Today, David and Mike with a guest Jeff Coffman their first guest ever. Jeff decided to invest for years and then he was able to generate an income that helped him to quit his job in a few years after eventually taking the plunge five years ago. His real estate investment firm starts to expand with his wife now. Jeff finds deals and then identifies for them the best exit strategy. Jeff goes through the steps to take when pursuing a Subject To deal with. In this episode, they talk about Subject 2 investing and buying real estate today without paying.
David: Looks like we're live. All right guys, welcome back to the discount property investor podcast. This is your host David Dodge with my co-host, Mr. Mike Slane. Mike, good afternoon.
Mike: What's going on Dave?
David: How are you buddy? Haven't had you on a podcast in a while dude.
Mike: Yeah, I'm doing good. How are you doing?
David: Good man, doing really good. Yeah.
Mike: Good deal man.
David: Go ahead. Please, please. I give the floor to you my man.
Mike: I was going to introduce our guest, Mr. Jeff Coffman. Thank you so much for joining us. Yeah, you were on the show, one of our first guests I believe.
David: Yeah, back in the day. Man, it’s probably been 2/3 years at this point.
Jeff: It was, it was episode 29, so mean it's been a long time.
David: That's right but Jeff is one of our good buddies, is one of our fellow investors. He sells us deals. I think we maybe have done some joint ventures; I don't know if we've sold him any or not but he's also located here in St. Louis, Missouri where we are located and we're bringing Jeff on today because he has some very very very unique skill sets and talents that not only do we want to teach you guys about on this podcast, but Mike and I are interested in learning a little bit more about it as well. So today we're going to be talking about sub 2 investing- subject 2 investing as well as some other very similar type of owner financing and creative financing techniques. Welcome Jeff, how the hell are you my man?
Jeff: Good man. Thanks for having me, I appreciate it. This is round 2, I'm excited.
David: Round 2 baby, yeah.
Mike: So, guys, if you haven't listened to Jeff's podcast, go back and listen to that first one, and one of the things that I got from the last episode, my favorite little nugget about subject 2, Jeff was- something super super simple and what you said was: you never say the words 'subject 2' when you're talking to sellers.
David: Has that changed Jeff or is that still the same?
Jeff: It's still same for me. I just don't like scaring people you know. Really if you think about it, those folks that you're talking to, it's not every day that you are going to approach somebody, ask them to give you the deed to their house, and they just willy-nilly do it. So, I don't like to scare people and I feel like when you get technical and when you get you know, super into the weeds with people, it's just intimidating so I still to this day, I still don't do that.
David: That's good though I mean, really, it's better. I mean, you can easily describe the process without saying that to them so yeah if you can avoid it, I think that probably makes the most sense so- guys this is episode 172 and Jeff was on episode 29 I'm looking at the history here so Jeff you went from 29 to 172, we're gonna have to get you back when we get up into the 200's my man. We love having you on the show and it's good to catch up man, I haven't seen you around town recently.
Mike: Well, that's really what I want to know from Jeff is what's changed in your business and what's changed in the way that you approach sellers, specifically regarding subject 2?
David: That's a great question, yeah.
Jeff: So, a lot has changed in my business. I actually, I am- I still do some wholesaling. It's a requirement but I have gone back to my roots, so to speak and I just- I'm just a buyer, that's it. That's the way that I look at it. You know, I just go out, I market for properties and I'm just a buyer. From there, I'm a transaction engineer, that's really all it is and wholesaling just happens to be one of those exit strategies for me.
David: Jeff, do you remember when we met? It was at a Mexican restaurant, you wanted me to- you wanted to get together and I was with my wife.
Jeff: Yep, I remember that.
David: And the reason that that even came to- to my memory is because when we were sitting down, I don't even think you ate. I was like dude, grab something to eat and your like: I just ate. And I felt terrible, but we met. But one of the things I remember from that meeting was you saying: all we are in this business is transaction engineers and I literally remember like it was yesterday, and it just sparked my memory by you saying that again right now, so I loved that your mindset hasn't changed at all. I mean, that's all we are guys, we are transaction engineers, you know, we're just trying to help somebody solve a problem. And usually, the property isn't even the problem, there's something else that's underlying, right? So, I just love that, I wanted to bring that up real quick.
Jeff: Yeah, I mean I got wrapped up in- like a lot of people do and this is probably something that you know, a lot of your viewers should really take to heart. I got wrapped up in you know, keeping up with the Joneses and I got wrapped up in doing things that took me off focus you know, I started doing things that just weren't in my wheelhouse and I have learned over the years that focus, sticking in staying focused is just absolutely, it's the most important things you can do in my opinion in this business.
David: Man, focus is power. Shiny object syndrome is the killer of goals. It is the killer of goals and you gotta set those goals. You have to- and then create a plan, right? I love the saying:' a goal without a plan is a dream' cuz that's exactly what it is right? So, figure out what your goals are and put together a plan and then focus on that plan. And that's it, that's how you get successful or become successful at anything, not just real estate. Yeah, so focus is power.
David: It's gotta be that way.
Mike: We chase a lot of shiny objects so- can definitely relate to that Jeff. I mean, there's no question about it. It's very very hard I think, for most entrepreneurs to stay laser focused. So, you got distracted but you want to stay focused on your roots of being a buyer, right? That's kind of what you're trying to say?
Jeff: Right, right. Yeah, and primarily and you know, kind of a side- not in the side, but my my preferred acquisition strategy is creative financing and when I first got in the business, you know, the first three houses that I bought we're all done sub-2. This is back when I had absolutely no idea what the heck I was doing. I mean, no, I mean I literally was trying to find- trying to find title companies that can help me out and what ended up happening was I ended up developing a process for myself or the beginnings of a process for myself on how I was to do these in the future. And I've just built on that, built on that over the years and it's all culminated kind of in this big, huge library that I have now of all of these processes and systems that I built and that's kind of what I'm going to be putting out to the world here very soon.
David: Ok cool. Do you have a course or a- y'know, I've seen some Facebook ads recently. What are you working on right now?
Jeff: Right now, I am building out. I actually have- I call it my legacy course, it was called subject 2 investing for newbies and it's still available. I don't push it at all, just because I am currently- what I found out through building that course was: there's a lot to take in. I mean there is a ton to take in when it comes to sub-2. It's so new to a lot of people. So, what I decided to do was I've decided to break those out into individual little mini courses. Another problem that I was having was the people, I've got- I don't know 40 something students in that course and the problem that I was having is that they would have to go search through that course and find exactly what it is that they were looking for. With the mini courses, I find they can just go directly to that course. It's very very subject-specific and so all I do is I go into that little mini course and there it is. It's a really really simple, much simpler process for students.
David: Oh yeah guys, if you want to check the course out, go to DPIpodcast.com/sub2, S-U-B 2, sub-2. DPIpodcast.com/sub2. You can get more information about Jeff's course or many courses and the link to that course right there. Jeff let's talk about what you working on these days here in town. You said that you know, you're a buyer, you're looking to solve problems however, your preferred method of purchasing is the creative finance. So, what does that look like? How does that work?
Jeff: Well, you said that- it's funny you mention you said: here in town. I've- focusing on those keywords. I've actually- I'm actually, I have a JV program that I developed. I call it my collective joint venture partner program. And so right now, I'm actually not working in town. Right now, I'm closing a deal out in Lihue, Hawaii. I've got one working-
David: Hell yeah! That's what's up.
Jeff: I've got one working in North Carolina, and I've got one working in Washington right now. So, I kind of branched out, it's really strange how it happened. I just kind of had started- I started having people contact me. I guess when you have very specific knowledge people seek you out. I know, I guess that's what's going on, but I'm not complaining about it. It did help me to develop this whole joint venture partner program, so as far as in town goes, I still have a few properties, we are actually a selling those off so my exit strategy on all these has totally changed. I decided, I know you guys are big on the rentals, but I have decided that I can't stand being a landlord. I hate it.
David: Hey and that's okay guys. I mean, some people have it in them, some people don't. I don't have it in me either however, I have a property manager that does it all so- I like the property side of the business, I like the finance side of the business. I like working with Mike and my other- and our other partner Bill. So, it has a lot of advantages obviously to it, but I can't stand dealing with the people. So personally, if I didn't have a good property manager, I wouldn't be- I wouldn't do land lording personally myself right?
Jeff: I learned very very quickly I'm the same way, I cannot do property management, but I can do the taxes and the numbers that we are having.
David: Sure, yeah and I'm happy to go out and look and all that stuff, right?
Mike: We're in agreement with you in that one Jeff.
David: Yeah, we're in agreement with that one.
Mike: So, tell us, what the life cycle then is of your deal? So, you get property, you're buying it with creative financing, we often refer to it as subject 2 cuz I think that's, more often than not what you're buying with, right?
Mike: Yeah, yeah yeah. Okay, excellent.
Jeff: I like to get the deed.
Mike: Yeah, perfect. You get the deed, but the mortgage stays in someone else's name or some other entities name, correct?
Jeff: Right. You got it, you got it.
Mike: Yeah, so what's the life cycle? Walk me through that, or walk us through that.
Jeff: Wow, okay, so I actually have a really good slide on this. I'm not going to bring it up here but it's essentially, starting from the beginning, it's actually- I'm going to kind of weave a little story here but really, it's a matter of getting it from the right people first. We all know that, we all know we have to have the right motivations, especially I think if you're going to be doing something creative, so it's getting in front of the right people first. It's kind of- the way that I explain it is with subject 2, if I'm going to pick up something creatively, I am not necessarily looking to close anybody. So, for me if I can get in front of the right person and that's either through the list that I build or it's going to be you know, I don't know what you guys are doing, I think you guys doing a lot of cold calling now, if I'm not mistaken. But getting in front of the right people, with the list that I build, going out and meeting with them and trying my best to not force the issue but really make them a part of my team and have them actively participate in the deal with me, get that property under contract, pick it up subject 2, and I actually do all my own closings. I found that you know, the biggest problem that I have in this business is finding people, mainly the professionals that we're looking for, you know, the attorneys, insurance companies, all that stuff like that- or all of those people. That's become a huge - the biggest single issue that I've had so I just decided to learn and teach myself how to do this. And so, from beginning to end, it's basically on my shoulders. That is my path, and that's what I've chosen to do. I hope that answers your question. I kind of- there's so much to talk about and that question, it's very hard to narrow down one thing for me.
Mike: Sure. So just walk us through one deal maybe. I think that might be a little bit easier like, you're most recent deal that you've sold off. Could you kind of describe that one?
Mike: Like, what happened in that one, the ins, the outs. If you have one again, if you don't remember the numbers, that's okay.
Jeff: I've got a- this is the perfect one. I've got a- let's talk about the one in Hawaii that's going on right now.
Mike: Hell yeah!
Mike: Excellent, I love it.
Jeff: So, I got contacted by a wholesaler here in St Louis who contracted on a house in Hawaii and-
David: Who was it? Drop his name bro haha.
Jeff: Mr. Tyler Kerry. Tyler contacted me, he knew that I was into a sub 2 stuff so essentially Tyler contracted a property out there in Hawaii, he's working with- he has some magic that he's doing, something that I've never really heard of to be honest with you, pretty sharp guy. But he brought me this deal and essentially, this is going to be a retail flip, so he contracted this deal. He has hired me using my services to actually walk him through this deal and so they've got this property under contract or working with a buyer. He already has a buyer in place and the numbers on this one look pretty good. This is about a hundred grand in equity on the table here, and so we were able to secure this property with $35,000 cash and then take over the mortgage on it. The mortgage is right around I think 230- something like that and this is a little apartment. This is a tiny little apartment in Hawaii and it's almost $400,000. So, it's value is almost $400,000. So, what we're going to do is we're going to go ahead and we're going to buy that property and a trust, and then we are simply going to assign beneficial interest of that trust to the new buyer. The new buyer being Tyler's buyer,
David: Ok, so we gotta take a pause for a quick second, right. So, guys, if you don't- if you're not familiar with sub 2 investing or what subject 2 is, go listen to episode 29 where we interview Jeff about what that is. So, Jeff if people are listening right now, I don't want to confuse listeners cuz that's just not the point, right? So, let's just take a quick maybe 2 minutes or less, and define sub 2, if you don't mind-
David: Because you bought the sub 2, right?
Jeff: Say that again.
David: You bought this sub-2.
Jeff: I am a JV partner on this one.
David: Got it, right. But you're bringing but you know, essentially what I wanna explain though is: there's a mortgage on this property for 300 grand. It's worth four hundred grand, they only had to bring 35 to the table, how- I get- if you don't understand sub-2, that doesn't make sense. How does that work?
Jeff: You know what, I'm really really bad at that.
David: No no, it's okay- and I'm glad that- it's okay, that's fine. Let's just explain that real quick.
Mike: Keep going
Jeff: Okay, so with this deal there is a mortgage on this property for 230 and some change. Now, the- Tyler who is the wholesaler on this, has got that property under contract. And he's got it under contract subject 2 and what that means, all that really means is that he's going to buy this property, he's going to pay the seller a set amount of money. Now, you don't have to pay anything, it just all depends on what you negotiate but he's agreed to cash this seller out at $35,000. So, the seller is going to get a $35,000 cash payment.
David: Okay so guys, just real quick. What that means though is that they're willing to pay the seller 35 grand cash direct, it has nothing to do with the mortgage itself. So really Jeff's buying these for 230 and change plus 35 and I should say Jeff and Tyler.
Jeff: You got it, you got it. Right. So, what's going to happen is the owner of that property, the current seller, is going to deed that property into a trust. Now, you can use an LLC, you can use whatever you choose. We chose to use a trust on this one but that mortgage that's already- that's in place right now that's being- that the payments are being made on right now, that mortgage is going to stay there and then it's going to be our responsibility to make the payments on that mortgage in place of the old- the previous owner. Once we close, he will become the previous owner. We're going to get legal title to that property and that mortgage is going to stay in place.
David: Okay, cool, so guys understand this real quick. The property that the- the mortgage on the property is 230 and change and the seller had agreed to sell the property but keep the existing financing in place for Jeff and Tyler, but he wanted 35 grand. You know, typically you would need 230 plus 35, it's 265, call it 270 grand to purchase this property. Jeff is the king of creative deals here, and obviously he's got a partner on this one that he's joint venturing with. Again, gets creative, love that, and they're saying: hey seller, we'll buy it, we don't really have intentions of keeping this long-term right? Maybe three four five months most right? So, you're also- when you're pitching him on this, you're not having to say: hey we're going to keep this financing in place, we're just going to rent this thing out for 10 years, you know, best of luck on your credit or whatever like I'm trying to get a new house. That isn't the goal here right instead it's: hey keep this in place, it makes no sense for us to go get a loan, payoff your mortgage company, that just adds cost on everybody. The only person that wins here is the bank, let's just keep it in place, but we're going to give you that 35 grand on top. So his purchase price is, you know his- the debt that's owed is still going to be 265, 270, but the out-of-pocket's only thirty-five, so the existing mortgage that's there stays in place right? and the way that they are structuring this, and Jeff feel free to interrupt anytime, is they are transferring the property from the individuals name into a trust, which is completely legal and normal, and it happens every day, thousands of times I'm sure across the country.
Jeff: Probably happening as we speak.
David: as we speak, right and then what's happening is: instead of the owner owning the trust, that's what gets sold. It's the ownership of the trust, therefore you can keep the owners financing or the current owner which will become the previous owner. You can keep that financing in place, yet the deed actually can transfer to the new owners because Jeff and Tyler will be the owners of the trust. Am I saying that right?
Jeff: Sort of, the trust- and we can get down the rabbit hole with entity structure but essentially, the trust is the owner of the property.
David: Got it. Okay cool. And you guys have the control and interest in the trust at that point.
Jeff: Correct. Yeah, so the trustee is actually the one that takes title inside a trust. The beneficiaries are the- they realize all the financial benefits and gains and losses and things like that so- but yeah, you've essentially got it.
David: Cool, Jeff thanks for just taking that quick break cuz again, if people don't know, that kind of explains what this is and how we're doing. Again, go listen to episode 29 with Jeff, it's about an hour long and we talked about it in great detail so that's be a great place to start, but now that we're back. So, you guys got the trust set up, where do you go from here?
Jeff: Got the trust set up, we've already found an in buyer, so essentially this is like a- this is a wholesale deal. That's what this is. And they're definitely- there's definitely some danger in wholesaling subject 2 properties, I will tell you that. They need- it needs to be done correctly, but it can be done. It can totally be done. It's done many times a day all over the country. So essentially, we've got a buyer, now we're going to take our beneficial interest in that trust. We are the beneficiaries of that trust. We're going to take our beneficial interest and we're going to sell our beneficial interest for a fee, and that is our wholesale fee. That's how we're getting paid on this deal.
David: So, what- if you don't mind me asking, what's the deal look like in the end? or what's the projections? Sounds like you guys have a buyer but hasn't closed quite yet so- and this is in Hawaii guys. Jeff you live in St. Louis though, right?
Jeff: That's right.
David: I don't even think I know Tyler, I think I heard of him. Does he live here too?
Jeff: He does. Yeah, he's local here.
David: So, guys, before we even talk about that, how the hell did you guys find this deal? or how did Tyler find it?
Jeff: I- you know what? He explained this to me. He's working with some lenders somewhere that I guess they've got some notes, I could be totally wrong here.
David: Yeah, it's basically he got a lead from networking. That's what matters. I was just curious where the lead came from. So, networking guys, the more you're in this business, the more leads you're gonna get from networking. I did a podcast on this two days ago. When I first started, I had 0% referrals and now that Mike and I are 5, 6 years in, you know, 30-40% of our business is from referrals, so I love that.
Mike: Brother, you cannot have a greater lead source than referrals. I don't care who you are.
David: It's the free lead source.
Jeff: Not just free, they're the best- I mean, you know, these people that you're talking to, they know exactly what you do, exactly so-
David: And they're not looking for everyone else to come give them bids either. It's like, oh you can help? great come over.
Jeff: I've run my business for almost 2 years off of leads and about 75% of every dollar that I've made over the last two years has come from referrals.
Mike: Isn't that awesome?
David: That's amazing. Hell yeah, okay cool. I get off on tangents, I apologize, so back to the projections.
Jeff: Well, the end game here is we already know that our buyers’ going to flip this to retail. Don't ask me why because I'm a JV partner here, I don't know why we didn't just take this down and then us flip it to retail but that being said-
David: You guys are wholesaling it to a wholetailer?
David: Essentially? give or take.
Jeff: Yeah, well you got to keep in mind, I'm a JV partner so I don't actually have controlling interest in this property.
David: So, what? You've got some of the profit coming your way, that's all that matters.
Jeff: Yeah, yeah. So, we get paid- we'll get paid off of that essentially, I'm really getting paid for my services. I'm actually just being paid for knowing how to do this, to be honest with you but that's really it.
David: You're a coach. You're coaching. Joint venture coach, I love it.
Jeff: Back in profit for our retail seller, now he's going to have some things he's got- he's not totally in the clear here. There's going to be some things that have to be done to this property that I personally am not willing to do. I'm not willing to hire a contractor and trust a contractor in Hawaii to do the things that need to be done to this house in order to get it retail-ready or this apartment rather.
David: That's 6 time zones away from here by the way. Not just one or two, that's six. About a quarter of the way around the world guys.
Jeff: But once it's all said and done and this guy does get this house in retail-ready condition. He's going to turn and flip that house or that apartment rather, I keep calling it a house. He's going to flip that apartment, there's potentially 80 to a hundred grand on the table for him.
David: Nice. So, you guys are leaving meat on the bone for him which is awesome. You guys are buying it with creative financing, subject 2, an existing mortgage via a trust, you’re wholesaling it to another investor, there's still room- meat on the bone. He's going to rehab that property listed. Is he going to rehab it or is he going to wholetail it?
Jeff: I think he's going to do some paint carpet type stuff. I'm not a hundred percent sure-
David: I guess it isn't going to be a wholetail if he's buying it.
Mike: Well that what I'm sort of fuzzy on too, so what's the order of operations here? so what's happening first? Are you guys taking it down or you doing-
David: Yeah, 35k.
Mike: I understand but are doing a true wholesale to where you're having the- your buyer buy it?
Jeff: Double close?
Mike: Like are you bringing the 35k to the table or are you having your buyer bring the 35?
Jeff: The buyer, that's the good- that's why we chose a trust.
David: Man, you left out the best part dude.
Jeff: That's why we chose a trust because we can steal our beneficial interest in that trust for- once we have it, once we have the trust built, the trust doesn't have to you know, you don't have to go out and get a new title work done, you don't have to get another title policy. Once the trust is in place and that property’s transferred in trust, all you're doing at that point is selling your beneficial interest in the trust. So that's where that 35k is coming in, we're going to sell our beneficial interest and now he has- our buyer has 100% beneficial interest in that trust.
Mike: Yeah, so you're doing this all at the same time though right?
Mike: So basically, the end buyers doing it, you're closing on it or rather putting it in trust at the same time so the seller who is the current mortgage holder, he's getting his 35 grand, you are getting whatever-
David: With the agreements of staying in- having the loan in his name for a few months.
Jeff: right right
Mike: Your end buyer is fully aware that he has to make those mortgage payments and all that stuff. So how much do you stay involved in this then knowing that-
David: Oh wow, it gets complicated when the buyer is willing to buy Sub 2 and he's- wow.
Jeff: It does, it does, and this is why I talked about the danger in wholesaling subject 2 deals. You know, I give a class on this and it's definitely one of the areas that probably gets the most questions asked in and I recommend that people don't actually wholesale subject 2 deals unless they are willing to stay in that deal in some manner, at some capacity because ultimately, you have made the promise to make that payment for that seller. You've made the promise to the seller and integrity is a really really huge thing for me. And if for some reason, and this is actually why we chose to trust as well, if for some reason your buyer cannot make that payment, you've got to jump in and make that payment so what ends up happening is, in the trust situation, you can do this with an LLC as well, but in the situation with a trust, we remain there's a position inside a trust called a director. Now a director would be the equivalent of a manager of an LLC. And as manager and or director, we're just going to stick with the trust, we'll just say director. If you're the director inside a trust, you have the ability to pull- to replace beneficiaries-
David: To change the beneficiary without their approval essentially.
David: You're basically actually uh-
Mike: Controlling interest of an LLC.
David: Yeah, similar. Something along the lines of power of attorney essentially, to change-
Jeff: Sort of but this is a private contract. If I had to equate it to anything, it would be just like the manager in LLC.
Jeff: A manager can replace a member of an LLC, so it would be the equivalent of that. I actually have a property here in St. Louis down in the 63128 whereby I did this exact same thing, but I used an LLC to do it. I'm the manager of that LLC. What I did was I offered a membership in my LLC to this rehabber. I remain the controlling member-manager rather, of the LLC. I gave it to him at a discount cuz there wasn't a lot of juice in this deal. If I were to wholesale it off, he would probably not have done as well as he's done. So essentially, I stay- I sell him 80% membership in that LLC. I remain 20% vested as a member and I'm also the manager, so when he goes to sell this property, I've given it to him for very little upfront, I think it was $2,000. He goes in, he's fully you know, he goes in he brings all the cash to rehab it, he gets it all done, he lists it. That house is actually now- it's under contract right now. When that house sells, I will get my 20% membership back out of it. I'll get 20% of the net profits when that house sells, does that make sense?
David: Yeah, that's a great way to joint venture with somebody you know? Just take the back end profits and it leaves more meat on the bone for him and you know, the thing about these type of deal with guys, I think we kind of skipped over, it goes without saying but you know let's say it. We're creating, or Jeff in this scenario is creating multiple wins. I mean for one, he's helping us a seller solve a problem and it may or may not be the property, right? but either way, properties going to be purchased. Jeff's going to get paid, he's not doing this shit for free, come on let's be real. He's getting paid right? He's teaming up with other investors, so in the Hawaii deal it's a joint venture with another guy and he's helping him do it. But he's also helping another guy, the buyer in that situation, that's like a 4 win right there. That's a win-win-win-win. And in the South City- or the South County 63128 deal, similar situation. He's helping the seller, he partnered with the buyer on this one, right? So, he's actually going to take a piece of the gross profits in the back end. So again, triple win, that's what we always shoot for as investors, not so much wholesalers, as investors. We got to seek motivation, find those people, get in front of them, tell them we can help them, and then we create as many ways as we possibly can.
Mike: So, before we conclude though, I really do want to go back to the Hawaii deal and back to-
David: We've got 10, 15 minutes.
Mike: One question that I really do want to kind get back to is Jeff you still- you said you have to be willing to stay involved in it in some capacity. So how much are you invested in this deal? I understand you're the director of that- of the trust rather, so then what is your responsibility and what are you doing then? So like, how are you- how do you monitor that? Are you going to go in and monitor the mortgage payments every month or - What do you tell the end buyer? I mean, how do you get on top of that?
David: That's actually a great question cuz yeah, no that's a great question right now we've essentially learned the how to? Well, some of it but let's talk about the how do?
Jeff: Right. Well one of my- one of the keys here and it's an absolute requirement before you actually take something down subject 2, is to get online access to their bank account or to the lenders. At that point, you can set up email notifications. On this one, I know it's a short-term deal so there's no reason to believe or no reason for me not to go in and make sure that that's done or Tyler for that matter.
David: Do you do that regardless though, no matter what?
Jeff: Right, you're going to- here's the thing-
David: I mean, I guess, ideally, you don't have to check it, right? But worst-case scenario, you're going to need access, you might as well get it in the beginning guys. I think that that is probably like one of the fundamental things that you need to understand here is: everybody needs to be on the same page. Yes, you can create a win-win, but you got to have access to that account. So, if they're not willing to give you information to access it via their channels and again, I wouldn't rely on that. I really highly doubt Jeff does either, I would get paperwork filled out that gives you access to that channel view, your own login, so you can't be taken away from you. Right?
Jeff: What I do, on my own you know, if it's my deal solely I go in, I change the password and everything, I don't I don't-
David: That way, you can't get locked out, I love it. Very cool.
Jeff: But you very much have to be involved with your seller here. I mean, you don't just buy this and then you walk away and that's it and that's really the problem that I have with assigning subject 2 deals. It's a lot of people will do that. But you're very much up front with your seller, you are very very truthful in everything you do with subject 2. There's a lot at stake, I don't think you know, I know there's some big names out there that are teaching people how to wholesale subject 2 deals but there is a lot at stake for a seller to do this, so I just prefer to be very upfront.
David: So, let's talk about that just real quickly. What's at stake? Why would somebody you know, be willing to do a sub-2 deal? And why would you approach them as you know, as doing a sub 2 deal versus all the- I mean, there's a hundred different options right? that you can do to help somebody with a deal right? So, what makes a good motivated seller? like, what's the perfect motivated seller? I can tell you when Mike and I look at a deal it's like, it has to have equity. They need convenience, right? Like, as investors or really, specifically wholesalers, you know, we trade convenience for a discount. So, if they're willing to give us a discount, why would we want to go out of our way and break our backs to give them a ton of convenience? So, the perfect seller for me: equity, house needs a ton of work, they don't want to fix it, they don't want to clean it and they're willing to give us a discount, hopefully a big discount, for the convenience of me dealing with all those problems. How does yours look?
Jeff: It's so great cuz everything you list there; I am almost 180° opposite of you.
David: So that's why I asked guys, and that's okay. Look guys, you can do deals in good markets, bad markets, up markets, down markets- it's Dr. Seuss over here, right? Do these in any markets, any equity so boom. I didn't mean to interrupt you but that's crazy. He's a hundred and 80% differently what he's looking for, and he's still making thousands of dollars flipping houses. That's crazy.
Jeff: Right, yeah so let's talk about equity. I'm going to talk about list building here. You know, you guys go out and you build a list, one of your requirements, probably minimum is I'm going to say 30% equity.
David: I mean usually minimum 35, I just pulled a list the other day and I did 50% or more.
Jeff: Right. So yeah, for me, if- and when I talk about getting in front of the right people, that is where it starts for me. If I'm going to go out and build a list, as a creative subject 2 investor, I can go out and build a list where I can eliminate 50% of my competition simply by not requiring that huge equity spread that everybody else needs.
David: I would say higher than that man but yeah.
Jeff: Yeah, I mean, that's- so my max equity on any list that I build is 20%. Max.
Jeff: So, I will go- I have been known actually to buy houses with negative equity in them, it just depends- I'll only do about 3% to 6% just depends on the price point of the house, but you can totally do it and you can still really, do really really well. It's a cash flow business, that's what it is.
David: That's what it is, yeah. The equity doesn't matter as much cause you're looking for the cash flow. Now, on this deal- so you're getting paid a percentage of profits on the 63138 deal but the Hawaii deal, you guys- are you selling that? Now you're selling it sub-2, but how are you getting paid on that one if you don't mind me asking?
Jeff: I'm actually getting a flat fee.
David: Okay, you're getting a flat fee. That's cool, doesn't matter. You're getting paid though, that's all that matters right? Your friend Tyler, is he getting a piece of the deal or is he getting a wholesale fee?
Jeff: He's getting a wholesale fee.
David: Is that on closing of acquisition or closing on the exit?
Jeff: That is paid at the-
David: I didn't word that very well.
Jeff: I understand what you meant. It's paid at the change of beneficial interest- of ownership of beneficial interest.
David: But when it gets sub-2-ed into the new buyers name, he'll get paid. You guys will still be the directors, I guess? So, you have to monitor that deal but what do you have to lose? maybe one or two mortgage payments? and if you have to find a new buyer you will, but hopefully you don't and you get paid, and then he sells, he makes money, mortgage gets paid off, win win win win. Love that.
Jeff: Mike's quiet there. Mike, I can see the wheels churning.
Mike: No, it's great man, it's great.
David: You just can't get a word in.
Mike: Well, exactly. Dave loves to talk and that is one deal that is really really cool, and you said you don't like to wholesale them that much, my question was really going back to: what is your new model? You said you don't want to be a landlord so is the model always going to be wholesaling it or is the model for you buying subject 2, waiting till equities paid down and then selling it off because you just don't want the long-term or what's the- what's the play here?
Jeff: Great question. Here's the play: the play for me is, if I'm going to buy something subject 2 and I don't have the equity in it to go ahead and flip it, wholetail it, or wholesale it off or just you know, sell it out- sell my beneficial interest in it or whatever. I'm going to hold on to that, but I'm going to start looking for a buyer immediately and I am going to owner finance that buyer. I'm going to ride a-
David: This is like creative financing on top of creative financing on top of creative financing. You're acquiring it sub-2, either wholesale or wholetail or whatever that might be but whenever you do that, you're typically looking for, not always but sometimes you're looking to sell it to them on owner financing which will allow you to charge them retail, if not retail plus 10% and I would imagine your cash flowing monthly. You're going to get paid and when it does sell and you probably get paid in the beginning too, so you're getting paid three or four times here.
Jeff: So, you get a down payment, essentially what you're doing here with this play is you are arbitraging interest rates, that's all that you're doing for your cash flow. So, if I know that I have you know, consumer mortgage interest rates, owner-occupied interest rates are always going to be way down you know, right now they're three and a half, 375, something like that where if it's an investor, it's going to be in the five range. But if I'm buying them with 3.5, 375% interest rate on them, I'm turning around. I'm going to arbitrage that and I'm going to charge my owner financed buyer seven and a half, eight and a half, 9% interest and that is how I'm making my cash flow. That's where- and the cool thing about that is I get to build that. I get to base that percentage rate that my owner financed buyer pays based on how much cash flow I require on that deal. So, I get to create that out of thin air. You know, I'm like the Federal Reserve Bank of Jeff.
David: Hahaha I love it.
Jeff: Not only that, I get to, like you said, I get to- I'm going to get a down payment, I require a down payment. That number is going to depend on you know, based on the area that you're working in. But I'm also going to sell that house for a little bit of bump in price on the backend too because you know, as long as an appraisal will support that sale price, I would go to the max of what that- of what the value of that home is on the back end.
Mike: Okay, awesome. So, you're basically selling it, yeah owner finance or you're selling it I guess basically, what's that called- like a lease option too. So basically, you want to owner finance and then get them to refinance out or option out of it in a year or two then, so it sounds like.
Jeff: Lease option would be something separate from this. I'm actually offering you know, I'm actually offering owner financing in this so I'm going to have to send them a 1098 at the end of the year, they get the tax write-off. That's one of the trade-offs with owner financing is I don't actually get the tax benefits, they get that because of the interest that they're paying me. I no longer get to depreciate the property, I don't get the 27 and 1/2 years and 100% I'm okay with all that. I'm okay with it because I just don't like being a landlord. You can absolutely lease option these, you can still take that depreciation, you can take all the tax benefits, all of that good stuff. My problem with lease option, and I have lease option properties right now, is that I'm technically- I'm still a landlord and so- and then there's- there comes an issue where you talk about, where we start talking about equitable interest and equitable title, things that I just would rather avoid. Just go straight owner finance, be done with it and that's it.
David: Yeah, owner finance- you know what? I've been wanting to break into the owner finance game. Mitch Steven is a good buddy of mine, he took me hunting on his ranch down in San Antonio. This guy is a beast with owner financing, and he leases- do you know Mitch, Jeff?
Jeff: I don't know him, I've heard of him. I don't know him.
David: I'll connect you with him, he's the coolest guy ever, such a nice guy. But anyway, he's got 21 or 22 million dollars lent to him and he pays those investors you know, 6%, 7%, 8%, depending on the term in which they lend it to him. If they lended to him for longer, he'll pay them more but otherwise, it's like 6, 7% and then he turns around and he buys the properties with those, with that money and then he sells the property owner financing on 30-year notes, but the interest rates like 10, 11, 12%. Arbitraging the funds and he is just crushing it, but the cool thing about the owner finance and as you know, is you're not the landlord. As the lease option, you are right? The owner finance, you’re the bank. So if the air conditioner goes out, I mean, it depends how the lease options written too, you know, maybe you could deal- have it set to where you know, all of the major stuff is on them but if they don't fix it, guess who really owns the house still? you do right? But the owner financing, they own it. So it's like, if a tree falls on the house, hey, you got insurance, don't call me. But you want me to foreclose? That's the only reason you should be calling me, right? So, love that, I love that.
Jeff: Yeah, it's just a headache way free of cash flowing, and I guess that- there's trade-offs to it for sure but cash flows cash flow man. That's the way I look at it.
David: Love it. Guys, Jeff Coffman is the man when it comes to subject 2, creative financing, owner financing, lease options you name it. This guy has all the tricks up his sleeve. I love communicating, networking, chatting with Jeff, he is the man. Go check out all things Jeff Coffman at DPIpodcast.com/sub2. Jeff send me all your stuff so we can get that on the site, this won't publish for about a week and a half, two weeks so we got a little time but you gotta send me all that stuff over and then obviously you know, go check out Jeff on social media. Jeff, how could somebody reach out to you or find you on social media? What's your favorite platform and what's the handle stuff?
Jeff: I'm still a Facebook guy, I'm trying to get into Instagram but you know, something about Instagram just doesn't ring right with me. Check out our page: Sub2Empire on Facebook. We have a group and it's a subject 2 real estate investing mastery on Facebook. Go check those out, I have a YouTube channel. It's just look up- we actually so Sub2Empire actually runs under- we have a learning platform called HeyInvestor that we developed. Sub2Empire is a course from HeyInvestor.
David: Got it, Send me all those links and we'll get those into the portal here. Guys, just to simplify, we're not sending you 10 to 20 different links here. DPIpodcast.com/sub2 will have all of Jeff's information right there for you at your disposal. Jeff is one of the nicest people I've ever met and I'm not just saying that cuz he's on the show, like, truly has a heart of gold. Jeff, when I met him had a full-time job and since then he's quit his job and is just absolutely crushing it. I see the deals that he's doing around town, this guy knows his shit so I would highly recommend if you're looking to learn more about Sub2 or creative financing, check out some of the products and the the courses, the coaching that Jeff has to offer. Anything you want to add to that Mike?
Mike: No, thanks for listening.
David: Jeff, anything you want to add to- on an exit note, anything you want to add? I guess, let me say this, let me ask you a question that would probably be a little bit more beneficial to the listeners in the audience here. If you are new to real estate investing, right? What's the first thing that you would recommend to the listeners in the audience to do, to start being an investor, right? What's the first thing that you recommend?
Jeff: Well, I would tell you that, without question, every single successful investor and business owner that I know has had a mentor. If you can find a a good mentor I mean, you've got a couple of them sitting right there on-screen. You guys are excellent wholesalers, you're excellent mentors, I do creative financing so I would be one in that arena but I mean, if you can find a good mentor, whether it's you guys or me, or none of us, just go out and find a good mentor. Find somebody that you can trust, somebody that puts your interest above their own and is going to you know, take you under their wing and show you the ropes.
David: I love it. Jeff, thanks for coming on the show again. Guys, once again, we did a show with Jeff, episode 29, go back and listen to that one as well. Tons of- a lot more information in that episode about the how, how this is all structured and what it looks like. Today, we did some of the case studies on what's Jeff working on but again, he is the man. Last but not least, head on over to DPIpodcast.com/sub2 and also leave us a comment over on DPI podcast as well on this episode and let us know what you thought of the episode. We loved communicating with you guys on the podcast site. Until next time guys signing off. Thanks for watching, thanks for listening. We'll talk to you soon, thanks guys.