In this episode David Talks with Chris Prefontaine about his real estate investing business and how he buys and sells all of his deal on terms! At any given time Chris controls over 50 properties, is currently doing 5-10 deals a month and has 20-25 Million dollars worth of real estate under his control, all without using his own cash or credit. Chris loves to help his students learn the business as well and he has a passion for teaching. You can watch a free webinar that Chris has put together here: www.SmartRealEstateCoach.com/Webinar
If you want to reach out to Chris and his team you can find more information about his company and some of the products that he offers on his website: www.SmartRealEstateCoach.com. Chris also gives away a free book and he even covers the shipping and handling costs. To get a free copy of his book, send an email to [email protected] and mention Discount Property Investor Podcast.
Chris is the real deal when it comes to investing in real estate without using your own cash or credit.
David: Alright, welcome back to the Discount Property Investor podcast, this is your host David Dodge. I am joined today with an awesome guest Chris Prefontaine. Hey Chris, how are you, sir?
Chris: I am terrific, David, thanks for having me on, buddy.
David: Thanks for coming on. So Chris has a really unique real estate investing strategy, or I should say strategies. He is-- he has a book called 'Real estate on your terms'. He likes to invest in real estate, and buying and selling on terms. So Chris, before we jump in, can you explain what that means to those who may not know what it means to buy and sell on terms?
Chris: Yeah because too often I am up here thinking everybody knows this stuff, and it comes off a 10,000ft view. We buy lease purchase, meaning we will take over payments on existing underlying debt, then we will go out and put a rent own buyer in there so we will keep the spread, also get a deposit up front, then we will get a big back end. So we try to create three pay days for every day. Lease purchase is simply taking on a payment that is a little bit higher than your outgo that's all on a sandwich. Owner financing, I know it means a lot of different things to a lot of different people, David. You know this as well, owner financing to us means debt free. If we buy, I don't care single or multi, we are going to make principle only monthly payments, that's it. We are not going to put money down. There are exceptions to that, maybe a grand here and there. But pretty much no money down, principle only payments, usually four years out. So you are getting massive principle pay down, usually six figure deals with all three paydays. Then we do subject too. Those have been around for decades and decades, before even you and I. They work well, usually for people that are more distressed, whereas the other two not necessarily distressed.
David: Got it, got it. So I have done lease options, I have done owner financing, I've done subject too. I love wholesaling just because it's easy, I get paid relatively quickly. So let me ask you this, Chris, don't you find it sometimes difficult or time consuming whenever you are doing like a deal that's for example subject too, and you have to then take on their mortgage and just kind of-- every month be aware of what's going on, make those payments? How do you go about solving that problem? To me, I have only done one subject too deal to be honest with you. I have done quite a few lease options, and quite a few owner financing. But the subject too deal was kind of a pain in the rear in my opinion. Just because I had to rehab the house too, because the house needed tons of work, then I'm making their payments every month. What essentially happened when I got it rented, I just went out and re-financed, or basically got my own loan to pay it off, because because it was more of a pain than it was worth. But maybe you have a secret, a tool?
Chris: No secret but a couple of thoughts, no particular order. Okay so we carry 50 or 60 of these at any one given time. We take on five or ten a month and more go out. Not a hassle when done right. Let's just take subject too because you brought that up first. So if I'm going to take on someone's mortgage, I'm usually not taking that on until I find a buyer. That's important; there is no out go until I find a buyer, that's built into the agreement. Now if it's a killer deal for whatever reason; money, location, condition, maybe I will take it on if I'm comfortable. But for a newbie they wouldn't take that payment on until they have a buyer or other cash flow coming in. There is no-- once I take it on and the team kind of automates it, we have a [00:04:26.19 - inaudible] house but you can use a third party escrow or other that collects the money, dumps the rest in your account; know the difference and you're fine. We just don't rehab by the way, you guys are attuned to that, we just don't, I used to, I just haven't in years. If I look at one that needs rehab, if it's habitable I will take it on still as is, then let it go out the doors as rent own, and let that person agree to all the fix ups, all the sweat equity. If it needs rehabbing badly, that might be my one only wholesale deal a year. I just don't do any rehabbing. That to me is just too much in the trenches. I used to do it, built hundreds of home, did a lot of condo conversions, just not my world anymore. But real cool when you have the model set up to handle it.
David: Right, okay. That's a great answer I love hearing that, cool, cool. So it sounds like you guys are just crushing it. I would imagine most if not all your deals are bought on terms?
Chris: Yeah all of them are. We are getting pickier now. We are doing even more owner financing and subject too, less of the lease purchase-- kind of like you when you guys had scaled different models, right? Because you more mature in the business. With us we get 50 or 60 at any one time. I don't want to sound-- I want to say humble here, but you don't need to bring on more properties at 50 or 60, it's a nice batch, nice group of profits, several million dollars in there. So now we are looking at longer term owner financing. We want subject too's so we control it better. That way if the market takes a blip we're fine.
David: So you guys are buying lease-- buying lease option and also selling on a lease option too? Sandwich essentially.
Chris: Yeah, almost all of ours, David, are sold on rent to own, this opens a can of worms for people. I get this question all the time on bigger pockets and other forms and that is, well I heard most buyers don't cash out. Incorrect if you're doing it right. We vet the daylights out of our buyers. If they don't have a mortgage ready plan with both our credit enhancement program and our mortgage lender American Financial, if they don't have a set line to the finish line, they are not getting the house. Of course on top of having some money down. You are just creating a major headache. Do some defaults still, yeah deaths happen, divorces happen, job loss you know? Anywhere from 3-10% of ours will fall out per year, but the other 90-90 whatever percent we can get them cashed out, so it's pretty good for the buyer.
David: Wow that is truly amazing, Chris, because the feedback I have gotten from other investors here in the St Louis area that are selling on rent to own lease option, they are typically closing the deal or cashing, getting that rent to own person to actually buy is probably less than 10%. It sounds to me like you guys have flipped that entirely, and you are saying 90% of those people. So you are just coming in hard on the vetting, and or making sure they have the capacity to buy.
Chris: Yeah it's obnoxious actually if you look at our systems that have developed over the years. It's the vetting, but it's also the check points along the way that we have set up. We no use that portfolio, but when we were small we couldn't even use that platform, we just had to do it ourselves. But in our walk throughs, sign offs on certain things they are accepting responsibility, a lot of prep work to set expectations for they are not acting like a tenant.
David: Yeah there must be, wow that's pretty awesome, that's awesome. Well, Chris, how can a new investor become a full time real estate entrepreneur with the information you're teaching in your book and what not?
Chris: Yeah I tell everyone, because I see some of the results we have gotten. When I say three pay days, we have some people who are averaging 110,000 grand average per house, we're around 75, then we have some as low as 50. But they say-- oh we can do that full time-- I like to see people have at least six months reserves, and I like to see people kind of have a bunch of deals on the horizon, because without three pay days you do have a projected income already once you get up to around ten deals or so. So that's kind of a nice full time transition. But, at the same time, David, you know a lot of people don't need or want to go full time, right? They love what they are doing, they just get bored with it and kind of want to have a supplementary income. We have an event coming up, there is this guy from Florida, got a big manufacturing business. This is not his first thing he does, but he has put together six or seven cool deals, great return on his money, that's all he cares about, right? Different strokes for different folks.
David: Interesting, interesting. How can you gain financial freedom when you become an investor doing it your way.
Chris: Here is what I tell people. When I start doing terms, yes I was in real estate for many years before this, but when I came out of the [00:09:03.14 - inaudible] in '08, I didn't have money, I didn't have reserves, I didn't have anything. So I looked at just sprinting it out to get to about 12-18 deals. Depending on what your overhead is and what your listener's lifestyle they like to live; you can set yourself up after those first 18 deals, because you got about a million two in the opera, meaning paydays that are scheduled out, so depending again on your level of expectations, you can set up a pretty nice lifestyle with that.
David: So you are making 50+ thousand dollars on a deal?
Chris: 50-- we are right in the middle, 75-- we do have associates around the country. Associates in Arizona is like 50, a guy in DC is like 110, just depends on the market and the price range. But we hover right around 74-78 thousand a deal, always.
David: Wow, that's mind boggling. We are doing roughly ten deals a month on the wholesale side. We average roughly $7500 a deal, now it's obviously a lot easier, it's quicker, and probably a little bit less work involved and get paid quicker too. But it's mind boggling to me that you guys can make that amount of money. Can you walk me through and example of a deal that would pay out 75 grand, and just explain how and why? Because that just blows my mind.
Chris: The hidden thing, I don't want to say hidden in a bad way. The hidden thing people don't realize when we are having a chat like this is, okay we will go through the three pay days, pay day two and the principle pay down that happens is the key. Pay day one is the buyer gets vetted like we just talked about, and they are going to come in with a down payment. They are not getting in the house for less than three, if they have less than 10% then they are going to have a payment schedule, not just one, it's going to be okay I have tax refunds, we had a sergeant in the State police who had a bonus retroactive that he knew was coming. So we scheduled these so they get more and more invested A, B we get more deposit, right? That's payday one. Payday two is every single month I am collecting from the tenant buyer and I am paying out to the sellers mortgage company or the seller. That's small, but if you take a two, three, four, sometimes as much as a thousand spread built into three years, that's a nice little payday, that's payday two, it's cash flow. Then payday three is neat because it is not only the different of the mark up price you got less the deposit you already took, it is also the principle pay down. That's what's key; some of these loans we are paying on, that principle reduction, that all [00:11:22.27 - inaudible] to us. They don't get that; the seller or however we did the deal. On the owner financing as we talked about earlier, it's all principle reduction. So you take a house that you are paying a grand a month on, bring that over four or five years, that's 50 grand right there, 60 grand sometimes.
Chris: That's where it comes in, the principle payment, everyone forgets about that, that goes to us not the sellers.
David: Love that. So whenever you guys are taking control of a property but the mortgages are not in your name, essentially a subject too. Do you get tax advantages on depreciation or the interested? Because it's not in your name?
Chris: Out of the three deals, the owner financing; yes we own it. Subject too; yes we own it. Sandwich; no. The interest right off, the depreciation follows the deed as you know, so that is going to
recrew to the seller. It's funny, a woman today, she is from Massachusetts, she is in North Carolina with one of our associates there. So we got talking and she said, just want to clarify we are going to do a lease purchase-- exactly your question, yeah.
David: Interesting. I guess you guys are-- essentially even on a subject too you are closing on the property.
Chris: We do a formal close and we used to just take the deed. Again formalizing all this I just live and learn. I am sure you guys have. It's a closing [00:12:36.11 - inaudible] depending on what you call it on your market. There is a settlement statement done, and it's just like a regular closing.
David: Interesting, interesting. Man, this is great, I am learning a ton here, Chris. I really appreciate your time and coming on the show today.
Chris: Always good to chat.
David: Yeah absolutely. Let's talk a little bit about-- you said two strategies that you recommend new investors prioritize. Tell me about those two strategies.
Chris: I wouldn't say subject too because if you are taking a subject too, you are taking over someone who doesn't want their property anymore, and you have to pay the closing costs, you get a little out of pocket. Lease purchase you don't. So I would focus there, then secondarily the owner financing. Presumably as soon as you get lease purchase going, you are going to have cash flow, then you can afford to do an owner financing or two because they are game changers.
David: Interesting. So lease purchase and owner financing. So you basically sell everything on a rent to own or lease option, right?
David: Then you are buying on either one of the three strategies?
Chris: Correct, 100%.
David: Interesting. So you don't have any investors, or any banks that you are having to borrow from essentially?
Chris: To your question, I did a lot of that pre 2008. After the [00:13:52.13 - inaudible], no loans from banks, no investors because they get amnesia real quick when the market changes, none of that. I don't want to put my head on a pillow at night knowing I got any of that. Out of those 60 properties or whatever we carry at any one time, there is not one single property we are on that thing as a loan or personal guarantee.
David: Wow that is awesome, Chris. Mind blown. That is cool, that is just really cool. So let's just take a quick break and talk about 2008 for a second. You said you were doing all this stuff prior. Tell me a little bit about what you were doing pre 2008, and if you don't mind, what happened in 2008 that essentially changed your mindset on this investing game.
Chris: Because I brought it up, if your listeners want to e-mail us and mention you in your show, no shipping charge or nothing, I will send them a book. Go to Amazon I will send them a book, leave a little note and say it was on your show and we will send it to them.
David: That's awesome, that would be great. What e-mail do you want to use?
Chris: Just use [email protected].
Chris: [email protected]. So prior to answering your question. 20 years prior or 15, but prior to it was, we were building up a ton of condominium conversations, by four, five, six unit building, convert them to condominium with the documents as well as cosmetically, then flip them. Because the market was hot, you wouldn't even get them done and they would be sold out. Fast forward to February of 2008, like it was yesterday I could tell you. We had a six unit in Providence Rhode Island, had sold three, now listen to these numbers it will kill you; we bought it for whatever it was, $400,000, then we started selling them probably put 100 into is so say five, rough numbers. We sold the first three for 172 each I think it was, somewhere around there, like nothing. Then the market dropped like it was a light switch. Fast forward three months from there we couldn't sell them if our life depended on it for 50 grand a unit.
David: Woah. From 170 to 50?
Chris: Couldn't sell them. So do the math, that thing just killed you. We had an investor on that, had a bank on that, a double whammy. We are doing a lot of those because they were easy--
David: Basically happened right in the middle of the crash? Three sold pretty quickly for what you were wanting, then one, two, three months later you can't even give these away at 50 grand, which is essentially less than a third of what the other ones sold for.
Chris: Crazy. Lesson learned, tough area and other things were in there for the variables we learned. But I tell people this is good stuff. It's in the book, you get to the point where you read it and go, cool I won't go that route again, I just know how to pivot if I go that route.
David: Right, right, interesting. We have a lot of banks that we use, we have a lot of private lenders we use. Wow it's just-- truly impressive that you can carry 60 ish give or take properties, make money on all of those, and not have your own money in those deals, wow, that's really cool.
Chris: If you add up all of them, we are in New England here, right? My son, son in law, daughter they are a great team, that's our properties. Then we have associates around the country. In total we are cranking five or ten of these a months, probably get 25 different markets running right now with them. They will do same thing, we will hold their hand and we will get on to the phone with sellers and buyers, we are actually doing the deal with them, and of course we revenue share too.
David: Man, that is just awesome, wow. What goes into running your business? How do you leverage your staff? I would imagine your leverage them via coaching, right? Is that how you are leveraging your staff?
Chris: From a scaling standpoint, we have a great team that all does their thing. In other words, my son focuses on buyers, Zack has kind replaced me and my son and law with grabbing properties. Got a cool team, everyone has their function. As far as scaling it we use a company-- you might have heard of it, I heard it on a podcast about a year ago and I have used this company. It's called GetLeverage. He is actually speaking at our up and coming even. They probably do 100 hours a month right now in tasks, just a great outsource company.
David: They do 100 hours of tasks?
Chris: For our coaching company. It's called GetLeverage. The owner's name is Nick [00:18:19.19], speaking this weekend for us at our event. I heard just like this on a podcast and started using their services, they are phenomenal.
David: Is it virtual assistants I would imagine?
Chris: He would like to say higher end outsourcing, but it's hiring VA's, they can do any task that's legal. We use them for scaling as well. That way you are not putting staff on and things like that.
David: Interesting. So you don't have any full time virtual assistants or whatever you want to call them? You guys just send over like gigs essentially?
Chris: They do, okay all of us are more like partners, right? We share in revenue. Then we have a full time book keeper. Lauren runs our support, but that's more for the coaching, not for the buying and selling. Then we do have a VA that is full time that works for us and all our associates, so they are calling, then we have a VA that helps us with miscellaneous stuff and the podcast and stuff like that. For the most part we have two, then we outsource everything else.
David: Wow, that's awesome, Chris. Every time I ask you a question you come back with-- that's very, very cool, thanks for coming on today. Chris, tell me why it's important for you to get into the trenches with your clients as a coach?
Chris: You guys are in the trenches so sometimes I will talk to people who have been out of the trenches for 20 years, this is easy for you and I to discuss. Think about it and I want your opinion too. Real estate changes too much, right? You get someone who is trying to coach and mentor, they haven't done a deal in-- forget 10-20 years, they haven't done a deal in a year they are out dates.
David: I totally agree with that.
Chris: It kills me to see them selling stuff, that's not what we do; we do deals. I think it's super important, and if someone says as a mentor, I never went through any trouble. It's a bunch of crap. If they didn't go through all that you don't want to be with them, if they are not in the trenches now you don't want to be with them. It's super important I think, I don't know if you agree with that.
David: No, I totally agree with that. I have had many coaches over the years. I refuse to hire a coach that isn't doing deals. They may know the business, but I totally agree with you. If they are not continually doing deals then they might now know the business today. They may have known the business a year ago, two or three years ago, but not so much today.
Chris: That's costly.
David: Makes perfect sense. What kind of coaching do you do? Do you offer just basic coaching on what you do in your business? And teach it to other individuals around the country? Then do profit sharing with them.
Chris: We only teach what we do. Literally I won't even bring a speaker in our event just to sell something because I know that he or she can sell well. I bring them in if we use them. Yeah we teach them to do exactly what we do. We have an online home study program so they don't have to get on a plane. They go through 60 plus videos, it's not a wimpy course. That lets them understand exactly what to do. I am talking about, who do I use for vetters, how do I get from step A to Z? That's an online course. If they decide this is for me, and this is for me and I want to go after it aggressively, they can apply to be one of our associates. It's by application, because obviously there are only so many areas in the country, right? They apply for that if they want to. That's it, a straight simple funnel. They watch our free webinar, they experiment with our Quantum Leap home study course, then they decide to go do deals on their own or they do them with us, that's it; simple.
David: How would someone go about watching the webinar, finding that webinar?
Chris: Okay they can go to smartrealestatecoach.com and register. It will be on there, but just go forward slash webinar. So smartrealestatecoach.com/webinar. If they can deal with listening to me for another 60 minutes or so, it's free content. There are so bonuses too just for being there.
David: Right, okay cool I'm interested in checking that out myself, that sounds awesome, Chris. So how important are the core values when you're starting a new company, and you are bringing in new clients and staff?
Chris: We never touch this, Dave, and as we start to scale-- you mention you had mentors. What's the next thing we're doing? What mentor could help us? Right? So in our case it wasn't sales, it wasn't generating leads, it wasn't any of that. How do we scale the right way with the right values and the right mission and all that? With our values we hire, we fire, we train, we accept associates all based on our values, our core values as team we had already agreed on. I just think-- when you go to add a staff member it's good to be on the same page, right? As you grow together, so you're not having hiccups down the road.
David: God I love that, makes so much sense, Chris. That's awesome, cool. So surviving the 2008 [00:22:58.22 - inaudible] and preparing for the future. It seems to me-- so whenever that 2008 [00:23:02.25 - inaudible] came, and you were telling us about those particular condos, I am not trying to get into your personal finances by any means, did that crush you for the most part?
Chris: Yeah, a few million dollars to dig out of, everybody and their brother said just file, clean up your mess. So we dug out, then we re-engineered this to be what it is today so none of that stuff had to be revisited. That's why the forms are set up to protect us, that's why, right? Everything was re-engineered based on the [00:23:38.17 - inaudible]. That's why it's super important to have someone that's been in the trenches. You guys have been in the trenches, you know-- you've had mistakes, right? You know how to help people.
David: Wow. Creating real income with real estate without using your own cash or credit. That's awesome, Chris. Holy cow, mind blown. I would love to get a copy of your book.
Chris: I think you get one automatically, should be in the mail to you, I will make sure I follow up on that.
David: That would be awesome, Chris, that would be great. Thank you, Chris, for coming on today. Shorter episode, but sometimes we like to keep them short and sweet. When it comes to buying on terms, check out Chris Prefontaine, you can connect with Chris at Smartrealestatecoach.com. He has a free webinar he offers, that's at smartrealestatecoach.com/webinar. If you want to reach out to Chris directly just hit him up at [email protected]. Chris, I can't wait to check out some of your content. Right now we owe the banks around two million dollars, we have two rehabs going, we are wholesaling roughly ten deals a month. We are buying and adding rental properties to our portfolio. I've dabbled, I've dabbled with the release option and the subject too, the owner financing. I think the reason I haven't really pursued them fully, or with more passion is probably just my lack of understanding of them. Again, I have done them; I know what they are and know how they work. But I just don't think I have the systems in place to do it right. That's probably why-- I don't want to say I failed at that because I didn't, I've done those deals. But I have always just resorted back to wholesaling, because to me it's just simple, but man I would love to learn more about this, and it sounds to me like you would be the perfect person to teach that.
Chris: Visa versa, it would be good to network. I am sure we will have a lot to add to each other.
David: Very good. Chris, thanks for coming on the show today, much appreciated. Chris is the expert in buying and selling on terms, check out Chris, smartrealestatecoach.com. Chris thanks for coming on the show today.
Chris: Thanks, buddy, thanks for having me.
David: Hope to talk to you soon.
Chris: Will do.
David: Thank you sir, talk to you next time.