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How to Owner Finance a Property | Make Huge Profits with This Strategy

[Music]

hey there grant Kemp here with creative

cash flow comm right now we want to talk

a little bit about free and clear

properties and more specifically how are

we going to owner finance a free and

clear property all right so let's take a

look in what is free and clear why are

we why are we going towards the free and

clear side well free and clear just says

you own a house and you don't have any

debt on it the reason why we're talking

about free and clear properties right

now is because you can learn all the

principles that you need for some of the

more complicated owner financing

strategies if you remember from our

basics video there's multiple strategies

that go into the umbrella term of owner

financing by studying with free and

clear properties we're able to find out

a little bit more easily how this works

right we're taking away one of the full

aspects of the complicated side on owner

financing there's no bank involved in a

free and clear property okay there's no

mortgage so again you own the house you

have the deed you've owned it forever

paid it for 35 years

the 30 to 30 year mortgage is done it's

a little bit easier math this one's big

for me right makes a lot easier for us

to do the math whenever we don't have to

account for underlying lien payments

underlying principle all that kind of

stuff and also the home value I'm just

going to go ahead and establish for the

purpose of this video and for the

purpose of this exercise we're going to

establish that our house is worth a

hundred thousand dollars you'll find

that I like using a hundred thousand

dollars a lot because it makes our

percentage is really easy right point

number two easy math we need to keep

things easy for ourselves so if I tell

you we've got a hundred thousand dollar

house we bought at 80 percent how much

did we buy it for eighty thousand

dollars right you'd be surprised how

many people don't make that connection

but at a hundred whatever percentage I

say just change the word percent to

thousand and that's where we're at the

ten be to financial calculator guys I

want you to take a good long look at

this the 10 B to financial calculator

this is the lifeblood of this industry

this app is available on the Google Play

Store as well as the Apple iTunes Store

this app is going to be $5.99 now I know

I preach a lot and tell you hey oh this

is a great way to get into industry

without have any money ba ba ba ba ba

I'm going to make you spent the money

right go to the App Store right

now start the download occurring $5.99

you know what you got to spend money to

make money in this business right if you

can't take the $6 that it takes to get

this app maybe now's not the best time

to be watching this video but get it

practice with this calculator even

without these videos practice with it

we've got a separate video specifically

on how to use the 10 b2 calculator so

I'm not going to go into too much detail

right now in this video but just make

sure to watch the other video on how to

use the financial calculator because

you're going to be amazed at all the

wonderful things you're able to do and

how much money this thing is going to

make you this is the lifeblood of our

business

no single item is going to make you more

money than knowing how to use this

financial calculator right here so let's

do a quick overview of what that

calculator says - it's okay all that we

care about on this calculator is this

top row right here this top row is our

our home base obviously we've got the

numbers in the middle but at the end of

the day these are the only buttons we're

going to be pushing so I'm going to

start from left to right on that top row

and explain which each one of these is

very briefly the n stands for number of

payments number of payments so if you've

got a 30-year mortgage you actually have

360 payments if you've got a 15-year

mortgage you actually have 180 payments

so that's the number that you're going

to put into the in field

whenever you're calculating something

out the next one is I slash yr I slash

yr this stands for interest per year now

in this calculator you're just going to

write down the interest number whatever

that is you're charging nine percent

interest you're going to put nine in

this field some financial calculators do

require you to to calculate that out

from an annualized term but one of the

reasons I like the 10 B - specifically

is that you don't have to do that here

just whatever number you're going to use

that's the number you put in right there

okay the next field is called the PV now

PV really stands for present value when

you're actually talking about the

financial calculator and financial

calculator terms PV means present value

but I'm going to refer to this as

principal value because as real estate

investors it's a lot easier for us to

understand off the cuff what's the

principal value of this loan and the

next one is PMT can anybody guess what

PMT is for payment payment is going to

be in the next field here the last field

is really easy for us it is FV FV

stands for final value now the beautiful

thing about final value for us in our

world and what we're going to be doing

sv is always going to be equal to zero

okay I won't get into too much of why

but FB is going to be always equal to

the or the way that this thing works is

we're going to give it four I'm sorry

we're going to give it yes well four of

the values it is going to solve us v 1

sv always being zero makes that one step

easier for us so we really only need to

know three things to find out any of the

other ones you can know the interest

rate the principle value in the payment

and it's going to tell you how many

payments there are you can know how many

payments there are the interest rate and

the principal and it's going to tell you

what the payment is okay so that's a

quick overview of B 10 B 2 I really want

you guys to go out watch that video

learn how to use that calculator let's

look at a free and clear property okay

we're going to say that us as the

investor owns this house right here our

ownership is shown by a warranty deed

that warranty deed is what actually

gives us the full ownership of this

property that's how we collect title on

the property you'll hear people say deed

and title almost interchangeably a lot

of times and in this context that means

that when you have the deed to a

property you are the owner of the

property if you have title to the

property you are the owner of the

property now you will also hear title

referred to as like title searches right

or a title policy you're going to hear

that word get thrown around a lot for

different reasons right a title policy

is a different title policy is something

you're gonna get through a title company

it's insurance that make sure that they

covered or uncovered everything that

needed to be found as far as debts on

the property when ever you bought the

house that's a totally different issue

okay but in our case when we talk about

title today we're talking about you own

the house we're talking about bead so

I'm out you own now in this example you

own the house and you own the house free

and clear you have no debt whatsoever no

lending on this house now two owner

financed that house it's as simple as

this you are going to sell the property

on payments you're going to feed that

property over to the buyers so the

buyers are going to take title to it

they will be the full-blown owners of

that property but the buyer is going to

have debt

and that debt is going to be owed to you

okay so in other words the buyer takes

title they are the full-blown owner of

the property but every month they're

going to be making a payment to you for

seven hundred eight hundred dollars a

thousand dollars whatever that might

calculate to be right you are the bank

this is one of the beauties of the owner

financing world is that you were

becoming the bank and as we talked about

in the basics video it's one of the

great ways to ensure that you've got

consistent profits to ensure that you're

not going to have to deal with tenants

toilets and trash all that kind of stuff

that goes along with some of these other

investing strategies and owner financing

you sell in the house they make their

payments every month they don't make the

payments you take the house back you

sell it again you make more money right

it's pretty good little strategy going

on here so let's look at a kind of a

basic deal right what's the what's the

deal that we're looking at here now on

this one I'm just throwing some numbers

out these are very typical of what we're

going to be looking at in an owner

financed world gonna be very typical of

what you're going to see all throughout

this series one hundred thousand dollar

sale one hundred thousand dollar houses

here in the DFW area are kind of our

bread and butter at owner financing

right for other markets is going to be a

little bit challenging making that

equation because I'm saying just a

straight dollar amount and heck hundred

thousand dollars over in your area may

just mean that you've got a Shack on the

middle of a porta potti and that's what

you get to live in here in Dallas that

gives you a pretty decent house one

hundred thousand dollar house is a

pretty decent house it's probably a

little bit older not in the greatest

part of town but you're still okay and

those houses move quickly and fluidly

and there's a lot of buyers for them a

lot of times we kind of refer to this as

our Walmart principle right you've got

the kind of a pyramid if you look at it

at the pyramid of people people's needs

in real estate and only so many people

are going to be able to buy those

million-plus dollar houses a little bit

more people are going to be able to buy

the two hundred three hundred thousand

dollar houses well down here at the

bottom that eighty to two hundred

thousand dollar house that 82 to twenty

five house there's a ton of people in

that demographic so you're able to move

those houses a little bit faster and

that's kind of one of the reasons way

like why we like to stay in there nine

and a half percent interest rate for now

nine and a half percent interest rate is

where I want you to stay okay dodd-frank

if you watch our dodd-frank video I'll

explain a little bit more in detail of

why you get to charge certain interest

rates over other interest rates there's

a lot of misinformation guys that

circulates around about

can and can't be done and owner

financing and I want to be very clear to

you that if somebody tells you something

and they can't point to the verse in the

law that tells you why they're saying

you can't do that

second-guess it write anything that I

talk about I've actually read dodd-frank

all the way through I've actually done

my research on this stuff I will point

to you in a nanosecond anything that I'm

telling you in these videos so if you

have any questions or any doubt

especially when having to deal with the

Texas side of things just give me a

shout granite creative cash flow column

be glad to show you why I'm telling you

the things that I'm telling you because

I'm backing it up with the law now

dodd-frank a lot of people will say oh

you can't charge over six percent or you

can't charge over eight percent they're

confusing some of the Burbidge that's in

there and I won't go into too much

detail but essentially what it says if

you can't charge six percent more than

the going rate of interest like for a

Bank of America loan or something like

that without turning in some extra

compliance issues right so the short

story is you can do anything you want

really you can pretty much do anything

you want up to the state Ussery level

which is different for different states

you just have to hit different

compliance milestones for whichever area

you land in okay so again nine and a

half percent interest rate that's kind

of a going rate that we have and owner

financing today and it has been that way

for quite a while so buyers kind of have

this mental block of passing over ten

percent you're totally allowed to pass

over ten percent if you can get that in

your area but we're going to stick with

nine and a half here thirty year terms

are what we typically sticking on a

30-year note I like thirty your notes

thirty-year notes mean that I'm setting

up the largest amount of interest

possible this is a big tomorrow money

play I'm putting a note in place that

says that I'm going to continue making

money for a long time now advantages to

a shorter term so you did a ten-year

note or a fifteen year note if you do a

shorter term note your payment's larger

just like if you went to the bank and

you're getting a mortgage on your house

you get a 30-year note it might be a

thousand dollars a month you get a

15-year note it might be $1400 a month

so one of the advantages if you want to

do shorter notes that's fine you'll make

more money on a monthly basis however if

you look at the total income that you're

going to make from that asset and we

assume that it's going to maturity which

not everybody does and you know you're

going to have probably 20 25 percent

fall

off of people selling their house or

refinancing or you know whatever but for

those who go to maturity the 30-year

note is really where you make the most

money because you're accruing the most

interest over time with that one and

then what we do need to figure out is

what's our payment right what is our

payment in this scenario so that's where

we bust out our handy-dandy 10 B to 10 B

to 2 calculator again this is our

lifeblood so what we're going to do is

we're going to populate each of these

fields accordingly all right so the SP

that's our easy one we know that one's

going to be zero so we're just going to

automatically have zero in there what

else do we know from my last slide what

else do we know what are our knowns well

one thing that we know that we were

going to do a 30-year note 30-year note

is 360 payments so with 360 payments

that's what we're populating in I /yr I

also told us that the interest rate the

going interest rate about nine and half

percent so that's what we're going to

populate than I /y our PV our principal

value one hundred thousand dollars now

to have a hundred thousand dollar note

means that we sold the property for more

and collected a down payment okay

so in other words here's what we want to

think about if you sell a house for a

hundred and ten thousand dollars that's

your sales price 110 if you take a

$10,000 down payment on that property

you know have a loan of $100,000 all

right if your loan is just whatever the

sales price minus the down payment is

that's your loan amount now for the sake

of this argument even though I said our

house is worth a hundred thousand

dollars I'm putting a hundred thousand

dollars into our PV just because it's

nice easy round numbers but in this

house if you're following closely you

would say well grant where's the down

payment I basically didn't work in a

down payment for this one because we're

just trying to get the principles put

together okay so we've got a hundred

thousand dollar note nine and a half

percent interest for 360 months and a

final value of zero by the way that

final value what that really means is

that this is a fully amortise alone the

opposite of a fully amortise alone would

be like a balloon note I'm sure you guys

have heard about balloons right you get

a you get a loan you're going to pay as

though that loan is going to be paid for

30 years but after

five years whatever amount of still do

that entire amount gets paid at once

that's the balloon payment okay that

would be when you use the FB of

something other than zero but we want to

do fully amortise anon all of those so

we're keeping it at zero as I said

before we have now populated four of the

five items that we need so all we have

to do is push that fifth button and it's

going to solve for us in this case we

have a payment of $840 840 dollars and

some change well the beautiful thing

about this like I mentioned before is

you've got so much interest that accrues

so much interest that eight hundred and

forty dollars I don't know if you've

ever seen an amortization schedule and

if you haven't just make sure to pay

attention to that section in our ten b2

tutorial eight hundred and forty dollars

at the beginning very little of that is

actually going to pay down the principal

very little of it how amortized loans

work and amortized alone is any loan

that you're going to run into where you

have the same monthly payment it's a

fixed monthly payment over a set period

of time with a maybe kind of set

interest rate that's an amortized loan

so you're going to see amortized loans

with car loans right you're paying for

72 months 60 months 48 months at 1.5

percent Interest whatever that is that's

an amortized loan your payment never

changes every month you've also got

other types of loans like your credit

card that's a revolving credit line that

payment may change every month you may

owe this you know $100 one month and 115

the next month that kind of thing

amortized loans same payment entire way

through well the beauty of how that

works is that when you look at an

amortization schedule and in other words

if you look at the graph that shows you

how much is being paid to for its

principal and how much is being paid

towards interest all of the interest is

basically front-loaded you're making all

your interest right at the beginning of

that loan so this loan for eight hundred

and forty dollars maybe fifty of that is

actually buying down the principal the

rest of it is that that entire chunk is

all interest so you're making your money

upfront on that as time goes on that

kind of changes where you're paying more

and more principal

less and less interest to where at the

end most of your payments are going

entirely towards principal there's going

to be an important thing to understand

as we start talking about the subject to

world right I want you guys to watch

this

to video because that's one of my

favorite ways to acquire properties is

that you can essentially take over on

payments we're not going to say taking

over on payments to our seller because

we don't want to imply some of what that

implies but that's essentially what's

happening we're going to continue to

make those payments on their behalf

knowing that we're getting all of our

interest paid upfront and our principal

paid on the back end is actually going

to turn into a lot of money for you so

without going into the hugest details in

here what I want to do is I want to give

you a sneak peek

what would our total earnings be no

total earnings be on a loan like this

where we have eight hundred forty

dollars a month coming in for three

hundred and sixty month well assuming

that we've gone to maturity in other

words assuming that we get a full 30

years of payments from them you're

making almost three hundred and three

thousand dollars on this asset that was

only worth one hundred so yes you're

right whenever you are selling with

owner financing one of the cons I

mentioned in our in our basics video is

that you're not getting appreciation I

get that however we're turning assets

that are worth a hundred thousand

dollars and a three hundred plus

thousand dollars of income and pure

interest alone that's two hundred and

two thousand seven hundred and fifteen

dollars purely an interest that's being

earned on this property so now you're

starting to kind of understand why owner

financing is so powerful what we're able

to do with this is just you know again

we've got asset income it's going to

come in over time like clockwork fingers

crossed and if not then again we've got

recourse that's going to end up making

us a ton more money our backup plan our

worst case scenario is actually even

better for us in our pocketbook but

we're making a three hundred three

thousand dollars on a hundred thousand

dollar house a lot of times we're

turning that maybe you've only got

fifteen twenty thousand dollars worth

equity in the house say it's not free

and clear a lot of times we're turning

that fifteen twenty thousand dollars

into one hundred and fifty two hundred

thousand dollars right this is the

beauty of owner financing one of the

cool things about this is that when you

are selling a house owner finance

regardless of business if it's got

underlying debt or not right now we're

talking about an owner financed home

that's free and clear but when you sell

the property to your buyer you're going

to collect a ten percent down payment

right so like I mentioned a little bit

earlier if we if we sold this house and

we ran these numbers as we did this

would imply that we sold it for

111 thousand dollars we're going to get

to get a 10% down payment so we're going

to get $11,000 as a down payment on this

home and we're giving them a 30-year

note at $100,000 now the cool thing here

is that and I calculated that into these

numbers or actually no I take them back

I did not calculate that into these

numbers but your down payment so you pay

3% to get a buyer into your house you're

gonna pay 3% to an agent to bring you

somebody for that house well in this

case you sell for 111 what's that $3,300

that you've sold the house and you're

paying the agent for bringing the buyer

in so if you have to pay the agent

$3,300 and you've got a $11,000 down

payment what's your net from that bit

down payment about seventy seven hundred

dollars that you're making that's a

that's a pretty sweet deal right you're

making seventy seven hundred dollars up

front you're making eight hundred and

forty dollars a month for the next 30

years and when all it's said and done

and interest alone you're collecting two

hundred and two thousand dollars add

that seventy seven hundred bucks on top

of it that you just made from your down

payment and really you know I'm saying

you're making 303 total on here you're

making 310 add a little bit more extra

on there those are good numbers I like

numbers like that because again the

barrier to entry to doing these kinds of

deals is very low so you really have the

possibility to make a lot of money

without having to put so much of your

own money and you need to be prepared to

cover payments if you're not getting

your your buyers payments in but that's

that's pretty basic to any kind of

investing strategy who is our seller how

does their seller fit in here right

we're talking about buying houses I'm

sorry we're talking about you're selling

a house owner finance that we already

own free and clear which is all fine and

dandy but grant what if I don't have a

house free and clear what do I do then

well you have to buy that house right

that's part of the deal that's part of

why you're watching this is to figure

out who these sellers are and how you

can buy those houses so how does our

seller fit in most often the sellers of

free and clear properties tend to be

older because if you think about who's

actually going to have that free and

clear property it's typically the person

who's been in there for a while somebody

who's already been making their payments

for the 20 years or the 30 years that

they took that loan out on right so

that's just a little bit of a

demographic clue of who you're looking

at for your buyers I'm sorry for your

sellers and then excluding the

hi equity list right obviously the hi

equity list is going to be the people

with high equity but outside of that

probates tend to be the area that I run

into the most free and clear properties

probate properties obviously being the

properties where somebody's passed away

the family the estate now has to do

something about that property one of the

things that I really recommend for you

guys and I'm not just saying this

because I'm standing in front of a giant

banner that says propel you on it but

propel yo leads that come out as a paid

member are so worth it I mean I myself

these were the leads that I was always

targeting all the leads that you're

getting now as a member of propel yo

release that I was always targeting

already and I've beat up Daniel so many

times for actually giving those leads

away I'm truly unhappy about it but that

being said you guys need to take

advantage of that because now I've

gotten to the point where I literally I

don't pay my staff anymore to do that

every morning my staff used to come in

gather all the leads that I was looking

for provide the marketing to them send

it all out that kind of stuff well that

takes time now they don't do that now

they just wait on the email to come in

for propely oh and then send the

marketing out accordingly to that so

don't pass up on the opportunity that's

being put right in front of you I think

a lot of people don't fully appreciate

what's being given to you in that area

when again those of us who actually are

the real deals and are actually going

out there and hitting a hard core those

are the people that were shooting for

and probates are one of those what's the

bottom dollar this is motivation always

has to be your number one priority when

you're talking to your seller okay I

train a lot of people how to do real

estate and I and I'm always having to

walk them through how that negotiation

process goes and we have a negotiation

series in this video series it's going

to help you to know more of the nitty

gritties and more of the the for lack of

a better word scientific background of

why certain things work over other

things right why certain phrases are

going to work over other phrases but one

of the things that you've really got to

figure out is you don't care what your

seller wants I'm going to say that again

you don't care what your seller wants

what you care about is why does your

seller want that that's what you need to

locate so when you are doing these deals

you need to find the motivation for your

seller find their bottom dollar a lot of

times these free and clear properties

they still want money for it right

obviously they're not just going to give

it to you so if they own it free and

clear you need to find out what they're

using their money for when they need

that money and how you might be able to

get that to them over time and or

upfront are they willing to finance it

this is one of my my favorite questions

I'm going to go ahead and give you a pro

tip on negotiations here even though the

majority of that's going to be in the

negotiation series but when you're

looking to buy a property the best

question that you can ask is are you

willing to sell sell your house and take

your equity and payments or take your

equity and installments right it's a

really good way to broach the owner

finance topic because they don't really

understand hey do you want to be the

bank or hey what if I buy your house and

I only give you six hundred dollars a

month for a long time how about that hey

but if you're able to ask the question

and say hey are you willing to sell your

house and take your equity and

installments a lot of time the answer to

that question is yes right little subtle

phraseology little subtle differences

and how you say things are going to be

the difference between getting a yes and

a no asking somebody if they're willing

to finance it as an excellent way to

figure out if you can do an owner

financed acquisition because with owner

financed acquisitions

just like we said in our basics video

it's an unlimited non-institutionalized

non-recourse money that you can buy as

many houses as you want if you get

somebody that's willing to finance it to

you there's no limit to how many houses

that month that you're able to buy how

much today money do they mean

today money versus tomorrow money we're

going to talk a little bit on today

monies versus tomorrow money in other

videos of the series but that's a big

principle that I want you guys to really

see deeply into your chest of today

money versus tomorrow money today money

wholesaling fix and flip stuff like that

things that are going to get you cash

now and then you're done tomorrow money

stuff like when you're on or financing

and you're you're getting payments in

over a long period of time that's

setting up your retirement that's

setting up your future I call that

tomorrow money one of the things that

you can look for is the once and the

needs of your seller what do they want

what do they need right that's one of

the real keys of what your your

negotiations have to be based on is they

may want a hundred thousand dollars for

this house they only need

Ede 30 so that they can pay off some

medical bills right so then you can kind

of split the difference and get them a

little bit of what they want and a lot

of bit of what they need but if you can

really core down into that that's going

to really help you get there okay now

we've got a download for you called the

once and needs pamphlet it's something

that I can take to sellers a lot of

times that are trying to you know

they're having trouble of understanding

what they might be able to expect and

the one that needs a pamphlet is a

really good way I'm sure you've all got

to kind of seen the the drawings before

where it says like hey you can have it

fast you can have a cheap or you can

have it quality to choose to right once

the needs is very similar to that right

you can have fast money you can have a

lot of money right those kinds of things

and you can mix and match that and if

you can properly place that in front of

a seller and really work with them on

this situation and help them to

understand what they're trying to get

out of this because guys let's be frank

this is maybe the first or second time

these guys have sold a house that we're

talking to

we buy houses all day every day I'm sure

you've gone in and bought a car before

and you're thinking oh my gosh this guy

is just running circles around me I

don't know how much equity or how much

room they have I mean I'm going to ask

for a thousand dollars of I don't know

if I can get it that's kind of a

situation we're and we're the guys that

do this every day we understand how the

real estate works they don't so they may

have unrealistic expectations and when

they have those it's our job to let them

know it's unrealistic right we're not

going to be a jerk about it but we're

going to let them know that's not going

to happen

so download our wants and needs pamphlet

that's going to help you broach that

topic with your sellers where do we make

our money that's the big key right Oh

grant this is all fine and dandy a

buying houses how do I make money off of

that well again this is an acquisition

model I'm talking about right here we're

talking about buying an owner financed

house that's free and clear we're

talking about buying with subject to

writing we're going to get into that as

well in a subject to video but once

you've acquired this property once you

own the property you can do anything you

want with it nothing says that you've

got an owner financed sale it nothing

says that you can't rent it that you

can't fix and flip it I mean I'm doing

one right now that I bought subject two

I closed on it actually probably got

closed about an hour and a half ago

while I was up here doing this video and

and I'm just going to take over go in

there fix it up put it up on the open

market I'm going to make about thirty

thousand dollars on it's going to be

today money but for

reasons that we'll get into in other

videos it just didn't make sense to hold

for tomorrow money the payments weren't

matching up to what I needed the

payments to be however if I had tunnel

vision and I was only looking at one

strategy I would have been able to see

hey I can acquire this with subject 2

but I can also sell it as a flip or hole

tale later or whatever so you're

acquiring with owner financing but your

disposition is totally up to you your

disposition is a totally different topic

to find out how you're going to make

money to find out how you can actually

turn this deal into money you have to do

something called backing into the deal

okay backing into the deal is a little

bit harder sometimes for people to

understand because you literally are

starting from the end and working

yourself backwards you've got to start

at the very end of the scenario and see

how much money you think you can make

there and then back everything out from

that point and that leaves you with what

you can buy the house for alright so

watch our backing into the deal video

which is going to be the next video up

for you and it will really go deep into

detail of how you're going to analyze

these deals to properly tell how you can

make your offer whether it's free and

clear or not right so guys keep in touch

with us granite creative cash flow comm

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keep your education rolling because this

is an industry where education is

everything knowledge is everything this

is how you get your edge on everybody

else so thanks for joining us today

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