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In this case study interview episode, Jeff sits down with Steven, who recently closed on the purchase of a great off-market duplex with incredible Seller Financing terms! Steven tells the story of how the lead was generated, how the negotiations went and ultimately how the final deal came together. Steven is a client of The DEALS Workshop, a group coaching program that mentors rental real estate investors through every step of the process of finding, negotiating and closing on an off-market rental property with Seller Financing. Learn more about The DEALS Workshop at http://www.thedealsworkshop.com
Episode Transcript
We talk a lot about ideas on this podcast: strategies, philosophies, approaches, and the details of those approaches. But there’s nothing better than when we get to see real life case study scenarios, where these ideas and strategies philosophies are put into action. And in today’s episode, I’m so pleased to share with you the recording of an interview I recently conducted with a client from The DEALS Workshop who just bought a great duplex off market with supercharged seller financing. Can’t wait to share this interview with you. Let’s cue up the theme song and we’ll jump right in.
Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs are just looking for “motivated sellers” to make lowball offers to. You see, we are people-oriented deal makers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.
Hey, thanks for joining me for another episode of Racking Up Rentals. Show Notes for this episode can be found at thoughtfulre.com/e182. Please do us and yourself a big favor by hitting that subscribe or follow button, maybe it looks like a plus sign in your podcast app; it really helps fellow thoughtful real estate entrepreneurs to find the show and, of course, make sure that you do not miss any episodes, either. Onward with today’s episode.
As I mentioned in the intro, I’m really, really pleased to share with you today the recording of an interview I recently conducted with Steven, who is a client of mine from The DEALS Workshop. And Steven has been working hard applying everything he’s learned in The DEALS Workshop, and he recently closed on a great duplex acquisition with not only seller financing, but supercharged seller financing. I recently sat down with Steve and I asked him some questions, and he told me the whole story of how it all came together. I thought you would enjoy and get value out of hearing this, too. So without further ado, let me share with you my interview of this real life deal case study with Steven.
Jeff:
Steven, thanks for sitting down with me to talk about this deal. You just got done. And congratulations.
Steven:
Thank you. Yeah, absolutely. Yeah, I’m pretty excited about it.
Jeff:
I bet; I’m excited about it for you too. And you know, maybe even one of the details first and talk about one of the broader things before we even get into the details is just sort of the journey of this whole thing, right? So when I first met you, you had a full time job. And you were doing real estate investing on the side. And then you had a big transition. And you were in The DEALS Workshop and you have been for a long time, but you were focusing on other things. So we hadn’t even spoken necessarily for a while. And up pops this opportunity that was sort of a result from your previous marketing and all that. So I guess I just wanted to first say like, congrats on your transition. And I’d love to hear just a little bit about that because I think it’s just one of the things people need to understand – is what is the whole journey? Like, it’s not always just like, oh, I started this today, this the next day happens there. It’s not always perfectly linear. So can you tell us a little bit about that first?
Steven:
Yeah, absolutely. No, and I’m happy we can kind of cover that because you are actually a big part of my shift from my full time job to what I’m doing now. But I mean, that goal kind of started years earlier. You know, when I was in college, and even before I kind of knew that I didn’t want to have a full time job till I was 65. And, and so you know, real estate was very appealing for that reason; kind of learned about it in high school college and started formulating, you know, that that’s something I wanted to do to have passive income. And after I graduated from college, I had a great full time job, corporate position at Walmart home office, and that’s what brought us to this area northwest Arkansas. And while I was there with that great W2 income, you know, all the perks they talk about, it’s like I was able to just start getting some rentals.
So about four years ago, we bought our first duplex that we lived in and then rented out the other half, and that was kind of the first chance that we had to practice house hacking and being a landlord. Then we fixed that up and I was like I want to buy my next one but I don’t know how. I learned about you know, lines of credit and different things and then we were able to buy two 4-plexes that we renovated and so there were some traction, definitely picking up there. And then we bought some more property. And you know, this was over the course of four years at Walmart. And I got to that point of saying, you know, like, I’m so busy with my real estate endeavors. And while I was at Walmart, for the last year, I had my real estate license and really got some traction there, kind of got to that point of saying, you know, I’ve kind of wanted to make this transition. And now like, maybe this is the time to do it, but at the same time having that fear of leaving whatever one may be suggested I do, right, or leaving the comfort of a W2 job. So at that time, Jeff, I’m sure you remember, I kind of reached out to you. I was like, man, what do I do? I think we had a great discussion. And ultimately, I decided to leave Walmart and now I have my real estate license and do that full time. And as well, as you know, focus on picking up some rental property.
Jeff:
Yeah, that’s awesome. I think what you’re describing there is sort of the Holy Grail that a lot of people have, they want to make that transition to full time and, and they want it to be as smooth as possible, right. And you’re a guy with a family and everything, so that’s a lot to be commended. So let’s talk about this deal. So as I recall, from what you were telling me before, this is a lead that like you’d marketed to quite a while ago, and then it popped up five, six months ago. And then you finally closed really recently, which I think is very common for our approach. But tell us the story of how you met this seller.
Steven:
Yeah, so I was sending out some direct mail back in September, and I had taken what I was learning from your workshop with the DEALS program of that style of direct mail. And I had also, now that I’m a realtor, I also had included in there that I’m an agent. And the way I was trying to do this was kind of a multi-faceted approach.
So as a realtor, I specialize in 1% listings instead of 3%, which has really just opened that net of people that kind of like, you know, were considering for sale by owner or had an expired listing that didn’t sell or they had a bad experience with their last realtor, or just people that want to save money. So in my letters, I kind of tailored it to, Yes, I’m sending you this letter because I’m interested in buying it, but also, if you decide that you don’t want to sell to me or you prefer to list on the market, then I have this way that you can save a lot of money.
And that’s kind of what I’ve been doing for the last few months, with some success, but with this particular seller, it’s really interesting, because I sent him the letter in September, and he didn’t reach out to me until the middle of October, and we had a great conversation. He mentioned that he’s really busy, but he’d send me over some photos of the property and he wouldn’t be able to meet there. But he wanted to send me some photos and also some more information about it. So he sent that to me and then in his email he basically said this is the sales price that I’m interested in, which was a massive range like $260,000 to $310,000 based on comps that he had seen. And then later on in the email, he said that he talked to a realtor that said that they would be able to list it for $310,000. And, you know, he said if there’s no commissions involved, I would do less than that. And then he provided some comps that definitely were like, not similar to his really, so the email kind of fell all over the place.
But one thing in the email that did really stand out was he said, I’d be interested or I’d be open to the idea of seller financing. And so we just really started to have a back and forth email kind of approach because he was out of the country a lot. And what I found is he would email me and then I’d respond and he wouldn’t get back to me for like a week, right? Or we talk on the phone and it would take like two weeks for him to get back to me. So I kind of felt this like, you know, clearly this guy is interested in selling his property and maybe to me, but I didn’t feel like there’s this mad rush for him to be able to sell it.
And so we had some just back and forth conversation about well if you know, you know he has these different options in front of him. And if you were to sell on seller financing, we discussed what that might look like and I think it was probably the beginning of November that we had talked about it might be a sale price of $270,000 with a down payment of $20,000. But that would be basically $10,000 cash, and then a commitment to do $10,000 worth of renovations within six months, with a 5% interest rate, and a 10 year term. And we talked about that, and it probably took him a good two weeks to really get back to me on it. And I’d followed up with him, and he’s like, just, I haven’t had time to look at it, you know, but I will.
And so he got back to me, and I think at that point, he kind of he wanted a higher interest rate, like 6%. And I tried to be like, I don’t know; our rapport was really kind of friendly and I felt like I could just be honest, so we could talk through that, almost like we were working on this problem together. At that point I mentioned hey, that does increase my payment by over $200 a month. Maybe what we could try to do, and I mentioned as an investor, I do like to have a little bit of cushion each month for my cash flow. And he understood and so we talked to maybe we could do a slightly higher interest rate, or sorry, a slightly lower interest rate. And maybe adjust the purchase price a little bit, or No, I think I recommended, let’s go up to that interest rate, but lower the price, right. And when he talked about that, and he was like, Okay, that sounds good, we can we can move forward on that. And really, like, there’s a long period of time where we didn’t even, like have any communication, because he was in Africa for like, over a month. But when he got back, like we kind of just continued from there, and that was in December.
But it was just really a slow burn kind of process, almost like to the point of, if I sent him an email, I almost didn’t even expect a response for a solid week, right or longer. And it was like, that didn’t scare me, really, because that’s kind of the comfort that in that, that was kind of the process that we had almost established. Anyway, so we kind of went back and forth on things. And then right around December, like the end of December, I could tell he was like really gearing up for that. And he had mentioned, you know, for a sale and he had mentioned like, he wanted to wait till the till the first of the year anyways. And for me, that wasn’t a big deal.
So right after the new year, we ended up meeting out at the property finally in person. And, and the rapport at that point was really good. Like, it felt like we had been talking for a while because we had right. And, in our conversations I had mentioned wanting to make sure one of the tenants specifically was taken care of, an older lady that’s widowed and kind of sometimes struggling a little bit. And my intentions were to keep her as a tenant anyways. But I think in that process of meeting him at the property and meeting her specifically because I met the other tenants, but I feel like there was something about meeting her and having good rapport and conversation that made him feel like I could almost be trusted even more in terms of taking care of her as a tenant. And I think that went a long way in moving forward smoothly. Do you have any questions? I feel like I’m just talking, talking, talking on the story. But if you want to slow down a little bit…
Jeff:
No, that was great. So I one question I had is it sounds like, if I understand correctly, he brought up seller financing first. Is that true?
Steven:
Yes.
Jeff:
So that’s cool. I don’t know exactly what percentage, but maybe one out of 10 kind of a shape of a scenario. So once you started to get to know him and whatnot, did you get some insight quickly as to why he would bring that up proactively? Like what was in it for him? And why was he being forthcoming about that? Or was he kind of hiding the cards from you?
Steven:
That’s a great question. No, I think he was he was, it was pretty apparent after probably maybe two weeks of talking and again, like, like, send an email, don’t hear back for a week anyways. Right. So in the first little bit of time that we were chatting, he had mentioned that he was going to a tax convention and that’s why he was going to be out of town for a few days. So that was definitely like, all right, who in their right mind is really spending time at tax conventions. Right. And then later on, he had said, you know, I’ll get back to you whenever I’ll be at a 1031 exchange course. Right? So I mean, it was just those little things that I don’t even, you know, it’s like, he didn’t have to say that he could have just said, Hey, I’m busy. But maybe he wanted me to know, in some way that like, that was important. But it certainly it was like, you know, clearly, this is someone that has owned a property for a long time, and they’re ready to sell it. And taxes is an important thing to them. Come to find out later on, he actually volunteers and helps people with their taxes as like a hobby volunteer type service. So yeah, I mean, you know, I’m sure it’s something that he had considered for a very long time. And it was kind of just, I mean, it was really lucky in that sense for me, because a lot of times I know, it’s not as clear as day, especially in the first interaction. But for this situation, he was pretty open about that.
Jeff:
Awesome. So I know, eventually, when you finish your negotiations, and you got your deal closed, you negotiated the supercharged seller financing elements, which first of all, I just want to just pause and commend you for that. But it’s been my observation as a coach sometimes that people feel like, okay, seller financing is a little bit hard to get, supercharge is another and my perception back to them is always like, if you can negotiate seller financing, I think three times out of four, you’ll also be able to upgrade it to supercharged I mean, because if you’re going to end the flow of that conversation, so it’s not as intimidating as it needs to be. So I’m so glad that you did that. This is a guy who is, as you just described, pretty well informed about tax topics, right? And, yeah, capital gains deferral is a big driver for people who tend to do supercharged seller financing with us. So can you tell us a little bit about like the experience of getting those terms negotiated into your deal in your promissory note?
Steven:
Yeah, you know, I think that back when I was starting in The DEALS Workshop, I had a lot of pressure on myself about how do I explain this to someone, or, you know, like, just wanting it to be a comfortable conversation. So I was a little bit aware of that going into this. In my experience, what I found is, when we had already started to talk about what this deal structure might look like, at one point, this was probably in December that we were just going back and forth, and whatever. And I basically sent him over the addendum of what this would look like for him to review, and so we could talk about it. And I just had those clauses in there from the get go. Right. And because I kind of knew that he was, clearly it was important for him that it would be beneficial for tax purposes. I just felt comfortable, including those from the get go. And he read over everything. And he had some questions about the terms of our deal. And we talked a little bit about that. And then he kind of he asked me about this, the supercharged clauses, and it felt more natural at that point to just explain, like this is to help both of us, because you put all this time into planning out this sale for tax purposes to have those benefits. So this kind of allows me to not just go sell your property next month and have all those plans kind of thrown out the window. And so he had some questions about it. But because I knew that was the driver for him in the first place, I wasn’t too concerned about pushback on it. And once I explained it, and I think I explained it better than I just did now, but he was like, okay, cool. And then in a later email, when we were going over kind of finalizing everything, he had sent me over like, let me make sure I understand this. And he included in there his understanding of those terms, too. I think trying to frame it in not just trying to frame it in that way, but helping him see how it was the best thing for him was probably what kind of helped him understand that and agree to it.
Jeff:
Yeah, absolutely. Great job, great job on that. And I think when you explain it the way you did, sometimes it’s not only can you get the seller to say yes, they actually say thank you, because it’s like God, you were looking out for me, you know; I don’t want to actually get paid off nine months from now, that would be bad for me. And so here’s a way that we can handle that. So that’s very, very cool.
So one thing I want to ask you about is the 5 year or 10 year term. So as I understand you’ve kind of originally had the shorter term, but you were wanting the longer term and he was a little resistant. And then you sort of employed some of the strategies of what we call incremental negotiation, through due diligence process to then renegotiate that particular term. Can you tell us a little bit about how that played out and how it worked?
Steven:
Yeah, well, initially, we had talked about a 10 year term, but later on through the process, he kind of changed his mind. And I think I tried to push back at that time, but he was like, No, I’ve just decided, like, you know, I was open to that. But now I really just want it want it to be a five year term. So by the time that we got to be under contract, we went from being initially talking about $270,000 purchase price, and we ended up at $235,000 with a slightly lower down payment. And at that point, he was kind of stuck on that five year term, not stuck on it, like we talked a lot about it, but just like, hey, I want to keep it that way. And that was kind of the only part of the deal I didn’t feel so excited about. So during and after the inspection period, I kind of knew that’s the only thing I wanted to change, but I didn’t know the best way to go about it. And so I made a post in The DEALS Workshop group and talked to you a little bit. And what you sent over was super helpful.
I kind of explained what it looks like, just basically going through and putting together those things that we didn’t expect to find out, that had an extra cost. And then trying to frame it in a way that that still appeals to what he’s trying to get out of the out of the deal, but also helps me get kind of more of what I what I want as well. And so, you know, I knew, based on our previous conversations, that he wanted his monthly payment, however we structured it, I knew he wanted it to be around $1,100 a month. And, and so I basically said, Hey, like, these are things we didn’t know about, these were the costs associated with them. But I know it’s really important that you are getting your $1,100 a month. So let’s not even worry about interest rate, or, you know, let’s not negotiate, well, we’ve already kind of decided on, if we could just make this one tweak from five to 10 years, then then I think that would be good with me. Right? And, you know, his email back and his response took a while because he was out of town again, and everything and I was kind of on the edge of my seat, you know, like, what’s he going to say?
And I think it was like the day before or the day our inspection period was coming to an end, he had messaged me; he’s like, you know, here’s a list of things I know that inspectors often find things that maybe are make a bigger deal out of them than what they are. And he had a little bit of, of beef with maybe the inspectors findings and stuff. But he was like, I think that’s totally fine. If I pass away before then, my trust will figure it out. So I think that, like that was in the middle. Maybe that was his concern about like, maybe he didn’t want his wife to have any pain points with a longer term or any family members or anything, maybe just was likeit’s more likely that maybe he’ll be around in five years than 10, I don’t know. But I think at the end of the day, he was excited to kind of move on to that next chapter. And he was like, All right, let’s do it. 10 years.
Jeff:
So awesome. So great. So great. Well, I just want to point out several things that I think that you mentioned, that I think are so great and savvy. One you just mentioned was discovering early on that he wanted to keep that $1,100 sort of payment, which I’m guessing he didn’t say this but educated guess that’s probably in the ballpark of what he felt like he was receiving before as an owner. Is that true?
Steven:
Yeah. Yeah.
Jeff:
So that’s a very common thing, right? They’re like, Well, I feel like I’m kind of netting this would be nice, gosh, if I could sell this property, and continue to get that and you and I have to worry about it and get a little bit of a down payment, like that’s gets close to being a no brainer. So good job understanding that early and making your proposal reflect that and then even using that as a factor; it was almost a carrot and a stick in the sense when you were re-negotiating with him because he’s like, Well, we don’t want to mess up this $1,100 payment. So let’s make sure let’s do something else. And so that seemed like it really helped. And then also something you mentioned before, about the tenant that he cared a lot about a lot, right? We talk about in The DEALS Workshop, everybody’s got one, every seller has got one big thing that matters more to them. And then they’ve got a few other things. And it seems like this tenant was maybe not the one big thing, but was certainly on the list of things that would make him feel comfortable with this. So great job picking up on that, too. And also, making sure to demonstrate that yes, I am going to treat this person like you want me to.
Steven:
Yeah, and I really do think that that was like, like you said, it wasn’t a priority number one, but you know, it’s something that I could tell he was concerned about. And he felt for this lady’s situation. And, I wasn’t trying to sell myself to be like, Hey, I’m going to be the best landlord. But I really just tried to go in and be myself and be kind and have good conversation with her to the point where she was, by the end of the conversation, she was like, I was so worried about what type of person you might be, but like, Thank you, you know, I can tell you’re not just like some mean investor and you’re like a business person. And he was there when she was saying this. And I think that was just like, in that moment, I kind of felt like, this is great, this is like, I’m happy that she’s happy and that she doesn’t have to feel concerned. Because I know every city you know, and every property I’ve bought from someone that’s owned it for a long time, with below market rents, there’s always, you know, tenants that are going to be scared. But I definitely think that that helped her and helped him and helped kind of move us towards closing. I do feel like that conversation really helped. And we did end up agreeing that, you know, if I ever needed her to move out, that I’d give her a 60 day notice. And initially, he wanted that for both sides of both units. And then he’s like, Ah, just for the lady in that one unit, so we agreed to that. And I didn’t have a problem with it at all. I do think that helped in building trust and confidence in it. Like, I’m going to be entrusted with paying this man, $1,100 every month for a while, like, how can we find other ways to help him like and trust in me and feel confident that it’s a good situation to be in.
Jeff:
Absolutely. And all that relationship capital you’re building up, even though you’ve already closed on this deal, could play themselves out in lots of other ways; maybe other acquisitions from him, but certainly, certainly will play itself out when it comes time for you to talk to him about a substitution of security using supercharge seller financing terms. So all of that relationship capital will be really valuable in those cases. So just a great job. I mean, it’s a great deal. It’s a great story of negotiation, it’s a great story of perseverance, I’m not sure if maybe that’s too strong of a word. But you’ve had a lot going on for quite a while; you’ve been very busy been doing other things, and people need to hear that that’s okay, you can you can do that. You can plant seeds, it might take a couple, a little bit of time to sprout, but when they do, good things happen. And so you just kind of keep going. So thank you for being a shining example of that.
Steven:
Yeah, of course. Now, thanks for all your help. I mean, I’ve relied on you a lot over the last probably four years since we’ve been talking and working together and stuff. So I mean, a lot of these things, you know, I attribute to your help and guidance as well.
Jeff:
No, thank you. That’s very, very kind. It’s my privilege and my pleasure. So congratulations.
Steven:
Thank you.
Well, there you have it: my conversation with Steven about his awesome duplex deal. And I think it’s just such a great and inspiring story. I’m even inspired myself hearing it again now as well. It’s a great example of just putting one foot in front of the next and continuing to trust the process and carry things forward: solving the person, listening for the right clues, making proposals thoughtfully, getting the seller’s feedback, and working towards agreement. Love it. Great job Steven, so proud of you and everything you’ve done.
That is it for today’s episode of Racking Up Rentals. So again, show notes can be found at thoughtfulre.com/e182. Please do us a big favor by hitting the subscribe or follow button in your Podcast app and an even bigger favor would be taking just a second to rate and review the show. I’m so grateful for those. I see every single one. Thank you so much.
Did you know that we have a Facebook group for Thoughtful Real Estate Entrepreneurs too? Yep. It’s called Rental Portfolio Wealth Builders. We’d love to have you join us over there. To make it easy to find, you can just type in group.thoughtfulre.com into your browser and the magic of the internet will take you right there. I will see you in the next episode. Until then, this is Jeff from the Thoughtful Real Estate Entrepreneur signing off.
Thanks for listening to Racking Up Rentals where we build long term wealth by being win-win dealmakers. Remember: solve the person to unlock the deal and solve the financing to unlock the profits.
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