BiggerPockets Podcast 070 with Grant Kemp Transcript

Link to show: BP Podcast 070: From Zero to Hundreds of Deals in Under Two Years with Grant Kemp

Josh: This is the BiggerPockets podcast, show 70.

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Josh: What’s going on everybody? This is Josh Dorkin, host of the BiggerPockets podcast, here with the man in yellow, Mr. Brandon Turner. What up Big Bird?

Brandon: I’m good. I’m good. How are you doing?

Josh: I’m good. You really do look like Big Bird today.

Brandon: Yes I like this shirt. It’s one of my oldest shirts, but you know, I like it. I got some sad news though.

Josh: Oh, what happened?

Brandon: Want to hear it? My cat is sick. He’s at the vet.

Josh: Wawa. I’m I supposed to be upset about that?

Brandon: You should be sad. It’ s very sad.

Josh: Or is that a three cheers moment?

Brandon: No, he’s not feeling to good. It’s a sad moment, but yes, he’ll be okay. He’s got some kind of weird eye infection.

Josh: Whatever.

Josh: Oh, I’m sorry. My dog went through that so I feel your pain man. I feel your pain.

Brandon: There you go. Yes, I’ve got.

Josh: I’m a little sensitive right?

Brandon: Yes, you’re a sensitive guy. Sometimes you just break down crying during the day for like—you microwaved your food too hot or something.

Josh: Yes, whatever. Whatever. Alright man, well anyway. This is going to be an interesting show ahead guy, Mr. Brandon guy.

Brandon: I agree. I actually think today’s show is especially good for people who may or may not ever actually engage in this kind of real estate investing. We’re going to be talking about subject to, but it’s important because it’s something a lot of people throw away, most of their leads that come in whether you’re a wholesaler, flipper, buy and hold, whatever.

Josh: Yes.

Brandon: You throw away a ton of leads so I know I do, but after this show, I’m definitely re-looking at how I do all of that so yes.

Josh: Oh yes, I think it gives you a new perspective on some strategies that I’d say the vast majority of real estate investors would never even consider because they see deals that may not meat on the bones so to speak, but in reality, if you know how to structure a deal there’s actually meat on the bone so.

Brandon: Yes.

Josh: It’s cool. I’m excited this show is going to be a fairly high level one and there’s a lot of phenomenal content, but before we.

Brandon: Yes and jokes.

Josh: There are some jokes. Yes.

Brandon: If you don’t like our humor, our middle school humor, you know.

Josh: We’ve gotten quite a few those comments Haven’t we?

Brandon: Yes.

Josh: You guys should just stop talking and joking.

Brandon: This is real estate, it’s not funny. It’s business.

Josh: Yes. Jus really—we’re going to teach you about cap rates today.

Brandon: There you go.

Josh: Everybody get out your calculators.

Brandon: Yes, that’s what real estate is.

Josh: Yes. Alright.

Brandon: Text.

Josh: Oh I just got a text. How cool is that?

Brandon: Nice. Way to have your phone off.

Josh: Way to have this texty machine.

Brandon: Maybe that was the music for our Quick Tip.

Josh: Alright, today’s Quick Tip is—this is actually a really good one. We have not yet done this. If you are on BiggerPockets to do real estate and to network and do deals and make money ultimately then I want all of you guys to stop and do this one thing as soon as you’re done listening to this show. Go on.

Brandon: Collaborate and listen.

Josh: Are you seriously going to do that.

Brandon: You wanted me to do one thing was to stop collaborate and listen.

Josh: Yes, don’t don’t yes you’re done.

Brandon: What’s the one thing?

Josh: Okay vanilla rice. The one thing is to introduce yourself to somebody that you have been looking up to or who you’ve seen around the site, you think is interesting or is—has got value to add. Go out there, if you haven’t already and introduce yourself to that person and start building your network. If you’ve introduced yourself to everyone on the site then, you know, your job is done and you can go retire.

Brandon: Yes, go home.

Josh: Well, to add onto that point real quick and I know we’re going to get to the interview in a second, but there’s a thread going on right now in the forums and if you’re listening to this in the future, you can find it. It basically says go on—in this thread mention somebody who you’ve learned from on the site. Just go ahead and do an at mention which tags them. You know just tag them and tell them what you’ve learned. It kind of is a way of giving back and saying, “Hey, thank you, you know, whoever for teaching me something new.” Go look for that, I’ll put a link to that in the show notes at BiggerPockets.com/Show70.

Josh: That is.

Brandon: I highly recommend doing that.

Josh: That is the link. Yes, alright so moving to.

Brandon: That’s kind of two Quick Tips, but whatever.

Josh: Yes, yes, there you go, alright so let’s move on to the show. Today’s show, we have a great guest for you. We’ve got Grant Kemp out of, I believe, Dallas, Texas. Grant is a real estate investor who has not been around that long, but in this short time. He has—he’s made a significant impact and has done ton of business, an absolute ton of business, an absolute ton of business. He’s doing what? Six to 15 deals a month on average right?

Brandon: Yes, yes, he’s doing a ton of deals for only being in this—you know, doing it for a short time, but hey—but before we go on real quick, I just wanted to give quick disclaimer and that is anytime you’re doing real estate deals, it’s important that you’re transparent with all the parties involved including the lenders. That will make more sense later having to do the strategy, but ultimately, we just want to be sure that if you’re considering to do real estate deals like a subject to, which is what we’re going to talk about today, that you consult a real estate attorney first because you do not want to accidentally break the law by trying to do something that may or may not be illegal in your area. Be smart, do your homework, and talk to an attorney. Anyway, I just wanted to add that because we want you to make sure that you are doing things right and that you’re doing it safe and legally so you can be as successful as Grant because man, Grant is absolutely crushing it in this business, just crushing it.

Josh: He’s crushing it and he’s wicked smart so I definitely encourage you to stop and pay some attention to the show. This is show 70, the BiggerPockets podcast, we’ve got show notes at BiggerPockets.com/Show70 as Brandon said. Otherwise if you want to ask Grant anything, definitely link up to him on the show notes or at his profile on the site which we’ll also link to in the show notes. With that, why don’t we jump in and get this thing started. Grant, what’s going on man, welcome to the show.

Grant: Thanks, thanks for having me on.

Brandon: Awesome. Yes, we’re glad to have you. Let’s jump into this, you know, right at the beginning. How did you get into real estate?

Grant: I got into real estate just by kind of wanting to do it. I share a story with many of the people that you have on here where the first thing I did was read, Rich Dad, Poor Dad and it was just a nice inspirational book. It’s not a how to, which a lot of expected—people expect out of it, but it’s a good inspirer and you know just kind of went on there and started looking on BiggerPockets, reading the forums on there, reading everything I could, researching online. Just kind of took that bit by bit until I was ready to kind of dive in and grab my first deal.

Josh: Nice, nice and what were you doing prior to real estate?

Grant: I worked IT, I was IT for a stock company, I did their kind of automation stuff over there.

Josh: Got you.

Grant: Decent amount of down time that I had for it so it was helpful that I could spend that time researching and figuring things out.

Brandon: Cool.

Josh: Nice, nice and you talked about why real estate so why don’t we just jump in on that first deal. How did you get the ball moving and just jump right in.

Grant: Sure so I guess technically, my first deal was really my primary residence. I bought a duplex. I live in half, rent the other half out so you know a lot of people like to do that as their first thing so that I did get an FHA loan for and kind of got into it that way. My first true investment that was just purely investment was actually for my tenant that I moved into the other side.

You know, they moved in here. They had a house that they were looking to sell. They were unable to sell it because of what they owed on it. That was the perfect scenario for a subject to transaction and that’s kind of what I had been researching this whole time, anyway because when I had gone into it looking for how can I get into real estate, my big thing was how can I get into real estate without having any money.

Josh: Yes.

Grant: You know, I mean that was kind of the challenge. How am I going to buy a house if I have no cash so through the research it was like okay, it looks like owner financing is kind of the way to go on this. Subject to being the way to acquire there so.

Brandon: Cool. Hey, I know we want to go into subject to, but I want to stop here real quick and go back to what you’d said earlier.

Grant: Sure.

Brandon: Earlier, you talked about FHA loan, lived in half of the duplex.

Grant: Yes.

Brandon: Can you kind of explain that a little bit more in depth just for people who might not know what that means because I love that strategy.

Grant: Yes, absolutely. Sure so FHA, if you get an FHA loan on like a single family residence, you’ve got to live there for eight, nine, ten months before they can feasibly allow you to move out and turn that into a rental or something along those lines. They’ve got to see that you’ve got FHA as your primary residence. Well, when you’re doing a duplex, you are able to get an FHA loan for the entire duplex because that’s going to be your primary residence. It just so happens that you’re able to rent the other side out of that duplex and turn that into an income for you so you know, when all is said and done, you can cut your bills down to a third of they would have been. You know, a quarter of what they would have been depending on what your rent can be for that other half of the property and that really serves to help a lot.

Brandon: Yes, that’s cool. I wrote a post awhile back called how to hack your housing and get paid to live for free. It was all in that exact same subject so if people want to learn more about that.

Grant: Was it.

Brandon: I’ll link to it on the show notes at BiggerPockets.com/Show70. Yes, I love that. Whats the down payment on an FHA loan for those who don’t know?

Grant: It’s 3%.

Brandon: Cool.

Grant: That you got to put down. I believe it actually—they may go to 1.5% at this point in time.

Brandon: Really? Interesting.

Grant: I think I’ve heard of a program out there, but 3% and you have to correct me on that if you know of less.

Brandon: Okay, yes, I know, I think when I’m at—a buddy of mine did it. It was 3.5% a couple of years ago. I don’t know if it’s still that, but.

Grant: Okay.

Brandon: Yes, somewhere right around there so.

Grant: Yes.

Brandon: It’s pretty low so cool so you can buy a property for very small percentage down and end up getting the full like cash flow, appreciation benefits, the whole thing, right.

Grant: Sure, absolutely.

Brandon: Yes.

Grant: Yes and it really helps out. You know, not only from the cash flow side, but even from their—your tax basis side. You know, if you get a good CPA in your corner and look at things from that way. You know, you’ve got some depreciations that you’re able to do on investment properties that you’re not able to do on your primary residence, so obviously, you wouldn’t be able to do those kinds of things for the whole duplex, but for that half that somebody else is living on, you know, there’s some tax benefits to that side too.

Brandon: Yes, hey what would you say—what would be your advice for somebody who doesn’t have any deals yet and wants to start the same way you did. They want to buy a duplex. How does he even begin that process?

Grant: You know, the duplex that I purchased was the one and only deal I’ve actually done off of the MLS with a realtor. You know, everything else that I’ve done is could have been completely off market, but you know, those types of things. If you’re just trying to get in and do the duplex, kind of thing and this is your first deal, I liked going that route. You know, talking to a realtor, trying to get things handled up there.

You know, it was actually surprisingly difficult for me to find an entire duplex for sale. There were not very many when I was looking around. I mean I had an option of probably less that ten the whole time we were looking, but we did find the one that we liked. You know, contact a realtor around you, talk to some investors that you may know that have somebody to recommend. You know, anybody that’s going to recommend a realtor period, just go talk to them. See what you can get figured out with it and move from there. You know, you obviously got to have some money saved up for the down payment and everything and go into it with an educated mind, but just diving I mean I think that’s one of the biggest things that I can recommend to anybody for any part of the real estate investing. Is you just got to do it.

Brandon: Yes.

Grant: The Nike way right?

Brandon: There you go. There you go well cool. Well, okay so you moved on from the first one and you said that’s the only one you’ve done, realtor with MLS so after that.

Grant: That’s right.

Brandon: You looked in subject to.

Grant: Right.

Brandon: Why don’t we I guess go into the subject to idea since that’s kind of your current focus.

Grant: Sure.

Brandon: What exactly is subject to. We haven’t talked about it since back?

Josh: It’s been awhile.

Brandon: A long time ago.

Josh: Yes.

Brandon: I think it was Karen Rittenhouse episode two.

Josh: Two.

Brandon: I think we talked about that.

Josh: Yes.

Brandon: Yes, tell us what is subject to and how does that work?

Grant: Yes, so subject to is a way of saying that you’re going to purchase a house, subject to the underlying lien staying in place as is. In other terms, the way that you’ll, you know, more commonly understand what’s going on, you’re taking over payments is essentially what you’re doing okay. Now you’re not assuming the loan. There’s a slight difference there. You’re not actually assuming the loan.

An assumption of the loan will mean that your seller is able to talk to the banking, get your name on the loan instead of theirs. What you’re doing in a subject to transaction is you’re purchasing a house, title is transferring. You know, you have a deed that goes between you and everything so that you are the true owner of the house, but you leave the bank debt in place and it’s going to be left in the original seller’s name and you will continue to make the payments to that bank on their behalf.

Josh: Now is that something you can do in all 50 states?

Grant: Well, it is that’s something you can do in all 50 states. The biggest thing that you’ve got to know in subject to transactions is you’ve got to properly disclose everything, okay. The biggest push back to a subject to transaction that people are going to have is going to be the due on sale clause which pretty much every mortgage is going to have a due on sale clause in it and what that clause says is that if you sell the property that bank has the option, not the obligation, but the option to call the entirety of that loan due at the time of sale or anytime after that if title is changed. Realistic, oh go ahead.

Josh: I think you’re probably going to clarify so I’ll let you finish it.

Grant: Sure, realistically that’s not really a real world problem. It is there and it’s absolutely something that needs to be disclosed to the seller as well as if you turn around and do—you know do an owner finance transaction to your buyer. That needs to be disclosed as well, but our office has seen 10,000 properties go through it over the last 25 years doing owner finance transactions. We’ve had the due on sale clause called, but it’s only been called three times in that entirety and all three of those times, we were able to fix the situation without having to occur or you know basically, without anything, anybody actually having to come up with any cash to solve that.

Josh: Why would a bank actually call the due on sale clause versus ignore it?

Grant: Right and so that’s actually a good question. Yes, one of the things that whenever we’re talking to our sellers, we commonly talk about—is we just ask them point blank, you know, what does a bank want? Money, right?

Josh: Yes.

Grant: They want their payment. If they call a due on sale, likely they’re getting that property back and my joke that I always is that they are not in the real estate business if they were, they would be called Coldwell Banker, not Bank of America, right? They want their money. The bank has the right to call it.

The only times that we’ve seen become an issue has been in non-payment scenarios so we’ve seen other investors that had come through that were not doing things the right way or I shouldn’t say the right way. They were doing things in a way that set up this failure to where instead of paying the bank directly, they were paying the seller, right. The seller was supposed to turn around and pay their monthly payment for—well the seller is saying, “Hey, I’m getting a thousand dollars a month. What? It’s not my house anymore, I don’t need to turn around and sell it and pay the bank.” They just weren’t paying the bank and essentially, the bank is going to foreclose on it, but a foreclosure due to some of the foreclosure laws takes much longer than getting a house back through due on sale so they chose to go that route regardless of that being. It was still a due on sale clause being called.

Josh: The risk—you know, I think a lot of people look at it as a risky venture, getting to subject to because there is a chance that a banker call it due right?

Grant: Absolutely.

Josh: The risk there is really the challenge. Is there any way to mitigate that risk and reduce the chances that they’re going to call it due.

Grant: Yes, so you know there’s certain things that can be done. You know at the end of the day, if it walks like a duck and looks like a duck, it’s a duck. You know, we don’t always go this route, but the route I’m speaking of is due to the Garn-St. Germain Act that occurred I think it was ’86, somewhere in there. Garn-St. Germain says that you’re allowed to put a property into an estate planning trust and that trust will not violate the due on sale clause, okay.

What a lot of investors do to mitigate the risk is they say well, I’ll just put this house into a land trust, which is essentially just a fancy way of saying LLC. I mean it’s just all paper work there’s nothing really behind it, but they feel a protection level on their side because what they’ll is they’ll transfer the property into a trust. Then transfer the beneficial interest of that trust over to them and their subsequent buyer.

That transfer into the the trust does not violate the due on sale clause; however, if the bank did any kind of digging, and they saw that the beneficial interest was changed, they still have the right to call that note due. Our outlook on this is proper disclosure, you know. Can a seller who has had everything explained to them from top to bottom make that decision for themselves that says, “Yes, you know what I’m comfortable with this being a possible risk, but I have to offload this house or else I am going to foreclosure for sure.”

Can that seller make that decision on their part and go forward with it? I think absolutely, yes. You know the side of it is there’s nothing illegal about the due on sale clause. A lot of people feel like you’re breaking the due on sale clause and it’s very important to understand that the due on sale clause is the trigger. It’s not a rule to be broken. Once you’ve sold that property subject to you have triggered the due on sale clause and at that point in time, the bank has the option to call the loan due, but it’s not like it says, “If you sell this property without paying it off. You have broken this clause and we will call the note due.” It says, “If you sell it, we have the option to call the note due.”

Brandon: Okay, yes so it’s not illegal. Now what about telling the bank. I mean like lets say you want to talk to a seller who wants to sell and they’re agreeing to subject to. Now you’re not just going to call the bank and say, “Hey, by the way, I’m taking over payments now.” Correct?

Grant: Right, right, that’s correct.

Brandon: Because you don’t want to push the thing, but I guess I mean how does that work?

Josh: I’ll just kind of piggy back on that. You know, we talk about disclosure, but you’re not disclosing right? You know, we’re disclosing on the seller, the buyer, but we’re not disclosing to the bank so I think that’s the other issue that I think you know people would hear this and say, “Well, that’s kind of unethical.” Right? I mean, I’m not calling you unethical, I’m just saying that in general.

Grant: Sure, sure.

Josh: You know, is that unethical to leave the bank out of the picture and just kind of pretend like you know, apologize instead of asking for permission.

Grant: Sure, well, I really don’t feel that it is an unethical venture here because you know, the bank went into this, again, wanting to get their payments. They put their loan out. They say hey I’m going to give Josh this loan. I’m going to ask for you know, 3.5% and I want to get that for the next 30 years and that’s what they’re planning to get. At the end of the day, after subject to transaction, that bank still has Josh liable on the loan, okay. Josh understands that Josh is still liable on that loan so the bank still has the same recourse that it always would have regardless of what that transaction is.

Josh: Yes so where does Josh get caught up then? I mean because there’s—I’m now—I, Josh no longer own this property. I’ve sold it to Brandon, but I owe money to the bank. If Brandon screws up and stops paying the bank, I’m in deep poop right so how do I as the seller of the property overcome that issue.

Grant: Sure, well and it’s all a case by case scenario. You know and it’s all what is any quote on quote, Josh out there going to feel as their risk aversion so you know, here’s the thing. Let me start by saying that you know, most people that are in this scenario, they’re going to be selling with subject to. This is pretty much their only option to sell.

You know, a good percentage of these sellers, that’s it. It’s either that or foreclosure, okay. Or being stuck with this loan where they’re having two more rich payments. You know, I’ve sold or I’m sorry, I bought a house in I guess December of last year. That was from a gentleman who got transferred to a job that was hundreds of miles away.

He had been paying two mortgage payments for a couple few months and he just couldn’t do it anymore. It was killing him, you know, this mortgage payment was $1,500 a month on top of what he was having to pay for out there. He just didn’t care. He said, “Look, I just need to get this thing off my books. I don’t want to have a foreclosure on my record.”

You know, I don’t care what happens in the future because worse case scenario, if he’s left back into that situation where he has to take back over the payments. He’s just where he was when he started and oh by the way, we’ve been paying the equity down now for two-three-four-five-six years, however, you know, however long away that was so usually it’s going to leave the seller in a better scenario at the end of the day there.

Josh: Got you. Got you so either way the seller is in a position where they’re probably going to lose the property due to foreclosure or something that’s going to happen and you know, the risk is risk reward, I give it to you. If you screw up, I’ve still lost the property.

Grant: Yes.

Josh: At least I might have gotten some cash from you up front.

Grant: Right. Absolutely. You might get some cash up front and you don’t know what that scenario—what that’s going to be. What your situation is going to look like if it ever did come back to you. I should say, you know, our default rate and this owner financed world is very low. We’re at about a 3% default rate.

Josh: Got you.

Brandon: That’s not terrible so alright so you get these properties. You’re buying them with subject to.

Grant: Yes.

Brandon: I’m assuming mostly with no money down correct?

Grant: Right, yes, that’s the goal is to get it with no money down.

Brandon: Okay, typically, do you ever put—I mean what would be a typical amount down, if you did have to do it down. Is it just moving cost?

Grant: It really, again, it depends on the equity. It depends on the person. Houses with more equity were more willing to put money into as a down payment. You know, but it’s very rarely going to be above $5,000. You know, I’m closing on a house, actually, there’s a house closing right now as we speak that we paid $750 for. We already actually have that house sold, the sales side is going to close tomorrow morning, but out of my pocket right now, it’s only $750 to buy that house. It’ll get recouped for me in the morning.

Brandon: Okay, cool.

Josh: Well and I’m going to just jump back out on this one.

Brandon: Yes.

Josh: This one where they’re $750, what’s their—what’s the case you know, what’s the situation that the actual seller is dealing with? Are they at zero? You know, do they have any equity on this property? Where are they?

Grant: Yes, no, they had no equity in the property. Unfortunately, they did a refinance in the middle of just a bad time to do refinances, I think they refinanced in ’06. You know and they have since moved and gotten another property. This is another one of those scenarios where they’re living in a house right now.

They are going to have to pick up the payments for the house that they—that I ended up buying from them and it just didn’t make sense for them anymore. They needed to get rid of it now. This particular house was in terrible shape. You know, their—I went through there and there’s just garbage everywhere, half of the kitchen tiles are missing. The toilet is sitting in the hallway instead of in the bathroom. It’s been you know taken off of the floor and it’s just sitting there. There’s foundational issues, those of kinds of things so in order for them to sell this that’s a retail sale, they would have to put in a solid $15-$20,000 to it and holding cost and realtor commissions. There’s just not room for that so again, it’s one of those things where it’s well, do I let go to foreclosure?

Josh: Yes.

Grant: Do we go to one of these investors that can take care of it.

Josh: Yes, got you.

Brandon: Who are you then selling it to because now you’re selling the house that has very little or no equity.

Grant: Right.

Brandon: To something that needs a lot of work. Who’s buying that?

Grant: Right so there’s a whole demographic for that. There’s actually a ton of buyers out there. You know and about 95% of my buyers here, now I’m in Dallas. I’m in Texas, we have a heavy hispanic population, most of my buyers are hispanic family members that you know, they may have their business is a construction business.

You know and their wife’s business is a cleaning business. That’s about 65% to 70% of our buyers that’s that so you look at these people and you look at them with Dave Ramsey eyes and they’re phenomenal buyers. You know, these are people that have absolutely no debt. They’ve been saving their cash.

They live well beneath their means, but because of—oh and they’re self employed. You know, but because of that you look at them from a bank’s perspective and the banks sees strike one, self employment. You know, strike two, no credit history. You know and so they go through these and these are people that can’t get traditional lending and they want to be homeowners and they have this pride in ownership.

They don’t care a lot of times, they don’t care if it’s in terrible shape because they do that all day anyway. They would rather get that house, own the house, make the repairs, and guys you know, this one that I sold it on, this particular house is sold on a 15 year note. You know, these people are always doing ten-15 year notes and they’re just fantastic buyers.

Josh: I mean so regardless of the demographic of the buyer, we’re talking about people who aren’t afraid to get their hands dirty.

Grant: Right.

Josh: Who are potential—are you selling to a lot of investors, I mean, I would consider those folks some—kind of investors anyway.

Grant: Sure. Right.

Josh: Because they’re putting money in you know, but are you selling to traditional flippers or wholesalers or buy and hold investors who are renting it out or is it really mostly folks looking to live as primary residence.

Grant: Yes, it’s all owner occupants on the subject to and our financing side. Now, I do wholesale properties and I do flip properties, and those will go out to investors commonly, but when I’ve taken a property down with subject to and I’m turning around and doing a wrap mortgage on that—doing owner financing, that’s all owner occupied.

Josh: What’s a wrap mortgage?

Grant: A wrap mortgage means that I’ve purchased a house with subject to—which we’ve just spoken about and then what I’m going to do is I’m going to turn around and I’m going to try and find a buyer who needs owner financing. Let’s take some numbers here. Let’s say that I buy a house for $90,000. They owe $90 grand on it and my payments to thank bank to that house, are going to be $850 a month, PITI, a wrap mortgage would mean I am going to turn around and I’m going to sell that house for $105,000. I’m going to get a $10,000 down payment, that’s going to be my profit up front. Now, I am financing a $95,000 note and I’m going to finance it as such to where their payment is a $1,000 PITI. Now, I’ve made $10,000 up front and I am making $150 a month for ten-15-20-30 years that’s a wrap mortgage.

Josh: Got you.

Brandon: Alright, that’s cool so what would be the difference in your mind? Let me actually give an example, I’ve got one of my best friends bought a house a few years ago, ended up you know, moving into it. He owes roughly $60,000 on it. It’s probably worth $80 maybe $70, I mean not enough for him to make a good chunk of money off of it. He wants out really bad right now. He wants to buy a new house, doesn’t like the neighborhood, needs out, doesn’t want to deal with it, doesn’t want to list it, whatever, he said, “Brandon, will you buy it from me?” I was like, “Well, I don’t have—I mean I can’t really do anything with it.” Then I started thinking, what if I did a lease option or a subject to.

Grant: Yes.

Brandon: First of all, why should I do it? I mean like what would you recommend in that kind of case, why would I do a subject to or would I? You know, what are your thoughts?

Grant: Sure, sure, yes, no I mean I think that’s a great subject to scenario. One of the things you brought up there was the lease option and just to kind of side reel on that first on that for a second, in Texas, lease options are somewhat largely illegal. You know, you can do a lease option for up to 180 days before that lease option has to die. That’s kind of where the subject to side comes in and allows a little bit longer terms solution for it, but absolutely. That’s the kind of—that’s the kind of deal I buy all day. You know, one of those where they’re just pretty much you know, I say at water. You know, they’re not underwater.

Brandon: Yes.

Grant: They couldn’t sell that without bringing money to the table.

Brandon: Yes. Especially with the work because it needs you know five to ten grand with the work just.

Grant: Yes, yes, absolutely.

Brandon: Paint and stuff.

Grant: With that work and everything being taken in account or being accounted for, you know could you sell that house because here’s another thing, you know, a lot of the owner financed market. When you buy an owner financed house, the price is to going to typically be a little bit more than retail.

Brandon: Yes.

Grant: Most of the investors out there are going to charge maybe ten percent more than what the retail price would be on it because the financing is built in. That’s just kind of where things are. You know, you could just charge the straight retail price. At this case you’re saying it’s about 80 grand, you know, if you took that he owes 60 on and you sold at $80,000, you could collect a ten percent down payment.

Heck, you could probably get $10,000 as a down payment on that and then you’re holding back a note of 70 grand. Now, not only do you accept a $10,000 as your profit up front, but you also have an equity spread in the property between that 60 he owes and the 70 that your buyer owes you. The owner financing interest rates are going to be in between eight and ten percent typically. You’re playing arbitrage on the interest that he’s paying to his bank underneath as well. There’s a lot of profit centers and owner financing that you just don’t get out of some of the other investing strategies.

Brandon: What kind of like—as kind of playing the middle man there you’re collecting $100-$200 a month on cash flow on each property.

Grant: Yes.

Brandon: What kind of responsibility I guess do you have as the person doing that? For example, if the second guy, the guy who bought it doesn’t pay. He gets late or whatever.

Grant: Yes.

Brandon: Do you—I mean do you—are you in charge of working that out or is that between those two people at that point or where do you play into that?

Josh: That is a good question.

Grant: It is a good question and it depends on how you structure your deal because there’s actually a couple of different ways that you can do it. Now, my preference is to go into the deal with a subject to, which means that I am actually going to take title of that property and then I’m going to turn around and then I’m going to sell it. I’m actually standing right in between the transaction. If my end buyer stops paying then the next responsible party is going to be me.

Brandon: Yes.

Grant: I make that decision and I say okay, well I’m going to pay the underlying lien off because here’s the thing, let’s say that I do have a default that occurs, alright on that property. Let’s say it takes me two months to foreclose on that person and get a new buyer in there. I’ve got two months worth of debt servicing, that’s $800 a month so I’m out $1,600 bucks right? If that means I foreclosed on my first buyer, I pay $1,600.

I get to put a new buyer in there for a new 30 year note with another $10,000 down. Well, that’s a $8,500 profit right there in two months off of the same asset that you already made a profit on and now, you know, who knows how long it was before your end buyer defaulted. You may have four years worth of equity that’s been paid off so now instead of owing $60 to the bank now maybe you owe $50 to the bank. Now you’re $70,000 note, all of the sudden has $20,000 equity spread in it.

Brandon: Yes.

Grant: Before the $10,000 that you had before.

Josh: Help me out here on the equity spread because I’m somewhat—I’m pretty much unfamiliar with this until this discussion.

Grant: Okay.

Josh: These wraps and I’m sitting here and thinking, okay, so now you’ve purchased this property subject to from the first guy.

Grant: Right.

Josh: The first guy owes the bank money. Let’s do an easy number so $100,000 is the mortgage, the properties worth say $100,000 right.

Grant: Okay.

Josh: Just keep it simple.

Grant: Sure.

Josh: You got to make these payments to the bank for $100,000. You know $100,000 to pay off. You now own the property itself which is worth $100,000. It’s worth zero cause—I mean you owe $100,000 and I mean.

Grant: Sure.

Josh: Right so you’re at net zero. You’ve now sold the property for say $105,000, okay. You make the $5,000 spread and just to make the numbers—this is going to get really complicated, but I’m trying to simplify it, which is why I am kind of stammering here. Who—as the note gets paid down, who’s actually incurring that pay down. Is that you or this that the new buyer? That’s where I’m—I think this in writing.

Grant: Okay.

Josh: I can see it—hearing it myself, I can’t even get it. Everybody who is listening, who might actually be confused.

Grant: Sure.

Josh:You’re not alone. There’s a lot happening. There’s a lot of moving parts. Where?

Brandon: Josh is always confused. That’s okay.

Josh: Yes, that’s fine, anyways. What are we—where are we? Who’s seeing the gains? Are you seeing? Are you seeing gains on that?

Grant: No, that’s a fantastic question that you’ve got there and I do want to touch on the point that you said that there’s a lot of moving parts on here. Because there absolutely are. I mean the owner financing world, if you notice, I mean even on BiggerPockets, there’s not a lot of people out there that are specializing in this niche because there’s just so many more moving parts than there is for a wholesale property or for even a fix and flip. To answer your question more directly, so you’ve got a $100,000 mortgage that you owe Chase, okay and now, Brandon comes in and he buys the property for $105. He gives a $5,000 down payment. He now has a mortgage for $100,000, okay so we’re completely matched up.

Josh: Yes.

Grant: From what’s owed to the bank and what’s owed to me.

Josh: Yes.

Grant: Right? I’m going to make profits by assuming that that—let’s say that you owe that bank—or you owe Chase $100,000 at six percent. Well, I’m going to charge eight percent to Brandon, okay. There’s where my money is going ot come in. I have no spread in equity.

Josh: Yes.

Grant: I have no spread in equity, but it’s arbitrage. I have more.

Josh: I get that.

Grant: Interest being paid to me, okay.

Josh: Yes.

Grant: As Brandon pays that note off, it will actually be simultaneously paying the bank and my side of things off. I’m not getting any kind of equity differential there because those numbers are going to be going down at the same time. We’ve got basically one mortgage on this to Brandon.

Josh: Got you.

Grant: $100,000 and as that’s being paid off so is the underlying lien.

Josh: Got you.

Grant: I’m just collecting the interest in between.

Josh: Got you. Got you so I mean essentially what’s happening is—the I mean, as I sit and I think about it, the person who’s actually benefiting isn’t you. It isn’t Brandon. It’s me. I’m the guy.

Grant: It’s the seller.

Josh: It’s the seller.

Grant: Yes.

Josh: It’s the guy who sold the property to you because you guys are wiping out my debt to the bank. Got you.

Grant: I say this all the time to sellers because it is a win-win-win scenario so you know, Josh, you needed out.

Josh: Yes.

Grant: We’re going to preserve your credit because your payments are getting made on time.

Josh: Yes.

Grant: From this point on right? You actually have some payments getting made on time. Brandon’s going to get to buy a house that he would have never had the chance to buy the house up before and I get to run a business and make a living.

Josh: Right, yes, it took me a minute to kind of sift through all the moving parts, but yes, no that makes perfect sense.

Grant: Yes.

Josh: That’s pretty obvious so well it’s not obvious. Clearly, it’s not obvious.

Grant: Yes, 20 minutes later, that’s so obvious.

Josh: I’m just the guy who’s not afraid to say I didn’t understand it and now I do.

Grant: Absolutely appreciate that. I’m such a huge proponent of questions. It’s unreal. I love to sit down with sellers because and I think that that’s one of the things that makes us successful as well.

It’s because I encourage the questions. I want a seller to know exactly what they’re getting into whenever they get there. I want the buyer to know exactly what they’re getting into when they get there because otherwise you get this—you know, I don’t—in other words, I don’t want to be the guy that’s perpetuating that investor theme.

You know, people have this idea of what an investor is and they’re trying to snake everything away that they can. Everyone one of my sellers knows exactly where I’m going ot make money. I tell them right up front, “Hey, this is what we’re doing, I’m going to buy it to you for this and I’m going to turn around and sell it for this.”

Josh: Yes, I think that’s great. I mean you know, my shoe always comes into—when folks are leaving things out and you know being somewhat less and forthcoming.

Grant: Right.

Josh: I think in this case, you have to because really, it is complicated and those people who are probably involved in the situation need somebody to hold their hand before they’re willing to dive in so. You know, I think that’s great.

Grant: Right.

Brandon: Hey how are you finding the people to sell? Like what’s your lead model look like?

Grant: Yes so.

Josh: Hey, hold on, can we find how are you finding the properties to buy before we go.

Brandon: Oh wait, isn’t that what I just said? Yes, how are you finding sellers right? Is that what I said?

Josh: Oh, oh how are you finding sellers.

Brandon: Yes, like house sellers, the leads.

Josh: Okay. How are you finding the purchase end versus the wherever you’re getting these houses.

Brandon: Correct, yes how are you finding properties to buy?

Josh: Yes, there you go, alright.

Grant: Yes, exactly so for the way we’ve differentiate that, we say acquisitions and sales, right so.

Brandon: I get it.

Grant: If you’re looking for your seller.

Josh: Exactly.

Grant: That’s acquisition side and then you’re going to turn around and sell it. One of my biggest lead models right now for acquisitions is dealing with wholesalers and other investors out there. Wholesalers are routinely throwing away leads that are perfect subject to transactions all the time because the wholesaler looks at it from the perspective of this house is at 80% and it needs $5 grand in repair. There’s no way anybody is going to buy this from me. They throw it in the trash, you know.

Brandon: Yes.

Grant: Whereas we’re able to turn around and say holy cow, there’s 20% of equity there? Heck yes, give me that deal, you know. We turn around and we make that work and in turn, you know, we pay that wholesaler out and our wholesalers love us because you know like a couple of weeks ago, I closed on a property that was—they got $2,500 for something that they literally pulled out of the trash can.

Josh: Yes, is that a typical fee that you pay the wholesalers.

Grant: I try to get everybody at $500 bucks even on things that I’m upside down on.

Josh: Yes.

Grant: There are going ot be scenarios where like I buy a property. For instance, I closed on one last week and this will just—this is some of the stuff you run into sometimes. I had this house. It was on the market. I had been trying to sell it for an ordinate amount of time—was about two months that I had this thing on the market, which is very abnormal for owner financing.

Finally, got a buyer for it. We were set to close the next week because there’s a—you have to wait seven days. At least in Texas you have to wait seven days from the time you disclose that there’s underlying lien to the time that you’re able to close on the property. Even on top of that due to RESPA, the Real Estate Settlement Procedure Act, you have to wait seven business days from the time you give them their like truth in lending and those kinds of disclosures before you’re able to close. We got our contract on a Thursday. We were set to close the following Friday. Thursday night, somebody broke in a stole all of the cooper.

Brandon: Aw!

Josh: Nice.

Grant: You know, yes, that was just one of those kind of things you run into. The buyer ended up backing out, but I did have a back up offer from one of these gentlemen like I was talking about that was just willing ot do the work. They came in they had a $10,000 down payment. They were actually rearages on this property that I had to pay. This one of those properties where the seller hadn’t made their payments for several months. I actually had a a $10,000 re-instatement fee.

Josh: That was with the bank itself? Yes.

Grant: That was with the bank itself right.

Josh: That seems like a situation where the bank might have been borderline like, “Oh, why the hell are we going to take this money from you. We’re so close to taking this property back.” I’m guessing you probably had to go in to make the argument, hey bank you know do you want to hold on to this property or do you want to start getting payments?

Grant: Well not even because it’s just a simple re-instatement fee. You know it hadn’t gone to the attorney’s office or anything like that.

Josh: Got you.

Grant: We hadn’t gone through foreclosure proceedings.

Josh: Okay.

Grant: It was just a rearages.

Josh: Okay.

Grant: I paid the rearages. I paid the buyer’s agent. You know, which was another three grand. There—right there, I’m down by three grand, but this was brought in to me from somebody. I was sure to pay—they still got $500 bucks on this right. I mean it was a deal that shouldn’t have worked. We made it work. I went under. I’ll make that money back eventually, you know, so that’s okay with me and this was something that they weren’t going to be able to capitalize on. They’re happy to get the $500 bucks out of it.

Brandon: Yes, that makes sense. Alright so you—I think it’s probably a good transition too. What about selling the property then? How are you finding the.

Josh: Disposition.

Brandon: Yes, the—what’s your word you said, it’s the acquisition.

Josh: It’s disposition.

Grant: Oh, no, acquisition and sale.

Josh: Oh, say whatever.

Grant: I was like disposition. What is that? Disposition?

Brandon: Yes, the sale so.

Grant: You’re getting deep now, Josh.

Josh: Now, I’m going to go Google it. Make sure I’m not crazy.

Grant: Sure.

Brandon: Yes, how are you finding the person to sell it to?

Grant: The person, the buyer, you know that’s going to come in and buy this property.

Brandon: Yes.

Grant: That’s going to be somebody that you know, honestly the biggest way of finding those people is A, word of mouth, B the sign in the front yard.

Brandon: Okay.

Josh: By the way, just to clarify, I just want to make sure that we’re all on the same page here. According to Google, disposition is the action of distributing or transferring property or money to someone in particular by bequest; therefore, I was correct.

Grant: I didn’t expect to be so schooled today, thank you.

Josh: No, I wasn’t schooling you. I was schooling, Brandon. He was calling me out.

Brandon: Yes, yes, yes.

Josh: Alright so Grant, I’ve got a follow up here.

Grant: Sure.

Josh: To me this sounds like you’re doing a couple of things. There’s an acquisition strategy, which is the the sub two. There’s a disposition strategy, which is sell the note.

Grant: He’s going to use that word as many of times.

Brandon: He is. I know.

Josh: That’s pretty much what’s happening, yes, yes, yes, but listen. You’re—I mean you’re selling the note. I mean that’s ultimately what you’re doing.

Grant: You’re selling the note to an owner occupant. That’s the big trick there because owner occupant, owner financing there is a ton of compliance issues that you have to abide by when you do owner occupied stuff versus when you’re selling to an investor, when you’re selling to—well an investor of any sort. Whether that be through notes or through like wholesaling. You don’t have to worry about compliance issues that are wonderful, you know, Dodd Frank laws have to put into place.

Brandon: Yes, well, why don’t we get into that because that’s an issue because Dodd Frank is something that confuses me. It confuses a lot of people. What is Dodd Frank? Why should we care about it?

Josh: By the way, I just you know want to point out here that while I was confused previously on the show, Brandon has just explained how confused he is right now and I just you know I just want the 25-50,000 people listening to the show to keep that in mind.

Brandon: For all the score keepers out there.

Josh: Yes, you know because that’s.

Brandon: In my defense, I am searching Google right now. Dodd Frank has how many pages—9,000 pages so.

Josh: You haven’t read them yet.

Brandon: I have not read them yet.

Grant: Come on man.

Brandon: That is a little concerning.

Grant: That’s like my morning coffee.

Brandon: I’m a little confused on page 7,643, paragraph four.

Grant: On the third link or fourth?

Brandon: Tell us about Dodd Frank, what is it?

Grant: Dodd Frank is one of the single most miss informed things out there right now. We have so many people saying so much stuff that they have never read before what’s Dodd Frank, which is really unfortunate.

Josh: Well, how many pages have you read, just.

Grant: I have actually read the entirety of the Dodd Frank act. Along with the entirety of the Safe Act and RESPA and Truth and Lending.

Josh: That puts you at the one percent of the one percent of the one percent—we should protest you right now.

Brandon: I’m pretty sure that’s more than Dodd or Frank have read. I’m positive.

Josh: I’m pretty certain.

Grant: Right, yes.

Brandon: Anyway.

Grant: It’s some good exciting reading there.

Brandon: Yes.

Grant: Yes, the thing is is that there are—there are a lot of caveats that you know and actually, mark this on the calendar because it will be the day that I’m giving our government credit. They have given the small time investor ways to continue to do business and just guidance on how to do it the right way. Okay, so a lot of people saw Dodd Frank come out which is a reform—the section that’s applicable to us is mortgage reform, okay. It is what can happen. Who can you sell a house to and provide a mortgage at that same time, okay. What they were trying to do this was a—I don’t really want to say—a knee jerk reaction, but this was the reaction to the housing the crash.

Josh: It was a knee jerk reaction.

Grant: Yes, thank you.

Josh: I’ll say it and I’ll put an emphasis on jerk.

Grant: Yes, there you go. What they saw is they saw the housing crash occur and they said, “What can we do to make people feel like we did something.” They came out with the Dodd Frank Act and this was Barney Frank and Chris Dodd. They got together and they wanted to put as many guidelines in place so that they’re trying to put buyers into houses that can afford it, which I get. I understand and I’m on board with that. One of the things that many, many investors out there doing this don’t understand is that we are actually considered what is laid as a small creditor, which means that well—I’m assuming that 99.9% of our audience will fall under this—if you don’t you need to contact Josh and talk about lending some money, but this small credit is somebody that.

Josh: Probably somebody else buddy.

Grant: Small creditors is somebody that has less than two billion dollars in assets and did under 500 deals, 500 originated loans the previous calendar year, okay. I’m guessing that’s pretty much everybody listening. A small creditor is allowed to do much, much more than the big boys are, than the Chases, the Bank of Americas. Those kinds of things. One of the common Dodd Frank items that we hear get brought up is people say you can’t put a person into a property with more than 43% debt to income ratio.

Meaning that they owe bills including housing that their debt would be 43% or more of their gross income is. That’s actually inaccurate for a small creditor there is no debt to income ratio cap period. You can put somebody in there at 80%-90% if you wanted to. Would it be ethical?

No, but there’s no laws saying that you can’t. There’s just line item like that over and over again that gives us guidance of who we can and can’t put in there, but at the end of the day, what they’re trying to do is give us a fortress protection in court if we ever got sued by our buyer and that buyer was able to say, “Hey, at the time I went into this house, I was unable to afford it.” Dodd Frank has given us a way to say actually I obeyed everything that Dodd Frank told me to look for so side me with in the court will do so.

Josh: Really quick if—do you guys then ensure that they’re at the 43.5% rule or whatever you said and not go up to 44%.

Grant: I don’t. Not at all. I put people in there that are routinely well above 44% or 43%. Here’s the example I use, you run into somebody. Let’s say—cause I’ve had this. They make $15,000 a month. Can they be at 50% debt to income ratio and still have enough money to live?

Brandon: Yes.

Grant: Heck yes.

Josh: Yes.

Grant: You know, are you telling me that you can’t live off of $7,500 a month for groceries and gas?

Brandon: Yes.

Grant: Right so in that case 50% is absolutely fine. Now, what about the guy that works at Burger King? You know and he makes a thousand dollars a month. Can you put him into a house that costs 50% of that income?

Brandon: Probably not.

Grant: I would say no.

Brandon: Yes.

Grant: I mean absolutely not. I’m not going to put somebody in there that’s going to only have you know, $400 to live on and they’ve got two kids.

Brandon: Yes.

Josh: Yes.

Grant: Percentages matter less than common sense in this scenario.

Josh: Yes and you’re not biased against Burger King workers in general.

Grant: No I love me some whoppers don’t get me wrong. I’m just saying.

Josh: Alright, just clarifying.

Brandon: Alright, so Dodd Frank, I mean, we can dig a little bit deeper on this too, but the main thing from what I’ve learned is like Dodd Frank affects people who are originating mortgages, which is what you’re doing correct?

Grant: Correct.

Brandon: When you’re subject to originating so.

Grant: Not when you’re doing subject to. When you’re doing a wrap.

Brandon: When you’re doing a wrap?

Josh: It’s a sale side.

Grant: It’s the acquisitions side.

Josh: Right.

Grant: Then the wrap would be the sales side.

Brandon: Alright so does that mean that are you licensed then to do that? I mean you have to be a mortgage originator.

Grant: I am. Yes. I am a licensed RMLO, Residential Mortgage Loan Originator and I also have a mortgage brokerage, which we operate those things through.

Brandon: Alright, so if you. Oh.

Josh: Do you have to have that?

Brandon: You go ahead, Josh.

Josh: Okay, we’re so excited, we can’t even figure out who’s talking. My question was do you then—do you have to be licensed to originate these loans or can?

Grant: That’s a good question so due to the Safe Act, it says that if you originate five or more loans in a rolling 12 month period, you must be licensed to originate that loan. The flip side of that is many investors feel like that means that they can’t do more than five deals a year, which is also inaccurate. We actually, you know recommend going to an RMLO, finding an RMLO to originate that for you and that is one of the big reasons I am an RMLO is that I process the loans and originate the loans for the other investors around town that are doing that kind of stuff.

Josh: RMLO stands for?

Grant: Residential Mortgage Loan Originator.

Josh: Let me just.

Brandon: If you would have been listening Josh, you would have heard him say that a second ago.

Josh: I didn’t you know. Listen.

Grant: It’s repetition.

Josh: It takes a little while to dig in here so just you know talk to me like three year old and I’ll get it.

Grant: A lot of information getting out there, but yes that’s—you don’t have to be licensed to be in this business, but you have somebody licensed originating the loan for you in the long run.

Brandon: If you were to buy these with subject to and then rent them out as a landlord and not wrap them.

Grant: Right.

Brandon: You don’t need a license, but if you’re going to do this like you are doing it often, you need one correct?

Grant: Not necessarily because.

Brandon: Unless you had somebody who is.

Grant: Unless you are using an RMLO correct. Yes.

Brandon: Okay.

Grant: Some of my clients do five-six-seven of these a month and they are unlicensed, but I’m the licensed person that is taking care of the licensing issues and compliance issues for them.

Brandon: Okay.

Grant: They didn’t want to read Dodd Frank in its entirety.

Josh: What are they doing? Are they then calling up and trying to just looking up in the book or online RMLOs and basically saying, alright, this is what I—this is the deal. I found this property—I got this property subject to. I want dispose of it and sell it, disposition it and you know can you originate the loan for me. You get your feet presumably and that then.

Grant: No I would do it for free. I’m just a good guy. I’m kidding. I don’t do it for free. I see Josh looking.

Brandon: I was wondering. I was like, wow, you’re going to get a lot of phone calls after this.

Josh: Grant, how’s it going buddy?

Brandon: They pay you to do it.

Grant: Right, exactly, my fee typically comes from the buyer. It’s who’s going to pay, basically all the closing costs are going to be paid for my the buyer. You know, we work very hard in our office to keep as much money in the investors pocket as possible to keep them from having pay for anything in that works on the law firm side as well as on the mortgage side. The closing costs do come from that—from the buyer and the investor just tells me, “Hey , I want to get this loan at 8%. I need a $700 payment a month.” That kind of thing because negotiating the terms must be done by a licensed individual so the investor tells me, I talk to the buyer. We get it all settled out that way.

Josh: What does it take to get licensed? Is it? Is RMLO, is that basically the same as a mortgage license or is it?

Grant: Yes.

Josh: Is it different?

Grant: RMLO is basically the new—acronym for a loan officer, okay. There’s a 23 hour course here in Texas, different states for different ways and then you do have to take a test that goes along with that. They’re you know, in my case there’s both a state and national test so you know, there’s 39 states in the nation that have tagged on to the national test that you know select—for instance I can originate in 38 other states around the nation. Similarly, if anybody's there, they can originate in our state, but yes, it’s a 23 hour class and then lots and lots of reading and studying before taking the test and then you go from there.

Josh: Really quick, the national test allows you to be an originator in 39 other states. It’s interesting, I wonder why that’s acceptable, but you know in the real estate license side, an agent for example, I mean there’s you know state by state. It’s kind of interesting, something I never really thought about, but.

Grant: Well and the reason behind that is if you look at the job that they’re doing, largely real estate laws is a local law, right? Sales, selling, and that kind of thing.

Josh: Of course.

Grant: Well, we’re dealing with Dodd Frank here which is a federal law.

Josh: Yes.

Grant: Most of the compliance issues that you’re going to be dealing with are federalized so that’s why I am able to originate in other states whereas like an agent would have to learn more state specific laws for these other ones.

Josh: That makes sense.

Brandon: Cool.

Josh: Alright. Cool. Alright, go ahead Brandon.

Brandon: Okay, I have a question. This is going back maybe too far. You know we’ve moved past this part of the conversation, but when you’re actually these deals. Are you closing them at a title company or does everyone need to do that or can you just sign a piece of paper with the notary.

Grant: Yes, that’s a good question. Yes, you do need to go through a full closing. You know, typically these kind of closings are going to be done through an attorney’s office rather than a title company; however, you can do title closings. The thing is you actually don’t—usually get title insurance on these sales side of a deal like this. There is already title insurance on the underlying lien that’s to the bank and then you the—obviously, your abstract of title or title run or whatever you do or whatever you choose to do from the time that your seller, the acquisition side has bought the property to this point in time. Couple caveats you are actually unable legally to do a title policy on top of an FHA loan or a VA—anything government related, you cannot do a title policy on the wrap; however, if it’s conventional or there is something else, then on these sales side you would be able to let your buyer purchase a title policy if they so chose.

Josh: Can you still do a wrap on an FHA loans?

Grant: Yes, you can still wrap it. You can still wrap the mortgage.

Josh: Okay.

Grant: Like I said, you know, pretty much all of my buyers do not choose to go with the title policy because the title policy is going to be, you know, upwards of a thousand dollars, $2,000, something like that. Depending on the value of the house and again, the title policy does exist on the underlying lien from when your original seller purchased the property.

Josh: Cool so walk me through this and this something I’ve wanted to ask awhile ago, but we kind of got into Dodd Frank and now that we’ve jumped back, let’s talk about the length of time for transaction. You find your identifier property that you want to acquire.

Grant: Yes.

Josh: Via a subject to how long does that typically take before you’ve closed.

Grant: What I do when I go under contract with all of my buyers is I go under a 60 day option period. I’m sorry, with all of my sellers on the acquisitions side. I go under a 60 day option period that gives me two months to market the property for sale while my seller is still paying the underlying lien. Go ahead.

Josh: Got you. I was going to say, “Okay so now you’ve introduced something else complicated and still makes you an option and so what is that look like and how does that work?

Grant: Okay, well, the first—to go back and answer your question more directly on that last question. It typically takes two or three weeks to get something from start to finish closed.

Josh: Okay. Perfect.

Grant: The option period, that is the method that we use so here’s the thing is I put under—I put a lot of houses under contract, you know every month. We’re doing six and 15 houses a month and when you put a house under contract, if you were to have to close on it right then and start debt servicing right then that gets really expensive. You know, let’s say it doesn’t take two or three weeks. Let’s say it does take two months to sell this property.

Well, there’s two months worth of house payments that I would have had to make, right. Let’s say it doesn’t sell for two months. Do I still want to try and sell that property or not? What we do is we go under an option period, which gives us the right to end the transaction at any point in time within that 60 days and during that point, we have a written agreement that allows us to market the property.

We’re going to put signs in the yard. We’re going to put ads up on Craigslist. We’re going to go to Postlets.com and put ads up there, try to find a buyer for that property. When I find a buyer, that’s the point in time that I go back to my seller and I say, “Hey, Josh, I have now found a buyer. Brandon wants to buy this property from me so let’s close tomorrow.” Josh, you say, “Okay, cool, I’ll be there tomorrow at 11.” Then I call Brandon and I say, “Okay, we’re ready to close and you be here tomorrow at 12.” We just kind of go A to B, B to C.

Josh: Okay and with this option, they’re not just giving it to you for free, right. You’ve got to put some cash down inorder to secure the option. Is that correct?

Grant: Yes, I mean although minimal, you know here in Texas, I mean it’s like a $10 fee that hand.

Josh: You’re literally giving somebody a $10 option fee.

Grant: Yes.

Josh: Tying their property up, getting it under contract for two months at any point in that two months, you can walk, which is pretty much the benefit or the option.

Grant: Yes.

Josh: That $10 is giving you the right to get out there, market it, hopefully find them a buyer. Find a buyer for the deal. You find the buyer. You close with them and itm almost feels like a wholesale.

Grant: Yes, I mean it’s in that way, it’s very similar to it because you put no money into it, but oh my gosh, you look at the up side versus wholesaling and it’s just tremendous.

Josh: Well, you got cash flow right, I mean it’s.

Grant: Well, yes, cash flow on top because here’s the thing. A typical wholesale deal—a typical wholesale deal, you’re going to get what, $5,000 for right around. At least locally, that’s how it is. You know whereas with an owner finance deal, you know, we get $10-$15-$20, sometimes $30,000 down payments right up front. Well that already blows out what you were getting on the wholesale side, but my average cash flow is $350 a month. You know, I’ve got some cash flowing $600, I’ve got some cash flowing a hundred, but I’m doing that for however long is left on the underlying lien. Let’s say that Josh, you only had 15 years left to pay Chase bank right? I’ve sold my house to Brandon for 30 years.

Josh: Yes.

Grant: For 15 years, I’m only going to make $150 to $10.

Josh: Right.

Grant: After that underlying is paid off. You’re entire—or Brandon’s entire payment is going to be my profit.

Josh: Yes, that’s a beautiful thing.

Brandon: That’s cool. We got to kind of start wrapping up this thing, obviously. We’re getting, you know we’re at about an hour mark so what—I want to ask you kind of my last questions. Have long have you been doing this? When did you start this process because you’re doing six to15 deals a month you said, right?

Grant: Yes.

Brandon: I mean, how long did it take you to build up to that point. Where you’re doing literally hundreds of transactions?

Grant: Yes, whenever I bought my duplex that was January of 2012.

Brandon: Oh wow.

Grant: My first subject to transaction was July of 2012 and then it’s kind moved forward since then. You know, it was third quarter of last year that I started bringing on, what we call our acquisitions team. You know where we have other investors that we were training how to do that kind of stuff and then letting you know, having their deals kind of funnel through. We would work together on those. It’s just kind of been growing, growing exponentially from that point. You know, that was really when things started to kick off. Whenever I changed the strategy over from okay, I’m going to send out all these letters. I’m going ot put stamps on and I’m going to try and get this deal to, I’m going to try to work with wholesalers and other investors.

Josh: How big is your team today?

Grant: I have about 20 people of acquisitions team members. Of that, truly active members, I’ve got probably seven or eight that are truly active, bringing consistent deals in. The other ones we’ll get one offs here and there, but you know, we’re a resource for everybody.

Josh: How does that work? You go out and say hey, I’m going to train you investor number B, investor Brandon here to.

Grant: Sure.

Josh: To do this and if you find any opportunities you send them our way and we’ll give you a fee. You don’t have to work, but if you do and you bring stuff in.

Grant: Right.

Josh: Is that?

Grant: Right so yes, what we do is we go under an agreement where it says you know, we will train the full ins and outs of subject two owner financing wraps, all that kind of stuff and even you know, with wholesaling and cash deals and rehabs and all that kind of stuff because we still do that sort of thing, but we go on an agreement that says all of their owner financed deals that they pick up. We go under two year agreement with these guys. All the under over finance deals that they pick up, we’ll funnel through Triple Equity and we will work together and partner up on that. If they get a wholesale deal, they can wholesale to whoever they want or cash deal, you know, whatever.

That is all kind of inconsequential; however, we do typically work. I mean I’ve gotten a lot of cash deals from my acquisitions team because you know because we do have the buying power. We are able to buy these houses with cash and turn around and flip them and so you know, all the better for them to not have to go out and find that buyer’s list that everybody is always looking for. To just know hey, this guy that I’m working with everyday all day already. What would be the one that’s going to buy this property and then we’ll partner up on profits there or we will get them from them as wholesale.

Brandon: Okay cool, cool. Yes, I mean it’s definitely interesting, you know model is to empower other people to go and you know work with you. You’re not just—you’re training them, which is helping them with their future and it obviously helps with your business and it’s.

Grant: Right.

Brandon: That—one of my favorite things about the whole idea of subject to and along with lease options too. That I love that it’s—you can structure them in such a win-win-win-win way, like more than almost in each other’s strategy out there. Every party can benefit if you do it correctly.

Grant: Right.

Brandon: If you know cross you t’s and dot your i’s correctly so I’m definitely a big fan. I mean another thing too is a lot of people might think they might listen to this show and think, you know, well I don’t want to do a hundred houses, you know a year of subject to. I don’t want to be do this fulltime, but the thing I think is important is to pick up on these skills or like tools in a tool box, right. You send out marketing, you do whatever you do to get deals. I mean I throw nine out of ten deals that I get because I’m not a subject to investor. I don’t focus on that area, but I should. At least consider it and I need to do more of that because you know, why am I throwing these deals away when I could actually find a use for them and.

Grant: Well on that realization is exactly why we work with so many wholesalers because the way the we structure it with wholesalers is they literally just shoot us a name and a number. We take it from there and then closing day comes and they get check in the mail.

Brandon: That’s cool.

Grant: You know, for that, those nine out of ten people that you’re throwing away, that’s a pretty sweet way to pay for your marketing budget.

Josh: Yes, that’s great.

Brandon: Yes, that’s awesome. Very cool.

Josh: We all need to find our Grants—Grant Kemps or become the Grant Kemp for our areas and you know fill that gap.

Brandon: There you go.

Josh: That’s great.

Brandon: Well, cool.

Josh: That’s great.

Brandon: Why don’t we move on to our favorite sound effect of this show. The manly sound effect.

Announcer: It’s time for the Fire Round.

Brandon: Fire Round. Alright, the Fire Round, these questions come from the BiggerPockets forums so Grant I know you’re pretty active on there so you’ve probably seen some of these and maybe even jumped into those conversations, but for the you know benefit of everyone listening. Let’s fire them at you. Number one, do you think a college education is beneficial for investing in real estate?

Grant: I would answer that with no. I don’t have a college education. I did not go to college. I’ve taken courses here and there that I felt were applicable for what. You know, I took a Spanish course. Whenever I was working at IT, I took some programming courses, but that’s all I’ve done in college. I think more than a college education is determination and just going out there with a bullheaded viewpoint of, hey I know something that can done. I’m going to get it done.

Josh: Yes, yes, well, under the discussion of education here. What’s the factor that makes the difference in say a good in your case, acquisitions specialist or student of some sort. Somebody that a mentor would want to take under their wing for example, on a bad so you know, you ask these guys who come in and some say, yes, well train me, train me. You say, “Whoa, yes, you don’t have the chops.” What is that?

Grant: What I’m looking for in people is somebody that’s not afraid to go out and just do it, but somebody who’s also not afraid to say I don’t know the answer to that, right? My number one candidate is somebody who will ask the questions, but then isn’t afraid to go act, right? Actually and this would be a good time for that story. I mean, like I said you know third quarter of last year is when I started doing the acquisitions team members.

When it came time for me to scale Triple Equity into a larger—larger operation because of the acquisitions members and you know, I’ve since hired a W2 employee and those kinds of things. I needed to bring on another partner and you know the first place that I looked was, who’s performing in my acquisitions team and so now Ronnie Walker is our third partner in Triple Equity who started out as an acquisitions team member, but he was the guy that, he would call me. He would say, “Hey, man I’ve got this deal. What am I supposed to do with it?” I would walk him through it and then he would go get it done, you know. He wasn’t afraid to talk to the buyer. He wasn’t afraid to keep calling me if I wasn’t able to answer the phone call. He would call back. He would shoot me an email. That’s what you need to do to get this to work.

Brandon: Yes.

Josh: Got you.

Brandon: That’s good.

Josh: Got you. Alright, so if you—well that was my question so I think it’s yours. I got excited and was going to take Brandon’s question.

Brandon: That’s alright. I don’t mind. You know. I share. Alright, if I were to. If you were to give one tip to someone just starting out regarding partnerships. This actually flows really nicely from last one. Regarding partnerships, what would it be somebody looking for a partner. What would be your best tip?

Grant: It would be to know your strengths and use it. Too many people that I see go out there and say and they look in their mind and they say, “Well, in order to be a good investor, I need to have you know, money or I need to have the knowledge. Or I need to have this.” They forget to say, “What do I have and how can I use that to become a good investor.” Most of the people out there and one of the things that Ronnie did is he looked at himself and he said, “What do I have?” He had the ability to follow up with people and stay consistent. He had time. He brought those and leverage them with me and said, “Hey, I’ve got time and I’ll follow up on leads. What can we do together.” Right?

Josh: Sounds great. That’s really good.

Brandon: Yes.

Josh: Can I go now?

Brandon: You can go now. I’m done.

Josh: Okay. Here we go. Alright, so do you have any suggestions for a part time or on the site income sources while you’re first starting out in real estate?

Grant: Yes, I mean, the subject to thing was my side job. That at first—I mean that was what I was doing, it made it to where I had to spend little to no money of my own to get the deal done. I spent a little bit in marketing budget. I used Jerry Puckett who is a user on here.

Josh: Yes.

Grant: For my first marketing deals. He was able to put some great lists together for me and really get things going there. I do recommend talking to him, but set things up. When I was working fulltime, I talked to Jerry, got him to handle the marketing.

I started with an answering service so my phone number routed to an answering service and they would take all of the calls. They created the email. They shot the email to me. I would take my quote on quote cigarette break even though I didn’t smoke. I would go and follow up on some of those calls and get the deal done. Set up an appointment. You know, most of these sellers are going to work nine to five anyway so their appointments are going to have to be after work in the first place. Don’t let the fact that you’re working a job hinder this kind of stuff when you can set up a virtual assistant and you know outsource these things to get it done.

Brandon: Cool.

Josh: Nice, nice.

Brandon: That’s great advice. Great. Yours. Oh it’s mine.

Josh: That was mine, but thank. You know what.

Brandon: You could have taken it so easily Josh.

Josh: Le tme take this one because you know, I mean, you gave me an opportunity and I feel so blessed.

Brandon: Take it.

Josh: Alright, my question is do you ultimately recommend people get their mortgage license, real estate license, or not neither?

Grant: That’s a hard question to answer. It really is because it is such a case by case basis. You really have to look at your scenario and don’t look at the license as the answer. Look the license as a step and say, “Does my ladder go higher if I get this license?” If the answer is yes, then get it. If the answer, is well I get this license and I’ve got to have a license. Then don’t get it, there’s no need for it, okay. In my case—in my scenario, we were churning and and burning a ton of owner financed deals. I’m having to pay out money to another RMLO and I saw market opportunity so I took it. I became licensed and has since stepped things for us and we’ve really grown there, but there was never a need for me to become a real estate agent because I was—I’m not working off of the MLS. I’m not taking any deals down there. I’m not selling any deals down there so it’s not—there was no need for that.

Josh: Alright, maverick.

Brandon: Good.

Josh: Good so you’re going to churn and burn? Churn and burn, baby! Wasn’t that a Top Gun reference?

Brandon: I’ve no idea what you’re talking about. Last question of the Fire Round, can do it.

Josh: Do you not know Top Gun, the movie?

Brandon: I have not watched Top Gun the movie.

Grant: Oh, I just thought you didn’t know it.

Brandon: No, I just—well that too. I don’t—I’ve never watched Top Gun. It’s on my list of movies to watch, you know.

Josh: There you go.

Brandon: I’ll get there, alright, do you have a suggested software to help organize your real estate business?

Grant: Absolutely, Podio. Podio.com is excellent.

Brandon: Really.

Grant: If you guys have not looked at using something of that sort, you should. It’s an excellent way to stay organized. Some of their views that you’re able to use there are fantastic. You can hook up with you know—we hook up with a lot of wholesalers that have Podio and they’re just able to send us leads directly out of there so we’ve already got pictures, we’ve already got everything. They just say, hey, share with this with Grant and everything pops over to us so.

Josh: Fascinating. No, that’s great. We’ve tested Podio.

Grant: Podio, sorry.

Josh: As I would call it, but that’s alright.

Grant: The gentleman with his pinkie out over here correcting me.

Josh: Been testing Podio lately. It’s going well.

Grant: Testing me, “Oh yes, I’ll test that Podio thing.”

Grant: Yes, that’s the redneck thing man so yes, listen, I just lost half of my audience.

Brandon: Yes.

Josh: Oh no, I’ve tested it. I think it’s alright. We haven’t fully figured out how to best use it for our needs, but I think that UI is pretty good.

Grant: Sure.

Josh: I’m—I encourage people to check it out as well.

Grant: Absolutely and for a free software too.

Josh: Oh yes.

Grant: That’s the other thing. Because I’m cheap and I like free softwares and when they can offer me a benefit for being no money. That’s a good day.

Josh: Them cheap softwares is real good for my business.

Grant: Yeehaw.

Josh: Awesome man, well Grant, so we really thank you. Lots of good topics, but before we move on, before we get out of here. Let’s get to The Famous Four here and with that.

Announcer: Famous Four.

Josh: Alright, so Famous Four, these are the questions we ask everybody and hopefully you’ve prepared a adequate answer. First question.

Grant: I’m being graded over here.

Josh: Our first.

Grant: B minus.

Josh: First group depends on your choices. First question is what is you favorite real estate book?

Grant: You know, I’m such a non-reader. I actually don’t. I think the only two books and I say this literally, the only two books that I’ve probably ever read including school would be Rich Dad, Poor Dad and the Bible. Those are probably the only two books I’ve ever gotten to read.

Josh: There you go.

Grant: Rich Dad, Poor Dad was great. I also actually really liked The Millionaire Next Door. I got you know, interested.

Grant: You halfway read it?

Grant: I halfway read it, but I really like some of the principles behind it. I’m a nerd on studies. I like seeing studies and actual numbers go by and things. That was really interesting to see.

Brandon: You’re saying, Dodd Frank wasn’t your favorite book of all time.

Grant: That was not my favorite book of all time.

Brandon: If you could call it a book. That is what you call it—Encyclopedia. Bill.

Grant: Right.

Brandon: Alright cool, well I guess then that kind of overlaps with our second question, but do you have a favorite business book?

Grant: Yes, again, I just—I’m not a big—you know and here’s the thing, it’s not that I hate reading. I’m just—I’m not a big book reader. I learn through things like BiggerPockets.

Josh: There we go.

Grant: I learn through things like you know, Reddit.com has a real estate sub-Reddit in there, which is not largely for friendly to investors, but it’s still there and they’re still you know, information to be had so I’m one those that I go out and I pick up bits and pieces, here and there. That’s really where it comes from and I ask questions, questions to the people that know what they’re doing so. I can’t answer a favorite business book, but I’ll say BiggerPockets for you. How about that?

Brandon: There you go.

Josh: That’s a good book.

Brandon: The best business book right there.

Josh: Very good book. It might have to be alright so what about hobbies, what do you do for fun while you’re not doing 7,000 deals a year and.

Grant: Oh my gosh, yes, on what time right? It’s—you know I play guitar—I play guitar for my church and do that on the weekends.

Brandon: Me too.

Grant: I really enjoy that.

Josh: Oh boy!

Brandon: Look at us!

Josh: You guys can do the BiggerPockets church band.

Grant: Yes, let’s get the kumbaya going here.

Brandon: There we go. Alright, moving on. What else do you do?

Grant: No I.

Josh: I don’t have the talents that you two guys do to play an instrument.

Brandon: Apparently not.

Grant: You should try hard.

Josh: Oh my goodness. This has devolved seriously.

Grant: I’m kidding, I’m kidding. No, you know I like doing that. You know we have a group of our friends over every week. It’s really hard—I said it half jokingly. It is really hard to find time. I mean this is a 12 to 14 hour day, six to seven days a week business. I’m not that guy that sometimes comes on and says, “Hey, I’m on here for financial freedom and I get to sit on the beach all day and just make money.” That’s not how this works for me. You know, we—I do work 12 plus hours a day so you know, we kind of plan and every week, we have friends over and we—during Game of Thrones Seasons.

Brandon: Yes.

Grant: We’ll watch the Game of Thrones night, cook a big meal and just kind of hang out there and.

Josh: What’s Game of Thrones?

Brandon: Oh come on.

Grant: It’s a cartoon.

Josh: Oh cool. Maybe I’ll get to see it someday.

Brandon: Yes, maybe someday.

Grant: I’ll tell you this much. Just fall in love with every character you ever meet.

Brandon: Yes. Good advice.

Josh: I’ve fallen in love with the two that I’m on the air with right now. You characters you.

Brandon: Thank you. Alright, final question. Who is your favorite Game of Thrones character?

Grant: Oh gosh.

Josh: Seriously, that is not the final question, Brandon.

Brandon: Okay, final question. What do you think is the thing that sets apart successful investors from those who give up and fail?

Grant: Stupidity, forgetfulness. Being able to forget your failures. You know, that’s one of the things that I don’t believe in failures I believe in learning experiences right.

Josh: Yes.

Grant: I think a lot of people get wrapped up and if something doesn’t go the way that they expect it, then it’s a failure and they’re done with it and they don’t want to do that again. I think the successful investors that I’ve ever known are the ones who can just move on with it and who are bullheaded and get out there and actually act versus just getting that learning loop and be afraid of—being afraid of actually succeeding. You know, just kind of that ability to act when it’s time to act and learn when it’s time to learn and just forget what’s gone wrong and only focus on what’s going right and move forward. Well, don’t forget, learn from the experience I should say.

Josh: Yes.

Brandon: I got you.

Josh: Let me forget and do it again.

Grant: Yes.

Josh: Yes, nice. Alright man, well listen. It’s been a real pleasure. Where can people find out more information about you?

Grant: You can to my website, either TexasPrideLending.com or TripeEquity.net and you can always email us at [email protected] and that’ll ensure that we can get back with you on anything that you’ve got questions about.

Josh: Prepare for the onslaught.

Grant: I’m ready.

Josh: There you go and also presumably you’ve got a profile all over the net at BiggerPockets.

Grant: Obviously, I should mention that, BiggerPockets is a great way to get a hold of me too. You can message me on there as well. We can go back and forth there.

Josh: Alright cool and otherwise just for those listening, Grant, I’m going to ask a question, you are not an attorney is that correct?

Grant: I am not an attorney. That is correct.

Josh: Alright so Grant is not giving out legal advice in this show and I am certainly not giving out legal advice nor is Brandon so we definitely encourage you to.

Brandon: I can give fashion tips though.

Josh: Yes.

Grant: No you can’t.

Josh: It’s probably a bad idea.

Grant: I can tell you that now.

Josh: Taking fashion tips from Brandon, but I mean I—because we do cover some heavy topics here that you know none of us pretend to be lawyers and I definitely encourage any time there’s anything that you’re curious about, particularly in real estate to have a good real estate attorney on your team and pass everything—everything pass them so don’t you know, don’t just assume that the information you’re getting anywhere is correct. Always pass it to your attorney because that’s going to be your CYA.

Grant: I can’t agree with that more. That’s actually why my first partner was a real estate attorney so. That you got to consult with an attorney that knows what’s going on in that topic.

Josh: Yes.

Grant: That’s smart.

Josh: Grant, listen, thanks so much. We appreciate it and for anybody listening, you can check out the show notes on this episode at BiggerPockets.com/Show70. Otherwise, you know, jump in, get involved in BiggerPockets. Join us, participate, engage, read up, and you know, just do some learning, do some networking and build your business. That’s what we’re here for. Otherwise of course, we’ll see you out on the other social nets, the Facebook's and Twitters and G+s. Interact and join us there and until next show, we’ll see you. I’m Josh Dorkin. Signing off.

You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.

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Josh: Yes, there you go.

Brandon: I’ll get there. Alright, do you have a suggest—let me try this one more time. Yes, alright. Do you have a suggested software to help organize your real estate.