Dave Debeau [00:00:08] Hey, everyone, this is Dave Debeau. Welcome to another episode of the Property Profits Real Estate podcast. And today, it is my pleasure to have on the call with me Mr. Mitch, Steve and Mitch. How are you doing today?
Mitch Stephen [00:00:22] I'm doing great. Thanks for having me, Dave. I'm excited to be here.
Dave Debeau [00:00:25] I'm excited to have you. So as you can hear, Mitch isn't from around my parts. He's based in San Antonio, Texas. Is that right?
Mitch Stephen [00:00:34] That's right. That's right. San Antonio, Texas.
Dave Debeau [00:00:37] All right. Perfect.
Mitch Stephen [00:00:39] The land of tacos and guns
Dave Debeau [00:00:43] and good at both of them. Throw up or whatever, that's for sure. So Mitch is a very, very accomplished real estate entrepreneur. He's been doing this since age 23 when he first picked up a book. Call Nothing Down by Robert Allen. That was about the age I picked up that book, but you did a hell of a lot more with it than I did. I think I just read it and put it back on the
Mitch Stephen [00:01:07] wall, you know? You know, Robert Allen had the audacity to suggest that you didn't you didn't need nothing to get into real estate, and I said, well, man, if that's what you need, I got enough nothing to buy the whole damn town.
Dave Debeau [00:01:19] I just got what you pretty much done because. All right, we're just talking before we started recording over the last twenty four years or so, Mitch, I think you said you've done over two thousand transactions.
Mitch Stephen [00:01:33] I did the math. It did the math. It came up to a house about every four to five days. I bought a house every four to five days for twenty four years. Golly, that sounds like a long time. I'm getting old.
Dave Debeau [00:01:45] We both got a little bit of that great stuff going on there. My friend Mitch is also the author of three different books, My Life and A Thousand Houses. I think you have to upgrade that to two thousand houses now, buddy, but I like to do a thousand houses failing forward to financial freedom. Another one two hundred plus ways to find bargain properties and his most recent one, the art of owner financing. Nice looking good. That's what it's all about. So that's great to have you on the call. Let's jump in just briefly. Tell us how you got into this whole crazy world of real estate investing in the first place.
Mitch Stephen [00:02:20] I failed at everything else, so when anything else left, it was like the last thing. After this didn't work, I was going to go shoot myself. I had a stack of business cards about this fall, you know, and actually, you know, just like everything in my life, it. It was all by accident, but but but I learned from my accidents when accidents, when I make accidents and they hurt myself, I learn not to do that again when I make accidents and they really feel good and they make me some money, I double back around. And in saying, how did how did I do that? What did I just do? How do I do that again or how do I do it better? How do I do that the same, but faster and not take as long, you know, let's hurry up and do it over again. So I was just a continually morphing and morphing and morphing, paying attention to the good things that happened in the bad things that happened, trying to stop the bad things and trying to increase the good things. And I accidentally bought a condo to live in and then I accidentally found another one with two bedrooms instead of one that I wanted to move to. But I couldn't sell the one. So I rented it out. And then I discovered that if I rented out the one bedroom condo and I rented out the extra bedroom and my two bedroom condo that I was living for free, and I thought, well, this is really good. How can you live and make money? Even from this? It follows a buy and hold guy. For a while I got up to about twenty five houses, then figured out that there was too many liabilities in the rental thing for me. I mean the money was coming in, but then the money would go right back out to the air conditioner man and everybody else. And so I wanted out of that business. So I went to get out of the business and I couldn't figure out how to get out of it because anybody in the neighborhoods that I lived in, they couldn't get along or the neighborhoods that I had my houses and they couldn't get a loan. So I hired this one guy for ten thousand bucks, which was my last ten thousand bucks, and said, How do I get out of this? Because is killing me. These people are calling me every day and night and everything is always break and they're always leaving and it's always tore up. And I'm not making any money. And you know, this is a complete myth. This by and whole thing, unless the houses are paid for, I could get it. But if you're trying to make money between what you owe and what you collect, that's that it's gone in one air conditioner, you know. And so then he taught me, he says, well, I paid him ten grand. He says this what we're gonna do, we're going to sell our finance. I'm going to get three or four thousand dollars down from your twenty five houses, and then you're going to collect about the same as you were in rent says it's going to be a payment and you don't have to give that up. When when when it when that check cashers. It's in your account. It's your money. And it's not the conditioned man's money because of the air conditioner breaks is not your house. Twenty four hundred houses ago.
Dave Debeau [00:04:49] Yeah, so so that kind of gives give us an idea of what your so your primary strategy is. You're buying single family homes and then you're turning around and you're selling them with
Mitch Stephen [00:05:00] your pencil and paper ready. Because this I'm going to give you a break now. Yeah. I say let's say I find a house. First thing I do is I got to use this rent formula and I back into the rents in the neighborhood to find out what I can sell these little bread and butter, three bedroom, two bath, twelve hundred fourteen hundred square foot houses, sometimes thousand square foot houses. They're nothing fancy, they're just run of the mill houses. Probably built 30, 40, 50, 60, 70, 100 years ago, whichever one. So I get in the rents, I got this formula. Here's the formula. Rent minus the taxes, minus the insurance. Mines one one five. Plus 12 percent. Minus 50 percent of the repair estimate equals the o f v hey, Dave, did I tell you that I invented the acronym the OSB? Well, that's what it is. The owner financed value right up there with the AAVE. You know, everyone will be. Yeah. So let's do it with real numbers. A thousand. Yeah. Rent minus one hundred in taxes minus 50 for insurance equals 850. Minus one one five. And all this one one five is it's a multiplier to tell me that if I use the terms 10 percent in 30 years and the payment is principal and interest payment is eight fifty, what can we borrow? That's what that one one five is going to give me. How much can we borrow at 10 percent for 30 years and have a payment of eight fifty. So you do one one five times eight fifty and then. So then that comes out to ninety seven thousand seven hundred and fifty dollars, something like that. In my world that's called ninety eight thousand dollars. That's a thousand plus 12 percent. For a down payment, so if they can afford to borrow ninety eight thousand and have eight fifty payment, what does that make the owner finance value with the sales price? We add 12 percent on top. And that's roughly twelve thousand dollars, so it's one hundred ten thousand dollars is the levy on this house OK? OK, so now I know I know what I can sell these houses in this neighborhood for now I'm going to go out and make an offer. Let's say I go out and I do this all the time. I my goal is to to get a house for 50 percent less than what I can own or finance it for. So let's say I go out and I said, OK, I'm going to offer fifty thousand for this house and it gets accepted. I go ahead and I borrow fifty to I always borrow at least an extra two thousand because it costs me two thousand dollars to find this guy. And if you do one hundred houses a year, which I do for twenty four years in a row, more or less. One hundred thousand, if you leave two thousand in every house you're advertising, then in one year I've left two hundred thousand one hundred houses times two thousand two hundred thousand. And if I do that five years in a row, I've left a million dollars laying around. So I always borrow an extra to let's say I have fourteen. I'm sorry, I have sixteen million dollars worth of private money from forty four people that allow me to borrow money from them. I give them a FirstLine. It's nonrecourse eight percent five year interest only not collateral, only payable monthly money. OK, so I'm going to borrow fifty two point eight percent interest only. That puts my payment around three fifty. Then I'm going to sell it for one hundred and ten with twelve thousand down more or less and they're going to only about fifty more or less for thirty years. Eight fifty principal and interest. So like ten, eight fifty and I'm paying out three fifty so I'm keeping five hundred in the middle. Five hundred dollars positive cash flow which I paid myself ten to twelve thousand dollars to get done. Right. OK, so you do that twice a month, you make it twenty two, twenty four thousand dollars a month cash and then you're your every time you do it once your income goes up five hundred dollars you do it again, it goes up another five hundred dollars for thirty years. So if you do five hundred dollars with a positive cash flow for thirty years that's one hundred and eighty thousand dollars. These people still owe me in the future. So don't think your financials go over the top, so this is what I do. I sell them the house at 30 years, 10 percent interest fixed, no balloon, no get a new loan, no nothing. Just make your damn payments for 30 years. That's all I'm asking. You know, my payment will never go up. There's not floating. It's not adjustable. It's just is to get it for my buyer. That's as good as it gets for my bar. And what would the rents be in 30 years from now, Dave?
Dave Debeau [00:09:30] Oh, hell, a lot more than what they are right now.
Mitch Stephen [00:09:32] This is kind of like a total, you know, Carlot, the guy is not interested. He's not worried about the interest rate. He's not worried about the price. He's worried about. Can I make the payment? Well, I know we can make the payment because I took the rents in the neighborhood. He was living in that neighborhood. Right now he's already paying. What I'm asking for the separator is do you have 10 to 12 percent down? The minimum will take his 10 percent down. I'd like to get 12 percent down lots of times. I get more than that down. Let me ask you this question. If you're a landlord, what's the chances you're going to get a thirty thousand dollar nonrefundable deposit? Zero zero? Yeah, I want to own a little house. I get thirty thousand down, twenty thousand down all the time throughout the year if there surprises. But I'm never I'm always surprised at how often it happens,
Dave Debeau [00:10:13] you know, are you selling your notes? You just hold on to them. And that's just
Mitch Stephen [00:10:17] why would I sell a note? It doesn't make any sense. But I guess there's always a time to do that. You know, when you're young in your career, you've got to sell some notes. A, you might need some hush money. What? Hush money is nice. No, your spouse is up your keister and she won't shut up. And then, you know, look, honey, I just made fifty thousand dollars. Put it account in hush, hush, hush, hush, hush. Stop it. Leave me the heck alone.
Dave Debeau [00:10:43] Nice, nice, nice.
Mitch Stephen [00:10:44] By the way, it works the other way around too. I know some women that have had to give some men some hush money
Dave Debeau [00:10:49] or whatever, keeps them happy. Whatever keeps everybody happy and out of divorce court. That's always a good thing.
Mitch Stephen [00:10:55] So look, I'm doing this one hundred times a year. Well, out of a hundred houses, I'm probably I'm probably owner financing. Seventy seven of those hundred, so 70 percent so so the other 30 I'm flipping out, I'm usually doing retail, I do very, very few home sales. Maybe four out of that 100 will be wholesale. The rest will be retail. The only reason I retail these houses at all is because all my acquisition people, they get paid upon success and sometimes they get low in the bank account. So like there might be 20, 30 thousand equity in the house. I go pick that house, let's sell it. You put your your twelve thousand in the bank, I'll put my eighteen thousand in the bank and we'll all live to work another quarter, you know what I mean.
Dave Debeau [00:11:37] Sounds good so much you because I mean your second book's all about how to find the deals. What would be a couple of your tips or tricks or ideas or finding good properties in today's market?
Mitch Stephen [00:11:50] Well, the two hundred plus ways was written. I never intended to write the first book. Something tragic happened to me and I don't want to ruin the story for you, but something tragic happened and I just started journaling. I journal twelve hundred pages, but for some reason I was journaling to an audience or to a listener and I was speaking to someone trying to heal myself. And long and short of it, as some people close to me got hold of it and wanted to read it and I said it was fine with me, I didn't care because at the time I didn't give a crap about anything. I was just, you know, in that point, I think everybody finds himself at some point you just. They don't care too much grief, just don't give a damn, and which is what made the book work was because I didn't give a damn and I was telling the truth about this business, because really, the only year that I started writing this book, I did one hundred and fifty houses in one year. I mean, there wasn't much left over my life except for my grief in houses and how I kept myself from going under because I just got into work. But the most popular question after that book came out was how in the hell do you find so many houses? So I wrote my life on a thousand houses, two hundred plus ways to find bargain properties, which is a lot drier than the autobiographical story of how a dumb ass figured out how to make some money. That was really colorful, especially I didn't care and I would tell you just how it was and how the bastard at the Get Rich seminar didn't tell me about this crap. There wasn't even a chapter on this shit that happens every day. You know what's up with this? So I was just telling the truth about the whole thing. And and then I wrote this book to kind of get your juices flow and it starts out on how to generate leads with no money like most of us started out broke. Right. Everyone starts out broke. Everyone I know started out broke. I started out broke. So it starts out with the really cheesy ways to just do it with nothing. Man Go find the political science, pick the people you don't like, steal their signs, cut them up, turn them over and write on the back. You know, the guys that you like leave them up till after the election, then go get them, then them you'll be doing them a favor. Right, because they have to take them down with a certain amount of time. They're supposed to. They never do. I was the world's king of bandit signs. But, you know, everything runs its course. What used to work doesn't work anymore. Maybe then maybe it's time to try bandit signs again, because maybe they're coming back now. But what works right now is outbound calling to people who are showing signs of struggle like they're behind in their taxes or they have a lot of judgments on them. So we got overseas people calling out and all they're trying to do is, are you this guy that the tax rules are you, Mr. Smith, on the tax rolls that owns this house at one, two, three Main Street, they say yes, OK, that's one good thing. Do you want to talk about selling that house? Yes. OK, that's two good things. That's enough. Let me get over to my acquisition. But now that's all my outbound callers do. They don't. They don't know the size of the deal, they don't do anything, they just find the guy and see if he wants to talk.
Dave Debeau [00:14:48] Smart, smart,
Mitch Stephen [00:14:50] and then we get them to over to our closers. And then the last book was the book I wanted to write, you know, because not very many people in the world were doing this at all 20 years ago or 15 years ago or even 10 years ago. And it was the art of owner financing your sale to your buyer. Now, everyone and everyone had heard of trying to get your seller to owner finance you on the acquisition. But like, nobody was doing this. And my God, when you start owner financing your own house, there's no inspections. I can sell a house with a hole in the roof the size of your desk. And, you know, I can finance the whole and the house and everything for 30 years. And all we got to do is the buyer just got to agree that he understands there's a hole there that he's going to have to fix, you know, try to do that FHA or VA or any kind of bank loan. And I can charge whatever. Well, we got state statutes, so they've got some limits to the interest I can charge. There's some arguments that if I sell over, I could usually sell 10 percent over the market, although right now the markets are so hot that I'm probably right on the market. But the recession when when houses prices dropped by twenty five percent, I was still selling at the rental rate. What happens to rents when when housing markets collapse? No one can buy a house. That's why they collapsed, because the bank stopped loaning. So if you're not buying a house, you're renting a house. When there's a lot of pressure put on rent in the middle of the recession, the rents are going up because no banks were loaning on anything, though. So what is my own refinanced value based on? It's based on the risk. So in the middle of the recession, about 2010 to 2012, I have the only appreciating house in the state of Texas, probably. And it wasn't because my houses were any different, anybody else's. I was offering owner finance and I was the only guy giving a loan and the rates kept going up and I kept backing into the rent formulas to find my price. And every month my prices would get higher. But it's a huge dynamic that is so great because when you think about a business, most business has got to worry about the cycles. When do we get in? When do we start pulling back? Wins the collapse going to happen? I boom like crazy in a recession. First of all, I'm using all private money, so I don't need a bank to buy the house. And then second of all, my buyer, I'm financing my buyer so he doesn't need a bank to buy my house in the recession when the bank is closed, I'm the only guy. Open your bank. You're the only bank in town. I was buying I was buying a house a day in the recession. Still, I scared myself. I scared the crap. I looked up one day I had here's my problem. I was the house buyer and the house seller for my company at the time was a big mistake. So when you're out buying a house today, you're not selling Jack. You're not selling nothing because you're buying a house a day is a full time, overwhelming job. And then I looked up one day and I had forty five houses that I hadn't been able to. I had taken the time to even look at her. Sellers is buyer. I've got a better stop buying and go go sell in. But next recession. I won't because I got a sales team now and I got a buying team now and I'll buy and I'll keep raising private money because I'm trying to get my powder stocked up and dry for when, when it hits. If it hits that well it's going to hit, it always hits. It's just a matter of when. I think the current president will push it out if he gets re elected another four years at least the recession. That's just my personal opinion because there's so much optimism. But it's.
Dave Debeau [00:18:20] You're you're you're a bevy of knowledge, and I'm sorry that we're running out of time here, my friend, we'll have to circle back and do another one and talk about finding investors and raising capital and all that kind of good stuff, because it sounds like you definitely know your stuff there if people want to find out more about it. Stephen, what should they do?
Mitch Stephen [00:18:37] Go to one thousand houses? Dot com is a matter of fact. If you go to one thousand houses, that's one zero zero zero houses that come forward slash free book. You can get a copy of my first book, absolutely free if you'll simply just pay for the shipping in the handling port because it costs money to mail. This is a 400 page book, but most people read it in two settings because I did a lot of things in this book that make this book move very fast. So you that if you want to just download the 100 pages free, you can go to one thousand houses dot com. You can get the first hundred pages like right this minute,
Dave Debeau [00:19:15] which has been a lot of fun. Thank you very much for your time today and sharing your story. It's very, very entertaining and inspirational.
Mitch Stephen [00:19:23] Thanks, my friend, and appreciate you giving me the time. I'm I got to meet your audience.
Dave Debeau [00:19:27] All right. Great. Take care. See you on the next episode of. Well, thanks very much for checking out the property profits podcast.
Dave Debeau [00:19:34] You think what we're doing here, please head on over to iTunes, subscribe read us and leave us to review it. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom Ticker.