doing tremendously.

Toby: We just know it’s really hard to make it while people are able to keep it. I was so broke when I started. I hung my shingle out when I got out of law school. I never wanted to work for a firm. I always joke about it, but my first experience of the tax work—because you don’t learn it in school, even CPAs, maybe EAs to a certain extent will learn some of the tax strategies, but definitely none in school—I went out and met with an accountant and he made me feel like an idiot. It’s one of those things where the shame of not knowing and starting out in fear of when you’re starting something from nothing.

I literally live in a 400 sqft box with my wife and she’s like, I didn’t graduate at the bottom of the class. I was really close to the top. Had lots of opportunities in Seattle and she was like, why aren’t you working for a firm? You could be making six figures and all this stuff. I was like, that’s not why I went to school with the law school because I was independent. I want to be able to do my own thing. I had to find it out by necessity.

As soon as you start getting into that stuff, it’s like it’s your deal and it’s impacting you, it becomes very real. It’s actually a memory system. It’s your activator system that gets triggered when something is relevant to you and all of a sudden the noise drops away. When you’re sitting there, I was talking to a mastermind group in Miami. That’s where Pace and I met. I come up and I talk to that gig once a year, they give me an hour and a half every year. Which never is an hour, hour, and a half. It’s always fun.

Pace: Thanks bud.

Toby: It’s relevant to you guys. But for a lot of people, it wouldn’t be relevant. Even your partner, the person that’s sitting next to you, and all of a sudden that pain is very real for him. He’s like, holy moly. He just looked and now, it’s relevant. Now his mind’s going to hear a lot of the stuff. Unfortunately, for most people, that’s what it takes. They got to touch the burner around the stove before they’re like, woah, that’s hot.

Pace: Yeah. It’s a lot more fun. The same thing with me. I’ll talk to people in my mentorship. I’ll talk about a lease option. They’ll come into a Zoom. I do probably 4-8 Zooms a week just depending on topics and GAAS and all that kind of stuff. I’ll get a student that I deep dove on lease options and then three months later, they run into a lease option. They come in and it’s like, they ask me all the questions that I’ve already answered. The thing is I had to learn as a mentor and as an educator, they weren’t ready for it. When I see people say stuff on TikTok, Instagram, and YouTube like they don’t teach this stuff in school because they want to hold us down. I go, dude, you’re not ready for it. You didn’t even finish your homework and now you want people to talk about cost segregation. Come on, dude.

Toby: I got to pull this up for you. I’m going to mess up with you for a second. Have you ever done the Finish Files?

Pace: I don’t think so.

Toby: This will be fun. I’m going to mess with you if you let me if you don’t mind.

Pace: Yeah, please. Because I know I’m going to use this on somebody else, I imagine.

Toby: You can probably take this.

Pace: What’s it called? The Finish Files?

Toby: Finish Files, right. I’m going to show you this. I just put it right over the top of you. But what I’m going to do is clear this out with you real quick. I don’t have the wherewithal to switch this material on that screen. I’m going to share this one screen. I’m going to say count the Fs in the following sentence. Count the Fs that you see in the sentence that starts Finish Files. How many Fs? Anybody that’s out there can play along. When you have a hundred people doing it, it’s absolutely hilarious.

Pace: Three?

Toby: You see three? Keep counting. Tell me if you find any more.

Pace: One, two, three. Oh my gosh! Now I’m at five. Six! I skip over the of.

Toby: Yup. See, your brain can’t see the of when you first come into it.

Pace: Oh my gosh. One, two, three, four, five, six. That’s so dang good.

Toby: Your body will let you see it. Your brain will literally not let you see it. It’s called illusion, there’s frequency illusion. Our bodies will not allow us to see certain things unless it’s relevant to you. I could’ve let you sit there and suffer. There are people that even when I tell them there are six, they still can’t see the ofs. Your brain completely blocks it up. They can’t see it. It could be right in front of your face and you just never saw it before.

Pace: What’s funny, Toby, because I know what you’re doing. I know there’s something I’m missing. I’m slowing down and I’m scanning word by word in my brain. Even though I slowed down and scanned word by word, I still skipped over the ofs.

Toby: I do this when you have a thousand people, you do it when you have the hundred. It’s usually about half the people who see three, about 10%-20% already know it. I was one of the people that saw three the first time I did it 20 years ago. There’s a whole bunch of them. I love the way my mind works. It’s because, in order for you to actually see it, there has to be relevance. It’s the frequency illusion. That’s what it’s called.

Pace: Frequency illusion.

Toby: Baader–Meinhof syndrome. There are all these cool names for it. Baader–Meinhof was this German group. I won’t get into all of it. The easiest one to understand is when you’re driving around looking for a new car and you say, I’m thinking about buying a Jeep. Then you’re driving home and you see 10 Jeeps on the way home. That’s just because your brain is now like, Jeep is relevant. Show him the Jeeps.

Pace: It’s so weird. It’s an algorithm that your brain even starts feeding you. It’s like an Instagram algorithm. It’s like, holy crap, this guy likes guns. Fee him guns, feed him guns.

Toby: That’s it, 100%. You just nailed it.

Pace: I didn’t know it was called that. But I call it the Tacoma effect because when I first had a little Toyota Tacoma, I don’t drive one now, I thought I was the coolest badass on the planet. Nobody else has the Tacoma. I’m a badass. I’m a dumbass because I didn’t realize how many people had to Tacomas until I actually was driving in one.

Toby: Now you can see them.

Pace: Super interesting it’s a lot of people. Same thing with people trying to learn real estate or taxes or anything else. They jump in and they go through a three-month coaching course and they’re like why don’t I know everything? Because you aren’t ready. Even if I gave you all the tools and all the information, none of it was pertinent, none of it was important at the time. It’s like giving you a hammer when you have an important foundation.

Toby: You know who it’s relevant for? Anybody who’s doing it. The people that want to do it, it’s not necessarily relevant for you. They’ll pick up on parts, but they’ll see half of it using the ofs. They’ll count half of the Fs. They’ll see three of them. They won’t see the full picture until they’re actually doing it.

Pace: Gosh, damn it. Toby, that’s so good. I’m going to use this a hundred times.

Toby: I steal yours. You can steal mine. But you tell people, the only way you learn to do something is by doing it because we can’t learn it out of a book. Unfortunately, in the tax world and in the real estate world, people learn from books. In the tax world, most accountants weren’t forced to go run a company. They learn all the accounting. They learned it out of a book, trying to learn somebody else’s and it wasn’t relevant to them. They only see half of the picture.

Until you have your own deal, then you see the other half. That’s why what we live, eat, and breathe is obvious to anybody that’s in this world that does it, but it’s such a small percentage of people that do it. It’s not relevant to 95% of the folks out there. You’re a top-notch real estate investor and you’re doing deals, all of sudden, the step becomes relevant. You’re like, why didn’t anybody tell me about it? It’s because they couldn’t see it. They could see about half the picture.

Pace: Even if they did tell me, I probably would’ve come in one year now not the other. I would’ve been like, this is boring.

Toby: It wouldn’t have been relevant to you at that time.

Pace: So crazy.

Toby: But fun.

Pace: I’m going to do this right now so I have a podcast we run at 5:00 PM on Mondays called Wholesale Hotline. We get anywhere between 800-1000 people to watch it live. I’m going to throw this on the screen and be like Toby Matthis from Anderson Law Group just made me look like a dumbass.

Toby: I didn’t remember who I stole it from. There’s somebody in the stock market thing. They were just like, you’re not going to know until you actually do it because people are always like, I can’t enter the market until I know exactly what I’m doing. You have to get your ass kicked a little bit.

Pace: That’s step two. Check this out Toby, guess what I’m doing. I’m doing this really cool thing. The top three questions I get from so many people—I know we’ve gone way longer than you normally go but I think you’ll get a kick out of this—the top three questions I get as a real estate investor are number one, how do I start? That is number one. Number two is if you were going to start all over from scratch right now, with only $500 in your pocket, what would you do? They want somebody to come in and give them a blueprint step by step.

What I’m doing is I’m doing this challenge. It’s called The Challenge. I’m going to be doing it for 30 days. I’m letting my audience choose the state and the city that I start. I’m going to go sit on a park bench. I’m going to fly in with no resources. I’m going to have one change of clothes, not a penny in my pocket and I’m going to sleep on a park bench night one and I have 30 days to do a real estate deal.

I have no money. I have no food, I have no water. I have nothing. I have a cellphone, but it doesn’t have any of my contacts in it.

Toby: That’s going to be fun. That’s going to be brutal.

Pace: I’m going to hire a videographer who is going to film me and I’m going to show people, look, one thing I’m taking right now is I go, alright guys, give me all the excuses that you’ve ever heard of why people can’t succeed in this business because I want to impose those excuses on myself. One guy goes, yeah, but you’re not going to have a 9-5. I have a 9-5. I go, I’ll go get a 9-5. In fact, I’ll go to another rehabber in that area and I’ll go swing a hammer for him from 6:00 AM until 3:00 PM. I’ll still work limited hours in real estate investing and I’ll still go and get a deal with no resources other than what I know.

Toby: That’s awesome.

Pace: We’re going to document it. I’m going to probably end up writing a book about it. That’s the thing, too. You know this. You’ve tried to get people to understand things or maybe take action on certain things. They just don’t do it because either A, they don’t want to or B, they’re lazy. I don’t know what it is.

Toby: They’re scared. It’s usually fear that keeps you petrified and you have to decide whether you’re going to do it or not. Oftentimes, it’s a fear of non-conformity. Everybody is telling you how you can’t do it and it’s easier to accept it. It’s like crabs. Have you ever seen a crab pot? You don’t have to put a lid on it. Once the crabs are in there, any crab trying to get out, their buddies will grab their legs and yank them right back down.

Pace: That’s one of my favorite stories. I was in a mastermind five years ago and I got up in the middle of it because they just had this whole negative vibe about whatever. I got up in the middle of it. I started walking out. One guy goes, where are you going? I go, I got to leave this bucket of crabs.

Toby: That is awesome.

Pace: I have to get out of this bucket of crabs. Nobody knew what it meant but me because the blue crab, anybody that’s listening to this podcast right now, go look it up. The blue crab, as Toby said, doesn’t need you to put a lid on it. They’ll just keep pulling each other down. They’ll never let each other out of the bucket.

Toby: It’s 100% true. I used to live in Seattle […] and all the deadliest pitch ships. That’s where they come down in the off-season then get their work down the station. There’s a terminal. We’d always been looking at them and you have these big tables where they have these king crabs where they’re two or three feet. They should be able to get away pretty easily on anything. The tables have about a six-inch clip on them. It’s like, no, once they’re up there, they’re up there. They can’t get out. Nobody is going to let them. The freedom. We’re going to keep you here with us.

Pace: It’s like the story about the elephant. If you train an elephant, you put a wooden peg in the ground with an elephant, you tie a rope to the wooden peg, and the elephant’s neck. You do that for about 30 days, you can cut the rope and the elephant will still never leave that wood peg.

Toby: That is freakish.

Pace: That’s crazy.

Toby: That’s the world. Once you realize that then you could say, anybody puts a rope around my neck, I’m going to push against it, pull against it. If they cut that rope, I’m running. The same thing if you’re surrounded by crabs—get away, run, scramble even if you have one leg. Get off the table. Hey, I do get to roll.

Pace: Of course.

Toby: Pace, I’m going to put up all your information so people can follow you. I’ll make sure Patty gets all of that. We’ll put it up there. You’re one of my favorite people that I’ve ever gotten to do a podcast with.

Pace: Same thing here. If you feel compelled, I’d love to have you in my mentorship and introduce my people to you, if you ever have the time.

Toby: I’d love to. Anybody that’s willing to teach and let people do.

Pace: It’s all we do, man. I’ve had my program out. In nine months, we have 1500 students, highly active people. They would die to see you.

Toby: We’ll do it then. I really appreciate you, man.

Pace: Thank you, brother. Have a good day.

Toby: You too.

Thank you for listening to today’s podcast. Show notes for links to everything mentioned in this episode can be found on our website at andersonadvisors.com/podcast. Be sure you subscribe to our podcast and if you are already a subscriber, please provide us a review of what you thought of this episode.

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