All Forum Posts by: Eric N.

 1. I think it's worse than that. There are hefty fines and penalties for violating Dodd Frank, on top of making whole the buyer. And many state AG's are looking for low hanging fruits like this. What else are they going to do when they are politically appointed and can't pursue and lock up violent criminals wrecking havoc in communities or pursue big multinational corporations who have judges and lawmakers in their pockets?

2. Yes, you are 100% correct. But Scott's model does not target business investors exclusively, they (he and his students) sell ton of properties to owner occupants. How are they doing this and don't break the law?

How is this guy doing it? He can't be breaking all the laws and rules and posting it on Youtube, can he? I certainly don't want to advocate for what he is doing. I haven't done this myself, so I have no stake in it or any motivation to defend someone's business strategy. But really, how is this done by Scott, for years, over and over again, and he is still in business? Is he a confidential FBI informant who is allowed to break all the laws with impunity, in exchange for the "service" to feds? I personally doubt he is. So, question is: how is he doing it? He must be doing things legally or he would be in jail or out of business by now. 

Youtube Link: Scott J

 Selling property bought for $40K to end buyer for $80K is not shocking to me. There are not too many people who can pay 40K cash to buy a house. Banks won't usually touch it even if buyer is qualified to purchase, banks don't like to finance small purchases, most have minimum amount they will finance (around 100K or higher). Once you buy it you can sell it for any amount you ask, you own it, it's yours now. And if end buyer can't get a qualified loan anywhere, but will get owner financed purchase from you for 80K then there is no mystery there. 

Defaults are handled by keeping a Deed. You don't transfer the Deed, you write a contract whereby they will get a Deed once they pay off the loan. If they default, you keep deposit and anything they have paid prior to default and simply evict them. They have no Deed, so there is no foreclosure, just eviction for breach of contract and non-payment of dues. You evict them and sell the property to the next end buyer. 

The only question is how to make numbers work. I am sure there are people who did it, even on this forum I saw posts by multiple users who claimed that they were successful doing this method. They just didn't disclose how. And that's what I am trying to get at. 

P.S. I missed one particular detail from what Scott was discussing. When he sells he doesn't finance 100% of the purchase. He collects cash down payment and finances the rest. That's how he gets positive cash flow. If we use example above (bought the house for $40K and sold for $80K, roughly this is how it would work (excluding closing costs, paid in cash):

Purchase price of property: $40,000
PML to purchase the property: $50,000 at 6% APR
Difference ($10,000) deposited to his account.
Property sold for $80,000. 
$10,000 cash deposit collected from buyer.
$70,000 financed as a 30 yr mortgage with 7% interest.

Monthly payment to repay $50K PML in 5 years: $966.64
Monthly payments collected on 30 yr loan of $70K @7%: $465.71
$20,000 in the bank account after transaction closed. 

I am still not sure how he gets positive cash flow while repaying 5 year loan back, unless he charges buyer in excess of 17% for 30 yr fixed loan and pays very low interest to PML lender. But these are the numbers I came up with when looking at 40K to 80K scenario. Perhaps he runs negative cash flow while repaying the purchase loan or there is something I missed so my math didn't add up properly. 

I personally know people, investors that I have direct relationship with, who are not selling me anything. We just get together and talk, share our knowledge, ideas, what we do and how we do it and etc. Among them are people who live off their rental portfolios. One guy actually still works his full time job, not for money but because he likes what he is doing. Otherwise, his rental portfolio is sufficient to sustain him. And if he sold off all his properties I think he could comfortably retire, not needing to work a day in his life. Did they build their portfolios overnight? of course not, it took them years. But they did it. They are not gurus, they don't charge me to tell me what they do, and the ownership of properties is easily verified by county records. So, these guys are not selling a pipe dream, I know that they did it with their own limited resources. And I am not one of those guys, I don't bank on building a portfolio and stream of slow income (btw, I also wouldn't call it passive income unless your cash flow is such that you can hire a full time property manager on fixed salary to take care of everything for you), that route is not for me to take. At least not at this moment. I would consider it at some later stage, when I had to invest on long term income generating assets for tax deductions. What is essential to me is to understand one piece of transaction I discussed in OP. Scott doesn't buy Sub2 to sell Sub2. He pays cash or raises private money (5 year fixed term loan) to purchase the property. He then sells it to end buyer under his terms, with 30 year amortized mortgage. Because he doubles the price (ex. buys for $40K and sells for $80K to end buyer), he gets a positive cash flow for the next 5 years, while repaying a loan from investor which he uses to purchase the property for $40K. Positive cash flow occurs as a difference in payment between 30 yr mortgage for $80K owner financed sale and fixed 5 year payment on a $40K loan he takes to purchase the house. 5 years down the road he still has a Note and 25 years to collect the mortgage while he owns the property free and clear. This far the mechanics of what he is doing are clear to me. The only piece I try to figure is how he does it legally, without violating Dodd Frank and Safe Acts. I think what Dan mentioned above makes sense. Scott probably hires loan servicers to collect the payments and RMLO to originate the loan. And, if tax returns alone don't qualify the loan, he looks at the banking statements which show the buyer making X dollars per year and capable to paying for the loan. Once you put qualified loan in place, with RMLO , loan servicer and attorney involved, with buyer paying for those services at closing, you should be in the clear. It makes more sense to me now. I am sure I still miss a lot of details, but I now have better understanding of what they are doing and how they are doing it.

 Thank you again, Dan!

I am currently thinking of trying it in Florida, North Carolina, Tennessee, Georgia and Pennsylvania. 

 You should look him up, he talks about owning hundreds of cash flowing notes/properties. And, if you were able to generate $500/mo cash flow as Scott suggests, his method would not replace your income: if you could do only 3 properties a year that would net $1500/mo cash flow and it would take you 10 years to scale it to $15000/mo. His whole selling point is teaching people how to generate enough passive income to quit their jobs. While I don't want to focus on doing this as my main source of income (I still mainly want to do fix & flips and contract assignments), I wouldn't mind trying it, just to see if it's something that could work for me. 

Hundreds of people may violate the law here and there, but one person can't violate it for years with impunity, running webinars and recruiting students. We know millions of people violate the laws and some 2 million folks are imprisoned at any given time, but we don't see someone well known and prominent nationwide, who runs Youtube shows for years, recruiting students, teaching and showing them how to break into and rob a house when owners are away. Such person would be indicted and arrested even in LA, California under Gov Newsom. So, I am sure there must be a way to do this legally as Scott does. I just don't want to commit and sign up for his classes before I try it and see it as a good fit for me. 

 There is a guy named Scott Jelinek who does it. He runs webinars. There are infinite number of attorneys hungry to sue anyone on behalf of disgruntled consumers and there are hundreds of DA's who look for low hanging fruits and easy to prosecute cases. I find it hard to believe that this guy is grossly violating DF and still gets away with it, while running nationwide webinars and adding students to his team. Are you sure his method is to defy and violate DF? 

 Thank you, Dan, for taking your time to provide this very informative response!

I have the following, narrowed down questions, which I hope you can reply to:

1. I understand that I will have to hire loan servicer. Would any loan servicer do, or should I search for a particular group of local or nationwide servicers who can assist me (a small business owner financing purchases versus a big bank)?

2. Assuming I will be doing more than 3 closures per year, should I just go ahead and hire a licensed/bonded loan officer to do my loan originations as RMLO?

3. Do I have to have an underwriter to estimate property value before drafting a loan contract? If I acquire property for $50K and seller finance/sell it for $70K (higher than appraised value), could I get into trouble?

4. Lastly, but not least importantly, how do you comply with requirement to write qualified loans when you are selling homes to one particular category of buyers who don't have credit history or have poor credit history? There are buyers who have cash and stable income, but don't have good credit. For example, some small business owners/contractors write off a lot of their gross on income taxes, so they can't get traditional mortgage. They don't have qualifying income "on paper". And they don't use credit, but have cash to down pay for property purchase and able to pay off the loan. If you looked at their financial documents as underwriter of qualified loan they would never qualify for a mortgage in post Dodd Frank world. And there are investors who serve that particular niche (and others in similar situations), that you can't qualify for a traditional loan. They all look bad on paper. How do sellers/investors sell and finance purchases to that particular group of buyers and not get in trouble with Dodd Frank/Safe Act? Realistically, those are the only people I could sell the housing for profit. Anyone able to go to local bank and get qualified mortgage wouldn't need me to buy their next property. 

P. S. I am not one of fearful and paralyzed folks, I am not afraid of government regulations and laws to the extent that would trap me into a rabbit hole, scared to peek my head out. If anything, I think gov exists to serve me, not to own or intimidate me. I pay taxes and they are my servants (not vice versa).  That being said, I think it's just a common sense to avoid pitfalls to the extend possible and not give anyone, especially unscrupulous, unethical buyers and some overzealous gov attorneys a pretext to fine me into bankruptcy and portray to public as a "bad guy" (so they can avoid going after real bad, big guys that lobby and hire them for their own nefarious purposes). If I do this I want to make sure I am not setting myself up for a certain failure.