How to Buy a Rental Property with NO Money OR Credit

Ashley:
This is Real Estate Rookie episode 280.

Pace:
Every time on a subject to deal, seller gets the number they want, agent gets paid their commission and I get a property where I have an interest rate below 4{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} attached to it with a payment that I can go out and cash flow immediately without a credit check. And I pay a lot of times 85 to 99{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of retail value. So everybody wins. The sellers get more money, the agents get paid commission and I don’t have to go to a bank. Everybody wins in the transaction.

Ashley:
My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we’re bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Rookie audience, do we have a show for you guys today. We’ve got the one and only Pace Morby on the Real Estate Rookie Podcast. If you don’t know Pace, Pace is well known in the BP community, but Pace also has a new book out called Wealth without Cash: Supercharge Your Real Estate Investing with Subject-to, Seller Financing, and Other Creative Deals. Pace comes on to break things down all about creative financing.

Ashley:
Yeah. He also talks about… He gives this golf analogy as to why you may be playing this real estate game with just a putter when you should have all of your clubs. So I thought that was a super interesting analogy, but very, very relatable.

Tony:
Yeah. Almost like David Greene esque, right? With the metaphors there. It was good.

Ashley:
Yeah. And then we actually walked through how to get a deal today, as in get a deal in one day. So the main reason we have on, as Tony mentioned, that Pace just wrote a book, Wealth Without Cash. So head to biggerpockets.com/wealthwithoutcash to pre-order this book. Make sure you pre-order before May 2nd. Pace actually goes through what you get with the pre-order besides just the book. And let me tell you, these are opportunities. I think me and Tony might just purchase a couple books to get the entries.

Tony:
One of the prizes, I’ll just hint out one of them, but you can literally get on a television show with Pace if you are one of the lucky winners here. Pace also, in addition to the book coming out, he’s got a bootcamp coming out with BiggerPockets about creative financing and subject to, and that starts June 18th and then ends on August 26th. So if you guys head over to biggerpockets.com/bootcamps, you can learn more about the Creative Finance Bootcamp.

Ashley:
And of course, if you are just a rookie investor and want to learn anything and everything about getting started in real estate, there’s also the Rookie Bootcamp that I am co-hosting with Tyler Madden that will be starting those same dates over the summer.
Pace, welcome back to the show. The last time we got together with you, we were actually live at BPCon and got to do a live recording. And now we’re back to being virtual. So how have you been?

Pace:
That was special. San Diego BPCon. Now the new BPCon is in Disney World essentially. Orlando.

Tony:
Yeah.

Pace:
So it’s not in Disney World. I just look at Orlando and I’m like, “All of Orlando is Disney World.”

Ashley:
Did you see that we’re actually going to Universal one night too? They rented out Universal Studios.

Pace:
I saw that. The last night as the cap party. I’m super excited about that.

Tony:
Pace, I don’t know if you know this, but that was one of our best performing YouTube videos, or I think it was the best performing YouTube video for the Real Estate Rookie Podcast also.

Pace:
Wow, that’s cool.

Tony:
You got some big shoes to fill today, brother.

Ashley:
Yeah.

Pace:
Yeah, I just was so excited to hang out with you, guys. You guys were great to meet. And Tony, your spouse, and just everybody in the whole BiggerPockets leadership, it was just so cool to hang out backstage and do that podcast. So thank you so much for having me back.

Tony:
No, of course, brother. We’re here to talk about something special today, right? Pace, you have entered rare air as now an officially published BiggerPockets author. Obviously, we’re going to talk about your new book, man, Wealth Without Cash: Supercharge Your Real Estate Investing with Subject-to, Seller Financing, and Other Creative Deals. But before we do, man, you’re obviously the king of all things creative finance, so we thought it’d be cool for the Rookie audience just to kind of get a quick breakdown of what it actually means to do a deal subject to, what is seller financing, and kind of what are some of these creative strategies.
So Ash, I don’t know. Where should we start? You’re a wealth of knowledge, Pace. I just want to make sure we get the audience the best stuff.

Ashley:
Yeah, let’s start with what are the options for creative financing. When I started investing, I didn’t even know you could go to a bank to get a loan. I just thought you had to have cash to buy a property, because my mentor, that’s what he did. He used cash to buy properties. So what are ways that you can do creative financing? Let’s start with that.

Pace:
I think the biggest challenge in real estate is that there are so many ways to succeed, whether it’s from the BRRRR strategy, yes, using cash, all of these things that creative finance I think is very daunting for people because what it does is it takes the 10 ways to be successful in real estate in cash or traditional methods and it multiplies by 10. There’s literally 100 different ways to make money with creative finance, maybe even more. I’ve never seen a transaction ever identical to another transaction because of how creative you can be with it. But what exactly does that mean?
So if you look at this, here’s what you’ll see. You’ll see that there are all… Everything starts with a seller, right? Whatever deal you’re working, there’s always a seller of a property involved. And then that seller is either A, represented by a real estate agent, or B, they are unrepresented, right? And what we call as real estate agent, those are on market. And up unrepresented, we call those off market, okay? Whatever strategy you choose, you’re going to go after a seller in one way or the other, A or B. That’s basically it. Going on market, I see something on the MLS or Zillow and I’m going to reach out to this real estate agent and I’m going to try and get this real estate agent to help me work a deal with this seller. Or B, direct to seller. You’re going to the seller direct maybe based off of a pain point like probate, foreclosure, expired listing, whatever it may be, and you’re working leads.
So here’s where creative finance comes in. What I learned is that when I was doing nothing but traditional lead gen, I would’ve to generate about 50 leads for every two deals that I did. Why? Well, sometimes the sellers are not motivated. They don’t want to sell at all and there may be just kicking tires. But what I found more often than not, it was either A, B, or a combination of both of them, which was C. It was either A, the seller wants too much money. And even agents run into this all the time where an agent will go talk to a seller, seller says, “I want you to list my property.” The agent sees that the property’s worth $300,000 by comping it and then the seller says, “I want $350,000.” So you have basically unrealistic sellers, right?
When I first started Ashley, I also did not know that people could get a hard money loan. I thought a hard money loan was like a loan shark.

Ashley:
With the baseball bat?

Pace:
Exactly. Like they’re going to break your kneecaps if you don’t pay them back, right? What you don’t know hurts you dramatically. And what creative finance does is it helps those sellers that want too much money. Then B is maybe a seller has a lack of equity. And you’re seeing this more and more and more right now, especially if you look in Maricopa County where I live, I live in Maricopa County, Phoenix area, and you pull up expired listings. If you’re a rookie, write this word down, expired listings. You want to go get a subject to deal today? Go after expired listings. Typically, agents are representing a seller. The agent has six months typically in 99{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of arrangements to sell that house for the homeowner. And if they can’t, then that listing gets broken and the agent no longer represents that seller and now that becomes what we call an expired or unlisted or delisted property. If you want a subject to deal, that’s where you go, is expired listing.

Ashley:
Can you just tell everyone where they can get those expired listings? What are the steps they have to take?

Pace:
So first off, I would make friends with real estate agents because the easiest and the free cheapest way to get them is just get them from a listing agent or a real estate agent who has access to the MLS because they get that information for free, okay? Second place I would go is I would go to maybe PropStream. BiggerPockets has a great software as well. There’s so many different ways to pull that up. We get ours from PropStream.

Tony:
Pace, just really quickly. Not to go too far down the rabbit hole, but say I’m a brand new investor, I’ve never done a deal before and I want to reach out to agents for the purposes you just mentioned. What am I saying to them to get them to take me seriously and actually give me deal flow?

Pace:
Okay, cool. This is great. This is where I’ll tie that all into your question. So either A, I was running, I’d go generate 50 leads, I would go get two of those deals cash because I’d have super motivated sellers out of 50 leads, right? The other 48, they either, seller wants too much money or the seller has a lack of equity, or a combination of both, which is C. So what I learned is that I could utilize subject to and seller finance. And there’s a handful of other things as well, but I won’t go into them because we only have limited time, but like notation agreements and lease options and all of those types of things.
Another strategy I talk about in the book is called the Morby method, which is a strategy I created about five years ago. We won’t go into that today. But there’s so many ways to make money. The two primary things you want to go after are subject to and seller finance. So what you’re doing is if you’re going to reach out to an agent, what you want to do is you want to start off the conversation always about their commissions. Always. “Hey, my name is Pace Morby. If I was able to get your commissions paid, would your seller be open to terms?” Some agents know what terms are, some agents don’t. Basically navigating that conversation, some agents go, “What do you mean terms?” You go, “Well, again, if I could get your commissions paid, would your seller be open to me taking over their existing payments? Or if your seller doesn’t have payments and they own the house free and clear, would they be open to seller financing the property to me?”
Now the agent will hesitate. Sometimes they’ll go, “Oh. Ah…” You go, “Look. By the way, I’m not going to negotiate the sales price. I will even come up to the number that the seller and you are looking for. I will get your commissions paid, but I am a terms buyer. I’m going to buy only on terms.” Now the process of subject to and seller finance, here’s what I found. When I would go after these 50 leads, two deals turn into cash and another eight deals will get done with creative. I found that utilizing creative finance subject to, which we can jump into what that is in just a second, and seller finance, utilizing these two strategies, I could 4X my conversion rate and 4X my monetization.
And by the way, it is way easier to buy a property, subject to, than it is with cash. Way easier. The only reason why people are confused by subject to is because it’s not always talked about and it’s new. It’s kind of like when Ashley and I both learned, “Oh wait, people aren’t actually cash buyers? Like 99{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of people are not buying with cash?” They’re actually, if you use the correct wording, you would say, “I’m a hard money buyer.” We’re not cash buyers, we’re hard money buyers. We buy houses to flip them using hard money. So it’s just like learning a new language.
Subject to sounds confusing, but it’s actually way easier. It’s faster to close out a title company. There’s five less people involved. It’s way easier to get under contract. There’s rarely inspections, there’s never any appraisals, there’s no banks involved, there’s no loan payoff requests, there’s no applications. There’s none of that going on, which are all the complicated parts of a cash transaction. And so in subject to, you don’t have any of those things. So it is way easier for me to go to a homeowner and say, “Your asking price is not the problem for me. Whether you’re willing to do terms or not is my main concern.” It’s like, “You’re not going to negotiate my sales price?” No, I’m not. All I want is I want the interest rate. I tell sellers all the time, “I’m not really buying your house. I’m buying the interest rate attached to your house. That’s really what I want. Your house just so happens to come with it.”

Tony:
Pace, so much, so much good information there, brother. So much. And I just want to pause for a second because I want to clarify a few things for our rookies before we keep going.

Pace:
Of course, yeah.

Tony:
So first, if we take one step back, can you define what subject to means and define what seller financing means and explain how those two concepts are different from going to a traditional bank to get financing on a property?

Pace:
Of course, yeah. So let’s look at it like a car. Let’s say I want to go buy a Toyota Prius and I go to a bank to go get a Toyota. I go to the car dealership. The car dealership says, “Okay, well what do you want? How much can you afford?” And then what do they do? They go to their finance department, they run your credit, they look at your job credentials, they look at your W2. They look at all the things just like you do through a mortgage and they see if you’re worthy enough to buy that car. Okay, great. In a car transaction, much like a real estate transaction, you are paying over retail for every house.
By the way, do you know every homeowner pays over retail for every house that they buy? No homeowner buys houses with equities. They buy at full retail on the MLS. And after all their commissions and closing costs and all their additional fees and all the moving expenses to get into the house, every homeowner starts by buying a house underwater, right? But it takes months to go through that process. So I look at that and I go, “If equity is not the main goal in the very beginning, equity will build over time, my tenants will pay down over time, really what I want to do is avoid going through the bank.” So why don’t I just go to somebody that has a Toyota Prius and say, “Hey, do you have a car payment on that Toyota Prius?” And they say, “Yes.” I go, “Great. Can I just take over the payments on that Toyota Prius? Instead of me going to a car dealership paying over retail, getting a new loan, going through the whole process, can I just make the payments on your existing loan?” Seller says, “Yes.”
And if you go on my YouTube channel, I bought a Kia, subject to, where I found a seller that goes, “Look, I bought this on a dealership last year, it doesn’t have any equity and I’m trying to sell the Kia on Craigslist, but I’m getting lowballed.” Welcome to real estate. That’s the same thing. Homeowners buy a house, a year later, they try and buy it for a job transfer or maybe they’re getting redeployed if they’re in the military. They go to sell to a real estate agent. How much does it cost to sell a house through a real estate agent? 3{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56}, 3{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} and another 3 to 4{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} in closing costs, home warranties, inspection items, et cetera. You’re like 10{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} to sell a house. It costs 10{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} to sell a house.
So for a seller that doesn’t have a lot of equity, I just go to the seller and say, “Can I just take over your payments?” And that is the process of subject to. I take the deed, right? Because here’s the big difference. If I go to Craigslist right now and I start calling people that own Toyota Priuses, you’re going to run into some people that own them outright, they paid cash for those cars. And you’re going to run into some people that still have car payments on those cars.
Seller finance means the the car is paid off and I can just say, “Hey, I’d like to buy your car on payments. What payments do you want to set up where I just make you a monthly payment and you become my bank?” That is called seller finance. Seller is financing me, seller finance. And then subject to, I just go, “Oh, you have a car payment. No problem. I’ll just take over the car payment exactly what it is. I’ll log into your account, I’ll make the payment every single month. Registration gets put in my name. Ownership gets put into my name. And I’m the owner of the car, but the payment stays in your name. We avoid all the bank fees.” The only person that makes money when I go get a new bank loan to pay off your existing bank loan are two banks. You don’t make any more money and I definitely don’t make any money. So what am I doing going and getting a new loan to pay off an old loan? Why don’t you just let me take over the old loan?
I’m not call talking about assumptions. I’ve never gone through a credit check. Nobody’s ever looked at my job history. Nobody’s ever looked at my bank account, see how much money I have in it. Nothing out of all the transactions we do. So subject to is when somebody has an existing set of payments that I can take over, an existing debt. Seller finance means I work directly with a seller and we structure a payment that works for the seller.

Tony:
Pace, before you go into seller financing more, I just want to note that when you were on on episode 236, we did go through as to why a seller would do that. Like why would they trust somebody taking over their payments? So if you guys want to learn more about that, go back and listen to that episode as to how come that doesn’t affect their DTI, like how you use the third party servicer, all those things. So if you really want to learn more about subject to, go back and listen to that episode.

Pace:
Yeah, so what I’m essentially doing is I’m going to homeowners or agents. Probably half the deals I do are with agents involved. The other half are with seller. And why is it half-and-half? It’s half-and-half because I go to the agents first and I tell the agents, “Hey, it looks like your house has been listed for over a hundred days and cash buyers are already telling you this is not a good fit for the marketplace. You’re asking too much money. I will be one of the only buyers you will speak to that do not care about the purchase price. So if I could get your commissions paid, would you be open to talking to your seller about me taking over existing payments or creating a payment structure that makes sense for both of us?” 50{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the agents say yes. 50{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the agents say no.
So the 50{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of agents that say no, do you know what we do, is we put them in our CRM and we track the house until it doesn’t sell and when it goes expired, we then call the seller directly and say, “Hi, we tried talking to your agent about this house two months ago and talking about taking over payments. Did your agent ever bring that up to you?”
“Nope, my agent never presented your offer to me.”
“Great. Would you be open to letting us take over your payments?” They go, “You would be willing to do that?” So the paradigm shift for me was like the same paradigm shift you had Ashley when you went from learning from one person that buying cash is how real estate investors make money to realizing that 99{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of real estate investors don’t use their own cash, they use private money or hard money. There was that whole light bulb moment of like, “Oh my gosh, what have I been missing?” It’s the same thing with me. When I got into creative finance, I used to think that sellers would be not open to this. And then when you actually have the conversation with the seller, the seller is like, “Wow, you would be open to that?” It is the polar opposite of what you would assume.
Now, of course, just like if I walked into my neighborhood and knocked on my neighbor’s door and said, “Hi, I’d like to buy your house,” most homeowner’s houses are not for sale. So you’re not just going to talk to a random person to buy their house whether it’s cash or creative or even listing through an agent. 95{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of houses are not for sale, nor will they be for the next couple years. So what you’re doing in this situation is I’m looking for agents that have listings that are over a hundred days and then we start reaching out to the agent saying, “Hey, I am a cash buyer. However, if this house was a good fit for a cash buyer, it probably already would’ve sold. However, I’m also a terms buyer, so if I can get your commission paid in the process, would your seller be open to letting me take over payments or seller financing?”
Again, 50{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of agents are educated on this and they get excited at the prospect. The other 50{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of agents that are new or unseasoned or their broker hasn’t taught them this, they go, “No” or “Yes, I’ll present it to my seller, but I know they’ll say no.” We just wait until the listing goes expired and then we buy those deals anyway.

Tony:
Page, just one clarifying question here. If I’m putting myself in the seller’s shoes and we’re doing a subject to deal, this is the one thing that I think would make me nervous, is if Tony and Pace agree to a deal, subject to, where Pace is taking over my mortgage and I’m transferring title to Pace but my name still stays on the actual mortgage documents, what happens to Tony if Pace decides to stop paying?

Pace:
Well, there’s a handful of things. This is where maybe we get a little bit into the weeds if you’re okay with it. In every single state, there’s something called an executory contract, okay? You guys have heard of them under different words. Land contract, contract for deed, agreement for sale, these types of things. You guys ever heard those terms before?

Tony:
Mm-hmm.

Pace:
Okay, that’s called an executory contract. All states this is legal. And what is that? It means that I can take over your payments, but you still hold the deed as security just in case I fail to make payments. So it’s a subject to light basically. It is the exact process of me buying and controlling the property, except the deed never transfers into the buyer’s name. The seller puts it into a safety deposit box or whatever way you want to hold it. The deed stays in limbo until the buyer pays off the house, sells the house, or refinances the house.

Ashley:
When I did a subject to deal, we actually had the seller sign over the deed, but it was never filed. Our attorney almost held it in escrow.

Pace:
What state was that? In Florida?

Ashley:
New York.

Pace:
Okay, New York. So New York would be contract for deed or a land contract, so depending on what attorney you went with. And they hold it in limbo as security for the seller. Now, why don’t I just do that all the time? Why don’t I just do that in a way where I do an executory contract? It’s even simpler, right? It’s like, “Well, now the seller has security.” The problem with that is that the buyer does not have the ability to write that property off on their taxes utilizing depreciation. So if I’m an real estate investor, one of the most attractive things to me is actually when you’re brand new and you’re a rookie, you really want cash flow. But once you get to a point of cash flow where it’s paying for your expenses and your lifestyle and employees and all that kind of stuff, the main motivator for me to buy properties is no longer cash flow. The main motivator for me is to buy as many properties as I can so I pay $0 in taxes every year.
And so if I buy on an agreement for sale, that’s what we call it in Arizona or a land contract in Florida or contract for deed in New York City, they’re all the same thing. They’re just called something different per state. Exactly the same thing. Umbrella term is executory contract. And if you guys are watching this or listening to this, you can type in Pace Morby executory contract on YouTube, and I have a lot more information about it. But you did an executory contract because what that does is it keeps the seller even at a higher level of security, but what it does is do a disservice to the buyer where the buyer no longer can use that property as a tax benefit.

Ashley:
Yeah, we did it where it was held until the back taxes were paid off. So it was held as kind of leverage for that. And then once the back taxes were paid off, then it went into the Farm LLC, and then it was continued the payment. So it’s like a mix of them, I guess.

Pace:
Yeah, we call that a dating contract. A dating contract means you guys are dating for a certain amount of time until you decide to finalize and get married. And so you dated, you were dating and you had control and you were in a relationship. And then when that thing, whatever that trigger was, sometimes it’s down payment assistance, sometimes it’s an IRS lien, sometimes it’s a mechanic’s lien, sometimes it’s a tax thing like what you’re talking about Ashley, and then once that is cleared and handled, then the deed will transfer into the buyer’s name and consummate that dating contract.

Ashley:
Do you think for somebody that is maybe going to be in a situation like that, to make sure that that kind of trigger happens in the tax year that they’re purchasing the property so that for those tax advantages, their name will be on the deed for that current tax year that they bought it?

Pace:
You can use depreciation in any year you own a property. So even if you decide not to utilize depreciation on, let’s say I buy a house, 123 Main Street, and I decide, “Oh wow, I’ve already wiped out all my income this year from the other houses I bought, but now I have five or six houses that I don’t really need for tax benefits,” you can always save those for next year or the year after. So you’re not forced to use depreciation in the first year you own the house. It’s a good question. If you need the tax benefits, then yes. If you don’t need the tax benefits, then you don’t need to worry about that and you can wait until the following year.
Man, I could talk about taxes for literally four hours. It’s one of the most intriguing things that like, “I haven’t paid income taxes in seven years,” and it blows my mind. People go, “Well, how do I make more money?” I go, “Keep more money.” Immediately a way to make 30, 40{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} more money than what you’re making today is don’t give 30{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of it to the IRS. Keep it. And the way we do that is by being… Isn’t it weird? We get incentivized to invest in real estate. The IRS is like, “Here’s a bonus. Go invest in real estate. Keep your money just as long as you put into an investment.” What? It’s crazy. So that’s the reason why subject to is so alluring is because now I have the deed in my name just like you did, Ashley. You just had a hiccup where now your hiccup was taxes.
Tony’s reference or question is discussing the hiccup between a seller being overly concerned about having somebody have the deed in their name and the mortgage in the seller’s name. That’s easy to overcome by one of two things. One, be a more credible and better negotiator, which is me, or two, say, “Okay, well if you are worried about having the deed in my name or my name on title while your name is on the mortgage, why don’t we just do an executory contract where we hold the deed in limbo until I execute on a sale or refinance or pay the property off?”
Because what you get… Even if, Ashley, your attorney kept that property in limbo for 25 years, that’s a traditional land contract, contract for deed bond for deed, agreement for sales, just again executory contract, if they kept it in limbo, you always have control of the property. And guess what you get? You get all the cash flow, you get all the appreciation, you get all the loan pay down. Let’s say you bought it subject to, and your tenants are paying down that existing loan, you get the credit for that. The only thing you don’t get is the tax bonus or the depreciation. And so it’s 90{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} as good as a subject to deal, but man, 90{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} is pretty cool too.

Ashley:
Yeah. I think that’s so great to clarify those two things for everyone because they are two completely different options in that one aspect. And that’s where it goes into looking at what your own goals are, your why or what you’re trying to strive for in real estate and if the tax advantages is a really big thing and you went and did the land contract and you realized, “Oh no, I’m not going to get any of those tax benefits. That was the sole reason that I was trying to get into real estate anyway.” So I’m really glad we went through it and clarified that.

Pace:
Yeah. I mean, this is the thing, is I could talk about executory contracts, arbitrage, lease option, all these other strategies. There’s so many strategies to buy real estate. All it comes down to is this, distill this down to something very simple. If I’m playing golf, am I going to win or defeat my opponent if they have a full bag of 14 clubs if I only have one club? No, because if you understand golf, you’ve got a driver to hit the ball really far. You’ve got a putter to just put it 2 or 3 ft or a couple of inches in some situations.
You imagine trying to chip a ball with a driver or trying to get a driver to hit a ball out of a sand trap? Essentially what people are doing is they’re showing up to a real estate transaction with a putter. When somebody like me shows up to a real estate transaction with a full bag of golf clubs and they look at, “What’s going on? How can I help the seller? How can I help the agent get their commissions? And how do I get into this deal with no credit check, no credentials and actually using, if I need to, if I need to bring money to the table, bring a private moneylender?” And all that comes down to is all of the options. So executory contracts, like what we talked about, right?
So Tony, seller’s willing to do a subject to deal, but they’re overly concerned about their security. Easy. Executory contract, right? Seller wants to sell the property to me, but they want to make sure that I’m as credible as I say I am. Okay, do a dating contract like Ashley did. Say for six months, let’s do an executory contract where I have control of the asset and after six months it converts to a full sub to deal because now I’ve shown you for six months I can make my payments on time, manage the property and put a tenant in the house. This is not even possible in a cash transaction. None of this is possible.
And so all these sellers that want too high of a purchase price, guys, I will pay, in some situations, 50,000 to $70,000 over a retail ask. An agent has something listed at 600 grand. And in order for me to get into that deal with no money out of pocket and really low interest rate, I’ll go, “Well, what’s the number that gets you excited about giving me the terms that excite me?” And they go, “Well, we have it listed for 600, but if you buy it for 650, we’ll do a no down and 0{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} interest deal, or a 2{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} interest or a 3{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} interest deal.”
“Great. I give you the lever on your side that gets you excited and you give me the lever on my side that gets me excited.” You can’t do that in cash. And so to distill this down to the most basic version, is if I talk to 50 people or 50 opportunities, whether it’s coming from a wholesaler, an agent, or directly to a seller or a probate attorney referral or wherever the source of the lead comes from, let’s say I gather 50 leads, everybody is offering a cash offer, you’re going to get two deals out of those 50. I’m going to get 10, right? That’s all this comes down to, is how can I have more tools to bring to the situation to help everybody involved? I would say the biggest problem with creative finance… What do you guys think is the biggest problem with creative finance?

Tony:
Lack of understanding.

Ashley:
Yeah.

Pace:
The number one person that doesn’t understand it is the licensed agent.

Ashley:
Having that middle man.

Pace:
Well, what it is is they get a license. So all my partners are licensed. I choose not to be licensed. But all my partners are licensed. There’s a benefit to being licensed. But we see a lot of real estate agents that are not trained by their broker or nobody’s talking about it at their brokerage. They’re not hanging out with other real estate investors. So when somebody brings an opportunity to their client, subject to, seller finance, executory contract, lease option, arbitrage, whatever the strategy is, the agent immediately goes, “I didn’t hear about this in real estate school. My brokers never brought this up. That must mean it’s illegal.” And so what happens is the agents are not educating themselves and they’re not learning, “How do I double or triple my commissions by bringing more tools to my sellers?” They’re not going out there and learning that on their own because nobody’s telling them to do so.
And so, one of the big things that we’re doing this year is our initiative, a big goal I have is I have three attorneys and myself going around the country and we are creating continued education courses for licensed real estate agents so that they can learn subject to from attorneys and from myself. Arizona’s first, Georgia’s second, Florida, Texas, et cetera. We’re going around and teaching through their continued education course that their brokers are able to approve, and they get their continued education credits learning subject to in seller finance. So instead of me complaining about the industry and saying, “My gosh, why aren’t these agents doing this?” I go, “Why don’t these agents know this?” It’s because somebody’s not taking the workload on their back and said, “Let me go educate them legally in how to do this properly.”
And more importantly, teach the brokers to teach their agents. So once a month, we have an agent class in my office. As long as you’re a licensed real estate agent, it’s free. We usually get 1,700 people that sign up. We can only let 300 people in the door. We do this for free, six hours once a month. I bring in an attorney and an escrow officer that’s been doing creative finance for 48 years, I believe. I just give and give to the industry because what ends up happening is then agents bring me deals and they go, “Oh my gosh, I had no idea I could do this.” So that’s honestly the biggest problem with the industry. It’s not even the sellers. The sellers are excited about these opportunities. They love it. Seller finance helps mitigate capital gains. The sellers get more money. The sellers get a percentage and a return and securitize investment against their own real estate that they understand. Could you tell I could talk about this for like 25 hours?

Tony:
Yeah.

Ashley:
Yeah.

Tony:
But it’s so much good stuff, Pace. There’s so many angles to it, which again, which is why I think people need to go pick up a copy of your book, Wealth Without Cash. You talk about a lot of this in there.

Pace:
Can I tell you something that I did about the book because I’m not… I hate to say this, but I’m not a big reader. What I did is I made that book so special. I made every chapter gets a three-hour deep dive on the context of that chapter by me creating a video companion guide. Kind of like when I was reading the Bible for the first time, I’m reading the Old Testament, I’m like, “What the heck is going on in the Old Testament? This thing is the weirdest thing.” These weird names and people stabbing each other, It’s like, “Why is the Bible telling me about all this weird stuff?” And then somebody came to me and goes, “Hey, read this companion guide. It’s a companion guide that helps you understand the context of each chapter at each verse in the Bible.” And all of a sudden the Bible became super cool to me and it was so fun.
So I said, when I write a book, a book with BiggerPockets, I want to create a video companion guide. So every chapter gets three hours of context on whiteboards and breaking down deals. The first chapter of the book, check this out, this is so freaking cool, I bring in a live audience to record this video companion guide in my studio right over 15 feet away. I’ve got like 15 people in. I go, “All right, guys. Welcome to the Video Companion Guide with BiggerPockets” and my phone rings. I look down at it, and it’s a seller that I’ve been negotiating with on a deal in Boston, Massachusetts. He says, “Hey, Pace, I’m in town in Arizona. I thought maybe I could just stop by your office and we could finalize the details of my deal.” I go, “Yeah, come over. I’m recording. If you don’t mind, just come over to the studio.”
So for an hour and a half, I broke down my pitch, my negotiating, and I lock up a live deal in the first hour and a half of the video companion guide right there for the BiggerPockets. Whoever buys and pre-orders that book, you’ll get that. The seller’s like, “Wow. So you’re just going to negotiate with me right here with cameras in my face?” I go, “What better place to do it?” The audience is sitting there like, “I can’t believe Pace is pitching and just bought a duplex in Boston, subject to, in an hour.” Then I went through every objection he had. He had six objections. I went through every single one of them live, with a live seller. And then we signed the contract, he leaves, and now I already own the property. So if you want to really learn subject to in seller finance, that book is going to help you. But the video companion guide you get with it is a masterclass. It is so awesome.

Ashley:
Is that just for pre-order, Pace? I want to make sure that’s clear.

Pace:
It’s only for pre-order, yeah.

Ashley:
Yeah. Everyone, just pre-order to get that, because that is going to be huge value to everyone. So you guys don’t want to miss out there.

Pace:
Yeah, and I’ve got like chapter 17 is about the legalities of subject to seller finance lease option. I have an upcoming class coming in two weeks where I have two attorneys and my escrow officer, and we’re doing a six-hour breakdown of how deals are done legally and referencing the IRS’s website. The IRS tells you as a buyer and a seller how to handle your taxes when you buy or sell subject to. Then there’s all sorts of legislation that references subject to nationwide. It’s everywhere. So I go through and I’m doing a six-hour class on that. And they get that six-hour class that is the companion for chapter 17. So chapter 17’s eight pages, but you get a six-hour legal class attached to that chapter for the pre-order.

Ashley:
Pace, we’re running out of time here, but-

Pace:
Always. It’s classic with me.

Ashley:
… for our Rookie audience, I want to give kind of an example, a scenario. So just imagine that you are sitting on a park bench, you have no money, no cell phone and you need to do a real estate deal today to be able to eat tomorrow.

Pace:
Easy.

Ashley:
What would you do? Just kind of break that down for us real quick.

Tony:
And no existing contacts, Pace. You can’t tap into the people that you already know. You’re starting from zero.

Pace:
This is easy. I didn’t know it was easy. Again, back to Ashley’s reference earlier, it’s like I didn’t know what I didn’t know, you know? I own a nationwide title company, so I understand how title companies work at a pretty deep level. There’s always a marketing department in every title company, okay? Have you guys ever done lunch and learns with title and escrow officers? Like they come in and they pay for your meetups and stuff like that, or they sponsor things for you?

Tony:
No.

Pace:
You’ve never done that?

Tony:
No.

Pace:
Okay. If you guys are doing meetups in your local town, get a title company and say, “Hey, do you guys have a marketing department I could talk to?” They’ll come in and pay for all your food, all your marketing, everything.

Ashley:
Wow.

Pace:
Every branch of my title company and every title company I know has a monthly budget of about $10,000 that they can go and do luncheon lunch for mortgage officers, real estate agents, and real estate investors, okay?
So what I would do, I’m sitting on a park bench. The first thing that I do is I walk to a any title company. There’s as many title companies or closing attorneys in every state as there are Starbucks. They are everywhere. Drive around. Google it. Just walk down the street. You cannot go a mile in Phoenix, Dallas, anywhere without seeing escrow title, title in escrow, closing, whatever. Walk in there and say, “Can I talk to somebody in your marketing department?” And what does the marketing department do? Their entire job is to get investors like me, real estate investors or real estate agents and loan officers, to send files to their title company.
I even challenged BiggerPockets to document this by the way. I said, “Guys, I can show your audience how to… Get a camera guy on me for six hours. I’ll start on a park bench, no cell phone, not even a dollar.” They were like, “Well, you can start with 100 bucks.” I’m like, “No, I want any money.”
I go to the title company and I say, “Can you guys pull a list for me?” The best place to get a free list with free phone numbers where you don’t have to pay for skip tracing? Your marketing department at a title company. Any title company will do this, okay? And what you say is you go, “I want all the expired listings that have expired in the last 60 days and I want all their phone numbers.” In Phoenix, that’s about 600. That’s too many people for me to call in one day. I can’t call 600 people in a day. So I’m going to now make that list even smaller. So I say, “I want people that have purchased their home between 2018 and 2021.” Why? Because they all have 3{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} interest rate on average. I then also want to make sure that they have a VA loan or an FHA loan. Why, Ashley?

Ashley:
Low down payment so they don’t have a ton of equity.

Pace:
Boom. So now I’ve got a list of people that tried selling so that I already know they tried to sell. Their listings expired, so I didn’t have to tell them that their house wasn’t worth what they were trying to get. The market told them that. The agent told them that. I then make sure that I get interest rates at the interest rates I want to buy a subject to deal. And then I make sure that they don’t have equity. You put those four filters on it, you’ll get a 600 name list down to probably 80 to 100 people, okay?
What I do is I then call those people and I say, “Hey, my name is Pace. I see your house was on the market. I’m just wondering what were you looking for on the market that you were not able to obtain?” And I let the seller talk. The seller says, “Well, the agent couldn’t do this. The agent this, the agent that. Blah, blah, blah.” I go, “Well, good thing is I’m not an agent. I’m a real estate investor. And while most people that have submitted offers to you, tried to buy your house with cash, I come with a different set of tools. I have the ability to take over payments and get you the number you need to get out of that house.”
By the way, I’ve already done this before multiple times and I’ve recorded and documented the whole thing. We did this three months ago. So you’ll get a seller. Within 80 calls in one day, you’ll get probably four, five people that are willing to do a deal with you that day. I would then have the title company print out the contract for me. I would then either A, ask somebody at the title company to drop me off or take me to the appointment, or B, I would do a DocuSign through the title company to the seller using their computers.
The next thing I would do is once I have the contract, subject to, taking over the mortgage, I would call somebody that does Airbnb. I would call somebody who does sober living. Primarily sober living. This is the easiest one to do, sober living. I’d call up one of my sober living operators and say, “Hey, I know you’re looking for more houses to rent. I will let you rent this property from me. Put your sober living facility in here, but I need a deposit today on the rent. I need a first and a last month’s deposit.” I can take money right there, cash, before I even close escrow on the deal and I can buy my food, I can buy an Uber, I can get a cell phone, I can do whatever I need to do. In one day, I can have money in my pocket from thin air.
That list is a guaranteed. If you went to a title company, got that list, made 80 calls and you couldn’t get a seller to say yes, then you didn’t make a single call. There’s no other plausible reason why you wouldn’t get a house under contract, is that you literally just didn’t do the work.

Ashley:
I really want to have a follow-up episode where we have one of our listeners who actually does this and contacts us and tell us how they got their first deal just by doing this.

Pace:
Oh, that’d be great.

Tony:
Yeah.

Ashley:
Yeah, that would be super cool. So whoever does that, let us know.

Pace:
If you guys ever want to do this, I’m throwing this on the table, if you ever want to run a contest where somebody comes and spends a day with me and does this by my side, I will take them out in the field, we will both start on a park bench and I will walk them through and show them how to do it. I’ll walk to the title company, I’ll show them how to get the list. I’ll do half the phone calls for them and document the whole thing and then have them come on. I’ll do whatever you want. It is the easiest way to get a deal today, get paid today that I’ve ever thought of.
Now, I could assign that deal too, but I don’t do a lot of wholesale anymore. Probably 85{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of what I do is buy and hold, I keep everything primarily. And I’ll do some assignments, but not a lot. 15{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} a month maybe, probably closer to 5{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56}. I would keep the deal. But you could assign it to somebody like me in one day and I’ll pay you money right now. 5 grand for an assignment, 10 grand for an assignment, 15 grand for an assignment.

Tony:
Ash, that might even be a cool episode for me and you to go to Arizona with Pace and see if we can knock that out in a day for our Rookie audience.

Pace:
That would be sick.

Ashley:
And then he sends us out on our own and we compete who gets the deal first.

Tony:
And see who gets the deal first. That would be pretty cool.

Pace:
That would be cool. Or you could even do a live audience where you’re like, “Hey, let’s set up at the title company and have Pace make the calls and have a live audience of 10, 15 newbies sitting there and watching us do it.” And then here’s what happens. Action gets other people to take action. So when people are in the room with me making calls, they’re like, “Oh my gosh, that’s it? That’s all you’re doing?” Yeah, it’s so simple that the biggest reason people fail is because they overthink how simple it really is.

Ashley:
What I think of right there when you said people taking action makes others want to take action, I think of Forrest Gump when he starts running, and by the end he’s just had all these other people that just start following as they want to run too.

Pace:
Seriously. That is really what this industry needs, is more people that are taking action like you guys and leading the charge and creating communities. Because we all learn through… We’re all monkey see, monkey do. Like I cannot learn how to frame a house by watching YouTube. I have to be on site and watch people pick up the hammer. “Why are you using a screw gun versus a hammer on that situation?”
“Well, because the angle here and I can’t get the angle of attack, so I’m using a screw gun to go…” You have to learn on the job and people have to be willing to let you learn by your side. And so I’ve always let people go on appointments with me, go to title companies with me because that’s how I learn, and that’s how I assume everybody else needs to learn as well.

Tony:
Pace, I just want to let people understand how impactful these strategies can be if done the right way. So how many deals have you done or how many units do you have right now currently that are subject to?

Pace:
I mean, I’m everywhere. Look at this board, right? Probably this year, my target is to buy another 500 single family homes this year.

Tony:
Wow.

Pace:
500 single family homes, all subject to and seller finance. We currently have roughly 1,800 doors in our portfolio. Not a single one of those doors required a credit check. Nobody asked for my job credentials. Nobody asked me for “How long is the money sitting in your account seasoned?” None of those questions were ever asked. Not once on any 1,800 doors we have. And again, you look at this whole entire board. If you look down here, I’ve got a deal right here in Hawaii, circled, 2{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} subject to deal, an acre and a half on the water. In Alaska, Anchorage, same thing. It was over here. There we go. Now I’ve got a… Anchorage, Alaska, I bought a duplex last week, 2.5{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} subject to deal. I will buy deals from Alaska to Boston. There’s not a state you can’t buy in. California, New Jersey, New York, all the places that are challenging to do wholesale. You can do subject to in all 50 states, and I’m doing them.
So here’s how impactful it is. People that don’t understand subject to and seller finance look at a big haystack and they’re thinking, “Oh, I got to find some cash deals. Those needles in the haystack.” I look at the haystack and I go, “Subject to and seller finance is the haystack.” It’s everywhere. It is the whole entire market for me. I don’t even look at cash deals. I don’t waste my time on cash deals. Why would I look at cash deals?
The thing that’s the most impactful when I was primarily wholesaling eight, nine years ago, I realized, yes, the seller gains the convenience and speed of a wholesale transaction by selling their house at a deep discount. But the reality is when I use subject to and seller finance, it is the only transaction in real estate that is a true win-win win. Wholesale? The seller has to take it in the shorts in order for the wholesaler to get an assignment fee, in order for the fix and flipper to sell it and make money. And that transaction requires that, and it is perfectly fine and it is needed in the industry for sure.
But what happens a lot of times, or every time on a subject to deal, seller gets the number they want, agent gets paid their commission, and I get a property where I have an interest rate below 4{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} attached to it with a payment that I can go out and cash flow immediately without a credit check. I pay a lot of times 85 to 99{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of retail value. So everybody wins. The sellers get more money, the agents get paid commission, and I don’t have to go to a bank. Everybody wins in the transaction.

Tony:
Pace, what a masterclass, brother, on how people can get started in real estate investing today. I think it’s super timely because there’s a lot of folks that are hesitant to get started, especially in our Rookie community, right? A lot of these folks that are listening haven’t done any deals before. So I think this gives them a great, like you said, I guess another tool in their tool belt to get started, brother. So obviously, Pace, man, if you can just tell people the details of the book, when the pre-order starts, and all the goodies that come along with it.

Pace:
The pre-orders pretty cool. I told BiggerPockets, I said, “How can we make this book so special?” I think 10 people will win a day with Jamil and I on our TV show for season 3. We’ll fly them out. Another 10 people will be able to do a whole class with me in person in my Phoenix office. And then everybody that pre-orders before May 2nd when the book comes out will get basically a 20-hour masterclass on creative finance, two to three hours per chapter on average, giving full context. Because as much as I love reading, I’d rather listen to stuff. That’s why audiobooks are powerful. So of course the audiobook is there too. But the Video Companion guide really breaks down whiteboards and teaches you, the listener or the consumer, the way I needed to be taught in the very beginning.
If I learned everything in this book when I first started, it would’ve cut my learning curve down by probably five years. I had to go figure it out slowly and surely. So I condensed it pretty powerfully and gave you guys as much as I possibly could for the people that decide to pre-order. So thank you for giving me the platform to talk about it.

Ashley:
Pace, I also want to mention that you are doing a bootcamp too for BiggerPockets on creative financing. So you can go to biggerpockets.com/bootcamps. That bootcamp starts this summer. Well Pace, thank you so much for joining us.

Pace:
Thank you guys so much. Appreciate you.

Ashley:
I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson, and we will be back on Wednesday with another guest.