If you haven’t watched “Triple Digit Flip” on A&E yet, you need to because it’s tough to find real deals. What do you need to look at when analyzing properties and going through the numbers?
Today, Clint Coons of Anderson Business Advisors talks to Pace Morby, who shares his real estate investing secrets for 2022. If you haven’t listened to Pace’s first episode, go to Creative Financing Strategies with Pace Morby.
Pace is on a mission to bring others value and snuff out the fluff in the industry. He is known as the go to “subto guy” bringing creative strategies to the mainstream real estate investment industry.
Pace and his partner have amassed more than $32 million in buy-and-hold properties while operating wholesale, fix-and-flip, and other symbiotic businesses.
Also, Pace’s high energy and no BS approach attracts loyal followers across social media. He is able to tell stories and crush it when closing sellers.
Highlights/Topics:
- Highest and Best Offer: How much are you willing to pay for a property?
- Wholesale vs. Cash: Seller is willing to work with cash or terms in competitive market
- Secure Creative Financing: Structure loan the right way to buy deals and not overpay
- Why? Sellers accept terms rather than cash because of tax liability and capital gains
- Morby Method: Use better negotiation tactics or find lender to get a non-recourse loan
- Cash Flow: Do you listen and follow Robert Kiyosaki or Dave Ramsey’s advice?
- Where to find off-market deals and comp listings? PropStream or BatchLeads
- Triple Digit Flip: How to get selected and start in real estate for free with Pace
Resources:
Pace Morby Mentorship: http://subto.com/
Pace Morby Ebook: Subto Seller Spells
Pace Morby on Youtube: https://www.youtube.com/c/PaceMorby
Pace Morby on Instagram: https://www.instagram.com/pacemorby/
Facebook Group: Creative Financing with Pace Morby
Full Episode Transcript:
Clint: Hey, what’s up guys. It’s Clint Coons here with Anderson Business Advisors. I promised you that I was going to bring back Pace and we were going to do episode two on the phenomenal methods he has put together to buy real estate. He’s got his new show out on A&E called Triple Digit Flip. If you haven’t watched it, man, I don’t know what the hell you’re doing at night but you ought to be watching that show because it’s really interesting.
It’s not like the other ones that are out there where it’s all glam and people walk around acting stupid. These are real deals that people are putting together, what you look at analyzing the property, going through the number, and how that works. […] going through these deals and I’m a real estate investor so it’s interesting to me. Pace, thanks for coming back on. I know it’s hard to get you because you’re a big TV star now, but we appreciate the time.
Pace: Bro, I would do anything for anybody at Anderson Business Advisors. You guys, for a very long time, have been people I’m following. You guys are my idols. I love all of you guys there. Your whole entire team is amazing. Thank you. Thank you for having me. We just had a baby, and we were actually scheduled I think a week or maybe two weeks ago and I had to reschedule because my wife was going into labor. Thank you for accommodating me and being super patient. Thank you so much.
Clint: Is this your second one?
Pace: This is number three.
Clint: You’ve been through two.
Pace: We were done with it in an hour and a half. It’s no big deal.
Clint: Yeah, right. I’m going to play golf. I already did two of these.
Pace: Basically.
Clint: Here’s the deal, In the first one, we were talking about buying on terms and you’re going through some examples. The reason I want to get you back on here is because, in this market, it’s just kind of crazy. You’re trying to find deals and sellers know that it’s all in their favor right now. I just closed on a piece of property locally next to my house because I needed somewhere to park my boat and RV and submit your highest and best offer. We’re going to review the offers on this date, and get your offer in or you won’t even be considered.
When you’re up against something like that, it makes it really tough to figure out how much am I willing to pay for this because there’s really no negotiation, but you’re still doing this. I know that’s going to be a lot of interesting people so maybe you could touch on that for this episode. I think it’d be awesome.
Pace: I think that most people trying to jump into real estate are thinking wholesale is probably the easiest lowest hanging fruit because I don’t have to have any money. I just have to go find a distressed seller, get them into a contract, and essentially sell that at a $10,000 finder’s fee, a wholesale commission, or an assignment fee, whatever you want to call it.
What I see is that it is really incredibly competitive in the cash world. The cash world is oversaturated and it is a lot like that. In fact, on our retail deals, we’re doing the same thing, Clint. We’re putting our house on the market on Thursday and we’re not even looking at any offers until Monday. We don’t even look at them.
When that happens, here’s what is going on. The buyer’s agents, which there could be 40, 50 offers on the house that we’re flipping, all are hammering my agent—my wife is my agent. They’re just calling at 10:00, 11:00, 12:00. They’re submitting letters about their buyer and they’re telling all these sob stories and all that kind of stuff. We, as the seller in that position, have all the power. We used to go, we’re not even looking at anything until Monday at noon, so submit your highest and best now.
I love the position and I feel the power. You can feel the power rolling through your veins when you’re in that position like I’m some superhero, but I’m also the buyer half the day. I’m going out and looking for deals just like anybody else and my team is looking for deals. We feel that on our cash side. It is really, really challenging and you feel the pinch with every seller.
In fact, we had a seller a couple of days ago. I like the offer. One of my team members’ names is Mark. Mark says this is where we need to be. The seller says I like it, let’s move forward. Okay, well, we send over the paperwork and what happens? We don’t hear anything from the seller and so we have to follow up and then they come back and they go, well, I got an offer of $20,000 higher. Okay, well, if we raise our price $20,000 can we get the deal done? This went on three times until finally we just went, oh my gosh, we’re walking away. The seller is just playing games with us.
Even the distressed market, the people who are going through foreclosure, the people who are going through bankruptcy, probate, et cetera are playing games. They’re savvy to the fact that this is a seller’s market. You’re either going to work with cash or you’re going to work with terms. I am just sweeping the floor up on deals with terms. I’ll give you a couple of examples.
I’ve got an 18-plex in Alabama that I’m currently paying full retail for, I’m getting the seller about $200,000 more than anybody else was willing to offer her, and she’s sitting here. This is what’s so funny about this. She goes, I don’t believe you’re real. You’re offering way more than anybody else.
Literally, Clint, I want to pull this up. This just happened. She sends me a text message. Her name is Morgan and she says, we are hesitant. We feel like you’re offering too much and we don’t know you. We need to meet you in person. Can we put a clause in here that states that we will not close the contract until we meet you physically in person to make sure you are real? The seller of this 18-plex right now doesn’t believe that I’m even a human. They feel like I’m a robot because I can offer so much more.
It’s not that I’m even paying more. It’s just that my terms are so favorable to me that really the purchase price is insignificant. The deal is $2 million for an 18 unit multifamily in Alabama. The deal is I’m giving her 4% down, so I’m giving her $80,000 down and she’s giving me 0% seller financing on the remaining $1.92 million. The thing that got her excited is I’m paying $200,000 more than anybody else.
She says, look, I’m down. All I care about as the seller is that I got the $2 million that I was shooting for, the highest and best was $1.8 million. I know one of the other cash buyers that’s trying to offer $1.8 million. He says you’re overpaying for the property, Pace. You’re crazy. I go okay, well let’s do the math. If you buy it at $1.8 million and you go secure financing, let’s say, at 4.5%, over the term of your loan, you will end up paying close to $4 million on this asset. However, over the course of mine, I will only pay exactly what my purchase price was because I structured it the right way.
In this market when you’re having a hard time buying deals, even fix and flip, we can buy fix and flips with creative finance, we can buy multifamily, mobile home parks, single-family. If you guys are following me on Instagram, I just bought a car subject to. The seller was going through leukemia and couldn’t afford his car payments, I just took them over. You can take over so many things with terms and pay the appropriate price to the seller, but also structure terms that are in favor of you.
For me, the property will cash flow, yes, but the most significant thing for me is that every month when I make a payment to that seller, I am paying down principal 100% from day one. Whereas in an amortization schedule, Clint, you know this better than anybody else, my first 10 years of my 30-year loan were primarily interest only, and here I am in a 30-year term with this lady at no interest, just principal only. My payment is paying down 100% principal every single month. I am underpaying for the property because of the way I structured the deal.
Clint: Why would she accept your deal rather than take cash for the property from another buyer who is going to go and finance and then pay her off and she walks away with $2 million or $1.8 million?
Pace: Okay, this is a couple of things why. Number one is if she pays it right out of the gate. You know this, if she sells a house to me right now, does she have a taxable event for that full $1.8 million? Whereas if I buy at $2 million, she has a taxable event, but it is spread out over a much longer period of time. She only gets taxed on the money she actually receives. Is that correct?
Clint: Correct.
Pace: Because the IRS is not going to tax her in the future and say, hey, you sold this property for $2 million, you essentially have all these gains, pay us right now. What if I default on my loan? Will she go back to the IRS and say, give me my money back, this guy actually never performed? For her, she sees this as a way to spread out her tax liability, and then also, she sees it as a way to lock in her gains.
She looks at a $2 million purchase or sale and she goes, I don’t need the money right now but if I can lock in $2 million with this guy, I know for sure that I squeezed out every drop of juice out of this deal, and I’m happy. The only thing she cared about was $2 million, $2 million, $2 million.
When they bought the property, she and her husband, the number one thing they had on their board was to sell that property to somebody for $2 million, that was it. It wasn’t about interest rate or seller financing. It was just $2 million, $2 million, $2 million. If I was her financial advisor, I would probably tell her not to sell any assets for the rest of her life. Why are you selling any assets? That’s what I would tell her, but I’m not her financial advisor. I’m a businessman working on a deal with another business person.
The other reason why $80,000 as a down payment was very significant to her is that she has another deal she’s working on where she needs $80,000 in capital. She says, if I can get that $80,000, I can go put it into another deal. She’s building 48 units and she needs $48,000 to release some sort of loan to her. For her, I found the pain that she was going through and I said I can solve and fix that pain with $80,000.
If I’m brand new and I’m listening to this podcast, I would be scared shitless because I have to come up with $80,000 for an 18-plex. The reality is I’m actually not even coming up with $80,000. I’m bringing in a private money lender that’s going to bring the $80,000 plus my closing costs so I have structured a deal to own 18 units already rented, already renovated, cash flowing right now, 0% interest by using somebody else’s money and somebody else’s asset. I win all day long in that scenario.
How do I pay my private money lender back? I could either refinance in five years and pay them off, I could pay them out with my cash flow, or you could even technically bring them on as an actual partner in the deal if you don’t want them to be a “lender”. There are a dozen different ways to skin that cat, I just chose to say you guys bring the $80,000 to the table, I’m bringing the deal, I’ll pay you interest only for five years, and I’ll refinance you out in five years as the property appreciates, and I pay my mortgage down 100% principal over the next five years.
Clint: What’s interesting about that I think is the psychological factor that you tapped into, which I think some people don’t realize is that when you approach a seller and you give them that number that’s far and beyond what the next guy is, they just get fixated on that. Then you throw in there, hey, they hear the tax savings as well the way we’re going to structure this, and then they’re like, I’m all in. That is important that I hope that people that are watching this right now are picking up on that, that is a negotiating tactic that you’re using to psychologically figure out what their concerns are and then solve those issues for them to help them get to yes.
Pace: I’ve got another seller right now, his name is Caesar. This is an interesting instruction, I actually have some good questions for you on this one. I haven’t seen anybody do it this way so I’m calling it the Morby method, and if you guys go on my YouTube channel, I have a little bit more of a breakdown because this will melt some people’s brains.
I’ve done deals, Clint, I know you guys have done deals this way as well, owner finance where the seller will just finance the whole property to you. Easy, simple. Well, that’s great. What happens when a seller says you know what, Pace? I have a wedding coming up for my daughter, my wife needs surgery, I’m buying another deal, we’re trying to pay off this other thing, and they’re demanding that if I seller finance it to you, I really need a large down payment in order for me to create a seller finance note. I go, okay, that’s not going to work for me. It’s either, (a) I get better at negotiating or (b) I created another solution.
The solution I created was, there are a couple of companies that do this like myinvestorloan.com is a really good one. There are lenders everywhere, guys. You guys can find lenders, but myinvestorloan.com is who we use. I go to them and I get a non-recourse loan, which means it doesn’t go against my credit. If I default on the thing, they don’t come after me, they don’t take my assets or anything like that. It’s a very simple type of loan to get.
MyInvestorLoan will bring 75% of the purchase to the closing table and then the seller will seller finance the other 25%. Essentially, let’s say I have a $500,000 purchase price with the seller, I can go to a company like MyInvestorLoan and say you guys bring the money to the table, the seller is going to seller finance my down payment so I’m essentially into the deal with no money.
The seller gets a massive downpayment and I get what I want where I get into the deal with very little money out of pocket, not using really any credit, not anything else. Well, that is amazing and that happens all the time. People do this in multifamily quite often, especially big, big purchases of $20 million, $30 million, $40 million.
You’ll go to a big company like Marcus Millichap or one of these big lenders, they’ll bring 70% or 75% of the money to the table and then the seller, because they know that the purchase is a big one, they’ll say, hey, I’ll seller finance the last $5 million to you for the next three or five years so you can raise rents and refinance me out.
This happens all the time. All the time. It’s been happening for a long time. I didn’t invent that. Who knows who invented that? But what’s happening now more and more is that lenders are starting to say I don’t want to have the seller create a second note behind our first note. That might be confusing and why wouldn’t they want that? Well, what that does is that gives the seller a position of strength. If you default, that seller can actually go and foreclose on everybody forcing the first position to foreclose on you as well and that might not be the strategy that your lender wants to take. These lenders are saying we don’t want any more sellers seller financing in the second position.
What we’ve done recently, we’ve got a deal with a gentleman named Caesar. Caesar is now doing big projects. He’s another big investor and he’s bigger than me, doing bigger projects than me. He’s doing deals for the Pentagon. He’s looking at his Airbnbs, he’s looking at all his single-family stuff, and he says, it’s time for me to trade up, but I’m a really smart investor so I want to sell at full retail. I don’t want to leave anything on the table. I’m going to take my proceeds and then I’m going to go and roll those into some other deals.
Okay, I go to Caesar and go, Caesar, I’m an investor and you’re an investor. Here’s my goal, I want to give you full retail. Literally, this is my conversation with Caesar. Caesar, I want to give you full retail on your six Airbnbs that are already furnished, already cash flowed in Florida, and I will bring your down payment. It’s about a $2.5 million purchase for these six properties.
He goes, I want $500,000 down. I go, well Caesar, how about I bring a loan to the table and my lender will bring 75% down so they actually give like $1.5 million down? He says, I would love that, that would be amazing. I could actually do more with that and then I don’t have to seller finance as much to you. He’s going to seller finance about $700,000 to me. However, he can’t do it in second position, because my lender will not allow it.
What I’m doing instead is I’m bringing Caesar into my LLC which will own the property, and my buyout agreement for my “partner” will be the same terms of what my original seller finance transaction would have been. I’m calling that the Morby method.
I’ve got a bunch of deals in the pipeline. It unlocked another level where now I’m going back to all my leads that wanted way too much money down and I’m like I can make that deal work, I can make that deal work, I can make that deal work. Now I’m all of a sudden overwhelmed with deals because I unlocked another strategy that nobody was telling me about. I just figured this out.
This Morby method, I’ll break it down, I’ll even give you guys paperwork, I’ll give it to Clint. I’ll give you guys the paperwork in which I’m structuring and Clint can decide to share it or not share it on the channel, whatever.
Clint: Sell it to them.
Pace: I’ll sell it to them, whatever, I’ll give it away. I always give everything away. Clint, my question is, let’s say the seller is seller financing the back end seller finance note to me and I can’t have a second position. What I do is I bring the seller into my LLC and what he does is he has a contribution to my LLC. Then I have a buyout agreement, essentially, for that contribution at whatever terms that is. Is there a specific way that that seller gets taxed on those gains differently, or is it still going to be the exact same because essentially, it pertained to the real estate transaction? Interesting, huh?
Clint: In that scenario, what you’d want to do is definitely execute that purchase and sale of his interest immediately so he doesn’t become a full-fledged member for even a year, more than one day, because then he’d be entitled to cash flow and even entitled to depreciation off that property. You could probably get there a different way.
The way you might consider it would be cleaner, so that he never shows up on an operating agreement, especially at 20%. I know you already have the lender there. One of the concerns that come up a lot in financing is that if there’s a member with 20% or greater interest—I’ve seen some banks go down to 15%—and you’re trying to get a loan, they’re going to run him his credit, look at that person in order to get the docs completed.
Pace: That’s why we’re completing two separate transactions. Completing the first transaction—escrows closed, the deed is transferred into my LLC, we then create a second leg of the transaction, and we structure the LLC in the operating agreement that way in the second leg so that he’s not a party to the first lender.
Clint: You could accomplish the same thing if you gave him a security interest against your limited liability company unit. What you do is you would pledge them as collateral on that 20% piece that you still own in that deal. You can even hold in an escrow account if he was concerned about it, but they’re pledged now as collateral so you’re still the member.
If you don’t make the payments, then he can step into that LLC at that point in time. This way, you keep them completely out of the deal. You can do that under the UCC Commercial Code under Article 8, you just structure your LLC so it’s certified security. It’s classified as such, so that if he takes ownership of that interest, then he owns the LLC.
Pace: I love this.
Clint: It’s a different way of doing it. You still get to the same point, I would just say that if you looked at it from that standpoint, I think that’s probably an easier sell. You can’t have security in the property, but I’m going to give you all my LLC interest as collateral for this deal. Therefore, if you don’t get paid, you can take over my LLC, and you get the property indirectly by going after. He wouldn’t get the whole thing, he would get what’s owed because then they would do a liquidation on that.
Pace: Could you write it in a way that he could take over the whole LLC and just take over the existing loan subject too?
Clint: Here’s the thing, if that property went up in value, let’s say we’re three years into the deal, e bought it for $2 million, now it’s worth $2.9 million, you have a lender on there that loaned you $1.5 million, you have $1.5 million of equity, you don’t want to give up all that equity because he’s only owed half a million dollars plus interest at that point in time. You still want to be able to serve to get your equity out of the deal.
Pace: What if it’s a bad deal? What if I miss managing the deal? I’m brand new, I mismanaged the deal, I’m not paying my bill to the lender or to the gentleman.
Clint: Walk away, just walk away. He would take over the LLC. At that point in time you walk away since it is a nonrecourse now, he takes it over subject to that loan. Then it’s between him and the lender because depending on what the lender requires, what I see happens when I get into commercial deals, depending on the lender, they may ask for copies of my tax return on an annual basis. Some do, you know this, they do the same thing to you.
If they saw that tax return, that 1065 partnership return, assuming that that’s how it was structured, that LLC return is no longer listing you there or your 1040 shows your property and your 1040 because it was disregarded LLC, they’re probably going to want to then run him. It sounds like he can qualify anyway.
Pace: The cleanest way to do it. I like that. I really like that. Essentially, you give them shares of your LLC as collateral.
Clint: Correct.
Pace: Not actually giving them shares. You’re not giving them ownership, you’re giving them collateral, therefore they have no ownership. They don’t have to worry about depreciation, appreciation, none of that stuff after a year and one day. Let’s say that I default, would the seller be able to come in and take over my LLC through an amendment of sorts to the state? They just go down the state and say, here we’re amending the articles.
Clint: Correct. He would take over that interest because you pledged them as collateral. They can do one of two ways. You could fight him on it, but then they would move through a foreclosure action, essentially, to take title to your limited liability company, then the court would award him the LLC.
Then you just be working out there, what is the difference in the value of what he’s receiving versus what is owed. I don’t know if you get a special master appointed at that time and sell it. This strategy, what you’re talking about, the way I’ve commonly seen it done on big deals is you’re onto it, that’s what they do, but they pledge their interest as the collateral back to the seller.
Pace: I think it’s just cleaner and easier that way if we pledge our interest as collateral, so easier to do it.
Clint: All you have to do then in order to securitize that is file a UCC filing with the state saying, listen, I’ve got an interest in this asset, and so now he’s protected because I couldn’t sell my LLC, people are going to be put on notice that you have this interest. That’s why I would probably want it because if you brought him in your LLC even if he said for two days or 10 days, whatever it is, you now have an obligation to this guy.
Pace: Is there no way you can structure an operating agreement to keep him away from having any sort of rights, benefits, et cetera of the LLC?
Clint: When you figured that out you let me know. You can write anything you want in the LLC. Just sit in the corner, keep your nose in it, and shut up. The courts, if you were to litigate it, can’t typically respect those terms. You’ve seen some actual movement in certain jurisdictions for minority rights, meaning that you have a small interest in a company, so you’re a minority owner in that company. The managers and the majority of owners are oppressing you through financial means to get something out of you.
If we went into an LLC agreement together with, let’s say, non pro rata distributions, which means I can distribute the cash anywhere I want. You own 45%, I own 55%, I have all the control and all the votes, we could essentially do this. I can make $1 million in income if you zero. I’ll take the rest out as a loan to myself and you’ll pay tax on $450,000 in income, even though you didn’t receive it.
There have been cases or situations where people have done that to other individuals. That’s why if I was coming into that, I’d be really leery. Whenever I’m looking at an operating agreement that a client sends in, they’re going to come into a joint venture with someone, and I’m looking for how distributions are going to be made and are they guaranteed tax payments? Because I’ve had a few clients that have had the screws put to them where they were just saying, how do I get the hell out of this deal because it’s killing me just on the taxes because I have no income coming now?
Pace: Interesting. That was so helpful.
Clint: There you go. You’re helping me out on the deal.
Pace: Guys, this is how you work out deals. This is what’s so fun about Anderson is being able to listen to their YouTube and all the stories of their clients and what they’ve gone through. Also, when you run into something, you never stop and just go, it’s impossible, I can’t do this deal. Sit down and figure it out. This is why you have people like Anderson. Business advisors actually have a conversation with him and go, hey, I’m running into this situation. Toby does Tax Tuesdays, I believe it is.
My bookkeeper goes there frequently and asks questions. She’s like, hey, this is what’s going on because I have a charity with you guys and I have my IUL with you guys. It’s been a good experience. You guys have been great. My bookkeeper is going in there frequently and asking questions going, hey, I hit a block wall. I know that there’s an answer here, I just got to get the answer from the right person.
It’s the same thing here. I know that there’s another level to unlock a whole bunch of deals that I’m not touching because the seller wants too much of a down payment, but I don’t want to be so cash-heavy into all of these deals. The Dave Ramsey crowd says, pay everything off in cash. The Robert Kiyosaki crowd says, pay nothing off. Literally, just keep going out and getting new loans on your houses, go take that debt, and go live life, buy new assets, and do all that kind of stuff.
I’m a lot more towards the Robert Kiyosaki side, especially if I can create terms that are non-recourse and those types of things. When you run into something like this where a seller says I want $500,000 and you’re just brand new and you’re trying to get your first deal, most of the time you would just run away from that deal and go, the seller wants too much money.
However, there are probably 50,000 deals to be had right now in the country that people are throwing away every single month that they’re just saying, that’s not a good lead. That’s not a good lead. The seller wants too much money. You just got to have the right conversations with the right people and figure things out by being creative. It’s simple.
Clint: Where are you finding your deals right now?
Pace: Three different places. We’re direct-to-seller, so we have cold callers. We use a company called startvirtual.com for anybody that wants to get virtual assistants. That’s who we use. There are 100 different companies that do that.
We use startvirtual.com to do our phone calls, cold calling, and our texting. That’s our direct-to-seller model. It’s more automated that way and it’s nice to be able to turn that on. I know a lot of people do direct mail and things of that nature, but the cost per contract on direct mail, PPC, SEO, billboards, TV, radio, and all that kind of stuff to get a seller’s attention is incredibly expensive.
The cost per contract is probably $10,000, which means I got to spend $10,000 in marketing to get one house under contract. For us, on the cold calling and texting, it’s closer to $3000 per contract. So I go and spend $3000, I get a contract, which is great. That’s one avenue.
The second avenue is probate attorneys. We get so many deals from probate attorneys, people that inherited a property with a mortgage. The family doesn’t know what to do because they now have an expensive mortgage that doesn’t have a lot of equity, maybe mom and dad recently took out a reverse mortgage, or maybe there’s something tricky that a typical cash transaction can’t solve. We go and solve those issues.
The third way we get them is, honestly, just by Instagram, Facebook, YouTube, all of these things people reach out to. I’ve got a deal right now, a $2 million deal in Macon, Georgia, a commercial property. This guy inherits commercial property. It’s basically like a hardware store split up into four or five different units and it’s all rented out. He inherited it from his father who recently passed away. There’s an existing loan on the property.
He goes, hey, I saw one of your podcasts, I have no idea what to do with this property. It’s cash flowing, but I’m stressed out. If I could just get $10,000 and walk away from this thing. I’m like, that thing is cash flowing $8000 a month. It’s got $16,000 in rent and it’s got a $6000 mortgage with some maintenance and other things allocated to the side, you’re cash flowing like $8000 a month and you want me to pay you $10,000 to walk away. I’m in the middle of those types of transactions from, primarily, just building good brands and helping people along the way through Instagram, Facebook, and YouTube.
Clint: What do you think of PropStream or those types of services?
Pace: I love PropStream. I think they’re great. We stopped using PropStream to comp. The reason being is because PropStream removed their MLS data. It makes it really hard for you to be able to comp and do comparables there. We use BatchLeads as our primary comping source.
PropStream is amazing because if I want to get a foreclosure list, I want to get a probate list, or I want to get a divorce list, PropStream is one of the best to get those lists from. If I’m in the audience and I’m listening for the first time, guys, where do we get our off-market deals? I don’t really do on-market deals.
There are so many different ways to do this business. I think, Clint, you would agree with this. The most challenging part of real estate is that there are too many ways to succeed. You could go get a deal a thousand different ways. Every time you ask somebody, where do your deals come from, how do you do marketing? Nobody answers the exact same way.
When you’re brand new in this business and you go, I just want to follow one path, my suggestion, guys, is go find somebody you resonate with that is doing the business and follow their path because every path actually works as long as you actually apply the teachings and you take action.
For us, we realized a long time ago that we don’t want to work with on-market deals because we’re now battling with real estate agents. The primary thing real estate agents care about is their commission. They’re not caring about me getting a deal. They’re not caring about whether their seller is getting the most money. For them, it’s how many deals can I crank through my commission and my broker so I can get a paycheck?
We prefer to go direct to the seller. The way to go direct-to-seller is to find sellers who are in distress, foreclosure, bankruptcy, or divorce, those types of things. Our favorite list right now is foreclosures because foreclosures are back. People are now getting foreclosed again. They need our help to come in there and structure deals that keep them out of foreclosure and help them move on to the next chapter of their life.
Clint: What are you seeing then just as you’re in the industry now that the COVID restrictions have lifted as far as moratoriums, are you starting to then see more opportunities on the foreclosure side, short sales? Are those coming up yet or is it still that the market’s so hot that they don’t need to go down that road?
Pace: There’s a guy named Matthew Potter and you should have him on your show. He’s done 17,000 short sales. He is phenomenal. He’s one of the few people I know that are still doing short sales in volume. But I think that the reason why is because he branded himself so well and he can do short sales in any market.
He does really, really well. But for the most part, short sales don’t happen that often per state. You have to cast a wider net and go nationwide if you’re doing short sales. Foreclosures right now in Maricopa County where I live, which is in Phoenix and the surrounding area in Maricopa County, we have about 40 people every day that are getting foreclosed on at the county courthouse. Forty people times 20 working days, there are 800 people getting foreclosed on every single month in just Maricopa County.
Those are people that you can call and get a cash deal with to save them from foreclosure. You can get sub to deals from these people. You can even partner with them on a novation agreement. We’ve got a couple of these going on right now where if I bought a house from somebody in foreclosure, a lot of times, it means that their margin after you renovate the property is very small.
Most investors come in and they go, okay, well, seller, you owe 220 on this house. The house probably is only worth 300 and it needs a $40,000 renovation. This thing’s skinny. Especially if I have lending costs upfront, I have points I have to pay, I have closing costs upfront, I also now have hard money payments along the way for the two or three months I’m renovating it.
What we do is we just come in and go, how can we just leverage your existing mortgage and we go renovate so I don’t have to close escrow upfront. I have no escrow fees, no title policy, I don’t have to get a lender, no funding fees, none of that stuff, and I go save $10,000 or $12,000 on my fix and flip by doing a novation agreement and then I go and I sell it on the retail market and I get the seller $10,000 to walk away when all is said and done.
We’re doing a lot of that creatively on the fix and flips where people’s foreclosures still don’t quite have enough equity. To answer this question, a lot of people go, man, COVID gave people a ton of equity. Tons of people are making money. They’re primarily right, but what about the people that have been refinancing their homes in the last 18 months, the last 24 months, and the last 12 months that lose their job because of COVID?
Now those people have had a house less than a year and it hasn’t appreciated to a point high enough that a cash buyer can come in and buy it. You’ve got to understand there are tremendous opportunities in foreclosures. If somebody focused only on foreclosures, your acquisition business could probably generate $200,000–$300,000 a month in wholesale fees. If you add fix and flip to that, you probably are somewhere around half a million dollars in profits just focusing on foreclosures only.
Clint: Yeah, and it’s in your market because so many people think that, well, my market’s tapped out or it’s too expensive here to make that deal work. But what you’ve been talking about is that getting into properties for zero down, $5000, $10,000 down. It doesn’t matter if the property’s worth $1 million or $200,000 because when that debt’s on there, it really doesn’t make it worth that much. They’re happy to get out of it. It gives you opportunities.
I hope people get out of this that want to get started that watching my channel or starting out in real estate investing, like you were talking about, buying in Alabama, buying in Georgia. You’ll get there, but it’s a process you go through. Start local for many of them. Build up that comfort level, I think, is the best, unless you have a support team that can help you.
Pace: If I’m brand new, Clint, I’m doing this really cool thing in July. I think the number one question guys like you, guys like me get, probably the top five questions, Clint, if you were going to start all over today, what would you do to get into real estate or what would you do to go start your practice? If you had to start all over today knowing what you know now, have you ever heard that question?
Clint: Yeah, I’ve heard it.
Pace: I hear it every day, especially in real estate like, how can I go get a deal? Pace, if you had to press the reset button and you only had 30 days, what would you do? Tell me exactly what you would do so I can go emulate it.
I’ve heard this question so frequently that on July 1st through August 1st, what I’m going to be doing is I’m going to be selecting somebody that I move my wife and my family to their market. I drop everything I’m doing. It’ll be between season two and season three of Triple Digit Flip. I’ll have a two-month break and I’m going to move my family to somebody’s random market, they’ll get selected. I partner with that person, I document every little thing I do, and I give them all the profits of the business that we create together for those 30 days.
Clint: Wow. I just found the new title for this episode. It’s going to go viral. Partner Pace for free.
Pace: Yeah, partner with me for free. What I’m doing is I’m going to announce it, I think, sometime in April. It’s completely free. I have nothing to sell. I am not selling anything. If you guys want to buy something, buy something from somebody else.
I’m doing it completely free because I want to do two things with this. One, I want to create a series that shows people and ultimately answers this question because it is an ongoing five-year question I’ve been getting. Ever since my social media started growing, it’s the question I get the most. How do I start? What is the first thing I should do? Pace, if you were going to start over today, what are the first things you would do?
I get it, I answer it, then I answer it, and I answer it, but there’s never been a series that I’ve created that I go, here you go, go watch this full series. That’s one thing I want to do. I want to create a series that I give away for free.
The second thing I want to do is I want to write a book for the people who are book readers and go, all right, so I partnered with this person. Let’s say his name is Tim. Every morning, Tim and I got up on day one all the way through day 30. We both wrote out five things that we believed we needed to accomplish in our business that day that were the most important things.
Essentially, each chapter would compare what Tim thinks versus what Pace thinks. You would see the mindset between me and somebody who doesn’t have my experience. Ultimately, over 30 days of the book, there would basically be 30 chapters. You would see how Tim’s mindset would start shifting more to a seasoned real estate investor just by having these morning meetings and then immediately going out and just taking action.
What I’ll do is I’ll accompany the video series. I’m going to hire two videographers, just follow me around and document everything I’m doing every day for eight hours a day. I’ll get a deal literally on day one. All I’m going to do on day one, very simple. PropStream would be a good one. You brought up PropStream.
I would go to PropStream. I would find 5 or 10 buyers. I would call those buyers up and I’d say, hey, buyers, I saw that you bought on 123 Main Street. Are you guys looking for more deals? They go, yes, we’re actively buying. I go, great. Then I would go online and I would type in cash buyers in Arlington, Texas. I would pull up 25 or 30 wholesalers and I would call them and go, what deals do you have? What deals do you have? What deals do you have? What deals do you have?
In an eight-hour timeframe, I essentially would just be the middleman on a deal and make $5000, $10,000, $15,000 on day one. Then I would immediately take that money. Most people will go, well, that’s going to take 30 days or 45 days to get that money in your pocket.
This is another creative strategy. I’ve done this multiple times. I go to my buyer and I go, look, I’m going to sign this deal to you and the price you’re willing to pay is $15,000 above what I contracted it at. However, if you pay me $5000 today, I’ll take my assignment fee from $15,000 to $5000 if you pay me $5000 today.
I’ve done this multiple times. Yes, they run the risk of the deal not closing. I totally get that. I will immediately take that $5000, reinvest it into something else, and start doubling down, doubling down, doubling down, doubling down. I’ll do that for 30 days. Not that exact strategy, but that’s how I got my first check. I’m going to do that, I’m going to do it live. Every single day, I’m going to be on Facebook Live, YouTube Live completely doing this for free, failing seven hours a day and succeeding one hour a day.
Clint: It sounds like another television series.
Pace: A&E is trying to pick it up as another series. The problem with that is that A&E has to have everything so structured so that the audience can follow along with the story. They want to release it in episodes on weekdays and put commercials around it. It slows down the authenticity of a nitty-gritty, zero to hero type of 30-day challenge. I’m like, I don’t know that I’m going to go that route.
I got a call from Elena Cardone yesterday. She said, Pace, we heard about your challenge. We want to produce this and put it on our stuff. I’m like, as long as you let me have full creative control of this and let me do what I want to do. I’m going to fail six hours, seven hours a day and be on the phone hearing no all day long. It’s going to be mundane, annoying, and you’re going to lose viewership because people are not going to see a lot of action. Then the 300th phone call I make that day, I’m going to get a deal. Are you okay with documenting all of that? She’s like, absolutely. Let’s sit down and talk about this.
This is the kind of stuff I want to do with my freaking life. I know it’s weird, but I want to do those types of things, be creative, and solve problems for people or solve problems for a prior version of me. I want to yell so loud and be so loud with my social media that I’m almost going to yell so loud that a five-year version of me five years ago can hear me and say, get started, do this, do that, go faster, go faster, double down. Stay tuned for that, guys. From July 1st to August 1st I will be going live.
Clint: Yeah, but how do they get involved? If they want to get selected, the people that are watching this, where do they need to go?
Pace: I would go on my Instagram. It’s going to be completely free, guys. I don’t have a website. I’m not trying to do a webinar or anything like that that’s trying to sell anything. I genuinely want to do this for the real estate community and just have you guys watch how an experienced real estate investor stripped off all his money, only having a cell phone, how could I start with nothing in a random market? Not just do it myself, but show somebody physically, so I would have the extra weight and anchor of another human being attached to me having to educate them like they’re the audience.
Just follow me on Instagram. In the next couple of weeks, I will start posting about it. We’re going to end up doing a random selection process. It’s going to be broadcast on probably one of my podcasts, maybe Wholesale Hotline where you’ve been a guest, Clint. I’ll do a randomizer and select somebody. I just hope it’s not going to be North Dakota. I don’t want to go to North Dakota. But if it is North Dakota, I’ll freaking go to North Dakota.
Clint: If you’re going in the summertime, it won’t be bad.
Pace: No, it won’t be bad.
Clint: If it’s December, I don’t think […].
Pace: We’re going summertime. It’s the stupidest time, but I have no control over my life right now with the TV show. I would really hope it’s like Southern California or somewhere in a mountain town where it’s 80 degrees or 70 degrees. Maybe I’ll go to Colorado, who knows?
Clint: It’s going to be cool if you end up in a market like in California or North Dakota, one of those, where you’ve got different elements where people think, hey, there’s nothing available here. It’s too pricey. Then you show them how you can make money in these inflated markets or you’re in a market where people are like, well, who would ever want to buy a house in this little town?
Pace: Yeah, it’s tough. We did this thing last summer. We did this thing called Zero to Hero season one. It was the first time we did anything like this. We let our audience choose the market that we started in brand new.
We hired cold callers. We went to you guys and got an LLC set up. We did all the things. We did, literally, everything from scratch in this Zero to Hero process. We showed everybody three hours a day for 30 days. We got so much criticism because the market ended up being random for Charlotte, North Carolina that has a really hot real estate market.
So many people are like, you should have chosen somewhere it’s impossible to get a deal. I’m like, man, I’m damned if I do and I’m damned if I don’t. What do you want from me? It is going to be completely random. I hope it is one of these impossible areas that there’s nobody around, there are no real estate deals, and I have to figure out how to do a deal in that market. I hope that is the case.
Clint: That’d be interesting. Here’s what I’m going to do. We’re going to put the links to your Instagram in the show notes, links to your YouTube channel as well because you have so much content there. I just want to thank you for coming on and spending the time with us again and doing episode two because everyone wanted to see you.
Pace: I’ve spent years of my life with you in my pocket, meaning I’ll put your guys’ YouTube channel on my phone. I have YouTube Premium, so it’ll let me listen while my phone is turned off. I’ll do chores around the house. I’ll be driving on road trips.
My wife knows your voice as well as she knows my own. I am so grateful for the opportunity to be on your guys’ channel. You guys are epic. There’s nobody that serves higher in the community on YouTube and social media in your niche than you guys. You’re the kings, so thank you so much.
Clint: I appreciate it. The sentiment is the same going back to you because if you haven’t been to his YouTube channel yet, you don’t know what you’re missing. It’s just like ours. It’s just all pure content. That’s what I like about working with you. Just what you’ve been sharing today, you’re not saying, wow, I got some proprietary system. If you want access to it, it’s going to cost you $20,000 or $10,000. There are plenty of deals out there for everyone. The key is that by helping other people become successful, it’s rewarding in and of itself for you.
Pace: I do have something cool. I rarely give this out just because I forget, not that it costs any money. But I have an ebook and the ebook is a unique ebook. It’s actually a PDF that is five chapters of me talking to sellers and overcoming the seller objections on creative finance—subject to, seller finance, and novation agreements.
Actually, you open up the PDF and you click on the link. It opens up a video of me talking to sellers and overcoming the objections on real-life deals. Then there are paragraphs breaking down why I said what I said and all that kind of stuff. I’ll give you guys an ebook that you guys can just give away for free.
Clint: That’ll be in the notes as well.
Pace: Awesome.
Clint: All right, bud. Thank you.
Pace: Thank you, brother. I appreciate you.
Clint: All right, take care.
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