Looks like we're live. All right, guys, welcome back to the Discount Property Investor Podcast. This is your host, David Dodge, with my co host, Mr. Mike Slain. Mike, good afternoon.
What's going on, Dave?
How are you, buddy? I haven't had you on a podcast in a while, dude. Yeah, I'm doing good. How are you doing, man? Good, man. Doing really good.
Good deal, man.
Go ahead, please. Good to you, my man.
I was going to introduce our guests, mr. Jeff Kaufman. Thank you so much for joining us. This is on the show. One of our first guests, I believe.
Yes, back in the day, and it's probably been two or three years at.
This point, it was episode 29, so it's been a long time.
That's right. But Jeff is one of our good buddies. He's one of our fellow investors. He sells us deals. I think we maybe have done some joint ventures. I don't know if we've sold him any or not, but he's also located here in St. Louis, Missouri, where we are located. And we're bringing Jeff on today because he has some very unique skill sets and talents that not only do we want to teach you guys about on this podcast, but Mike and I are interested in learning a little bit more about it as well. So today we're going to be talking about sub to investing, subject to investing, as well as some other very similar type of owner financing and creative financing techniques. Welcome, Jeff. How the hell are you, my man?
Good, man. Thanks for having me. I appreciate it. This is round two.
I'm excited to baby.
So, guys, if you haven't listened to Jeff's podcast, go back and listen to that first one. And one of the things that I got from the last episode, my favorite little nugget about subjectto Jeff, was something super simple, and what you said was, you never say the word subject to when you're talking to sellers.
Does that change, Jeff, or is that still the same?
Still the same for me. I just don't like scaring people. You know, really, if you think about it, those folks that you're talking to, it's not every day that you are going to approach somebody, ask them to give you the deed to their house, and they just willy nilly do it. So I don't like to scare people, and I feel like when you get technical and when you get super into the weeds with people, it's just intimidating. So I still to this day, I still don't do that.
It's good, though. I mean, really, it's better. I mean, you can easily describe the process without saying that to them. So, yeah, if you can avoid it, I think that probably makes the most sense. Right, guys, this is episode 172, and Jeff was on episode 29. I'm looking at the history here. So, Jeff, you went from 29 to 172. We got to get you back when we get up into the 200, my man. We love having you on the show, and it's good to catch up, man. I haven't seen you around town recently.
Well, that's really what I want to know from Jeff, is what's changed in your business and what's changed in the way that you approach sellers?
That's a great question.
Yes. So a lot has changed in my business. I still do some wholesaling. It's a requirement, but I have gone back to my roots, so to speak, and I'm just a buyer. That's it. That's the way that I look at it. I just go out, I market for properties, and I'm just a buyer. And then from there, I'm a transaction engineer. That's really all it is. And wholesaling just happens to be one of those exit strategies for me.
Jeff, do you remember when we met? It was at a Mexican restaurant. You wanted to meet, or we wanted to get together, and I was with my wife?
Yes, I remember that.
And the reason that even came to my memory is because when we were sitting down, I don't even think you ate. I was like, Dude, go up something to eat. And you're like, I just ate, and I felt terrible, but we met. But one of the things I remember from that meeting was you saying, all we are in this business is transaction engineers. And I literally remember, like, it was yesterday, and it just sparked my memory by you saying that again right now. I love that your mindset hasn't changed at all. I mean, that's all we are, guys. We are transaction engineers. We're just trying to help somebody solve a problem. And usually the property isn't even the problem. There's something else that's underlying. Right? So I just love that. I wanted to bring that up real quick.
Yeah, I mean, I got wrapped up like a lot of people do, and this is probably something that a lot of your viewers should really take to heart. I got wrapped up in keeping up with the Joneses, and I got wrapped up in doing things that took me out of focus. I started doing things that just weren't in my wheelhouse. And I have learned over the years that focus sticking and staying focused is just absolutely paramount, and it's the most important thing that you can do, in my opinion, in this business, man, focus is power.
Like, Shiny Object Syndrome is the killer of goals. It is the killer of goals. You got to set those goals and then create a plan. I love the same goal without a plan as a dream. That's exactly what it is. Right? So figure out what your goals are and put together a plan and then focus on that plan, and that's it. That's how you get successful or become successful at anything, not just real estate. Yeah. So focus is power. Wouldn't you agree, Mike? Again, it's got to be that way.
We chase a lot of shiny objects, so I can definitely relate to that.
I mean, there's no question about it. It's very hard, I think, for most entrepreneurs to stay laser focused. So you got distracted, but you want to stay focused on your roots of being a buyer, right? That's kind of what you're trying to say, right?
Yeah. And primarily and kind of not in the side, but my preferred acquisition strategy is creative financing. And when I first got into business, the first three houses that I bought were all done sub two. This is back when I had absolutely no idea what the heck I was doing. I literally was trying to find title companies that could help me out. And what ended up happening was I ended up developing a process for myself or the beginnings of a process for myself on how to do these in the future. And I've just built on that and built on that over the years. And it's all culminated kind of in this big, huge library that I have now of all of these processes and systems that I've built. And that's kind of what I'm going to be putting out to the world here very soon.
Okay, cool. Do you have a course? I've seen some Facebook ads recently. What are you working on right now?
Right now, I am building out I actually have I call it my legacy course. It was called Subject to Investing for Newbies, and it's still available. I don't push it at all just because I am currently what I found out through building that course was there's a lot to take in. I mean, there is a ton to take in when it comes to subtitles. It's so new to a lot of people. So what I decided to do is I decided to break those out into individual little mini courses. And another problem that I was having was the people I've got, I don't know, 40 something students in that course. And the problem that I was having is that they would have to go search through that course and find exactly what it is that they were looking for. With the mini courses, I find they can just go directly to that course. It's very subject specific. And so all they do is they go into that little mini course, and there it is. It's a really simple, much simpler process for students.
Yeah. Guys, if you want to check the course out, go to dpipast. Comto SUV number two, subtit dpipodcast.com subto. You can get more information about Jeff's course or many courses and the link to that course right there. Jeff, let's talk about what you're working on these days here in town. You said that you're a buyer, you're looking to solve problems. However, your preferred method of purchasing is the creative finance. So what does that look like? How does that work?
Well, you said it's funny you mentioned you said here in town, I'd focused on those keywords. I have a JV program that I developed. I call it my collective joint Venture Partner program. And so right now, I'm actually not working in town. Right now. I'm closing a deal out in Luhui, Hawaii. I've got one working hawaii? Yeah, I've been working in North Carolina. I've got one working in Washington right now. So I've kind of branched out. It's really strange how it happened. I just kind of started having people contact me. I guess when you have very specific knowledge, people seek you out. I don't know, I guess that's what's going on. But I'm not complaining about it. It did help me to develop this whole joint venture partner program. As far as in town goes, I still have a few properties. We are actually selling those off. So my exit strategy on all these has totally changed. I decided. I know you guys are big into rentals, but I have decided that I can't stand being a landlord. I hate it.
Hey, and that's okay, guys. Some people have it in them, some people don't. I don't have it in me either. However, I have a property manager that does it all. So I like the property side of the business. I like the finance side of the business. I like working with Mike and our other partner, Bill. There's a lot of advantages, obviously, to it, but I can't stand dealing with the people. So personally, if I didn't have a good property manager, I wouldn't do landlording personally myself. Right.
I learned very quickly I'm the same way. I cannot do property management, but I can do the taxes and the numbers.
Yeah. And I'm happy to go out and look and all that stuff. Right.
We're in agreement with you on that.
Yeah, we're dealing with that one.
So tell us what the life cycle then is of your deal. So you get a property, you're buying it with creative financing. We often refer to it as subjectto because I think that's more often than not what you're buying with.
Right, okay, excellent. I like to get the deed. Yeah, perfect.
You get the deed, but the mortgage stays in someone else's name or some other entity's name.
You got it. What's the lifecycle?
Walk me through that or walk us through that.
Wow. Okay. So I actually have a really good slide on this. I'm not going to bring it up here, but it's essentially starting from the beginning. I'm going to kind of weave a little story here. But really it's a matter of getting in front of the right people first. We all know that. We all know we have to have the right motivations. Especially, I think, if you're going to be doing something creative. So it's getting in front of the right people first. The way that I explain it is with subject to if I'm going to pick up something creatively, I am not necessarily looking to close anybody. So for me, if I can get in front of the right person, and that's either through the list that I build or it's going to be I don't know what you guys are doing, I think you guys are doing a lot of cold calling now, if I'm not mistaken, but getting in front of the right people with the list that I build, going out and meeting with them and try my best to not force the issue, but really make them a part of my team and have them actively participate in the deal with me, get that property under contract, pick it up subject to, and I actually do all my own closings.
I found that the biggest problem that I have in this business is finding people, mainly the professionals that we're looking for, the attorneys, insurance companies, all that stuff like that, or all of those people that's become the biggest single issue that I've had. So I just decided to learn and teach myself how to do this from beginning to end. It's basically on my shoulders. That is my path, and that's what I've chosen to do. I hope that answers your question. There's so much to talk about in that question that it's very hard to narrow down. One thing for me. Sure.
Just walk us through one deal. Maybe I think that might be a little bit easier. Like your most recent deal that you've sold off, could you kind of describe that one?
What happened in that one? The ins and outs, if you have one. Again, if you don't remember the numbers, that's okay.
Yeah, this is a perfect one. Let's talk about the one in Hawaii that's going on right now.
I love it.
So I got contacted by a wholesaler here in St. Louis who contracted on a house in Hawaii.
Where was it? Drop his name, bro? Mr. Tyler.
Carrie yeah. But Tyler contacted me. He knew that I was into subtitles stuff. So essentially, Tyler contracted a property out there in Hawaii he's working with. He has some magic that he's doing, something that I've never really heard of, to be honest with you. He's a pretty sharp guy. But he brought me this deal, and essentially this is going to be a retail flip. So he contracted this deal. He has hired me, using my services to actually walk them through this deal. So they've got this property under contract. We're working with a buyer. He already has a buyer in place. And the numbers on this one look pretty good. There's about 100 grand in equity on the table here. And so we were able to secure this property with $35,000 cash and then take over the mortgage on it. The mortgage is right around, I think, 230 or something like that. And this is a little apartment. This is a tiny little apartment in Hawaii, and it's almost $400,000 so its value is almost $400,000. So what we're going to do is we're going to go ahead and we're going to buy that property in a trust, and then we are simply going to assign beneficial interests of that trust to the new buyer.
The new buyer being Tyler's buyer.
Okay? So hey, we got to take a pause for a quick second, right? So guys, if you're not familiar with sub two investing or what subjectto is, go listen to episode 29 where we interview Jeff about what that is. So Jeff, if people are listening right now, I don't want confused listeners because that's just not the point, right? So let's just take a quick, maybe two minutes or less and define sub two, if you don't mind, because you bought this sub two, right?
You bought this sub two.
I'm a JV partner on this one.
Got it? Right. But essentially what I want to explain though, is there's a mortgage on this property for 300 grand. It's worth 400. They only had to bring 35 to the table. If you don't understand sub two, that makes that right.
You know what?
How does that work?
I'm really bad at that.
No, it's okay. And I'm glad it's okay. That's fine. Let's just explain that real quick.
Okay? With this deal, there is a mortgage on this property for $230 and some change. Now Tyler, who is the wholesaler on this, has got that property under contract and he's got it under contract subjectto. And what that means, all that really means is that he's going to buy this property, he's going to pay the seller a set amount of money. Now you don't have to pay anything. It just all depends on what you negotiate. But he's agreed to cash this seller out at $35,000. So the seller is going to get a $35,000 cash payment.
Okay, so guys, just real quick, what that means though, is that they're willing to pay the seller 35 grand cash direct, has nothing to do with the mortgage itself. So really Jeff's buying this for 230 and change plus 35, and I should say Jeff and Tyler, you got it right.
So what's going to happen is the owner of that property, the current seller, is going to deed that property into a trust. Now you can use an LLC, you can use whatever you choose. We chose to use a trust on this one. But that mortgage that's in place right now, that the payments are being made on right now, that mortgage is going to stay there and then it's going to be our responsibility to make the payments on that mortgage in place of the previous owner. Once we close, he will become the previous owner. We're going to get legal title to that property and that mortgage is going to stay in place.
Okay, cool. So guys, I understand this real quick. The mortgage on the property is 230 and change and the seller had agreed to sell the property, but keep the existing financing in place for Jeff and Tyler. But he wanted 35. So typically you would need 230 plus 35, that's 265, 270 to purchase this property. Jeff is the king of creative deals here and obviously he's got a partner on this one that he's joint venture with. Again, gets creative. Love that. And they're saying, hey, seller, we'll buy it. We don't really have intentions of keeping this long term. Right. Maybe three, four, five months most. Right. So when you're pitching him on this, you're not having to say, hey, we're going to keep this financing in place and we're just going to rent this thing out for ten years. Best of luck on your credit, or whatever. Like on trying to get a new house. That isn't the goal here. Right. Instead of, hey, keep this in place, it makes no sense for us to go get a loan, pay off your mortgage company. That just adds cost on everybody. Only person that wins here is the bank.
Let's just keep it in place. But we're going to give you that 35 grand on top. So his purchase price is the debt that's owed. It's still going to be 265, 270, but the out of pocket is only 35. So the existing mortgage that's there stays in place. Right. And the way that they are structuring this and Jeff, feel free to interrupt anytime, is they are transferring the property from the individual's name into a trust, which is completely legal and normal. It happens every day, thousands of times, I'm sure, across the country.
Probably happening as we speak.
As we speak, right. And then what's happening is instead of the owner owning the trust, that's what gets sold. It's the ownership of the trust. Therefore, you can keep the owners financing or the current owner, which will become the previous owner. You can keep that financing in place. Yet the deed actually can transfer to the new owners because Jeff and Tyler will be the owners of the trust. Am I saying that right?
Sort of. The trust can we get down a rabbit hole with entity structure, but essentially the trust is the owner of the property.
Okay, cool. You guys have the controlling interest in the trust at that point, correct?
Yeah. So the trustee is actually the one that takes title inside a trust.
The beneficiaries, they realize all the financial benefits and gains and losses and things like that. So cool. But yeah, you've essentially got it.
Cool. Jeff, thanks for just taking that quick break, because again, if people don't know, that kind of explains what this is and how we're doing. Again, go listen to episode 29 with Jeff. It's about an hour long and we talk about it in great detail. So that'd be a great place to start. But now that we're back, you guys got the trust set up, where do you go from here.
Got the trust set up. We've already found an end buyer. So essentially, this is a wholesale deal. That's what this is. And there's definitely some danger in wholesaling subjectto properties. I will tell you that. It needs to be done correctly, but it can be done. It can totally be done. It's done many times a day all over the country. So essentially, we've got a buyer. Now. We're going to take our beneficial interest in that trust. We are the beneficiaries of that trust. We're going to take our beneficial interest and we're going to sell our beneficial interests for a fee. And that is our wholesale fee. That's how we're getting paid on this deal.
So if you don't mind me asking, what's the deal look like in the end? Or what's the projection? It sounds like you guys have a buyer, but it hasn't closed quite yet. And this is in Hawaii, guys. Jeff, you live in St. Louis still, right?
I don't even think I know Tyler. I think I heard of him. Does he live here, too?
He does, yeah. He's local here.
Before we even talk about that, how the hell did you guys find this deal? Or how did Tyler find it?
You know what? He explained this to me. He's working with some lenders somewhere that I guess they've got some notes. I could be totally wrong here.
Basically, he got a lead from networking. That's what matters. That's just where the lead came from. The networking guys, the more you're in this business, the more leads you're going to get from networking. I did a podcast on this two days ago. Literally, when I first started, I had 0% referrals. And now that Mike and I are five, six years in 30, 40% of our businesses from referrals. So I loved love that.
Yeah, brother. You cannot have a greater lead source than referrals. I don't care who you are.
It's a free lead source.
Yeah. Not just free. They're just the best. These people that you're talking to, they know exactly what you do. Exactly.
And they're not looking for everyone else to come give them bids either. It's like, Oh, you can help? Great. Come over.
I've run my business for almost two years off of leads at about 75%. About 75% of every dollar that I've made over the last two years has come from referrals. That is awesome.
That's amazing. Okay, cool. So I get off on tangents. I apologize. So back to the projections.
Well, the end game here is we already know that our buyer is going to flip this to retail. Don't ask me why, because on the JV partner here, I don't know why we didn't just take this down and then us flip it to retail. But that being said, you guys are.
Wholesale in it to a wholesaler. Yeah, essentially, give or take. Yeah.
Well, you got to keep in mind I'm a JV partner. So I don't actually have controlling interest in this property.
You got some of the profit coming your way. That's all that matters. Yeah.
So we'll get paid. We'll get paid off of that, essentially. I'm really getting paid for my services. I'm actually just being paid for knowing how to do this. To be honest with you. That's really it.
You're coaching? Coaching. Joint venture coach. I love it.
The back end profit for our retail seller. Now he's going to have some things he's not totally in the clear here. There's going to be some things that have to be done to this property that I personally am not willing to do. I'm not willing to hire a contractor and trust a contractor in Hawaii to do the things that need to be done to this house in order to get it retail ready. Or this apartment, rather.
That's six time zones away from here, by the way. Yeah, that's six quarters of the way around the world, guys.
But once it's all said and done and this guy does get this house in retail ready condition, he's going to turn to flip that house or that apartment rather. I could call it a house. He's going to flip that apartment. There's potentially 80 to 100 grand on the table for him.
Nice. So you guys are leaving meat on the bone for him, which is awesome. You guys are buying it with creative financing, subject to an existing mortgage via a trust. You're wholesaling it to another investor. There's still room on meat on the bone. He's going to rehab that property listed. And is he going to rehab it or is he going to wholesale it?
I think he's going to do some paint carpet type stuff. I'm not 100%.
He's buying it.
Well, that's what I can fuzzy on, too. So what's the order of operations here? So what's happening first? Are you guys taking it down or are you doing thirty five K? I understand, but are you doing a true wholesale to where you're having your buyer buy it?
Have a double close? Like, are you bringing the table or are you having your buyer bring the 35 buyer?
That's why we chose the trust. That's why we chose the trust. Because we can sell our beneficial interest in that trust. Once we have the trust built. The trust doesn't have to you don't have to go out and get a new title work done. You don't have to get another title policy. Once the trust is in place and that property is transferred into trust, all you're doing at that point is selling your beneficial interest in the trust. So that's where that 35K is coming in. We're going to sell our beneficial interest, and now our buyer has 100% beneficial interest in that trust.
So you're doing this all at the same time, though, right? Basically the end buyers doing it, you're closing on it. Or rather putting it in trust at the same time. So the seller, who is the current mortgage holder, he's getting his 35 grand, you're getting whatever with the agreement of.
Staying in having the loan in his name for a few months.
Your end buyer is fully aware that he has to make those mortgage payments and all that stuff. So how much do you stay involved in this then?
Wow, that gets complicated when the buyer is willing to buy sub two and he's holding.
This is why I talked about the danger in wholesaling subject two deals. I give a class on this and it's definitely one of the areas that probably gets the most questions asked in. And I recommend that people don't actually wholesale subject to deals unless they are willing to stay in that deal in some manner at some capacity. Because ultimately you have made the promise to make that payment for that seller. You've made the promise to the seller. And integrity is a really huge thing for me. If for some reason and this is actually why we chose to trust as well, if for some reason your buyer cannot make that payment, you've got to jump in and make that payment. So what ends up happening is in the trust situation, you can do this with an LLC as well. But in the situation with a trust, we remain there's a position inside a trust called a director. Now, a director would be the equivalent of a manager of an LLC. And as manager and or director, we're just going to stick with the trust. We'll just say director. If you're the director inside a trust, you have the ability to replace beneficiaries.
To change the beneficiary without their approval.
Controlling interest of an LLC.
Yes, similar. I need to make a power of attorney essentially to change.
Sort of. But this is a private contract. If I had to equate it to anything, it would be just like the manager in an LLC.
A manager can replace a member of an LLC, so it would be the equivalent of that. I actually have a property here in St. Louis down in 63128 whereby I did this exact same thing, but I used an LLC to do it. I'm the manager of that LLC. What I did was I offered a membership in my LLC to this rehabber. I remained the controlling manager rather of the LLC. I gave it to him at a discount because there wasn't a lot of juice in this deal. If I were to wholesale it off, he would probably not have done as well as he's done. So essentially, I sell him 80% membership in that LLC. I remain 20% vested as a member and I'm also the manager. So when he goes to sell this property, I've given it to him for very little upfront, I think it was $2,000. He goes in, he brings all the cash to rehab it. He gets it all done. He lists it. That house is actually now it's under contract right now. When that house sells, I will get my 20% membership back out of it. I'll get 20% of the net profits when that house sells.
Does that make sense?
Yeah, that's a great way to join with somebody. Just take the back end profits and at least more meat on the bone for him. And the thing about these type of deals, guys, that I think we kind of skipped over, it goes without saying, but let's say it we're creating or Jeff in this scenario, is creating multiple wins. I mean, for one, he's helping a seller solve a problem and it may or may not be the property, right? But either way, the property is going to be purchased. Jeff is going to get paid. He's not doing this shit for free. Must be real. He's getting paid, right? He's teeing up with other investors. So in the Hawaii deal, it's a joint venture with another guy and he's helping them do it, but he's also helping another guy, the buyer, in that situation, that's like a four win, right? That's a win win, win win. And then the South City or the South County 63128 deal, similar situation, he's helping the seller. He partnered with the buyer on this one. Right. So he's actually going to take a piece of the gross profits in the back end.
So again, triple win. That's what we always shoot for as investors. Not so much wholesalers as investors, we got to seek motivation, find those people, get in front of them, tell them we can help them, and then we create as many wins as we possibly can.
So before we conclude that, I really do want to go back to the Hawaii deal and back. One question that I really do want to kind of get back to is, Jeff, you said you have to be willing to stay involved in it in some capacity. So how much are you invested in this deal? I understand you're the director of the trust.
So then what is your responsibility and what are you doing then? How do you monitor that? Are you going to go in and monitor the mortgage payments every month?
Yeah, that's a great question because right now we've essentially learned the how to some of it. But let's talk about the how do.
Right? Well, one of the keys here, and it's an absolute requirement before you actually take something down, subjectto is to get online access to their bank account or.
To the lender mortgage.
Yeah, online portal. At that point you can set up email notifications on this one. I know it's a short term deal, so there's no reason to believe there's no reason for me not to go in and make sure that that's done, or Tyler for that matter, is that.
Regardless, no matter what right, ideally you don't have to check it. Right? But worst case scenario, you're going to need access. You might as well get it in the beginning, guys. And I think that is probably like one of the fundamental things that you need to understand here is everybody needs to be on the same page. Yes, you can create a win win, but you got to have access to that account. So if they're not willing to give you information to access it via their channels, and again, I wouldn't rely on that. I really highly doubt Jeff does either. I would get paperwork filled out that gives you access to that channel via your own login so it can't be taken away from you. Right.
What I do, if it's my deal solely, I go in, I change the password and everything.
That way you can't get locked out. I love it. Very cool.
But you very much have to be involved with your seller here. You don't just buy this and then you walk away, and that's it. And that's really the problem that I have with assigning subject two deals, is a lot of people will do that, but you're very much upfront with your seller. You are very truthful in everything you do with subjectto. There is a lot at stake. I know there are some big names out there that are teaching people how to wholesale subjectto two deals, but there is a lot at stake for a seller to do this. So I just prefer to be very upfront.
So let's talk about that just real quickly. Once at stake, why would somebody be willing to do a sub two deal, and why would you approach them as doing a sub two deal versus all the I mean, there's 100 different options that you can do to help somebody with a deal, right? So what makes a good motivated seller? Like, what's the perfect motivated seller? I can tell you, when Mike and I look at a deal, it's like has to have equity. They need convenience. Right. As investors are really specifically wholesalers, we trade convenience for a discount. So if they're willing to give us a discount, why would we want to go out of our way and break our backs to give them a ton of convenience. So the perfect seller for me, equity house needs a ton of work. They don't want to fix it, they don't want to clean it, and they're willing to give us a discount, hopefully a big discount for the convenience of me dealing with all those problems. How does yours look?
It's so great because everything you list there, I am almost 180 degrees opposite of you.
So that's why I asked, guys. And that's okay. Look, guys, you can do deals in good markets, bad markets, up markets, down markets. Dr. Seuss over here, right? Do these in any markets, any equity. So boom. I didn't mean to interrupt you, but that's crazy. He's 180% differently. What he's looking for and he's still making thousands of dollars flipping houses, right? Yeah.
So let's talk about equity. I'm going to talk about list building here. You guys go out and you build a list. One of your requirements probably minimum, is, I'm going to say 30% equity.
I mean, usually minimum 35%. I just pulled a list the other day and I did 50% or more.
Right. So, yeah, for me, and when I talk about getting in front of the right people, that is where it starts for me. If I'm going to go out and build a list as a creative subjectto investor, I can go out and build a list where I can eliminate 50% of my competition simply by not requiring that huge equity spread that everybody else needs.
I would say higher than that, man. But yeah, well.
My max equity on any list that I build is 20% max. So I have been known actually to buy houses with negative equity in them. I will only do about 3%, 3%. It just depends on the price point of the house. But you can totally do it and you can still really do really well. It's a cash flow. It's a cash flow business. That's what it is.
Yeah. The equity doesn't matter as much because you're looking for the cash flow now on this deal. So you're getting paid a percentage of profits on the six 3138 deal, but the Hawaii deal, are you selling that now? You're selling at sub two, but how are you getting paid on that one, if you don't mind me asking, is.
That I'm actually getting a flat fee.
Okay, you're getting a flat fee, that's cool. It doesn't matter. You're getting paid though. That's all it matters, right? Yeah. Your friend Tyler, is he getting a piece of the deal or is he getting a wholesale fee?
He's getting a wholesale fee.
He is getting paid on closing of acquisition or closing on the exit that.
Is paid at the I didn't order that very well. I understand what you meant. It's paid at the change of beneficial interest. Of ownership of beneficial interest.
When it gets subtit into the new buyer's name, he'll get paid. You guys will still be the directors, I guess. So you have to monitor that deal. But what do you have to lose? Maybe one or two mortgage payments. And if you have to find a new buyer, you will, but hopefully you don't and you get paid. And then he sells, he makes money, mortgage gets paid off. Win win.
Love that Mike's. Quiet there, Mike. I can see the wheels churning.
It's great, man, it's great.
You just can't get a word in.
They love to talk.
And that is one thing which is really cool. And you said you don't like the wholesale them that much. My question really was going back to what is your new model? You said you don't want to be a landlord. So is the model always going to be wholesaling it or is the model for you buying subject to waiting till equity is paid down and then selling it off because you just don't want the long term? Or what's the play here?
A cash flow business.
Here's the play. The play for me is if I'm going to buy something subject to and I don't have the equity in it to go ahead and flip it, wholesale it or wholesale it off or just sell my beneficial interest in it or whatever, I'm going to hold on to that. But I'm going to start looking for a buyer immediately, and I am going to own or finance that buyer.
This is like creative financing on top of creative financing. On top of creative financing, you're requiring it sub to either wholesale or wholesale or whatever that might be. But whenever you do that, you're typically looking not always, but sometimes you're looking to sell it to them on owner financing, which will allow you to charge them retail, if not retail plus 10%. And I would imagine your cash flowing monthly by the average of it. You're going to get paid when it does sell, and you probably get paid in the beginning too. So you're getting paid three or four.
Times here, so you get a down payment. Essentially what you're doing here with this play is you are arbitraging interest rates. That's all that you're doing for your cash flow. So if I know that consumer mortgage interest rates, owner occupied interest rates are always going to be way down. Right now they're three and a half, 375, something like that, where if it's an investor, it's going to be in the five range. But if I'm buying them with 3.5 375 percent interest rate on them, I'm turning around and I'm going to arbitrage that and I'm going to charge my owner finance buyer seven and a half, eight and a half, 9% interest. And that is how I'm making my cash flow. And the cool thing about that is I get to build that. I get to base that percentage rate that my owner finance buyer pays based on how much cash flow I require on that deal. So I get to create that out of thin air. I'm like the Federal Reserve Bank of Jeff.
I love it.
Not only that, like you said, I'm going to get a down payment. I require a down payment, and that number is going to depend on based on the area that you're working in. But I'm also going to sell that house for a little bit, a bump in price on the back end too, because as long as an appraisal will support that sales price, I would go to the max of what the value of that home is on the back end.
Okay, awesome. So you're basically selling it.
Owner finance or you're selling it, I guess basically. What's that called like a lease option too. So basically you want to own a finance and then get them to refinance out or opt out of it in a year or two.
Then lease option would be something separate from this. I'm actually offering owner financing than this. So I'm going to have to send them a 1098 at the end of the year. They get the tax write off. That's one of the trade offs with owner financing is I don't actually get the tax benefits. They get that because of the interest that they're paying me. I no longer get to depreciate the property. I don't get the 27 and a half years and 100%. I'm okay with all that. I'm okay with it because I just don't like being a landlord. That's a straight off. You can absolutely lease option needs. You can still take that depreciation, you can take all the tax benefits, all of that good stuff. My problem with lease option, and I have lease option properties right now, is that technically I'm still a landlord. And then there comes an issue where you talk about where we start talking about equitable interest and equitable title, things that I just would rather avoid. Just go straight to owner finance, be done with it, and that's it. Awesome. Yeah.
You know what, I've been wanting to break into the owner finance game. Mitch Steven is a good buddy of mine. He took me hunting on his ranch down in San Antonio. This guy is a beast with owner financing. And he leaves his do you know Mitch Jeff or her?
I don't know him. I've heard him. I don't know.
I'll have to connect you with him. He's the coolest guy ever. Such a nice guy. But anyway, he's got 21 or $22 million lent to him and he pays those investors 6-7-8 depending on the term in which they lend it to him. If they lend it to him for longer, we'll pay them more, but otherwise it's like six, 7%. And then he turns around and he buys the properties with that money. And then he sells the property owner financing on 30 year notes. But the interest rates like 10%, 1112 percent arbitrage in the funds. And he is just crushing it. But the cool thing about the owner finance, as you know, is you're not the landlord as the lease option. You are right. The owner finance, you're the bank. So if the air conditioner goes out, it depends how the lease option is written, too. Maybe you could have it set to where all of the major stuff is on them. But if they don't fix it, guess who really owns the house still? You do, right? But if a tree falls on the house, hey, you got insurance, don't call me. Let's get me to foreclose.
That's the only reason you should be calling me, right? So love that. I love that.
Yeah, it's just a headache. Way free of cash flowing. And like I said, there's trade offs to it, for sure. But cash flow is cash flow, man. That's the way I look at it.
Love it, guys. Jeff Kaufman is the man when it comes to subject to creative financing, owner financing, lease options, you name it. This guy has all the tricks up his sleeve. I love communicating, networking, chatting with Jeff. He is the man. Go check out all things Jeffgauffman@dpipodcast.com. Two Suvnumber, two Jeff. Send me all your stuff so we can get that on the site. This won't publish for about a week and a half, two weeks, so we got a little time. But, yeah, send me all that stuff over, and then obviously go check out Jeff on social media. Jeff, how could somebody reach out to you or find you on social media? What's your favorite platform, and what's the Handle stuff?
I'm still a Facebook guy. I'm trying to get into Instagram, but something about Instagram just doesn't ring right with me. Facebook. Check out our page, subtle Empire on Facebook. We have a group, and it's subject to real estate investing mastery on Facebook. Go check those out. We have a YouTube channel, Sub Two. Empire actually runs under. We have a learning platform called Hay Investor that we've developed, and Subtle Empire is a course from Hay Investor.
Got it. And then we'll get those into the portal here. Guys, just to simplify, we're not sending you ten to 20 different links here. Dpipodcast.com Subtwo, and we'll have all of Jeff's information right there for you at your disposal. Jeff is one of the nicest people I've ever met. And I'm not just saying that because he's on the show. Like, truly has a heart of gold. Jeff, when I met him, had a full time job, and since then, he's quit his job, and it's just absolutely crushing it. I see the deals that he's doing around town. This guy knows his shit. So I would highly recommend, if you're looking to learn more about Sub Two or create a financing to check out some of the products in the courses and the coaching that Jeff has to offer. Anything you want to add to that, Mike?
No. Thanks for listening.
Jeff, anything you want to add to on an exit note? Anything you want to add? I guess let me say this. Let me ask you a question that would probably be a little bit more beneficial to the listeners in the audience here. If you are new to real estate investing. Right. What's the first thing that you would recommend to the listeners in the audience to do to start being an investor? Right. What's the first thing that you would recommend?
Well, I will tell you that without question, every single successful investor and business owner that I know has had a mentor. If you can find a good mentor, you've got a couple of them sitting right there on screen you guys are excellent wholesalers. You're excellent mentors. I do creative financing, so I would be one in that arena. But if you can find a good mentor, whether it's you guys or me or none of us, just go out and find a good mentor. Find somebody that you can trust, somebody that puts your interests above their own and going to take you under their wing and show you the ropes.
I love it. Jeff, thanks for coming on the show again, guys. Once again, we did a show with Jeff. Episode 29. Go back and listen to that one as well. A lot more information episode about how this is all structured and what it looks like today. We did some of the case studies on what Jeff's working on, but again, he is the man. Last but not least, head on over to Dpipast.com and also leave us a comment over on DPI podcast as well on this episode and let us know what you thought of the episode. We'd love communicating with you guys on the podcast site. Until next time, guys. Signing off. Thanks for watching. Thanks for listening. We'll talk to you soon. Thanks guys. Bye, you.