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It’s a Whole
New Ball Game
With Creative Financing
EDDIE SPEED
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INTRODUCTION
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CHAPTER 1
Be A Smarter Investor By Bridging The Price Gap 8
CHAPTER 2
Be A Smarter Investor By Negotiating The Terms 14
CHAPTER 3
Be A Smarter Buyer By Being Flexible On Price 19
CHAPTER 4
Be A Smarter Investor By Knowing What’s Possible 24
CHAPTER 5
Be A Smarter Investor By Getting To Know Your Seller 29
Table Of Contents
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Introduction
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Let me start by rst comparing myself to Brad Pitt.
Hey, stop laughing long enough for me to clarify that. What I mean is, I’m
comparing myself to Brad Pitt who played the role of Billy Beane, General
Manager of the Oakland Athletics in one of my favorite movies, “Moneyball.”
So I guess it’s more accurate for me to say I’m comparing myself to
Billy Beane.
Most people would say “Moneyball” was a movie about baseball. I don’t
necessarily agree. I saw it as a movie about a revolutionary business model.
Billy Beane looked at baseball through a dierent lens than everybody else;
and they all thought he was nuts.
They played the game the same way it had been played since it was
rst invented.
How was Billy Beane’s method dierent? He understood the power of
numbers. Unlike everybody else, he realized that the game ultimately came
down to numbers and statistics. By understanding the numbers better than
anybody else, he changed the game forever. But he didn’t just change the
way the game was played, he changed the way the game was won. He was
a visionary who opened everybody’s eyes, and today everybody follows Billy
Beane’s model because it works.
Today, I help people look at real estate through a dierent lens than just
about anyone else. I’m helping smart investors think dierently about how
they’ve done things the same way over and over. I show them how to dig
deep into the numbers and nd money to be made. Most investors don’t
know this, most investors don’t do this. There’s a lot more meat on the bone
than most investors realize. And that’s what we are talking about, so
get ready.
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We’re the “Moneyball Guys” of real estate investing. That’s what a deal
architect is—he looks at each deal through a dierent lens than everybody
else. I won’t try to get you to stop what you’re doing well. I’ll encourage you
to keep doing what is working with your wholesaling or x-n-ipping... but I
will show you things you can easily add to the business you’re already doing
to make it a whole new ball game! A more successful and protable ball
game (aka business)!
In a strong economy, some factors shrink the prot margins for real estate
investors. Buy low / sell high is a tough sell. We’re ooded with guru seminar
graduates and all the HGTV watchers who are Chip and Joanna wannabes.
They’re running around making discount cash oers on properties. This
means your oers have to be smarter than theirs.
Competition has never been stronger, however, there’s a portion of real
investing you can play that most other investors can’t. And it puts you way
ahead of the game. Creative Financing!
There are three other big challenges that investors face:
• The seller won’t budge on their price because they’re
not desperate to sell.
• The seller owes too much on his mortgage so he
can’t take a low price.
• There’s something weird or unique about the property
that will make it hard for you to resell.
In this book, I’ll explain how creative nancing can make these obstacles go
away. These techniques help wholesalers double conversion rates on the
oers made because we can now control three important factors:
• The terms of the sale.
• The terms of the loan.
• The terms of the agreement.
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I’ve spent four decades coaching investors in their creative nancing and
note businesses. I have personally bought over 40,000 deals myself—the
majority of which were buying notes from professional REIs. The rest were
from individual “mom and pops” who carried only one seller-nanced note
their entire life. Trust me, I have learned some “Moneyball” lessons in these
deals. This combination of experiences are what led me to perfecting
this strategy.
I know what REIs need and what mom and pops will accept. It made me
realize that I had a seat with a vantage point that literally no one else in the
country had sat in (at least to the degree I had been there). If experience
matters, this lifetime of customers and their notes has led me to a unique
place on the horizon. I’ve learned what separates successful real estate
buyers from all the rest.
What makes them more successful is that they understand the numbers
better than the other guy, so the oers they make are smarter than the oers
the other guy makes. About ten to fteen percent of the best investors say
they “do creative nancing” and buy on “terms” oers. They’ll also say, “Hey, I
know how to make oers with seller nancing.”
Most of these guys only know how to make oers with one variable, maybe
two, and if that doesn’t work they’ve got no backup plan. But one variable
doesn’t make it creative. On the other hand (the hand with the money in
it), the smart guys know how to look deeply into the numbers of every deal
because they understand creative nancing gives you about forty variables
in your tool belt to work with.
It’s like the smart buyers are playing Major League Baseball and the other
guys are stuck in Little League. They’re both playing the same game but at
totally dierent skill levels, and the Little Leaguers don’t even know what
they don’t know. But once they learn, they hit it out of the park!
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So, how do you make smarter oers?
You need to understand all the tools available in the creative nancing
toolbox. Lots of buyers know about a tool or two, so they think they know
all they need to know. (They’re the buyers whose oers are ending up in
the trash can.) Or they don’t try to make an oer on a property because the
seller’s low equity tells them that a discounted price will never be accepted
since it’s not enough to pay o their mortgage.
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CHAPTER ONE
BE A SMARTER INVESTOR
By Bridging The Price Gap
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The other day I was plugging in a lamp and the nearest socket was several
feet away. So I stretched the cord as far as it would go, but it was about six
inches too short. I had to laugh because all I needed was a six-inch
extension cord!
That’s when the lightbulb went on. (In my head—not the one in the lamp.)
That little six-inch extension cord that I needed to bridge the gap between
the plug and the socket is a lot like how creative nancing can bridge the
gap between a rejected deal and a done deal. It’s how you, the buyer, can
connect with a seller when you can’t quite agree on the price.
The vast majority of discounted cash oers that real estate investors make
to buy a property end up in the trash can (they get rejected)—especially in
today’s market when sellers are holding out for every dime. On most deals
today, the “asking” price has become the “insisting” price. Today’s rejection
rate is around 95% because investors are bidding below the asking price.
You can’t play Moneyball with a batting average like this. But just like my
lamp cord, a whole bunch of those rejected oers fall just a tiny bit short of
what the buyer is insisting on—sometimes by only a few thousand bucks.
The average investor would assume there was no way to make the deal
happen, then move on to making more oers on more properties and keep
getting more of the same result (rejected oers).
The smart investor understands that great numbers in one category can
more than make up for less-than-great numbers in another category (like the
purchase price).
The smart investor digs deep into the numbers to use creative nancing that
turns trash into cash. It allows you to reach into your trash can full of rejected
oers and turn several handfuls into done deals. I like this visual, since you’re
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reading this, I assume you do too. Lots of sellers have a rm selling price
cemented in their mind. If an oer doesn’t match their price, it goes straight
into the trash can. But even when a seller is as stubborn as a mule on the
asking price, they can be surprisingly exible on how and when they get
their money. If you know how to put together smart oers and present it in
a way that shows the seller how it meets their needs and possibly exceeds
their desires, you’ll be closing plenty of deals.
Never forget that seller nancing is not just for when you’re the seller.
Knowing how to creatively architect a deal in your favor when you’re
the buyer is what separates the grown-ups from the rugrats in real
estate investing.
Here’s an example. Meet Kevin, he is one of our young NoteSchool alums
who lives in Seattle. He’s really a smart guy and he’s getting married soon
to a really lucky lady. He had a brilliant plan for buying a duplex to live in.
He and his future bride could live in one side and rent the other. That way
his whole mortgage payment would be covered by the rental income from
the other half.
So he and his ancé looked at duplexes on the market and found the one
they liked. The selling price was not his initial focus. That may seem a little
weird, but it’s how a deal architect thinks, I’ll get you there. It was a model
that allowed him to live payment free, and by the way, he only wanted to
start with a cash down payment of $5,000. Crazy or smart?
I’m going with smart ;-)
He knew that the future rent payments from his tenant would be covering
his monthly mortgage payment. He carefully worked out the cash ow
model beginning with how much he could expect to bring in from rent.
Then he used that number to determine what his maximum monthly
payment would be. He concluded that the rent payments would cover
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a mortgage for a purchase price of $265K.
He found a property where the seller owned the property free and clear and
was willing to carry seller nancing, even accept his low down payment. But
the seller was asking $325K, above what he calculated he could pay to stay
within his money rules.
Kevin oated the idea of seller nancing to the seller, and they were open
to the idea, but the guy insisted the interest rate be 5% which jeopardized
Kevin’s ability to live in his side for free. (The typical REI that only knew to
pitch 0% never would have gotten to rst base.) So Kevin crafted 5% interest
into the oer and made his pitch for $265K. But, the seller said no because
his $325K asking price was etched in stone.
Just like with most deals (and just like my lamp cord), there was a gap
between what he wanted to pay and what the buyer would take. For Kevin
to make this deal work, he would have to craft a one-of-a-kind oer to t the
needs of the deal, rather than trying to squeeze the deal into the mold of a
one-size-ts-all oer that less savvy buyers make on every deal.
He went through the numbers on paper. He could make a $5K down
payment, then seller nance the other $260K at 5% for 30 years. But he was
still 60 grand short on meeting their $325K asking price. Kevin is no rookie,
and he was already at a deeper thinking level than most, but he just didn’t
see a way to x the deal. The resistance factor was so high that he was about
to assign the deal to the trash can and move on. But then he did another
smart thing.
He called me! I’ve been doing creative nancing since I was 20, so I’ve
learned how to bridge the gap that saved tons of deals.
I took a long hard look at the numbers and told him to make one more
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suggestion to the seller to bridge their $60K problem. I said to give them their
full asking price, put $5K down, and nance the rst $260K at 5% like the seller
was adamant on; but to ask the seller if they would put the remaining $60K on
a separate note from the rst $260K.
I told him how to position the counter when he served it up. I told him to ask
that the terms on this second note be 0%, with no payments until the full
amount is due in 15 years. I said, “I’ll betcha they’ll take your counter if you say
it right.” He questioned my condence they’d accept but did as I asked.
My last piece of advice was don’t stutter, keep a straight face and assume they
will agree when he made the oer because it was so heavily in his favor. This is
how you play Moneyball.
Always remember: The art of architecting a deal is not simply knowing how to
run the math—it’s knowing how to dictate the terms and “sell it”. Too many
math nerds underestimate the value of people skills.
Kevin took my advice and re-pitched his oer. He asked the seller to nance
the second $60K note at 0%. But he lost a little of his nerve and said it would
be due in 10 years instead of 15. But hey, I’ll still let him hang out with me.
How’d it all shake out? The seller said YES, so now it’s a done deal rescued from
the trash can thanks to creative nancing. He’s living in his new duplex and
renting out the other half to cover his monthly payment.
Creativity. You gotta love it!
Think about the oers you made last month that went nowhere. On some of
them, you and the seller were probably miles apart. But how many of your oers
got rejected even though you and the seller were only a few thousand dollars
apart? My guess is it was probably several of them. Now imagine if you could
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have bridged that gap with creative nancing and closed two or three or four
of those extra deals last month. Now multiply that times twelve and think about
how much more money you could have made last year by playing Moneyball
like Kevin!
I walk through deals exactly like Kevin’s where you can see step-by-step how
we lay them out at NoteSchoolTraining.com. Join me and see how we break
down deals so you can see the best way to structure oers to create long
term wealth.
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CHAPTER TWO
BE A SMARTER INVESTOR
By Negotiating The Terms
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Lately, my phone has been ringin’ o the hook. I keep getting call after call
after call on the same topic. Lots of these calls come from mega-seasoned
real estate investors. Even though these are top-level investors who buy 50
to 200 houses a year, they’re having some serious challenges.
I’m hearing the same story over and over and over, just like a broken record:
“Eddie, wholesaling and ippin’ ain’t working as well as they used to. Two
things are happening; rst sellers won’t sell with a discounted price, or when
I’m oering my advanced creative nancing where I’m buying a property and
suggesting a seller-nanced loan at the interest rate I want, the seller walks.”
That’s why I’ve been working like never before to open up people’s minds so
they can play Moneyball instead of Lowball. They could be converting more
deals by using the full array of tools available with creative nancing to put
money in their pockets.
You can’t succeed in real estate if all you do is make lowball cash oers on
every property. A few years ago, I didn’t even attempt to explain creative
seller nancing to my ninja real estate pals because they were having such
success wholesaling houses they thought adding something would be
stupid. Well, that was then. Now they’re spending more on marketing but
getting fewer results, and wholesaling is not as successful. They’re coming
to me and they’re listening harder than ever before. I’m showing them the
secret sauce they didn’t know existed, and they’re lovin’ it! Once we take
them through the process, the “Wows” are 100%.
The problem with most of their current seller nanced oers is that they all
have the same percentage rate stuck in their head: Zero, even for the most
innovative investors who know something about creative nance. Now that’s
not very creative. Lots of real estate gurus have everybody thinking you gotta
get 0% to make a prot. Everybody has zeroes stuck in their head! I open the
minds of real estate investors to show there’s a whole lot more to seller
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nancing than just oering 0% interest. It’s great when you can get a seller
to nance the property for 0% interest, but I only see it happen about 20% of
the time. When the seller won’t bite on 0%, all is not lost. Not by a longshot.
The interest rate is only one of about fty points I show you to architect
a deal if you know what you’re doing, and most investors don’t. Learn
the whole toolbox of techniques and you’ll have the upper hand over
competitors making oers on the same properties.
Even though you may not be getting the numbers you want for the price
or interest rate, you can still architect a killer deal with numbers in your
favor from other categories that will earn a healthy prot. A Money Baller
in our industry knows other ways to create an equally good deal! There are
many, many ways to structure the deal you want other than oering all with
nancing at 0%. Remember our friend Kevin in Seattle?
Never forget that a seller-nanced deal (even with a higher percentage rate
than you want to pay) will still give you the edge over a bank loan. You have
to be knowledgeable, creative, and exible—which gives you advantages
over a loan at the bank or a cash buy.
Your rst advantage in qualifying for a loan is the time factor required.
The bank demands your work history, credit history, tax returns, and blah,
blah, blah. But the seller makes you do absolutely nothing. You may not
believe this, but it’s true: In my career, I’ve reviewed 300,000 to 400,000 notes;
and among mom & pop seller nanced notes, only 1 in 500 pulled a credit
report on the buyer! This avoids a huge hassle factor to make your deal come
together faster instead of waiting for the bank to plow through their stack
of paperwork.
The reason the bank gathers all that information is that they’re going to make
you personally guarantee the loan, which leads to the second advantage.
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The seller who is nancing your deal won’t insist you do a personal
guarantee as the bank does. (Even though I used to sign loans with a bank
for 5 or 10 million dollars, after doing these deals for four decades I don’t do
that anymore. Those days are behind me.)
Your third advantage is the down payment amount. We structure deals
consistently with zero down payment. There’s a myriad of ways to get the
seller money at closing, but it doesn’t have to be down payment money.
And I’ve got the case studies that explain it all. Sound good so far?
If the seller gets the price and interest rate they want, sometimes they’ll say OK
to zero down. (Good luck nding a bank that approves your loan with a zero
down payment. And if you can nd a hard money lender that will accept zero
down, they’re gonna stick it to you with a high rate that won’t work for long
term nancing.) Even if the seller insists on 20% down, they don’t insist that it
be your money! I can show you twenty creative strategies used in real- life case
studies that demonstrate how you can avoid putting up your own money.
Advantage four is the rst payment due date. The bank will insist on the rst
payment 30 days after closing. But with seller nancing, I can push the rst
payment to three years down the road, and I’ve done it numerous times.
The fth advantage of seller nancing over the bank is the exchange or
release of property as their collateral. The bank’s probably never going to
release their collateral ‘til they get all their money, but I can give case study
after case study where the seller was far more exible. What if you buy a
property and then release part but not all of the collateral at closing? Or let
you move the “favorable terms” loan to a completely dierent property. You
might move the loan on Property A to Property B, which releases Property
A. Or you buy a property and then release part but not all of the collateral at
closing. I can give you lots more examples. That is exactly what I do in the live
training I give. I walk through examples so you can understand and see live
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how many opportunities you have. Go to NoteSchoolTraining.com to register.
Those are just ve points of the negotiation toolbox, with the sixth being the
interest rate... and there are dozens more.
When you negotiate with any seller, you have to present your terms correctly
and tactfully—what I call the “talk-o.” If you don’t serve it up right, the seller
won’t agree to squat. How to dictate the terms and present it skillfully is part of
the art of deal-making. Just like any skill, the more you do it the better you get.
Right now, most investors close one deal out of twenty oers. That’s a 5%
success rate (and a 95% failure rate). By learning the whole toolbox of seller
nancing techniques, you can double or triple your success rate.
It’s game changing!
Let me ask you a question. If you could get a loan for $20 to $50 million
dollars with no lender qualications, no guarantee to the lender, and you
could dictate the terms to your lender so that they are way below traditional
nancing, are you in?
Speaking of dictating the terms, if you were in a banker’s oce right now
applying for a loan, and you could dictate pretty much whatever terms you
wanted, what would your ideal terms include? If you like how that sounds,
you’re ready to learn how to play Moneyball!
We play Moneyball at NoteSchoolTraining.com, join us!
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CHAPTER THREE
BE A SMARTER INVESTOR
By Being Flexible On Price
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Mike Tyson said, “Everybody’s got a plan until they get punched in the
mouth.” Real estate investors used to be able to make a Lowball oer on a
house, then either wholesale them or x it up, then ip either way for a big
prot. They were buying at a wholesale price then selling at a retail price.
Now that’s how the game used to be played. In a buyer’s market lots of
people make incredible transactional income. That’s still not getting rich but
it was a super high paying salary. If your plan to succeed in today’s market is
to Lowball every oer, you just got punched in the mouth. See all those little
white things scattered on the oor? Those are your teeth.
So when the seller won’t or can’t accept the discount, I’m saving people’s
teeth by showing them how to switch from playing Lowball to Moneyball.
Buying a property at a wholesale price and selling at a retail price, or xing
it up to resell for a huge prot is how things used to be, but it ain’t the way
things are moving. Today’s sellers are not only tossing most of the lowball
oers into the trash, but they’re also tossing anything that doesn’t match
their full asking price into the trash. Investors are having to make oers on
twenty dierent properties for every one deal that goes through.
That’s a 5% success rate and a 95% failure rate. City landlls are overowing
with real estate oers that never became deals!
Investors and house ippers talk to me all the time to complain about a
lack of inventory even though they’ve doubled their marketing costs to get
leads. They’re frustrated that they can’t nd inventory at the low, wholesale
prices they used to pay. But I tell them it’s not a lack of inventory––it’s a lack
of people saying, “Yes, I’ll accept the oer you put on the table because it’s
better than the other nineteen I got.”
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When you double or triple that 5% success rate, you’ve increased your
success exponentially. You might still close one deal out of twenty the old
traditional way with a low cash oer, but with a certain degree of creativity,
it’s not out of the realm of possibilities that you might close two more deals
on top of that my way. You need to learn the art of architecting a seller-
nanced deal on a property where you buy at a retail price, but structured
with wholesale terms that are heavily in your favor as the buyer.
As crazy as this may sound, yes, you can still make money when you pay
the full retail price… IF you know how to buy on wholesale terms and not
just the price. Too many buyers only negotiate the price but know very little
about negotiating the wholesale terms! And if a person is coachable, I’m
happy to be their coach and explain it all. This is what I love doing!
Some years it’s a buyer’s market, and some years it’s a seller’s market, but
every year is a negotiator’s market! There are all kinds of ways to carve it up
and still close a killer deal. For example, instead of getting a one-time check
for transactional income, you could get your check plus twenty or thirty
more years of checks on top of that.
Never forget that there are three ways to dictate to the seller on any deal:
• Terms of the sale.
• Terms of the loan.
• Terms of the agreement (all the other loan documents).
As the deal architect, you’re in charge of all three areas. If you were to resort
to getting money from a bank or hard money lender, you can only
control the price, and only if the seller agrees to it. You also lose control
over the terms of the loan plus the terms of the agreement, which are the
two most important aspects of the deal for transactional income and
wealth-building potential.
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With creative nancing, your deal doesn’t use standard Fannie Mae documents
with all the red tape. Imagine having the freedom to cross out all the things
you don’t like when the banker hands you some loan papers. As the deal
architect, you take the lender’s rules and throw ‘em out the window because
the seller is the lender and you’re dictating the terms. Now that’s fun!
When you have the training and knowledge to structure the nancing to
your advantage, and how to properly serve up your oer to the seller, you’ll
have a huge leg up on the nineteen other investors whose oers end up in
the landll because the buyer said yes to yours.
I hope you believe in planning, setting goals, and mapping out your strategy
to grow your business. As you make your plans, remember this. One of
the most important investments many investors overlook is the priority of
investing in yourself.
You need to keep learning and growing because the market keeps changing.
Change is only scary to people who have stopped learning. So learn to love
learning! A changing market will actually benet the investor who keeps
learning because he or she will be smarter than the investor still using tactics
from three years ago.
Dogs graduate from their training, but investors never do! Continue your
training at NoteSchoolTraining.com.
Take me for example. I’m an old dog that’s still learning new tricks. After
four decades and 40,000+ notes, I still learn as much as I can. As I map out
the next several months, I’m attending several real estate events, plus other
high-level masterminds with top people in real estate, where I’m the “Deal
Architect for Creative Financing” who helps them do business mo’ betta’. They
invite me because creative nancing is my thing and I show them how to
bring creativity into their deals.
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I learn just as much from them in their areas of expertise as they learn from
me in mine, which is what makes masterminds great. You learn solutions
to problems you never knew you had! You get in the game you didn’t even
know existed. It makes me play at a whole new level.
We sponsor lots of events where investors can cross-pollinate and learn from
each other’s successes and failures because everybody participates and
contributes. It’s a great place to hear from other investors what it means to
be a deal architect related to creative nancing.
Life is full of twists, turns, and surprises, plus a whole lot of punches aimed
right at your face. There’s no way to predict how many times life will try to
punch you in the mouth in the months ahead, but the smarter you are the
more you learn to how to bob and weave.
I can tell you from experience, the punch you dodge feels a lot better than
the punch that lands.
To see exactly what I am talking about, join me for a live training at
NoteSchoolTraining.com.
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CHAPTER FOUR
BE A SMARTER INVESTOR
By Knowing What’s Possible
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When a real estate investor learns how to structure deals with creative
nancing, it opens up a world of possibilities that other investors didn’t even
know existed. Where other investors only see roadblocks, brick walls, and
landmines, a savvy investor sees a path to closing the deal. Here’s a snippet of
what you can do when your old Lowball game can’t work so you upgrade your
game to playing Moneyball.
In a typical market, a $150K house has a much lower chance of being bought
for 70¢ on the dollar than an $80K house. And a $450K house has an even
smaller chance than the $150K house. Expensive houses in this high asset class
don’t tend to get discounted like the lower asset class properties. There are
two reasons for this. First, the sellers of expensive houses tend to be better o
nancially, so they’re not as highly motivated to take your Lowball oer. Second,
if they are highly motivated to sell because they can’t aord their mortgage
payment, they may have little or no equity in the property which means there’s
no way they can take your Lowball oer even if they wanted to. That’s why the
greater the asset class of the house, the greater the need is for creative nancing.
I know I said this earlier, but it’s worth repeating. There are three main reasons
why deals fail and cause untrained investors to throw in the towel:
• The seller won’t accept your price.
• The seller can’t accept your 70¢ on the dollar oer because he
has little or no equity and owes 90¢ on the dollar.
• The property you’re buying doesn’t t the wholesale market you
plan to sell it to.
Point number two (above) is critical here. What about the house you won’t
even go look at because they owe more than you could ever pay when buying
houses at discounted prices? Yeah, that deal! That’s a reason why the Lowball
investor would simply give up and move on. But a seasoned investor with a
tool belt full of creative nancing techniques can still close a deal even if there’s
virtually no equity.
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This is where so many investors are losing prots they never knew existed.
They don’t know what they don’t know and it’s hurting them. I have the
heart to show real estate investors, both large and small, how to convert
a lead and make money not just today with transactional income, but also
build wealth to have money owing into your mailbox for many years
to come.
There’s so much more money to be made on your deals than most investors
realize—if you know where to nd it. Here are the numbers on a typical
deal, as done by three dierent levels of investors, with three very dierent
potential outcomes:
Rugrat Investor Experienced Investor Moneyball Investor
Asking: $130,000 Asking: $130,000 Asking: $130,000
Oer: $100,000 Oer: $120,000 Oer: $130,000
ARV: $175,000 ARV: $175,000 ARV: $175,000
Status: Rejected Status: Accepted Status: Accepted
Potential Prot: $0 Potential Prot: $55,000 Potential Prot: $145,000
Where did the extra $90,000 in prot come from for the Moneyball Investor
over the Experienced Investor? It came from knowing how the game is
played. That’s the magic of real estate Moneyball, and you need to learn how
to play it.
Deals often come with certain obstacles, so to make a deal happen with
lots of obstacles you have to be able to wrap your head around wrap notes.
If you’re gonna play Moneyball, you gotta understand wrap notes because
they’re one of the most exible tools in the creative nancing toolbox.
What exactly is a wrap note, and why are they so useful?
Here’s a simple way to explain it. I live in Texas, so I can’t go very long without
my Tex-Mex x. I’ll order a sizzling platter of fajitas, then load up a warm
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tortilla with some grilled chicken or steak, peppers, onions, cheddar cheese,
sour cream, and guacamole. (I may have to cut this chapter short and go
grab some!) Well, that tortilla holds everything together, and without it
you’d have a big mess instead of a tasty meal. That tortilla is the same thing
as a wrap note. The seller’s unpaid existing underlying mortgage goes in
the middle like the meat and onions, even his second mortgage can go in
there, if he has one. Then we have a newly created wrap note where the new
buyer of the property pays the real estate investor and in turn the real estate
investor then pays the bank on the underlying mortgage(s).
Here’s the benet, the underlying money owed to the bank is at a lower rate
than the money owed to real estate investor on the higher rate wrap note.
The net eect is these terms as structured work greatly in the real estate
investor’s favor. They make money on the arbitrage (the dierence between
the two interest rates and P&I payments).
For example, the seller’s original 4% Fannie Mae loan is in there, and now
you’re “re-lending” that same money where you’re charging a new buyer
6.50% via your wrap note with them. So you make 2.5% on the bank’s money.
It allows the seller to get out of a property where they have built up little if
any equity while a super high-quality buyer that is not bankable gets to be
a homeowner via the wrap note versus being relegated to being a tenant in
landlord situation. A win-win for all parties. Wrap notes have saved thousands
of my client’s deals from the trash can, and once you listen to some of my
case studies and learn how to structure wrap notes on your own, they can
save your deals, too.
This also can produce transactional “up front” income plus mailbox money for
thirty years, as well.
If you know what’s possible, hardly anything is impossible.
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Think about all the properties you decided not to bid on because the sellers
owed too much and didn’t have enough equity to accept a discounted price.
Now imagine yourself making 2.5% on top of the money all those sellers
owed on all those properties. Hmmm. Now you’re thinking like a Money Baller!
I told ‘ya this would be a short chapter!
For more real life case studies & examples, join me at
NoteSchoolTraining.com.
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CHAPTER FIVE
BE A SMARTER INVESTOR
By Getting To Know Your Seller
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You can get a great deal even when you don’t get a great price. And even
though every deal ends up on paper, the truly great deals don’t start out on
paper—even when you’re playing Moneyball.
When someone comes to me for advice on a deal, I don’t ask them the
numbers rst. I rst want to learn about the DNA of the seller. The place
where most great deals happen is at the kitchen table. It’s the perfect place
to have a meaningful conversation with your seller to nd out what matters
most to them.
You might do 200 real estate deals a year, but they might do only one deal
every ten years so they’re understandably a bit nervous. They’re more relaxed
at their kitchen table than in a real estate oce where they tend to have their
guard up. Your rst conversation is not about numbers; it’s about nding out
what’s most important to the person selling the property. Let them do most
of the talking while you do most of the listening. After chatting with your
seller, you’ll learn what to negotiate for, and you’ll be able to decide which
sets of numbers in your oer are most important to the seller so your deal
can come together.
As you sit around the table, things get real. You’ll learn where their pain
points are and what they need to move on with the next chapter in their life.
You’ll learn if they want to be closer to their grandkids, or if they want
to buy an RV and tour the country, or maybe it’s a property they inherited
and don’t want, or they need money for their kid’s college, or if they’re
getting a divorce.
As much as you’ll hear real estate experts talk about how to run the numbers,
never forget the importance of good old fashioned people skills. It’s a dying
art that I’m determined to keep alive!
As real estate buyers, we can increase the price we pay if we get soft terms
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through seller nancing. For example low interest, no interest, deferred
payment, long term notes, plus all those dierent 40 or 50 points you can
negotiate. It all comes back to what you can negotiate with the seller. That’s
what tells you how good of a deal you made. I call it “dictating the terms of
the deal” to the seller.
Noteholders bring notes to my doorstep all the time to sell to me, so I get an
inside look at hundreds of thousands of deals. I look over the terms of some
of these deals and think, “Why did anybody agree to this?” Well, they agreed
to it because the buyer listened to the seller and understood their pain
points, knew which tools could be used to put the terms together. Then, they
presented their oer in a way that enabled the seller to move on with the
next chapter in their life.
A seller is seldom going to dictate the terms the way they dictate the price, so
they’re open to soft terms. People are naturally used to a bank dictating the
terms to them instead of the other way around, so there’s a lot less pushback.
I’ll often ask a seller, “Why did you agree to one or two percent interest or
no down payment?” And they’ll say, “Well, the guy gave me what I wanted,”
which means the buyer did a good job of nding out their pain points, then
customized a one-of-a-kind deal to be structured around meeting those needs.
How can you dictate the terms to the seller? I’ll break it down into two steps.
Step 1: You have to have a good interview with the seller. That’s where you
learn what’s most important to them. You have to use some discernment
because at rst, it’ll sound like there’s no room to negotiate. But you’ll gure
out how to peel o one or two essentials to focus on.
Once you know what the buyer really wants and needs, other than just their
asking price, you’ll know which creative nance tools you’ll need later on in the
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negotiation process to put together an oer that the seller will accept.
When you know which tools to use, you can negotiate a great deal without
having to negotiate a great price, which the seller is probably not going to
budge on anyway. You can architect a seller-nanced deal that gives them the
price they want with the terms you want.
Step 2: Know what you’re negotiating for. There are so many things to negotiate
that you can get lost in the details and lose sight of the big picture.
As you put together a deal that meets the needs of the seller, you have to remind
yourself what it is that you want to get out of the deal. It’s easy to leave out
important parts of the negotiation that benet you if you don’t know what you’re
negotiating for. I can show you lots of case studies where the investor got what
he wanted because he knew what he wanted and asked for it.
Out of the fty or so tools in your seller nancing toolbox, you’ll never need all
fty on every deal. But you will need fteen or so on every deal. But which fteen
will they be? And what order will you present them in? That’s why there’s wisdom
in knowing what you’re negotiating for. If you try to bring out every tool you’ve
got, then you’ll just confuse your seller and scare them o.
Once you understand the pain points of the seller and why they want to sell
their property, you’ll be much better equipped at structuring a deal that meets
their needs. And your own!
Other than price, how many of the 50 or so other things can you name that can
also be negotiated in your favor? If you can only think of a handful, you need to
learn how to play Moneyball!
Go to NoteSchoolTraining.com to discover how you can play Moneyball
starting today!
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NoteSchool.com | 888-847-9353 | inf[email protected] | Twitter.com/TheNoteSchool | Facebook.com/TheNoteSchool
ABOUT THE AUTHOR
Since 1980, Eddie Speed has dedicated his
life to the note industry and to expanding the
benets of creative seller nancing for both
sellers and buyers. Throughout his career he
has introduced innovative ideas and strategies
that have revolutionized the industry. He
teaches these techniques through NoteSchool,
the training school he founded in the early
2000s. His training has helped thousands of
real estate investors expand their business
model, increase their earnings, build long
term wealth, and think like entrepreneurs,
including helping a substantial amount of “A”
list real estate investors with creative nancing
strategies.
Eddie is also the owner and President of
Colonial Funding Group LLC, which acquires
and trades real estate secured notes, and he’s
a principal in several Private Capital funds that
acquire bulk note portfolios. He is also the host
of NoteExpo, an annual conference that brings
people from all phases of the note industry
together every November. In addition, Eddie
speaks at numerous real estate events every
year across the country.
Eddie has personally closed around 50,000 note deals, and his unique industry vantage point has
allowed him to review close to half a million note deals. When it comes to notes, it’s safe to say
he’s seen it all but remains committed to lifelong learning.
