Table of Contents - Using Terms to Buy and Sell Property with Zachary Beach
Dave Debeau [00:00:09] Everyone, this is Dave Debeau with another episode of the Property Profits Real Estate podcast today, zooming in from beautiful Rhode Island. We've got Zachery, also known as Zack Beach. How are you doing today, Zack?
Zachery Beach [00:00:22] Dave, I'm doing excellent and a beautiful day down here and in Rhode Island, so happy to be here. Thanks for having me on.
Dave Debeau [00:00:28] I'm happy to have you. And the people, if they're looking at the logo on your shirt, they might recognize that because you are a relation to somebody else that we've had on the podcast a while ago. Why don't you tell us a little bit about the company that you're working with and what you guys are up to?
Zachery Beach [00:00:47] Yeah, so smart real estate coach, or as you looking at my logo, this is actually another buying and selling entity that we have pre property solutions. I work with my two partners, which people might think I'm crazy, but they're my in-laws. I have my brother in law and my father in law. And we actually own and partner multiple businesses, one that we buy and sell real estate primarily on terms which I'm sure will dove into. And then the other one is we actually teach people how to build and scale their real estate business by using our systems to buy and sell property without using their own cash, credit or investors money as well. So hitting it from both sides. And I was hanging out with the family.
Dave Debeau [00:01:26] Yeah. Yeah. Well, that sounds sounds like fun. Could be a little bit challenging from time to time, but as long as you keep the wife happy, I'm sure it'll all it'll all be done.
Zachery Beach [00:01:39] Yeah. She actually used to work in our business as well, but now she's at home with the kids as I was at Galvan's. So yeah, I was fully in it with the entire family at one point in time. So it is certainly been an adventure, but a successful one at that.
Dave Debeau [00:01:53] All right. Well, let's dove into buying and selling properties, buying and selling real estate on terms, especially now that we're in this whole covid situation. So first of all, for folks that are kind of new to real estate investing, they aren't quite sure what what that even means. What's your definition of buying and selling property on terms?
Zachery Beach [00:02:15] By NCAA terms to us means that we're not using our own cash, credit or investors money, we're primarily buying properties via contract. Most of our deals are done with three different techniques, one being a lease option or at least purchase, one being a subject to deal, meaning you're going to close on the property and acknowledging that there's an existing loan on it. So you buy the property subject to the existing loan and then the third would be owner financing. And if you even wanted a niche further down owner, I'd say we primarily work with properties that are free and clear. That way we can create really good terms with the seller. I have the seller finance the property for us and primarily we focus on principal only payments when we do those such deals. So obviously major leverage, they're awesome.
Dave Debeau [00:03:06] All right. So we've got the three main categories, rent to own, being one of them. So rental. And there's a variety of different strategies there. I imagine you guys are doing basically a sandwich lease kind of a deal. Would that be fair to say? Yeah, absolutely. Yeah. So basically, you find a property owner who wants to sell the property. You lease it off of that owner with the right to purchase it within a specific time frame for a specific price. So you've got those terms all laid out and then you also have the right to sublet that property to a tenant buyer. Different terms, different price. That's where you make a profit at the end of the day. Is that correct? Pretty much
Zachery Beach [00:03:48] accurate.
Dave Debeau [00:03:49] Right track. And the second one is you're focusing on buying properties subject to the underlying financing. Yeah, these are all kind of creative strategies, you guys. And I've done these and a lot of our our listeners are Canadian, so it does work in Canada. Land to you guys. So this is the buy that you're buying the property from the seller, but it's got the seller's mortgage on the property and you're buying it subject to that mortgage. Now, everybody says, well, you can't do that because the bank says you can't do that. You have to assume it's not necessarily. Not necessarily. They prefer for you to do that. But, yes, you can do that, especially if you buy it, find a motivated seller. And then the third way is when you find someone who's got a property tax free and clear. And I don't know about the stats in Canada, but I've heard the stats in the States or something. I was somewhere around like almost a third of all properties are free and clear in the States, is that correct?
Zachery Beach [00:04:49] Yeah, that's accurate. Yeah.
Dave Debeau [00:04:51] So there you're finding somebody who doesn't have a mortgage and you're able to get them to be the bank for you in. The smart thing you guys are doing is you're making payments to these guys, but there's no interest. It's principal only and people are probably going, why the hell would anybody do that? So so maybe let's take a look. If you if you're OK with that, let's take a look at each one of these. And under what circumstances does it make the most sense to do each one of these strategies? So let's start with your release options, your rent own deals. Where where does that offer make the most sense to? The nice thing is when you're when you're going in to make an offer on a property, it's not take it or leave it. This is this is that it could be this or this or this. Right. So you've got multiple different offers, strategies. What is this one makes the most sense.
Zachery Beach [00:05:39] Yeah. Not only can it be this, this or this, but then also within that we can mess with different terms such as length of time, monthly payment deposit, no deposit. I mean, most of our deals have little to no money down. And then on top of it, which I'm sure people, again, think that people want to do that. But I tell you, we've done hundreds of deals throughout North America and people do it. Our mindset, as always, is we're looking to solve people's problems. And most of the time we're able to solve people's problems at the traditional market. Cannot that's why we end up working with a lot of people that expire off traditional estate or somebody that's trying to sell the property to a for sale by owner. And they want to go around a realtor. Right. So they don't to pay commissions. So let's look at, you know, at least option rent to own is exactly how we sell it. We sell through our rent to own program, and we would typically make that offer to a seller if there's a mortgage on the property and if the seller is not willing to give up title. And typically when we're doing our lease option, it tends to be more equity that a lot more equity than if you would do a subject to deal, meaning the seller has a heck of a lot more. So they're not just it's not just can be a quick installment sale of like say ten, twenty thousand dollars there, which we would do more subdued. So the lease option, typical friends of mine has a mortgage. Now I'm willing to give up title and that's why I look at it from there, because it's always my backup plan. In all honesty, it's the easiest one to get done, mainly because the seller is more likely to continue to hold title or would rather do that. So they get tax benefits. Now, that associate with it and some people feel as though it's more of a secure position. And then moving to the next I mean, if you buy the property subject to the existing loan, I would say we typically would be buying a property at that if there was little to no equity in the house.
Dave Debeau [00:07:33] Well, hey, there is David, but I just want to give you a quick little heads up that starting in January of twenty, twenty one, we're going to be doing something a little bit different with the Property Profits Real Estate podcast, and that is on Fridays are going to be doing something. I'm going to call Free-Flow Fridays. What does that mean? That means that it's not going to be the typical interview that I do with a leading real estate expert. It's going to be either some Hands-On in-depth training around raising capital, attracting investors or raising capital, which is my specialty, or it's going to be a short but sweet little video blog with some sort of a mindset or a raising capital tidbit, or it's going to be a short one or one conversation, interview style with somebody who is actively raising capital. So the the free flow Fridays are going to be a lot more all around attracting investors and raising capital. So we'll get that started in January. In the meantime, have a very, very happy holiday and all the best to you and your family. Take care. Somebody bought a house a year or two ago, let's say, what's a typical price point in your neck of the woods? What kind of houses?
Zachery Beach [00:08:51] If we're talking just in New England because we buy properties nationally, just in New England, our median price range is probably between, say, three ninety nine to six ninety nine. That's a that's a good price. Oh, yeah, absolutely. I mean, we're in New England, so, I mean, you get you get what you pay for, I guess. So our sub two deals tend to be. Yeah. Somebody that's maybe just bought the house a year ago and they bought it with an FHA loan that I put five percent down or three percent down. And now they have to move or relocate or you've had somebody that's been there a while as owning a house for a while, but has been in a flat market. So there's little principle pay down and not much appreciation. So if they were
Dave Debeau [00:09:32] to finance and they still have no equity in the whole thing. Right.
Zachery Beach [00:09:35] So, yeah, and if they go sell the realtor, they're coming out of pocket. Yeah. So, yeah, exactly. So that tends to be I'll tell you before we dove into the owner financing, owner financing and sandwiches and sandwich leases tend to be more of a real estate problem, like somebody has a second home or they're they're moving. They're not like under financial distress. A subject to deal tends to be more of somebody is under financial distress. That tends to be more of a money problem because they don't want to pay out of pocket. They don't maybe they are in arrears on their house and they need to make additional payments, something along those lines that tends to be more of a financial strain because not many people are open to handing over title without the mortgage being off of their name because that's still attached to their credit. Now we have we have a large amount of credibility we can do is a long time. We could probably get more people to do it than most. But you'll tend to see those are more of a financial desperate.
Dave Debeau [00:10:31] They're they're pretty desperate to move on. Yeah, absolutely. Quick quick question for you, Zach, because people are probably wondering this. I mean, we understand with the lease option, there's some equity in the property, so you're able to get it at today's price. You're going to sell it to your tenant buyer at. Tomorrow's price two or three years down the road, whatever that is, so there's there's some margin there, but with a subject to deal, there's no equity in that property. How do you guys make money?
Zachery Beach [00:11:00] Yeah, those are definitely to be long term deals for obvious reasons, right? We get the appreciation come up and we get to pay down the principle in order to create that margin. Those tend to be and we tend to not have end dates like on any of these subcu deals. So we can hold on to this property for as long as we so choose. And until it gets to a point in which either one of our buyers, which we can cover on the back end on how we get paid, one of our buyers catches us out or we get to a point where there's enough profit to sell the property. Traditionally at that time, of course, it'll come down the financial numbers, if that's an asset going to hold on to. But none of those deals have end dates.
Dave Debeau [00:11:40] OK, so basically, are you getting a rental and tenant buyer in the subject two properties? Is that your exit plan? Usually.
Zachery Beach [00:11:49] Yes, all of our all of our exits tend to be, let's say, 90 percent rent to own, 10 percent owner financing without getting too in the weeds with the subcu and the owner financing deals. We get long enough deals. We could sell them on a rap mortgage. We could do owner financing to the end buyer. But typically we'll do a rent to own that. We continue to maintain full control of the property. But obviously, if you're sitting there and you're trying to decide which way you would go, I would say no, your foreclosure laws versus your eviction laws, because that's going to make the difference. We buy property in Texas and say you're better off seller financing because the the foreclosure laws are like you get people on 60 days compared even here. I mean, in Rhode Island, our eviction laws are longer than that. So just know your laws there and they'll tell you the best way to control these properties.
Dave Debeau [00:12:42] Makes sense. All right. So we take a look at some of these options we've taken a look at subject to deals. Now let's take a look at owner financing again. Quick reminder, that's where you find somebody owns a property free and clear and you get them basically to finance you for that. So somebody is probably thinking, OK, and you also said your favorite way is to get them to do that with principle only payments. So you're not of any interest payments and somebody's going to sit back and say, OK, well, this person is not in financial dire straits. This is more of a real estate problem. Why on earth when anybody who owns a property free and clear sell it to you without you having to pay any interest on it?
Zachery Beach [00:13:26] Yeah, good questions. So a typical so that we would craft up principal payments, somebody that I was looking to net the most net profit on the house and doesn't really want to deal with any type of, like, tax burden, because if we were to sell the property or I'm sorry if they were to sell the property to us with interest, now they have to claim that interest as income. So a lot of sellers actually like the fact that we say, all right, well, what we'll do is we're going to pay you today's value and even sometimes a premium, because obviously when we make those principal pay down, we're going to be able to catch up on that rather quickly. So we'll pay the premium and we'll give you, let's say, a thousand dollars principal payment every single month. Well, that thousand dollars to them is directly coming off the purchase price, but it's also going directly in their pocket compared to a thousand dollars. That's four percent interest on it. Now, they have to pay the income tax on that as well. So from a financial or some major tax benefits for a seller, when when we do it just with principal only payments. Also, most of these deals don't tend to be like a 30 year mortgage. We're talking like five somewhere between five and seven years. So it's not like they're going to finance it probably forever. If we were doing more of like 10, 20, 30 year mortgages, we'd be expecting to pay interest. These tend to be shorter term owner financing deals because we're able to make significant headway and get a lot of wealth in a short period of time. And we're still selling our property through our rent to own program, which our sellers, I mean, our buyers only need roughly twenty four to forty eight months to qualify for a loan. So it's not like we're, we're doing some significant long term deal on this.
Dave Debeau [00:15:01] Very, very cool. All right. So backing up just a second here. What's in it for the seller is potential tax savings because it's principal only. They don't want to figure out the whole interest thing and principal and interest and all that kind of stuff. Plus, in some cases, you're actually paying them more than what fair market value is for the property because they're financing you. So when you crunch the numbers, you take into account principal pay down over that time doesn't take you very long to catch up on that. Is that correct?
Zachery Beach [00:15:31] Yeah. Most sellers are just stuck on a number. Like it's like they believe this value of their house is worth X value. Well, by buying and selling terms or buying the property in terms you're you're able to get them to their number, but you're using additional terms in order to make it beneficial for you. So by having the principal only payments, if you're buying a house that's worth five hundred thousand and you give them, say, five, 12 and you have five years. Well, you make up for that premium in the first year. So now you're back to the basics and you've already been cash flowing the house. You've been building an equity and you've already sold it because you've got a nonrefundable deposit from a tenant already through your cash flow and making that profit, that property profitable. But in their mind, hey, they're able to go brag to their their brother in law and say, look, I got my number, actually sold it for more. But little do they know it's going to take five years to get it paid off. But that's how we can craft these things up that make us different because we fish in the same ponds as other people. Like we're calling on for sale by owners where we're working with people that maybe expire off the top of the market or are getting these these next mailings just like everybody else. But we're able to present totally different options and get them closer to what they're looking for and not lowball. So that's how we pull off some of these deals.
Dave Debeau [00:16:47] Love it. Love it. Love it, Zach. Time flies. We're having fun. I know you got a book. You got Amazon best selling book, New Rules of Real Estate Investing. If people want to get a hold of that, what's the best way for them to do that? Amazon best seller. So I'm guessing I'm just. Yeah, netballer here. Maybe Amazon buy these together.
Zachery Beach [00:17:07] Yeah. You can get that book on Amazon, of course. And our other Amazon best selling book, New Rules I'm sorry, new rules, but also real estate on your terms, which is actually coming out. We're doing a rerelease where we add some additional chapters there as well. Get those both on Amazon. But if you want specifically new rules, go to new rules for free dotcom. We're not shipping right now due to Kobe. We don't many people in our offices anymore. But you can go ahead and grab the PDF there. And also, if you want to chat further about what you've heard here, me and Chris are always doing free strategy calls. You can just go to smart real estate coach dot com slash action and it just six steps and we'll hop on the phone and see how you can best implement this either as a new business or with your existing real estate business.
Dave Debeau [00:17:49] Awesome stuff, Zach. Thank you so much. It's been a lot of fun. I really appreciate you dove deep into those three creative strategies. Thanks to. Right. Everybody take care and we'll talk to you on the next episode. Bye bye. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that's great. Please go ahead and subscribe on iTunes. Give us a good review of that. Be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there for the money partner. Formula, you got a PDF version at investor attraction book, dot com again, investor attraction book, dotcom ticker.