All right. Hey guys, welcome. It is a Saturday morning. Here I am, wiped out from him, a conversation that I had yesterday afternoon with a really interesting guy. I'm not quite awake, I've got bed head, I've got morning coffee breath, a rough morning this morning. But good thing is I do have my bulletproof coffee and it's turning out to be a bright sunny Saturday morning. But I wanted to jump on here before I even woke up because I had a conversation, like I said, with a gentleman yesterday who is very much so a numbers guy. And we have our own subject to calculator that we send out to folks for free. You can go download email@example.com on the resources page. If you just go to subtempire. Comresources. I'll put the link in the description but you can go download that calculator for free. But this gentleman actually took my calculator and just absolutely he blew it up, expanded it and it's something that a useful tool for him that he uses in his market. And I just had a really interesting conversation with him. It was really a pleasurable conversation but it really got me spun up last night and I definitely had trouble falling asleep.
If we have some participation with this video, we may be able to talk this person into providing his calculator or his spreadsheet to all of you. This gentleman's name is Bill Reich. He is out of the DMV Washington DC area. He's just a top notch guy. He's really interesting to listen to. He's got a very interesting take on real estate investing, especially in areas like in Washington, like in DC. Where housing prices are just absolutely through the roof. We're talking his average deal looks like an 800 to a million dollars price range. ARV. So if that's you and you're in kind of one of these really high priced areas, particularly those out on the west coast and those on the Far East coast, definitely you want to take a look at this video? Really interesting. So without further ado, let's welcome Bill Reich. This is just going to be a very candid conversation. It's just a conversation between him and I did get his permission to record it and to put it out here for all of you to watch as well. So just watch through it and see if you can get any ideas that maybe you can use in your own markets.
But very interesting guy. This video will start in three, two, one.
All right, here we've e r.
So we are looking at the client evaluation worksheet.
Can I share?
You can share.
All right, let me do that.
There we go.
All right, cool. One thing that we're very sensitive to in putting these deals here together here is that old rule, that 1% rule does not apply in this area.
I would imagine it doesn't.
I mean, Sarah, it's more like zero 3.4%. So it's difficult and yet we need to stay cognizant of what is the rent, what is the market rent.
Yeah, that's a given. And when you start getting into these higher numbers like that, you're actually even at zero 3%, whatever your range is probably still very similar to as far as dollar amount to what we deal with here in these kind of flyover state. Much more affordable markets.
Yeah, very much so. I mean, a half a million dollar house, typically the rent is going to be $2300 to $2,500. So it's tougher to put these deals together. You almost have to ignore that and sit down and show somebody. Well, if you applied for a mortgage loan in two years, let's assume your interest rate is three and a half or 4% and you put 96.5% down on an FHA, this is what you're going to end up paying. We want to make sure that your payments are somewhat equal to what the bank is going to be loaning you in two years. So that's our rationale. I always do that and usually that's fine. So how important is the rent? You still have to be aware of it. But all that being said, the first thing I do is throw up this traditional sale example real quick.
Real quick. I know you do a little bit of everything, but are you primarily renting when you buy and hold, are you renting or are you an owner? Seller finance?
My preference is 90% of the time, seller financing.
Deal with the caveat.
If they have less than 20% down, which I require, for a Seller financing deal, say they come in at 10%, I'm going to start them off on a lease purchase.
And then get incentivized them to pay up that extra 10%. And when that happens, boom, we convert to a sub two rap.
Great strategy. Excellent strategy. Yeah, I love it.
I haven't done a lot of them yet, but I think that's more reflection of the market. I've been marketing the hell out of it, and we're going after tired landlords who have owned the houses for 15 plus years, and I'm starting to get a pretty good reaction from that. Anyway, I could go on forever, me.
And you both, so let's stay focused.
Yeah, you stop me. Direct me. Tell me what you want to talk about.
Well, let's just start with the basic. Let's start in Columbia. A lot of folks that use my calculator, I always tell them I'm not a mortgage guy, I'm not a CPA, financial, anything. The way that I described the columns, the labels that I put on these different things just come from my brain. So I think what you have here is pretty self explanatory. Asking price, estimated market value, things like that. So I just want to make sure that as you walk through these, if there's anything that I just want to walk through one by one so that we can make sure that our audience understands what it is that we're talking about. Exactly. I hope that makes sense.
Yeah. You know what, Jeff? I'm realizing this does not. What is the name of the other sheet that I sent you?
Let me flip over there. It is called the Quick Evaluation Worksheet.
Could you show that to me?
Because this is lacking a very important piece of information, which typically I would actually show to a potential seller. Yeah, this is the one we need to use. I'll tell you why. Because this includes our profit at the bottom, and it commutes automatically. So let me get out of this one.
Okay, so you have a buy side and a sell side.
Okay. All right. Let me stop sharing here.
All right. I'm going to get rid of this.
Let you take back over.
Okay. Wonder if this one has no, this one also doesn't have I could send you a copy that Scott also free and clear.
All right, so let's walk through this.
So first things, I want to establish doing the traditional sale example, realtor sales. So I do those numbers. I wouldn't go to the bank on these estimated costs, but Ballpark, so under the best of circumstances, I'm saying he's going to make about 97,000 when he closes, if he sells with a Realtor.
Okay, got you.
And I'm pretty confident in that. So they were on the market for million 40. I established that the estimated market value simply an average of Zillow, PropStream, Rei, Pro Realtor Redfin. For some reason, I come didn't have this. And this is how I evaluate all my properties. So that's the market value.
Their original mortgage was taken out on September of 2019. It was 833. Six. They've paid it down to 811, which leaves them a current equity of 228. The existing mortgage pi is right there, and that comes from this amortization schedule.
So there are three and a quarter percent here's, the annual taxes, the property insurance, monthly MIP, or PMI, none here, HOA, nothing. So the total garbage fees I call them is $1,083.23. That's the taxes, insurance, HOA, et cetera, et cetera, comes out to a total monthly payment of 40 711. PropStream has market rent at 44 41. So this is actually fairly close. And just as a matter of habit, I always kick that up by 10%.
Good call. Yeah. I'm actually kind of surprised that the taxes on this well, this property in particular has a relatively I mean, no one wants to spend an extra $10,000 in taxes, but on a million dollar home, it's not terrible.
Well, if they didn't have a homestead exemption on this, it'd probably be a heck of a lot more.
Oh, okay. It didn't cross my mind.
Yeah. So theoretically, that's the number I should be using if I buy the property. So there's the monthly payment, there's the marker, rent I'm saying the premium marker rent is 48.85. I'm saying the custom rent kicks it up to about $5,500. That's just for grins and giggles.
Assuming we close on May 1, they will have had 20 payments up to that point. So buying assumptions, I knocked off 2% from the asking price. Not a big discount by any stretch. I wanted to go 120 months, and they were okay with that. But about a year and a half ago, this loan that they took out in 2019 was a 71 Arm, which means that in five and a half years, it potentially could go up as much as two and a quarter percent above the three and a quarter percent. I didn't want to deal with that. And I'm not a crapshooter by any stress. Yes. I'll walk you through this. So here there's no down payment, and the second lien is $207,974.
So a second lien, is that a note that you're giving them? Correct. Okay.
I'm going to give them a second trust note, and I play with the term because I didn't want to pay much more than $400 a month, which is really low for house in this price range, but frankly, there's not enough spread. I could have cut this up any number of ways. I said, you know what, I'm going to give them a little bit here. Now, the deal has since evolved since we signed it. Part of why I was on the phone with an attorney for most of the morning was we've made certain modifications. I'm actually going to give them 25,000 cash, which wipes out the $400 a month that we're giving them. So that increases our cash flow to about 650 a month, which I'm a lot more comfortable with. I'd rather give them the 25 out of the down payment I collect.
So the combined payment is $4,044. That's his principal and interest, and he's getting 416. So at the end of five years, the first is going to have a balance of 718. The second is going to have a balance of 183, for a total of 901 that I'm going to have to pay the seller at the end of the five year term. So the seller is essentially netting the 207, which equals the second trust. Seller benefit is the 207,000 he's getting is $110,000 more than he would get with a Realtor. The return on equity is 48%. And on a five year term, that's about a 9.63% return on invested capital. The way I sell that is, tell me, where else are you going to get that secured by a property that you've lived in for 14 years?
Yeah. 100% for your 120 month, your ten year seller net benefit. Obviously, if he goes ten years, you're willing to give him a little bit bigger piece of the pie.
Yeah, it's not much. 1.5%. Again, you play with the numbers until it just kind of fits, and you go out with that offer. That's what I do. And then the guy says, one and a half percent is too low. I say, Okay, I can give you how much interest do you want? 3%. Okay. I'm going to have to take that off the back end or I'm going.
To have to lower my offer.
Well, that's what I mean.
Okay. Got you.
Yeah, that's exactly what I mean. So it gets a little bit more cash. He gets almost 23,000 up front, and over ten years, he's going to make almost 159,000 more than he would with a Realtor. It's a 70% return on equity, or almost 7% a year return on equity. Now, the selling assumption I'm still playing with. I can go any number of ways, but really for the numbers to work. So I'm always cognizant of. The main thing is I don't want his balloon to be $600,000. The buyer's balloon is 600,000 to me, and I have to pay $900,000. So I'm hyper vigilant about that. But playing with the numbers, we go out not substantially higher than what he's charging now. It's about a million 113. I've since kicked that up, by the way, to a million 125. We're on the market at a million 125 for this property.
Assuming only a 15% pay down, because if he pays down 20%, I'm going to be underwater here on the balloon. We're going to collect $167,000 down payment. We're financing $946. I put 480 months at four and a half percent because the numbers work. Is somebody going to bark at that? Possibly. And then what we may end up doing is reduce the price. But if I change this to 360 months, his payment goes up to $58.79, what happens to the balloon? So now I'm about $50,000 upside down on this. So, again, it's a matter of negotiation. But the monthly payment at these numbers is $53.39, which I think compares very favorably to the so called customer rent. We're only making 211 a month, which gives me a little bit of concern. So again, I came back and said, look, if I give you $25,000 now, essentially prepay your principal on your note for the five years, would you accept that? They said, Yeah, we'd love to have the 25,000 now, so that's the way we're going.
And that goes to 50, by the way. If we end up finding a buyer who comes in with the 20% down, god bless, we'll give him $50,000. So that reduces the second trust by $50.
Good deal. Okay.
So the total profit is $165 at the end of the day. And plus the spread, which is only the 211, comes out to a total net profit of about $177,000 for a five year deal, which is life for a million dollar property.
Yeah, I mean, I look at those numbers and I go, holy cow, I need to get you involved in St. Louis.
I'll tell you, you and I want to work together in St. Louis. I would love to go to St. Louis. I think it's a great market.
Yeah. It's tight everywhere right now, but even here it's hard to find a they still pop up, but it's harder and harder to find even some of the lower end properties, like some of the turnkey stuff that we do, even some of those properties are hard to get into right now.
Yeah. So I also throw in a sandwich lease. Typically, unless I find out up front that they want to put the house behind them. There are no guarantees on the sandwich lease because it's an option, obviously, but it could be an attractive scenario for them as I'm filling in these numbers. This pre populates. The only thing I change is the term, and right now, frankly, I won't do less than a 48 month sandwich lease.
I'll try to close out 24 to 36 months, but I need that extra time. What caused me the most headache is having that gun to my head at the end of three years. I got to either.
Yeah, I hear you. It's not unheard of for me to create a balloon balloon for myself, but I liked personally, and of course, we're in different markets, so this is probably not going to apply to you very much, but I don't even like this up here where you have your five and ten year notes now your five and ten years. So that's a balloon on both what you're going to owe on the second and the first? Or is that just I just assume.
We'Re cashing both out.
Yeah. That could change.
Yeah. Okay. Yeah. I like those long term deals as much as I can get them, but obviously you can't get away with that all the time, so maybe I don't know. One of the options in your calculator is that option where you just say, hey, I'm going to have this thing for the remainder of the loan, and you plug that in and see what your numbers look like then you know.
What, Jeff, I would do that every day of the week, except every time I propose some kind of seller financing, especially a hyperdale where there's an existing loan in place, I'm lucky if I get them to agree to five years now. I won't budge. I won't go below five years on a finance deal. There are some people who do to me, it's not worth it.
Who are you marketing for? What is your typical seller look like? Is this a distressed situation?
It's not distressed. This couple is well off, but they just retired. They moved down to Richmond and they have been paying double mortgage now for ten months on this property.
Yeah, I mean, the property is not distressed situation. They want to do this deal, and they basically told their attorney to take her objections to the steel and stick it where the sun doesn't shine because they want to get the steel done.
And I bought myself 90 days. I said, look, if I get somebody in earlier, I'll start paying your mortgage the next day. But I need 90 days for me to go out and market.
That's pretty standard for me as well. I'd like to, unless it's a really tough situation, but I would 100% agree with that. So, yeah, see, we've got a slightly different demographics. You're dealing in areas where there are a lot of people that are well off. You might not have the motivations that we typically see around here and what we market for, because I can count on two hands how many times I've actually put a limit on or put a term per se and balloon on any one of my sub two deals.
Yeah, that's ideal.
Now, just so you know that most of my marketing at this point is and I've been going out, I've got my VA cranking out text blasts on a daily basis. Now, I know that's going to come to a screeching halt in how to just future, but we're very compliant. We work it through. Blackbook and I have been doing 90% to 105% loan to value. People have owned their properties for one to three years, and then I filter further and I find out if they're VA loans. And there's huge amount of military so I focus on military areas. Several counties in Virginia, Northern Virginia, the shortage of bases. There no shortage. I think we've got eight in the entire area. So that's been the bulk of my marketing. So I am looking for those. I had a deal wrapped up. This is a long story, I won't bore you, but I had a contract signed and I was ready to go in and do my inspections and run title and all that stuff. There was no limit. He had a VA loan. I said, Look, I can't guarantee when this loan is going to be paid off.
Obviously it behooves me to get it paid off sooner rather than later because a lot of my earnings are tied up in that, which is not necessarily true. And he said, Fine. Some other investor had signed a deal with a tenant buyer, did not have a signed agreement with the seller, but the new tenant buyer moved in and wouldn't live.
So I walked away from the contract. I said, this is too much brain damage. I didn't want to sue the guy. He was very upset. He said if I was there and he lives away from the area oh.
My gosh, what a nightmare.
Yeah. He said, I would take a baseball bat to this guy in 2 seconds if I was still there. I think Cardinals, they let him go, though.
Unreal. Wow, that's a new one. I haven't heard that one before, buddy.
I've only been doing this close to four years. I got a million stores like that.
I know. It's amazing how they rack up.
It really is. Anyway, to wrap this up, no pun intended, so I did the Sailors lease. They've got considerable principle pay down. So if I were to keep that, I mean, I net this huge $192,000 over 48 months on a Sandwich lease. But they did not want a Sandwich lease. And then I've got what we call an AO or sign out. That's what Chris calls it. And so this is strictly an assignment back to the seller. Once I signed the agreement with the buyer and down, I would give the seller 20%. So I walk away with 87. Not a bad pay day.
Yeah, that would be essentially your wholesale lease option type of thing. You're putting a package together, you're sending it back to the seller as opposed.
To the buyer, which is what Joe does.
Right? Yeah. That's interesting. I've never done one of those. But had I known about those much sooner, I probably would look a little more highly upon the Sandwich lease option or lease options in general. It wasn't really something that because I've done several Sandwich lease options where and some wholesaling lease options to the buyer, like what Joe does. But I wasn't presented with something like this until, gosh, probably two and a half, three years ago. The first time I'd ever heard of it. And I don't know why I didn't think of it, because that's a pretty slick little deal, Jeff.
I've done four of them all over a million dollars.
One deal was close to 2 million, and I ended up collecting $150,000 fee for that. They're great for somebody who doesn't want to give up title. And it's typically two years. Mr. Seller, there are no guarantees, but we're going to vet the hell out of these people. And you have final decision as to whether we accept them or not. So that's the difference between that a Sandwich lease.
Yeah. That's a man total control. Yeah.
Let me know if you need help with that. I'm willing to be your coach on those deals.
Okay. All right. Yeah, definitely. I would definitely look into that. I'm reluctant to keep adding on to any I've actually dialed back. I used to do all of these crazy things, and anything that I thought I could manage, I would take it on. That's just how I was. I really have a very solid plan now. I envision my day. For example, I've got a rehab going on right now. I knew that I don't want to be in there or didn't want to be in there swinging hammers. So I've got a crew working on that right now. And I get to come back and I get to do unsuspectingly or unknowingly to me what I really like doing. I love this coaching thing. I really, really do.
It's good for you.
Yeah. I mean, it's weird because I've had people tell me before that, or I'd have people reach out and ask about it. And I finally started picking up some private couple here and there, private coaching students. I don't know, I guess it was about four years ago, and I was like, it seems more like a job with the individual students, because I sit down once a week with each one of them, and we go over things. And then there's a guy in our group right now. His name is Randall Bao. He's on the US swim team, us. Men's swim team. And he approached me about this group thing, and I was like, I'm not really that interested. I've got enough on my plate. And then he started talking about a scholarship offering, running a scholarship. And then again, I was just like, No, I told my wife about it. This guy was just so persistent. And then I actually talked to him, and it made sense. It started making sense, like, Holy cow. And I didn't want to do it. I was reluctant to do it in the beginning. I'm telling you that I absolutely love this.
I look forward to getting on these calls, and I'm not a very good speaker. I'm not trained to speak. I definitely am still really green when it comes to getting in front of a camera. But, man, I just love it. I love seeing these people. Like, I got a guy. He's literally texting me right now as we're talking. He's down in San Antonio, and he's putting a deal together, and it's all off of the marketing. I told him to do the list that I told them to pull the strategy. I told them to go at. I mean, it's just all and it's like, all right, he's getting it. He's getting it, and he's doing deals, and I don't know. It's just a really good feeling.
It's a great feeling. When you help somebody, it's outstanding. But you also have to hold them accountable, because if they don't respond to your coaching, then it's a waste of your time.
Yeah, that's why I'm moving towards the group thing, because if you don't want to put in the work, hey, there's proof on these calls. There are other people in this group. There's proof that what I'm telling you works.
You're just not putting in the work. You're just not doing the work. Honestly, it's been so fun. On top of that, I do stuff outside of just the calls, but literally, that's two days a week that I sit on a call. I mean, obviously I help people outside the calls, but still, it's two days a week, and I love it. I get my time back. I get to make a little scratch, and I get to help tons of people. So it's just great plywood showing, which is fun. Yeah, she gets to give me trouble.
She's adorable, by the way. I love the stuff that I've seen with you guys.
We have a very great relationship. Very unique, let me put it that way.
I also get the impression she doesn't let you get away with much.
She doesn't let you get away with anything, really. If I'm not always out of the corner of her eyes, I'm right under her thumb. We have fun, though.
How do you characterize the people in this group? Are they newbies or are they grizzled old veterans and everything in between?
We have people that have never I've got a couple of brand new wholesalers here in St. Louis, which by the way, just an absolute proud dad moment. These guys are absolutely destroying it. Right. I'm so proud of them. They listen, they take the information in and they act, and I love it.
So are these guys still doing wholesaling or they're moving towards creative financing?
Well, that's the thing that we teach, is we don't like to put people in a corner. So what we do, they're going to be wholesalers. I mean, that's what they like to do. But I'm trying to show them how you can incorporate creative strategies in with wholesaling too. The number one problem that we all have, that wholesalers have is finding buyers. And so if you break that down, you go to get to the root of that problem. The problem is, number one, the problem is cash buyers. Cash buyers just don't pay. That's just true. Anywhere you go. So our strategy is we always, always use the MLS. We don't even build a cash buyers list. It's pointless. So our strategy is to use combined creative financing with your wholesale deal. So essentially the seller is your finance. Here the deal is already funded. You have to work on getting that property and getting the deed of that property. Then if you want to wholesale it, you can put it out on the MLS. It doesn't make any sense to have a cash buyer's list. There's your buyer's list. It's the MLS. They've done that a couple of times and they've made a pretty good chunk of change.
They've done pretty easy.
What's your emphasis on marketing? I don't want to take up a lot more of your time, but I'm.
Just really I've got all afternoon. Don't worry about it. Our take on marketing is we avoid the flavor of the month. That's what we do. We do tried and true. We know what works. I see people jumping constantly from one thing to the next to the next to the next, never really establishing themselves or perfecting what they had done previously. It's just there. And so we do things like, for example, we have a bird dog program. When everybody thinks about bird dogging, they think about going out and talking to somebody, maybe giving them an app to profit drive or something like that. We don't do that. We actually put together an entire package that includes all of our bird dogs. Get a penisino wheel sticker. They get profit drive. They get pamphlets. They get business cards. They're get a landing page. They get all of this stuff. It's part of the whole package. And so that's what they're in the middle of right now, these two guys that I was telling you about.
That's impressive. I love that. So Bandit Signs on Wheels actually works.
Oh, my gosh. Well, you know Reuben, right?
Yes. He's the guy who started that, right?
Yeah. Ruben has about 400 cars. He averages about 400 cars out in Phoenix. And I tell everybody, and Phoenix is a huge, huge it's just a massive area. It's got to be 2020, 5 miles in Circumference. It's huge. But I always tell my guys, like, if you implement just one thing, if you implemented Band of Sin on Wheels now, it's going to take you a while to get it up and running. It's going to take you a year, essentially. So our plan is to if you want to implement Banas on Wheels, you could 100% run your entire business off a bandaid on wheels. Damn. Just that one strategy. And the cool thing about it is you're going to have attrition. You're going to have people that fall off, they peel the stickers off their cars or they sell their cars or they wreck their cars, whatever that is. So you do have to keep that going. But for the most part, I would say probably two thirds of all of my drivers that I have still, to this day, from four or five years ago, still to this day, have a sticker on the car.
We still get calls off of these, and we didn't actively keep up with it, so we stopped at 40 in St. Louis, and we still get calls off of them today. It's crazy. So we just kind of did, like, a big roundhouse kick to that whole program and just totally redesigned it so that we have this package that we can just hand to somebody and kind of a la carte, if you will. We have different pay structures inside that. Obviously, we put a sticker on somebody's car, they're not really doing anything. They're just driving around. So we pay them less. But if they want to add driving for dollars, we will pay per lead or plus per deal. All right, guys, thanks for joining me. Sorry for the abrupt ending there, but the rest of that conversation was more personal, more of a personal nature. So I hope you got something out of it. I hope you got some good ideas, maybe something you can go back and implement in your own business. And again, thank you very much. Go ahead. If you wouldn't mind, head down below and click that like button. Click the subscribe button, and then finally hit the notification bell and get notified every time we upload a new video to the channel.
Thank you very much. Take care. We will see you next time.