Latest / Success Story with Scott Clary / Lessons - The Psychology of Scaling Real Estate Empires | Cody Sperber - Entrepreneur, Philanthropist & Real Estate Mentor

Transcript

Lessons - The Psychology of Scaling Real Estate Empires | Cody Sperber - Entrepreneur, Philanthropist & Real Estate Mentor · Success Story with Scott Clary

• 0:00
  In this lessons episode, discover the fundamentals of creative financing in real estate,
• 0:04
  learn how to structure deals using seller financing, leverage subject to transactions,
• 0:08
  and negotiate terms that work for both buyers and sellers.
• 0:11
  Understand why creativity, not capital, is the key success in real estate.
• 0:15
  Your origin story is great, and I don't want to just gloss over the fact that I'm worried that
• 0:31
  with too much education, similar to what you experienced when you're first going to these gurus,
• 0:36
  with too much education, people start to look at it as one plus one always equals two.
• 0:41
  So if I understand all these terms before I go to my first house,
• 0:45
  I'm going to for sure close the deal.
• 0:47
  And I think that they miss a human component.
• 0:49
  I mean, you've figured this out with your first house.
• 0:53
  I mean, my backgrounds and sales, sales is always human.
• 0:56
  Marketing is always human, and people feel they can hack the system by
• 1:01
  over indexing on knowledge before they even start.
• 1:04
  And I don't feel like that ever works.
• 1:06
  And to your point, it didn't work for you for 14.
• 1:08
  It doesn't matter how many contracts or systems or anything you know,
• 1:12
  if you can't build a rapport with the person, especially with one of the most emotionally charged
• 1:18
  and important transactions in many people's lives, selling it by far home, by far,
• 1:23
  you're not going to close the deal.
• 1:24
  So I appreciate that, but I still want to understand if somebody is good at the
• 1:29
  rapport building human component, then where do they go from there?
• 1:33
  Yes, that's where I want to nerd out at some of this.
• 1:36
  Yeah, and I think I love creative finance because once I understood, I can buy past the banks.
• 1:43
  And in some cases, get the seller, it's called seller participation.
• 1:48
  Get the seller to literally hand me their house.
• 1:52
  No money down, no interest rate, 0% interest, payments that are affordable.
• 1:59
  And I just like take those 33% this is where everybody needs to start.
• 2:03
  Go to a mortgage calculator, us mortgage calculator dot org.
• 2:07
  They're free, right?
• 2:08
  Just go to Google any mortgage calculator.
• 2:10
  There's only three levers that we need to learn how to pull, right?
• 2:13
  If you think about how loans work, you have down payment,
• 2:16
  like how much like first you have the amount, right?
• 2:19
  So it's like, how much are we buying this for?
• 2:22
  When when I'm negotiating with the seller, the biggest sticking point is always price, right?
• 2:29
  And if you understand like, if I'm trying to buy your house, you want 500 grand for it.
• 2:35
  And I want to pay 350 grand for it, you're going to tell me no a lot of times.
• 2:40
  But if I say, I'll pay 500 grand right away, you're like, okay, what would you're thinking?
• 2:46
  Let's do this.
• 2:48
  And I'll pay 500 grand if you are willing to just be a little creative with me for a certain
• 2:55
  period of time. It doesn't have to be forever, where instead of me going to a bank and borrowing
• 3:00
  at 8% and making it totally unaffordable for me to pay you your price, I'm willing to pay you
• 3:07
  full price if you give me good terms. You be my bank. You're the banker's always the smartest
• 3:13
  person in every transaction because they don't care about the real estate. Like once you sell or
• 3:18
  finance me a house, if the toilet breaks, it's not your problem. You're not a landlord.
• 3:23
  You're the bank. You have a note. You have an income stream that we're creating.
• 3:27
  And so if you own this real estate free and clear, we have, we're negotiating over price,
• 3:32
  but the levers we're going to pull are down payment, interest rate, length of loan.
• 3:37
  Those three things are really the terms we're going to go back and forth on.
• 3:41
  Because to you, price is important. And then maybe the next thing that's important is earning
• 3:45
  interest on your money. If I'm going to carry back the note, I want to earn 3%, 4%, 5%.
• 3:52
  Well, okay, just think about chess. You make this move. I make this move. You make this move.
• 3:58
  I make this move. And if I only have three levers to pull, we're already agreeing on price.
• 4:04
  I now find out through conversations that you want to earn some interest because initially,
• 4:08
  I'm going to try to offer you something where it's principle only payments. But then I hear you
• 4:12
  say something like, you know, that ain't going to work for me. The last guy tried to do that to me.
• 4:16
  I said, no, I want at least 4%. So right away, I know that's going to be a sticking point.
• 4:21
  I might be able to get you to three, but I probably won't be able to get you to zero.
• 4:25
  Now I could get you to zero. If I increase the price from 500,000 to 520, you might go, I'll do that.
• 4:34
  But let's just say you want 4%. Well, then I'm going to extend out the length of loan from 30 years to
• 4:39
  40 years, or I might say, okay, but then I'm going to put 0% down.
• 4:43
  And you said, no, no, I want some money down. And I say, okay, well, if you want money down,
• 4:49
  would you be willing to take principle only payments? Would you be able to take, if you want 10,000
• 4:55
  dollars down to show that I have skin in the game, what if we put zero down initially? And then in
• 5:01
  six months, I put five grand down and then the one year mark, I pay the other five. It's like a
• 5:07
  tiered or, hey, you want 4% interest? Great. In year zero, I pay zero, year one, I pay 1%, year two,
• 5:14
  two percent, three percent, four. And it's a tiered interest rate system up until year five,
• 5:19
  where it flattens out at 4%. What I'm trying to teach you guys is it's literally where you pull
• 5:26
  a lever, I pull a lever. It's negotiating back and forth on terms. We start with free and clear
• 5:31
  real estate because it's the easiest to wrap your head around. Now, once I understand how to do
• 5:36
  that and structure a creative, or a seller financial, now I can come back and go, all right, well,
• 5:42
  what if they have a mortgage on their property? How do I take over that really great? How does it
• 5:47
  exist right? Yeah. Why would I not want to try to convince the seller to sell me the house with
• 5:52
  the loan in place? People need to, and there's probably a million questions going through people's
• 5:58
  head right now. Like, well, you can't just take over somebody's mortgage. Like, are you assuming it?
• 6:02
  No, we're not assuming it. We're not even asking the bank. This is called a subject to transaction
• 6:07
  where we're taken over the property, subject to the existing mortgage staying in place. So if you
• 6:12
  already have a 3% mortgage and I buy a lot of houses this way, by the way, I'll show up and say,
• 6:17
  I'll pay you the price you want, no realtor fees. So you're going to save money on realtor fees.
• 6:22
  And I'm going to step in and I'm going to start making payments. This works really good for
• 6:25
  people who bought in the last few years or refinance in the last few years. Maybe only put 3%
• 6:30
  down. I just did a house in Vegas like this six bedroom five bath pool spa. I paid the lady
• 6:38
  eight grand down. That's it. And she needed the eight grand to move. She wanted moving fees and
• 6:45
  I like she wanted to move. But I just have a quick question because one of the questions I want you
• 6:49
  to answer and you can answer it at any point. You're on you're on a roll right now. But what about
• 6:53
  Pete? This is this for a certain type of market because if you're saying that I can go into a
• 6:58
  free and clear, I can do a I can do this strategy with the mortgage and I'm going to have a subject to
• 7:04
  and I'm going to take that over. The biggest question that I think I can think of is why would this
• 7:12
  person do the deal with you? Yeah. I need a 500 K wire. Yeah. Well, not everybody needs a 500 K wire.
• 7:20
  So a lot of people, when they bought the house in like the last two years and they only put 3%
• 7:27
  down. And then now the economy sucks. And prices have come down in a lot of markets, right?
• 7:33
  They come down 15 20%. There's price drops happening on the MLS every single day now. It was
• 7:39
  never like that because of supply and demand. Now it's happening all the time. So now I I don't
• 7:43
  have a lot of equity in my house. And if I try to sell traditionally, by the time I pay real
• 7:50
  trophies, closing costs, market it for three months because the average days on market is now 60 to 90
• 7:56
  days. By the time I pay all that stuff, I make zero dollars anyway, right? So if I roll in and I say
• 8:03
  listen, screw paying real trophies, I'll pay you, I'll take over and pay you full price for your house.
• 8:09
  And I'll take over your mortgage. I'll start making mortgage payments. I'll put all my banking
• 8:14
  information in your online mortgage system. And it'll just pull payments right out. If you don't
• 8:20
  trust me, we can hire a third party servicing company to like be an independent third party that
• 8:24
  watches me make the payments. I pay them. They pay the mortgage. They give you a receipt. And now
• 8:30
  everybody in the transaction knows that we're all good. Let me take over your mortgage maybe for
• 8:35
  five years or 10 years. And then after that, I'll refinance and cash out. But you got a great
• 8:41
  two, three percent mortgage. Let me just start making payments on that. I'll pay eight grand cash
• 8:46
  for your moving expenses. You're out. I then come in. I fully furnish out the place. I fixed a
• 8:52
  couple little things and I turn it into an Airbnb. Now this thing's making me nine grand a month.
• 8:58
  It's costing me three because your mortgage is so good. And I'm off to the races in three months. I
• 9:05
  make all my initial hour maybe four months. I make all my initial capital outlay back. And I
• 9:11
  got this great little Airbnb in Las Vegas. That's just print and cash six grand a month and pure
• 9:16
  cash flow. I put it in my portfolio. Forget it. Move on to the next one. I now have this mortgage
• 9:22
  that maybe last 10 years where the lady is going to leave her mortgage in place. And at the 10
• 9:27
  year mark, I'm going to refinance or sell the property or pay it off. Do whatever I want to do with
• 9:33
  it. And if for some reason I don't want to deal anymore, there's a little clause in my thing that
• 9:38
  says at any point in time, I can hand it back to you. There's so many levers that you can pull.
• 9:44
  So when you go into these situations, like you have the human component, but then there's all
• 9:49
  these different levers to create a finance. I love that. I mean, so I'm building out a private
• 9:52
  equity firm and we're doing very similar things with businesses. Very obviously, too. There's
• 9:57
  going to be a ton of businesses. Exactly. Very excited. But very, very similar, but different.
• 10:03
  I mean, a lot of seller financing, a lot of creative financing options. But you don't have the one
• 10:08
  thing that I miss about real estate is there's no tax advantages in business to the same extent.
• 10:13
  The same degree is not as much. You can leverage LP money. You can leverage other people's money.
• 10:17
  But still, I feel like even there are lenders set up exclusively just for real estate.
• 10:24
  Because lenders feel like real estate is tangible, more tangible than a business.
• 10:28
  So it seems like it's easier to even raise money for an acquisition. If you even want to
• 10:32
  raise money. Good deal. The money flows towards great deals. I realize that. It's wild.
• 10:36
  Actually, how many people are like, well, you know, if you have real estate, come talk to me, but like
• 10:39
  not really interested in that acquisition. Just remember this. One of the other lessons
• 10:45
  are things my mentor used to say is in real estate, you'll never have a money problem.
• 10:50
  You'll only have a creativity problem. That's a, that's a, that's a ball. It's a baller phrase.
• 10:56
  That's some of your stuff right there. Yeah. And when, and really what he was saying is stop thinking
• 11:03
  that you need, oh, don't wait to get started because you have to have all this cash. It's,
• 11:10
  I can't even tell you how many times I didn't have the resources. I didn't have the answers.
• 11:16
  And it's made me tens of millions of dollars over the years by figuring out a creative way
• 11:20
  to structure a deal. How many doors do you have now? I have about 50 luxury Airbnb's. I have a
• 11:29
  298 unit in Georgia that I'm a partner in. I have an 81 unit in Arizona by ASU. These are bigger ones.
• 11:39
  Own lots of little single family rentals in like tertiary markets. Like these are like
• 11:44
  creative finance deals. Like I used to take over a ton of double wide manufactured trailers in
• 11:49
  Kingman, Arizona. Like these random little markets where seller financing is common, right?
• 11:56
  It's like you can't qualify for a loan on a double wide trailer on a two acre parcel.
• 12:00
  But it's still great real estate that the the manufactured house was in great shape. And it still
• 12:06
  rents for 1,300 bucks a month. So it's like these, these property and I got into it for 350 bucks a
• 12:14
  month. So I make a thousand bucks in cash loan. I got dozens and dozens and dozens and dozens of
• 12:18
  those floating around in a bunch of different states. Thanks for tuning in. If you found this valuable,
• 12:24
  don't forget to hit that subscribe button so you never miss an episode. And if you want to dive
• 12:28
  deeper into this conversation, check out the links in the description to watch the full episode.
• 12:32
  See you in the next one.
• 12:43
  you