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Seller Financing with Eddie Speed
In this episode, Larry talked to his friend, Eddie Speed. Eddie has dedicated his professional life to the seller financing and non-performing note industry. Over the years, he has introduced innovative ideas and strategies that have positively impacted the way the industry operates today.
Eddie founded NoteSchool, a highly recognized training company that specializes in the teaching of buying both performing and non-performing discounted mortgage notes. He is also the owner and president of Colonial Funding Group LLC, which acquires and brokers discounted real estate secured notes.
In addition, he is also a principal in a family of private equity funds that acquires bulk portfolios of notes. He has been a leader and innovator in the note business for over 30 years now.
- Moving from an automatic no to yes
- Who Eddie Speed is
- How he started buying notes
- Understanding the note market
- The kind of changes he witnessed over the years
- What he's doing in today's market
- Other ways of getting the same effect with zero interest
- Different ways of structuring zero interest
- Why he is not a big fan of land contracts
- The kind of marketing for seller financing
- Buying and selling properties on terms
- Financing zero percent
- Note Architect Software
- “We serve the best when we like something we are doing.”
- “Trees don't grow to the sky.”
- “You have to believe that it can be done.”
RESOURCES AND LINKS FROM THIS SHOW:
Larry: Welcome to the Brain Pick-A-Pro show live from Lake Wylie, South Carolina, and all the way over in Texas. Man, I gotta tell you, if I could be from any other state, it would be Texas. I love Texas. I love everything about it. I love all the people there. My great friend from NoteSchool, founder of NoteSchool, been in the note business for many, many years, my good friend, Eddie Speed. What’s going on, buddy?
Eddie: Hello, Larry. How are you, sir?
Larry: Man, I am doing great. How about yourself?
Eddie: I’m good. I’m doing good.
Larry: That’s awesome, that is awesome. I’ve been really excited knowing that this was coming up on the calendar because, you know, you’re the expert in one of my favorite topics and that’s notes. Notes, seller finance, and all that stuff, and that’s something a lot of people aren’t very familiar with. I mean, you know, I teach people some stuff like the Filthy Riches program and stuff like that but you are like –you’re like a transactioneer for notes or an architect for notes, right? I mean, you know every single way there is to put a note together.
Eddie: Well, you know, I mean, I’ve been doing it a decade or two and I like doing it. You know, I think, you know, you and I have been friends for so many years and I heard you say something the other day I thought made a lot of sense. “I won’t do this, I won’t do this, I won’t do this ’cause I don’t like it, I’m not good at it, I’m not gonna make myself good at it.” And I thought that was some of the best advice I’ve ever heard. You know, we’re good business guys, right? We’re very seasoned. There’s a lot of things we can do but I think we serve the best when we do something we like doing and I like the – you know, structuring the deal and I like it from two sides. I like it, you know, I’ve run a financial calculator and done a lot of, you know, deal structuring from a lot of my career. The advantage I had is is because I spent my whole career with somebody else bringing me their seller finance notes so I got different ideas.
Eddie: Some good, some bad, right? And then the other thing is, you know, I like the talk-off. You know, like when you sit down with a customer ’cause, you know, initially when you’re telling my customer you’re not gonna pay them what they want, well, you know the deal, right? That’s not good information for ’em.
Larry: Right, right, right, right.
Eddie: And so you’re trying to – I call it moving them from the automatic no to the yes and you’re good at that, Larry. I mean, I’ve listened to you a lot. You have a good skillset in doing it so I look forward to this conversation about that whole thing today.
Larry: That’s awesome, man. I appreciate you saying that. You know, tell our listeners a little bit about yourself. I mean, you’ve got a huge background. You’ve helped so many big names in the business get started, big organizations, franchises, set up their seller finance models and finance models and stuff like that, so give us kinda the overview of who is Eddie Speed.
Eddie: Well, I’m a southern boy, like you. I started the business in Mississippi. I’m originally from Mississippi, my wife is from Mississippi and her father and another guy really founded a lot of buying seller finance notes back in the late seventies, so I stumble along, just a kid, twenty years old about 1980 and, you know, I was clueless about how to do the business and so we got started and they gave me some tasks and, you know, I was a grunt and then they started teaching me how to go out. Back in that era, people seller-financed property because of high interest rates and you could make seller financing lower than market interest rate. Conventional parties were 18 to 20 percent, so I said this, you know, you and I were together hanging out the other day in an event and I said, “The best things that have ever happened to any of us have really become a result of something going wrong and then we found an opportunity or we found a niche that otherwise we wouldn’t have found,” you know what I’m saying?
Eddie: And I think everything that I see you teach it’s like something went wrong and you in the middle of that said, boom, I can make an opportunity out of this. You know and that’s really what happens. Seller financing became a big need in the market and we were buying notes and so in the eighties, Martha and I married in ’82, and in the eighties we moved to Texas. We were just buying one-off seller-financed notes. I kinda perfected the idea of doing direct mail, you know, in the late 1982, kinda banged around the courthouse and started writing down a list and mailing people cards and letters saying, “We can buy your notes,” first guy who ever tired it, just ’cause it was a virgin industry, right? It doesn’t make me smart, just made me just, you know, as an entrepreneur, you always gotta keep trying, right?
Larry: Right, right.
Eddie: And so, you know, by the late eighties, I started buying a few portfolios of notes. Like people would bust up tracks of land, you know, and bring me twenty notes or they would have houses and their institutional investors were very opposed to buying that kind of business. They were scared of real estate investors because they felt like, you know, they were selling houses that weren’t repaired and, you know, it was a whitewash job, so to speak, and they were scared about it. Then, you know, by early – in ’92, I bought a portfolio of notes from a guy in Texas back in the eighties, by ’92, he decided he’s gonna franchise the house buying business. Name was Ken D’Angelo, guy that founded HomeVestors.
Eddie: Same town, he and I were friends and he said, “What I need you to help me is is I need you to write a recipe.” Now, you got to remember I’ve been discussing this subject now since the early nineties. We’ve come up with better definitions of what it was. I don’t know that we said the word “recipe” back then but that’s what it was. Like how do you make a note that somebody would buy in the secondary market?
Larry: A saleable note.
Eddie: A saleable note and for the most money.
Eddie: And real estate investors are not accidentally gonna do that. They’re intentionally gonna do it if you tell them how to do it but they don’t understand how the secondary note market works so they don’t accidentally think of all of the nuances, so that was kind of the start of really many years and hundreds and hundreds of guys that sold lots of property and carried notes. So, you know, I’m just giving credit for a guy with vision ’cause he really did have a ton of vision and seeing that they needed the connection with the note market and understanding upfront before they made a note how they were gonna make it.
Eddie: And there’s just more. You know, I personally bought about forty thousand notes, our executive team and we hired a bunch of people that came from metropolitan, associates in Bayview so, you know, our executive team now has, I say, three and a half billion dollars’ worth of acquisitions underneath them of buying seller-carried notes, which is excessively more than other people so they’re the smart ones. I just get to be the messenger.
Eddie: That’s the truth.
Larry: Yeah, well, you know, I mean they came to you for a reason, Eddie. So, tell us a little bit about – I mean, you’ve seen, and I’ve heard you talk on this and I said it on your talk the other day when we were both over in DFW in Dallas the other week and, I mean, you’ve seen so many markets up and down. I mean, you and I both know, a lot of people don’t really understand this, they get it but – they know it but they don’t get it. Trees don’t grow to the sky, right? There’s ups and down markets, right? So, you’ve seen a lot of ups and downs, a lot of markets and you basically have to roll with the changes, right?
Eddie: That’s it.
Larry: Tell us a little bit about some of the things you’ve seen over the years and also, you know, what’s going on right now and what are we doing right now to help, because right now it’s a tough market for real estate guys, for guys that are looking for deal flow. It’s tough but you, you know, you’re in a position where you’re helping those investors find deals kinda through the backdoor or create their own deals.
Eddie: Well, you know, it’s funny. You know, Larry, I would love to tell you that I sit around in a padded room and just think up brilliant ideas but most everything I figured out and I suspect same thing with you, right? We just – it’s just one thing after another when we finally trip the switch and say, “Why didn’t I think of that six weeks ago or six months ago or a year and a half ago because it has been right in front of me and I’m plenty seasoned enough that I should’ve recognized it.” So, you and I have a mutual friend, a well-known, kind of a big-time real estate investor. Not kinda, he is a big-time real estate investor. If you call six or seven thousand houses a lot, and I was sitting around there at dinner one night, really with him just telling more stories about us buying property and getting a seller to carry financing for us and we were – you know, this was – I was telling him about where we bought a track of land and paid a big down payment and she immediately released the portion of the land that we paid the down payment on and the balance of it was written at zero interest and the first payment started – annual payments, by the way. Payments due at the end of the year and not every month.
Larry: There you go.
Eddie: Annual payments at the end of the third year is when they start and, of course, I’ve got a guy that I do land stuff with that you know, he’s a country property guy and I have a lot of experience in that and of course real estate investors say, “Well, I’m not a land guy.” It doesn’t matter what you buy. It could be commercial, it could be land. You know, Martha and I, we came to Dallas and wanted to buy property in 1983. First of all, I was self-employed. The bank markets in ’83 were a hot mess. And the only way we could buy a house was by their own terms.
Eddie: Not with the seller-carried financing, and so I’ve been doing this forever but, you know, it kinda spawned me to say that this would be a one big thing that I could help real estate investors with. They’re making a lot of offers. You and I see the TV shows and all the info marketing about buying houses and they make it sound really sexy but you and I are also in Masterminds with guys that are doing significant volume. And their conversion rate, the number of offers they’re making to the buys they’re getting, just keeps going down, down, and down. It’s about half of what it was in 2014 and it’s because there’s less discount houses for sale because the market is so hot, people don’t have to discount. Supply and demand, right? And you and I look at that and think, if you’re really in the business, you know, I know if you’re kinda drinking the Kool-Aid and, you know, you’re just thinking you’re gonna put a bandit sign below a stop sign somewhere and somebody’s gonna blow your phone up and go save something for fifty cents on the dollar, that’s just inexperience, right? The real deal is the conversion rates are tough and people say it’s inventory, right? They say, “I don’t have any inventory,” and I say, “Well, go look in MLS.” They’re good for it. They’re like, “Well, I wanna buy something at a discount.” Oh, okay. Now we’re back to how many offers you make and how many deals and, you know, that’s what I saw and I just – I realized, Larry, you and I have a lot of mutual friends that are like big-time old real estate investors, buying on terms is not a new subject. Buying at zero interest and all that stuff is not a new topic and I just woke up and realized though that I wasn’t certain anybody ever took it to an A level. Like what are the forty or fifty terms you could put into an agreement that they gave you the borrower the absolute smacking best deal you could ever do? Just think of it. You and I have been to closing a zillion times, right? Where a lender made the loan, you show up, you got those big stack of documents, you know? Nobody knows what the heck they say, right? And even if you’re like us and at this point in our career we dang sure know what they say. They’re not good for us. They’ve got a personal guarantee and you’ve got to qualify for the loan. You had to pledge this and guarantee that and the lender wrote all this stuff in there, and just think about it, you could sit down with a smart attorney for a couple of days with a red pen and cross in everything you didn’t like in all that stack of documents and you could reimburse it and you could put it all to your advantage.
Larry: Make it pro buyer.
Eddie: Man, you know, not just carving up zero interest.
Eddie: I mean, zero interest will work sometimes, right? But there’s all kinda ways to get the effect of zero interest and do it in sort of a backdoor way. You and I have a mutual friend who was talking to me Monday and I said, “Let me ask you a question.” I said, “Would you rather get zero interest for nine years or 2.5 percent interest for eighteen years?” Of course, you know, the impulse answer, right? “I’ll take zero.”
Eddie: I said, “No, mathematically, I can show you that you would be better off to pay a little interest and get the terms stretched way out and you could pay no interest and just get it for eight years,” ’cause that discount really comes like year 12, year 15, year 20. That’s when that paying for today’s price for a property bought with tomorrow’s dollars. That’s when that money really starts discounting.
Larry: Right, right, and that’s huge. That’s really, really good. There’s so many different ways to do that. You’ve mentioned a lot during that last little segment. You mentioned a lot of different things but share a little bit about some of the terms that you would, as a borrower, if you could strike out all that other stuff that the lender, there’s so many great things that people don’t even think about that they would put in and I know you have a whole list of them but share a few of those.
Eddie: Here are some things to think about, like, in the distressed morbid cycle that we just went through that most everyone of your listeners would be familiar with, right? The customer would then go back and sign a modification with the lender, right? And the modification would have like – sometimes they would put in some catastrophic clauses like, you know, a guy’s got a property and he says, “Okay, it’s good but I can make it as long as you let me rent it but if I cannot rent it or can’t get a payment in it ’cause it’s baked in then you gotta give me a little time to make it work out.” Well, you could bake that in the document up front. I mean, for whatever reason, the property would not make it for sixty days, you could put a moratorium on payment ’til you could get it refilled.
Larry: There you go. That’s sweet.
Eddie: So, and, Larry, if you had a deal and it was written at like a ridiculously low rate like 0 or 1 or 2 percent and it was stretched out over twenty or thirty years, the last thing on earth you’d wanna do if you want to sell that property is to go pay off that loan.
Eddie: Right? So go move it to another property, right?
Larry: There you go.
Eddie: It was on property A, now you gotta move the financing to property B.
Eddie: I’ve been a note guy my whole career, right? People have shown up on our doorstep probably seriously over three hundred thousand times trying to sell us a note. We didn’t buy three hundred thousand notes but we’ve seen three hundred thousand, and I look at some of the stuff that people have put into their agreement and I always have noticed nobody really put in like a first right of refusal list that got some insane teeth in it. I’ve seen people do a first right of refusal and all I had to do as note buyer was write a letter and I could have been operating a telephone booth, right? I mean, we’re a legitimate note buying operation but they – it didn’t even call for ’em to prove the guy was a legit note buyer, right? And all he’s gotta do is write a letter saying I’m gonna pay this for the note then the note seller’s gotta go max that. Well, that’s not a legitimate – you’re competing against air, so one of the things I would do is put in a first right of refusal to buy the note that says you go out and find a real note buyer that has evidence of money in the bank and fund it and they write an unconditional commitment to buy that note, unconditional, and then I got 120 days to match it.
Larry: There you go. There you go. You won’t find that in a bank note.
Eddie: You got it, and so we’ve kinda calculated or we have calculated at least forty different things that we could put in there. The financial terms are good, right? Putting in there. There’s all kind of ways you could structure at zero interest. You could – you know, what if I wanted money at closing and you didn’t wanna, as the buyer, you didn’t want to come up with the money? Well, then, you could do a small first lien that I could sell to you at the closing, Larry.
Eddie: You’ll buy a note. I mean, I could structure a loan that would pay out in two or three, four years, boom, and you’ll write a check at the closing and then I could structure a second lien that I would start paying after the first paid out, right? If the seller of the property insisted on cash at closing, then I would know how to architect that deal and create it and call you up, have it all prearranged, “Hey, Larry, I’m gonna sign this note. You need to look at what you need to be comfortable with. I need you to fund that note right after the closing,” and you’re like, “Hey, it’s a good note. Its 20 percent of the value of the property as the first lien.” You ain’t got no problem with it, but all of a sudden, then that gave them cash to walk away from the closing but it’s not my cash, it’s the buyer’s. Anyway, it’s fun.
Larry: There’s so, so many different ways to structure these things. That’s awesome, and that’s just a simple thing. It’s called table funding using your note buyer and lenders, commercial lenders, big banks do it every day, don’t they?
Eddie: Yes, sir, absolutely.
Larry: A lot of times when you go to get – borrow money from a bank, you’re getting the loan from this bank but they’re not even the ones putting up the money. They’ve got the note sold at the closing and we can do the same thing, can’t we, Eddie?
Eddie: That was what I did for all these real estate investors. I set up the deal where they wrote a note to a certain formula so that they knew that I would fund that note right after closing, that let them offer seller financing. That’s how I built the note buying business.
Larry: You know, and what amazes me is it’s my understanding and you can probably validate this, there’s more seller-financed transactions in the state of Texas than anywhere, right? And two things about that blow me away. Number one, they don’t allow land contracts and, number two, you can’t even do a lease option more than six months, right?
Eddie: Right. You know, the thing that I have noticed, Larry, is most things about real estate and certainly real estate investing is a copycat system. Like, if I go in the mid-West, everybody is land contract-centric, okay? And I’m – to be perfectly honest with you, I’m not a big fan of land contracts, okay? I’m like sell to somebody that you – our main trouble with them paying you back, get them the title to the property. If they have to go mow the grass, they don’t – you know, in a land contract, you hold the title of the property and the code enforcement or the grass is too high or whatever then all of a sudden you’re – what, am I really the property owner or am I the note owner? You know, it’s like I don’t like all that stuff. I’ve never liked it. I’ll buy land contracts but I won’t pay the same price I will for a note in big trucks.
Eddie: And, I just get them on the premise that if you advertise in the right way, there’s a deserving buyer that won’t set property and will pay for it, good down, good credit, you know, you don’t have to sell to the substandard person, right? Because you’re self-employed, there’s all these reasons that people have a property or themselves that aren’t bankable that doesn’t mean it’s a bad deal, so, you know, I just really operate on the premise that, you know, Texas has – there’s so many people like us that have done notes, real estate investor starts investing in Texas, Houston, Dallas, San Antonio, and he knows also that it doesn’t take very long he starts knowing people that are associated with the seller finance space and they trend over into that business, and then they find out, wow, this is good. So, a part of it is they’re just copying somebody else that’s already doing it.
Larry: That’s so true. I’ve always said, if you wanna sell a lot of something, make it easy for somebody to buy, right? Seller financing is one of the things that does that, doesn’t it?
Eddie: It does. It does. You know – that doesn’t have to mean you’re unqualified though, right? I mean, you can still find people that really are – or every other thing, they really are deserving buyer.
Larry: And that’s something I wanted to mention now. I mean, there’s so many people out there with seller financing. They’re, you know, they’re running ads that say “little or no down or low down payment, no credit, bad credit, no bank qualifying, payments to fit your budget, payments less than rent,” you know, you’re not a big fan of that, neither am I. Share with ’em, you know, and I heard you say this even again just over the past weekend, what kind of ad should people offer in seller financing be running?
Eddie: Well, just think about it. Even if I don’t put the ridiculous ad of “Bad credit, no credit, no problem,” right? We’ve seen that kind of ad.
Larry: Right, right.
Eddie: It obviously means you’re gonna find somebody of substandard qualifications, right?
Larry: Someone that just got evicted and they’re looking for a place they gotta move into by tomorrow.
Eddie: Exactly. You and I know that guy, right? But even if that’s not the case, if you just put in a yard sign or you just put in a Craigslist ad or whatever and I know you’re really good at marketing for seller financing, and you just put seller financing in the ad, you’re thinking one thing and I believe that your customer is thinking something else. Up here, customer is reading into that ad no qualifications. And so, you’re saying, why would anybody that needed seller financing respond to that ad and the reason is I think it resonates with them that they’re paying a premium, right? They don’t feel like it’s special for them, that they’re a special situation. So if you ran an ad and said, “Seller financing for deserving buyers with large down payment,” I can tell you statistically, ’cause I helped a lot of real estate investors that have created tens of thousands of notes, had ’em split tax. I had them to do big of a marketing campaigns and here’s one set of buyers that really were low down payment, $1,500 down, you know, whatever, and not very strong, and then, oh, another set that had $8,000 down and $10,000 down and they really didn’t have bad credit. They may not could go get an FHA loan, that doesn’t mean they were not a deserving buyer, and I had just become an advocate of that.
Larry: That’s really good. That’s really good. I love that ad. I love everything about it. The only thing we’ve changed in our ads, instead of saying “with large down payment,” we say “with reasonable down payment,” and I think I’ve even heard you say that term before as well.
Eddie: I like that, yes.
Larry: And people will call up and ask, “Well, what is reasonable?” You know, our typical response is, “Well, most people end up putting 20, 25 percent down.” You know? And that’s kinda the number they go to, so if we’re selling a house for, you know, for fifty grand, they’re gonna put $10,000 down, right? So, we’re just looking for that person. Now, yeah, we’ll sell houses with 10 percent down, but we try to get as much as we can, not leaving ’em without any moving money or any – you know, ’cause invariably when they’re gonna move in they’re gonna have something. We don’t try to take all their money, right?
Eddie: Yeah, that’s not gonna work. You know, and it’s funny, we figured this stuff out just, as I said, along the way by accident. I had a friend many years ago, and, you know, there’s guys that owner-finance houses and then there’s guys that owner-finance just mobile homes and parks, right? You know that whole model, right? You and I have mutual friends who’ve done some of that, and most of those guys, the problem is when the owner finance those mobile homes and parks, about 30 percent that pay for it didn’t work out that or whatever.
Eddie: They’re not getting a lot down. They’re kinda getting somebody that’s kinda downtrodden in their credit situation and stuff, and I just don’t like that business ’cause I don’t wanna be in the repo business, right? Just not my game.
Eddie: And I had a friend from up north of you a little bit and he calls me up and says, “I got some mobile home paper,” and he said, “I know you generally don’t like to do that because you don’t like mobile home only and you don’t like the collateral and it doesn’t pay good,” he said, “But listen to my story,” and he says, “I listened to what you’re saying a while back about this running an ad targeting the very best demographic that I could find,” he said, “Every one of my mobile homes that I sold in the park paid at least $10,000 down.”
Eddie: And I’m talking to people from the Carolinas to Texas, all these markets that you and I know that was common, and they all got $500 down or $1,000 down.
Eddie: And I’m saying, “Your ad did not attract the most best potential buyer in the market.” That’s just an example.
Larry: Yeah. And that’s so, so important. It really is. You gotta, you know, when they’re getting $500 or $1,000, that’s not a buyer, that’s a tenant, right?
Eddie: You got it. You got it.
Larry: And the sad part about it is it’s not a simple eviction at that point. You know, you’re trying – you gotta pay ’em to leave, you know, cash for keys or, worst case scenario, go through a foreclosure to get ’em out. You don’t wanna have to do that, right?
Eddie: Right. That’s not good business.
Larry: No, no, not at all. Not at all. I was talking to a group over, I think it was in Nashville recently about seller financing and the guy called me up and said, “Larry, I got a note to sell you,” ’cause we sell notes to our students, and I said, “Man, that’s great, tell me about it.” He said, “Yeah, I did just what you said. I found my house for $7,500, I sold it for $30,000, I got $500 down, financed it for thirty years at 5 percent.” I said, “Whoa, whoa, whoa, what page did you see that on?”
Eddie: I know. And once again, the people don’t really have a recipe and stuff, so, you know, and to kinda circle back, you know, people said, “Eddie started out talking about buying a property on terms, now we’re talking about selling a property on terms,” but it does connect together.
Eddie: Because if you can buy on terms, there’s essentially three ways you can exit the house, right? You can either flip it with financing in place, soft terms financing.
Eddie: You could then wrench your way out of it, or what you and I would probably do is we’d note our way out of it, right?
Eddie: And so, the acquisition strategy of buying on terms is just a way to go off for essentially retail for a property, right? I could pay, I could outbid every real estate investor in town because I’m looking at how I pay them back versus what the price set on the closing statement, right?
Larry: That’s right.
Eddie: Everybody is sort of drunk on bylaws still, and this market is not very kind to you right now on that topic.
Larry: No, not at all. Not at all. I’ve done two deals this month where I got 100 percent financing, seller financing, no money down, twenty years at 5 percent. No bank qualifying.
Eddie: That’s a deal.
Eddie: That’s a deal.
Larry: And I was able – I didn’t even have to negotiate price. I said I’ll pay you your price. I’ll give you your price, right?
Eddie: Exactly. And the thing about it is this, Larry. People don’t realize unless they’ve been around this note space a long time, you and I have.
Eddie: This customer is gonna get tired of collecting that money.
Larry: Right. They are.
Eddie: And even though you pay what seem to be retail today, you know, you bought a property at today’s price but you’re paying for it when? With tomorrow’s dollars.
Larry: Over twenty years.
Eddie: Right. And you could do that, but ten years in, they’re gonna wanna cash out and then you’re gonna get to do what? You’re either gonna get to go trade that note and make fee income.
Eddie: Or you’re gonna buy your own note at a discount and so think in terms of that twenty-year note is essentially an option to buy that property for the next twenty years at a discount, we just don’t know what day.
Larry: Right, exactly. It’s gonna happen though.
Eddie: Oh, yeah, it’ll happen.
Larry: It’s gonna happen. People’s lives and situation changes and they get older, they wanna convert everything to cash for their kids, you know, grandkids, and it does happen. It’s gonna happen. Now you mentioned earlier about, you know, some people can even get 0 percent interest, you know, and I know a lot of people are thinking, “Zero percent? How’s somebody gonna finance 0 percent?” Right? So, talk a little bit about that.
Eddie: Well, I think the key to any of this stuff, Larry, is you have to believe it can be done.
Eddie: If you don’t believe it, you can’t sell it.
Larry: Good point.
Eddie: So, you know, we have a trade desk, right, Larry? We buy notes, we buy notes from a broker network across the country and these brokers are dropping direct mail to just individuals, just mom and pops that sell one house at owner financed.
Eddie: Now, we also have a trade desk and we buy from guys like you and other, you know, mutual friends that create a lot of seller financing so we look at our trade desks as kind of split down the middle. We got mom and pop notes and we got real estate investor notes, right? Both have seller-financed property but you’re not gonna show up on our doorstep with a 0 percent interest note, right? You’re gonna show up with the note that’s written in 8, 9 percent interest and it’s gonna have 20 percent down and, you know, that’s a different customer class, right? Then the brokers that are out there dropping direct mail just anybody’s owner-financed property, these mom and pops, on a national basis, they trickle in and wanna sell their notes. So we separated our trade desk to the mom and pop notes, okay? We took the last thousand notes we priced and were just carried by an individual that sold one property or they’re not always like investor like you and I, right?
Larry: Right, right.
Eddie: Eighteen percent of those loans were written at 0 percent interest.
Larry: Eighteen, almost twenty percent of those, almost one out of five, were the 0 percent interest.
Larry: That’s crazy, isn’t it?
Eddie: Eight percent were written at zero/zero. And here’s the thing about it. There are so many ways to carve it up. You and I have got some friends, you know, that I buy property on terms, you and I probably know fifty guys, if not a hundred, “Oh, yeah, I do that,” but I find that they sorta become a one-trick pony. This is kinda how they make their offer.
Eddie: So what I started realizing, I decided I was gonna be the A player helping people with this, and to go interview a lot of smart guys like you, and on and on and on, the long list of guys that did it and like see what was your magic trick and the next guy’s magic trick, what I realized is that what I needed to do is to show people various ways to do it because when you sit down with a customer, that customer is gonna drive the direction of the deal, right? You’re buying property I’m certain at a bargain. You’re getting zero down and 5 percent, and I know you know what you’re doing, right? And intuitively when you sat down with somebody, if you could smell that they were willing to carry that 0 or 1 or 2 percent, you would smell that, right? You wouldn’t walk away from that but you’re a danged seasoned guy, Larry. I need to be able to take somebody without your level of knowledge, I need to like show – I need to let them prepare like an option 1, an option 2, an option 3, and then just sorta go to the customer and say there are some different ways we can do this, let me – and then teach them how to interview and then find out if they’re really doing a zero interest, right? You may say, “Well, they appear to zero interest but they want 25 percent down.”
Eddie: Okay, well, I bet we can figure out a way to make that math work. We may get them 25 percent at the closing but it’s not my 25 percent, it’s the buyer. Or, you know, and all of those different things. So, what I figured out was I got the old HP 12C calculator, which you and I are both pretty decent at.
Larry: I’ve had mine since the eighties, Eddie.
Eddie: Yeah. Oh, yeah. I got it, baby. I got it.
Larry: Look at the back of that thing.
Eddie: You know, Larry, a funny thing, you know, when you’re in the battle every day, you never think about keeping something that would be a treasure.
Eddie: And I’ve got some old HP sitting around, all scratched up, just like what you’re talking about. Old business card taped on the back of it and stuff, and I can kinda tell how old it is by the business card I taped on the back of it. But the reality is I don’t know that I physically have my original HP 12C calculator and I would love to have it and frame it.
Eddie: It’s kind of a treasure, right? But the idea is, even if, you and I and you’re pretty danged fast at it.
Eddie: It would take us forty-five minutes, and we’re good at it, to run the different options to figure out how to approach it.
Larry: Right, to back into it.
Eddie: Exactly. And so, I said, “Well, what I need to do, I’ve got – NoteSchool tends to train a lot of software engineer types, right? Because they like this deal architecting, the whole idea of crafting up different things and stuff, so I’ve got a guy who’s been with me for years and who is, by profession, a software engineer, but he’s a handy guy with a calculator. You know, some of these fancy spreadsheets that you see me pull out are ones that he really helped me craft.
Eddie: I call him and I said, “Hey, Russ, can we build a software that’s intuitive, that you could just put it in there and, hey, I want the payment to be $800 and I don’t know anything else, I just know if it’s $800 and I can make it – I can resell my owner financing to make my payment $1,500, I gotta sell $100 in cash flow for a long time,” right?
Larry: Right, right.
Eddie: I said, “Plug that in,” and I said, “Then – it would be intuitive, it could tell you other options,” or if I knew that the guy needed 20 percent at the closing, I could plug that in, I could bill the first and second and I could craft all these different ways of doing it, and so it’s a handy piece, so we built a software that like will let you craft out the deal and of course you know I like the term “deal architect.”
Eddie: I can’t say that I invented the term but I sure like it, so we call that kinda side of it being a note architect.
Larry: That’s cool, I like that.
Eddie: So, one of the things that I wanna do for your audience is I wanna give them a gift that I think is maybe the most valuable thing I can do. It’s not necessarily even our conversation, although I hope it’s been valuable. I feel like it has been. I wanna give ’em something that is really a tool that they can go play with and replace the energy that you and I had to do with that HP 12C calculator. ’Cause even if we can do it, Larry, I could in six minutes, we could run three totally different scenarios of any real estate deal you have and you and I can’t do that with an HP 12C.
Larry: Right, that’s true.
Eddie: So, the deal is I wanna give your audience this software. Now, in order to get it, they’re gonna have to connect with you ’cause I’m not just gonna give it to anybody.
Eddie: So you and I talked about this. They’re gonna go to notearchitect.com. Note Architect, right? An architect, right?
Eddie: And they’re gonna go to notearchitect.com and they’re just gonna fill in their name, their e-mail, their, you know, cellphone number and that kind of thing and I need them to give a cellphone number ’cause I’m gonna text them some stuff along the way, right? I’m gonna give them some stuff in the e-mail and also in text, and then all they’re gonna do is when it says, you know, there’s a bottom place, it’s the source, and they’re just gonna put your last name, Goins. They have to put it in or they’re not gonna be able to get it –
Larry: Yeah. You can’t leave it blank or put in something else.
Eddie: You can’t leave it blank, and you can’t put John Doe in there but you’ve been installed in the system and I double checked before we started this conversation to make sure that was in place, and it’s really cool and I’m gonna have tutorials on there, I’m gonna have things, I’m gonna talk you through like some of these ideas we’ve discussed today. You know what it’s like, this sounds pretty good today but somebody’s gonna forget some of the conversation.
Larry: Right, right.
Eddie: And so we’re gonna go back through and prompt you into something different architectures and how that works and stuff and if you can tell, I’m pretty fired up about this.
Larry: You know, Eddie, you and I, we had a conversation about this about two weeks ago in Cleveland and then we talked a little bit about it in Dallas just last week, and I could tell, man, you’re fired up about it. You’re excited about it. I mean, and you know all the different ways to put a deal together and guys watching this, think about this. If you really don’t know that you can, you know, part out a note or you can create a first and a second, sell the first, keep the second, or you can create one that’s, as you call it, Eddie, an air note, you know, where there’s no payments, no interests, you just get paid five or ten years down the road. Most people don’t even know about things like that, right?
Larry: But by having the Note Architect software that you’re giving to ’em today, all they gotta do is just plug in, you know, seller wants $10,000, you know, I need to pay ’em $800 a month, you plug that in there and, boom, it tells you the different scenarios that you can go through and that’s, you know, man, that’s gonna save people a tremendous amount of time and they’ll be able to structure notes that they didn’t even know was possible, right?
Eddie: Well, it goes back to how we started the conversation, right? You got twenty people you’re making an offer to and one says yes.
Larry: Right, right.
Eddie: The conversation rate.
Larry: Right, right.
Eddie: Twenty, one person says yes, you got how many nos? You got nineteen, right? Well, there’s three or four possible real closings in there to go back to ’em and pay their price and it’s a natural sales cycle, right? You and I have a mutual friend that is a mega savvy real estate investor, lives just north of you, okay? Up in Virginia. And he says, “Eddie, every offer I make, I offer on terms,” and I said, “I don’t believe that’s the proper selling cycle.” He said, “Tell me more.” I said, “I think you need to do like every other fix and flipper, and make a cash offer because certain people need cash and they’re willing to sell with a discount.”
Eddie: Okay? And I said, “Then, the people that don’t convert there,” because he can flip those deals and make good money, right?
Larry: Right, right.
Eddie: And then the ones that don’t convert, I said, “Now, you’re in a perfect position to get back to ’em and say, ‘Look, I wasn’t able to make the math work with my underwriter but I’ve been rethinking this deal. I think I can give you the price you want, Larry, if you’d work with me on some terms.’” And what is almost your natural reaction to that?
Larry: Yeah, tell me more.
Eddie: Exactly. So, part of this is the talk-off, and so the selling cycle has got to make sense.
Larry: Right. That’s so true. You know, one of the things that I ask people, you know, especially if it’s a rental property, you know, I’ll ask ’em a question like, “If you sell this property, you’re gonna probably have a pretty good-sized tax bill this year, aren’t you?”
Larry: “Let me tell you how I was able to help a guy last month, it might be something you have an interest in.”
Eddie: Yeah, and it’s a funny thing, like one of the talk-offs that is a big deal is you said is income tax. People will do the goofiest things in the world to not pay income tax. I mean, you and I have some mutual friends that will just go around the world not to go pay income tax when you’re probably better off just to close the deal and pay the tax and get on with it, you know?
Larry: You’re right.
Eddie: It is a psychological thing and you kinda – and buying on terms is perfect ’cause they’re not gonna pay the tax up front.
Larry: Right. That is so true. They can spread that tax bill but by selling on terms they take what’s called the installment sale and spread it out over ten or twenty years.
Eddie: Yeah, and probably in that case it’s been incrementally such a small amount of money it doesn’t change your tax bracket.
Larry: Right. The other thing that not a lot of people think about that, you know, we like to use as part of the selling point, you know, I’m paying you your $80,000 but at the end of the day, you’re really getting $130,000 for your house, after all the payments have been made. “I’m getting $130,000 for my house?” You know?
Eddie: Well, and I’ll tell you this, Larry, we as the real estate investor, we place such emphasis on down payment and interest rate, but these sellers don’t do that.
Eddie: I bought so many notes and I’ve had so many thousands of conversations with these people, I’m just telling you, it’s a big deal to you and I, it is not a big deal to them and so this buying on really soft terms as far as interest rate and term, you will be surprised what people will be totally comfortable with.
Larry: Yeah. Yeah. It’s amazing that people will sell your house, sell their house with no money down. I mean, even when you rent it, you get a deposit, you know?
Eddie: Yeah, I know, and once again, they don’t – you know, they’re not gonna – they’re just not even gonna think about all the stuff the bank would.
Larry: Right. We even put in ours “No payments for ninety days.”
Eddie: I mean, they would never think of insisting you personally guarantee it. They’d never think of that.
Larry: Right, right.
Eddie: Right? They’d never think to go lump some big loan package when you go get ready to do it. I mean, just like – I mean I bought all these [inaudible 0:42:38.0] notes. They don’t even have the guy’s social security number. They didn’t put it in their report. Anyway.
Larry: That’s crazy, ain’t it? So, Eddie, give out that website again. They need to go get that.
Eddie: Notearchitect.com. Notearchitect.com, and they’re just gonna fill out – there’s only about four blanks, Larry, so it’s easy to do. Name, e-mail address, cellphone number, and then the last one is they got to put your name in there as the source.
Eddie: As Goins.
Larry: Good, good. Put Goins in the source. That’s awesome.
Eddie: And then, boom, and we’re gonna send it to ’em and we’re gonna have some things that are gonna help coach them along to get started in these ideas and we’ll just continue the fun conversation about people making real estate deals the way other people don’t know how to make ’em.
Larry: There you go. You gotta big a good architect or transactioneer, as I like to call it, to be able to put a deal together in today’s market, right?
Eddie: That’s it. That’s it.
Larry: That’s awesome. Eddie, thank you so much, man. I really appreciate you being on today. It’s been awesome. And thanks for the free gift for everybody.
Eddie: Alright, Larry. Have a fun time.
Larry: Awesome. Thanks a lot. Appreciate it.