Creative Finance Full Playbook for Investors | Real Estate Notes Show

Episode: Creative Finance Full Playbook for Investors | Vaughn Bethell Dave's Goals and Plans: - Attended a real estate conference in Arizona last weekend - Working on a side product for the audience - Previously owned Curves franchises in the fitness industry before exiting in 2009 - Trying to connect seller finance creators with note buyers to establish industry standards Nathan's Goals and Plans: - Involved in a 3-year eviction case in Chicago - Starting a criminal case alongside the existing civil case in a couple of weeks - Working on unrevealed projects individually with Dave - Hopes to have the Chicago case wrapped up soon and document it as a detailed case study Key Recommendations: - Price owner financed loans low enough to incentivize refinancing within 1-3 years (avoid 7-7.5% rates that don't motivate refinance) - Owner-occupied wrap notes cannot have interest-only loans and balloons must extend beyond 60 months - Consult experienced note creators and legal teams to understand the structured framework before implementing creative strategies - Attend in-person conferences for unscheduled conversations and networking opportunities that lead to meaningful connections - Connect with successful seller finance operators to learn the proper playbook and legal requirements Topics Discussed: - Seller finance and owner finance strategies and terminology - NonQM loans becoming available at fund level - Legal framework and compliance requirements for creative finance - Impact-driven investing and generational wealth creation through homeownership - Differences between note buyers' strict standards vs.

note creators' flexibility Guest Insights: - Vaughn Bethell transitioned from 15 years in fitness industry to real estate investing 7 years ago - Core mission is helping people become homeowners and create generational wealth, with making money as secondary goal - Started with wholesaling and off-market property marketing before pivoting to recurring revenue through owner financing - Distinguishes between seller financing (seller finances to investor) and owner financing (investor finances to end buyer) - Emphasizes need for structured framework within creative financing to maintain industry credibility and growth We're just a pathway to home ownership, right? We're helping them stop renting, start owning, and putting their foot in the door.

But our number one goal is to get them refinance in one to three years. Yes. Right. So, there has to be some incentive on their side to want to refinance. Get your money out. If you Yeah. If you just loan to them at seven and a half%, they're not going to get much lower than that at the bank, right? So, when it comes down time for them to be thinking about a refinance or you want them to refinance out, they're not motivated, right? Or not as I look at that. Yeah. And I look at that and I I the people that are offering 7% I think why are you trying to comp Hey everyone, welcome back to another Real Estate Notes Show.

I'm your host Dave Foots alongside my co-host Mr. Nathan Turner. How are you my man? How you doing? Doing really well. How about you man? Good. It's been it's been a fall time. We're switching gears, right? The weather's changing. Everything else is happening. Um yeah, things just changing in in the atmosphere. The kids back to school like we said last show. Um, but we wanted to push forward in in in excitement. You were able to go to a conference last weekend, um, which was out in Arizona. How was that conference? Really good. Really good. It's it there's nothing like getting together with other people.

Face to face is really where it's at. So, it was really good. I had um I'll tell you a little bit more about it later, but I had a really interesting conversation with Beth from uh JB Lloyd Insurance. She was telling me about some products that they offer and I thought, "Oh, I I had no idea. Some really uh really useful kind of insurance products, conversations with lots of different people. Got a good introduction to an investment group in Canada. Uh it's just and you know, those are lunchtime type conversations. It's not the kind of thing that you're going to have with a scheduled meeting necessarily.

you know, these are that's the point of going to conferences and you you get to have these just kind of off-hand conferences or conversations and uh all kinds of things come out of it. So, I'm a big fan. Big fan. Big fan. Yeah. Highly recommend going to conferences. Absolutely. So, um I think one of the biggest takeaways is always the conversation that you don't always have on the phone. You kind of stuck in a room together and you just start talking and then magic happen. Yeah. Weird how conferences do that. um just changes things, right? Um interesting. So, I also want to make sure that we because we're talking about seller finance and creative finance today, which we'll get into in a minute.

Um we are sponsored by uh Dan Deppen over at Call the Underwriter. So, if you go to call theunderwriter.comjkp, you should get a toolkit to use and everything else. So, thank you again, Dan, for sponsoring the show uh and reaching out to. So, it's it's amazing what's going on in the world, right? Um, notes are changing. I just spoke to a guy today and we'll dive deeper in it um when we get into our topic, but seller finance notes are becoming more and more of the thing, you know, with banks changing. We just learned also that nonQM are becoming a fund level thing where I was talking to Dan about this the other day.

nonQM loans are becoming available in the fund level where people who are not able to get a typical mortgage are going to be able to turn to funds and they're going to be able to create notes in their world which changes a lot. Yeah. Be interesting to hear. Yeah, that's huge. And I think like you say that's becoming more and more common. I think as time goes on things are changing. People either don't trust the banks or they don't want to deal with banks for all kinds of different reasons or they can't. the banking standards are are so tight. Not to say that seller finance notes are, you know, looser or risky or anything like that.

There are still some standards that everybody needs to abide by. Uh but it makes it possible and it makes it accessible accessible for a lot of people that otherwise wouldn't be able to own a home. Absolutely. Absolutely. So, what's happening in the world? Uh I real quick update. How is Chicago treating you? For those who don't know, Nathan's stuck in an eviction for two years, three years, 10 years now in Chicago. Any update on that? Three years and running. Yeah, I I head back out here in a couple of weeks. Uh we're starting a criminal case, which is exciting. That's uh that's going to run alongside the civil case.

So, uh I think we're going to get this wrapped up here soon. I'll keep you posted because this has been just a fascinating journey and I I I'll I want to detail it out and have it as a detailed case study at some point, but it's got to be done first. Hopefully by DM me, right? That's what our hope is, right? So, that's all. Yeah, I'll be happy to report by then. Yeah. So, um and we're not we have some things that are brewing individually that we're both excited about. We're not going to bring it up publicly yet. Um I'm excited. I know you're excited. uh some things are going to be coming out to help all you guys out there.

Um and I also have a side product that I'm working on for you guys. Well, in this world of seller finance, again, one of our main missions, I just got the phone with someone an hour ago and he's probably listening currently. We're trying to connect with those who are seller finance, owner finance, learn your verbiage, and as no creators, we're trying to marry it. As a no creators, it was weird. Dan made some really good comments yesterday on the phone. He says that no buyers are very particular in what we buy. We're so legal. We're so picky on things. And what we find out is that no creators are willy-nilly.

They're like the wild west over there. Yeah. Yeah. I I love the creativity. Don't get me wrong. I I love just, you know, thinking outside the box and trying to come up with solutions. There is a structured framework that we have to live in. That's the reality of it. And so as much as I love the creativity and yes there's certainly a lot of latitude and we're not banks which gives us all kinds of flexibility but that being said there is a structured framework that we have to abide by collectively uh just to help this whole industry continue to to grow and thrive. So that we're trying to get that word out trying to get that word.

One of the things I learned the other day by a note creator, they thought that if they did a wrap note with owner occupied, they can do an interestonly loan. You can't do that with owner occupants. No, you can't do it. I know it works out numbers wise. You can't do it, right? The owner occupants cannot have an interest only loans and the balloons have to be out more than 60 months. Just little things I don't think note creators realize in either not being taught or just not listening to. Um, very interesting for a sec. But yeah, when the world of creative financing and seller finance, the verbiage you guys use out there is so confusing, connecting with people who've done it over and over again successfully have connected with their legal teams, connected with their their note buyers to understand the world we're living in, the blueprint there, the playbook is key.

Would you agree? Absolutely. Yeah. There again, you can get into it and you've heard, you know, the the person teaching you about the business and then you think start thinking creatively and you're like, "Oh, and then we could do this and oh, we could do that." Maybe not necessarily. So, so talk to somebody who has the experience, talk to the right people that are in the industry so that you can understand what that framework is and how you can how you can do this whole business and you can do all kinds of really cool creative things within a framework. Absolutely. Good point. So, one of the things I've learned, I met our our special guest probably a year year and a half ago, and he was amazing.

I didn't have to teach him anything. He just had so much knowledge and experience and honesty in his mission. So, let's jump in here. Van, I want to walk into the show and man, I appreciate you coming on. You are an amazing person doing amazing work and this is the essence of notes. Making money is secondary. What is your core goal von? Well David man thanks so much for having me on the show. Uh it's an honor and I feel very blessed. Um so you know to your point uh obviously people get into investing and they get into real estate to make money. Obviously that's like you know the ultimate endgame but how we approach that and how we approach making money and the biggest thing for me is having an impact right the more people we help and the more value we provide the more it's going to come back to us in return so when I got into real estate investing uh about seven years ago um you know I came from you know the fitness industry I've owned businesses for 15 years before that so I had a lot of experience running a business but when I got into real estate I realized the opportunity to be able to change lives And people think, "Oh, didn't you change a lot of lives in the fitness industry?" Yeah, I did to a degree.

But changing lives, helping people become homeowners and starting for a lot of people, the the creation of generational wealth, which comes with home home ownership for most people, just that opportunity spoke a lot to me and excited me a lot. So, going into it, um, like a lot of newbie investors that really don't know what they're doing, um, we don't have a lot of cash and we got to make a lot of cash quick. I started wholesaling and just got really really good at finding offmarket properties um on the marketing standpoint because I have a sales and marketing background and being able to get in touch with sellers of distressed properties or you know people in distressed situations and then you know uh build rapport with them create a relationship and come up with a win-win solution was how I started.

So, the first few years it was just turning paper, right? Getting properties under contract, selling the paper and making the spread. And I'm I'm not a flipper. I don't like flipping. I don't like dealing with contractors and all that stuff. Uh, and doing all the the management of that piece. So, I I haven't done a lot of flips. Um, but whether it's wholesaling, doing assignments, or flips, a lot of times we see is uh you know, that's it's transactional, right? Once you turn one, you got to go find the next one. So in my fitness business, I was big on recurring revenue, right? Creating monthly cash flow.

And so once I started realizing the owner finance piece, um, which is, you know, in our in our organization, we have two different terms, right? And they're interchangeable for most people, but for us in our organization to make it clear between the people on our team, we call seller financing when the seller of the property is financing to us. And owner financing is when we're owner financing to the end buyer. Okay. Which is mainly owner occupants, right? Good to know. All right. So, we just got real big into that and and then our mission, our core beliefs and everything came back uh came off of that whole uh I guess purpose, cause and passion.

Okay. That's awesome. So, we we have a similar background. I had a couple of curves franchises back in the day. So, I came from fitness industry. Curves. Did they does curves still exist? I don't know if they still exist. So, I got out of that in 2009, but yeah. How about that? Heard about curves in a while. It was good. It was good. It is, to your point, it was learning how to help people and and learning a lot of the um basics on running a business and things like that and and seeing the results of being able to have somebody in many times change their lives uh for the better. Yeah, that's it's a great transition into real estate where you can really be helping people in a different way and and changing lives in a different way.

Very cool. Absolutely. Thank you. Yeah. So, in this world of owner finance, you got into it typically how everyone else does, right? What were some of your biggest mistakes in the beginning when you got started? Not knowing what I don't know, right? Yeah. So, I kind of fell into our first deal, right? You know, I had a uh a guy seller finance his properties to us. It was two rental properties side by side. Um and then, you know, we kind of took that over 0% interest, which is great. Um and then we had people, you know, we were marketing all of our wholesale deals and and things on Facebook, right? And for a long time, even when I was doing my wholesale deals and and and things like that, I always had people reaching out or commenting on our post saying, "Hey, will you finance? I got $5,000 down, $10,000 down, $20,000 down, you know, d and at that point and I was like I didn't know anything about it.

I didn't know how to make the deal work. So, I just I was just trying to make my quick 20 and go to the next one. So, I kind of realized that on these I had good seller financing in place and I wanted to start creating that cash flow. So, I started looking into it more and you know, we kind of uh pursued the deal and on one of the properties and you know, it was history after that, right? Once I realized I was able to get, you know, right now we get on average $30,000 down on our own and finance deals. I think on that one we got 15 down. Okay. And uh then we cash flow on average $682 a month between what we're paying our lender and then what our borrower is paying us.

And the best thing about it that I love about it, right, as opposed to rentals, that cash flow is almost 100% profit. Sure. Right. Depending on what you're doing. So, and then go ahead. I I agree. Yes. Go ahead. Please keep going because what people don't know is the numbers behind the scenes and understanding why the shift. Why would you shift from where you were to where you are now if you went back to the beginning? Why would you shift? What's the purpose of leadership? Well, the the biggest purpose, right, is uh the the impact that we're having, right? The purpose causing passion. That's the feeloods, right? That you know, hey, it don't matter how much money you make, but if you feel like you're having an impact, you're helping people and providing value, right? Um but to do the complete 100% shift uh moving away from most all other exit strategies and doing this uh for us is very strategic because I'm a big believer and I and I you know we co I coach some students and things like that and one of the biggest things I preach is the acronym focus right and if you ever heard that acronym follow one course until successful okay right getting really really good at one thing and if you get really really good at that one thing other opportunities will present itself, right? Yeah.

So, but when you're not focused on and and completely dialed in on that one thing or getting really good at that one thing, you're spreading your energy and efficiencies elsewhere, right? Which is going to slow down that path. Yes. Yes. So, we decid decided a few years ago to go all in on our what we call our pathway to home ownership program. Yeah. Yeah. Love that. So, you got started here. A lot of people want to know the basics of the seller finance. How would you define it between seller finance and creative finance in your world in the in your space? Yeah. So, the seller financing piece like I mentioned before just the internal ter terminology um when we're talking to a seller um and they're considering selling their property to us on creative terms, right? Okay.

So, how we buy that property, there's so many different ways to skin a cat, right? So you can get creative from subject two to to straight up seller finance to hybrids to all kinds of things, right? Um so the creative piece comes for the most part on the on the buy side from us. Um and creating that win-win scenario with the seller. Um now on the sell part of it um there's some ways to get creative but for mo for for the most part I mean there's certain set of rules and a process that we we follow and we big part of it is we have to follow that process right y to make sure that we're being compliant and we're making sure that the value of our note is as high as it can be.

Yes. Yeah. Good point. Good point. So that's that's a huge thing for us. Yes. Interesting. And then are you turning around and selling the loans that you created or you just hanging on to them? I hang on to them most of the times. Uh you know depending on where I'm at in in in my investing? Um there's times like right now I'm in in a recapitalization stage, right? So I'll sell off some notes and uh you know one of the biggest things I've learned, you know, just in the last 18 months and and David, you asked me earlier about some mistakes that I made at the beginning. Um I created a lot of bond for titles or contract for deeds at the beginning.

Uhhuh. Right. And because I was just that's what I was told to do, right? And you know, so there's uh attorneys here in in the upstate of South Carolina that won't do a rap or you know, they only do bond for title or contracts for deeds. Um but one thing I didn't realize at that point is the liability that comes with that. What is a bond for deed contract for deed for those who may not know? Yeah. So we look at a contract for deed or bond for title is kind of like your car, right? If you got a loan on your car, you don't actually hold the title to your car until it's paid off, right? the bank holds the title.

So, the same thing with the contract for deed for bond for title. We're selling it on owner financing, but we're selling it with a contract for deed or bond for title where they don't get the deed until they've completely paid off the property, right? Yeah. But the biggest thing with that Yeah. Good. Why is that bad? What's the problem with that? Yeah. So, I mean, it depends on what situation you're in, but one of the things I've learned is that, you know, and I didn't think about it when I was first doing it, is the liability that comes with that. Cuz you're on the title. You're on the deed, right? Yes.

So, let's say somebody that a tree falls on the house and and and god forbid kills somebody, right? And somebody decides they want to go, you know, start a lawsuit or sue somebody. Who's liable? Yeah. Home owner. Homeowner. Yeah. One on title. Yeah. And it's interesting because it it's being the one on title is what gives that contract for deed some of the pros and it's also the cons all at the same time. Exactly. One of the things I like is if if there's a case of default uh it's a much faster, easier process uh to have that owner or that occupant removed and then you can sell it off to a different person.

But like you say, you also carried the liability that goes along with owning the property. So it's it's catch 22. It's, you know, you got to really weigh it out. And it really depends on what state you're in. Yes. And their laws, right? Because in South Carolina, contract for deed, bond for title, or mortgage, you still got to go through the foreclosure process if they're not willing to sign the deed back over. Right. Right. Yeah. And then in other states, uh, it's a much faster, easier process. And in some states, they don't recognize it at all. And so then you're really in trouble. So you really got to be aware of where you're doing that and what's okay for that particular state.

Good point. How are you today finding properties to do this? What are you looking for? Where do you search? How do you find your inventory to buy? So, for us, it hadn't really changed much from when I first started wholesaling, right? So, it's still in the trenches. I have a guy that does driving for dollars for us and he adds about 2,000 properties per month, right? And so, once we we're adding those properties, we got a physical picture, recent photo of the property. We're sending out postcards and and on that postcard is the real-time photo or the recent picture on that postcard and and the thing that the big title that they see on that postcard on the top is is this your property? I'm interested in buying it.

And as a marketer, right, coming from that sales and marketing background, I want to elicit a response from that seller. So, if it's physically distressed, which our guy only has physically distressed properties, and let's say that person lives, you know, an hour away or they haven't seen a property in a few years, and they get that postcard and it says, "Is this your property?" I want them to look at that postcard be like, "Well, that's not my property." Wait, hold on. That is my property. Right? It's changed a lot. It's they it's deteriorated. So, then they got to make a decision, right? And that decision is, hey, do they go in there and, you know, talk to the tenants and make sure that the tenants are taking better care of it? they got to clean it up.

You know, maybe they have some code violations and things such as that. Or like a lot of people, they're they're tired of being a landlord, tired of dealing with tenants, toilets, and taxes and they want to get out of that situation. Absolutely. So now I can buy that property from them in a couple different ways, right? So I can pay cash for it or they can become my lender. And now they still get that cash flow that they hoped that they were going to get as being being a landlord. Yeah. But now they don't have to deal with the headaches. That's a great idea, right? Getting a because a lot of people are going after those people who want to get the house sold and they do a sub two and they deal with the borrower and like that.

You get the landlord, they still want to get that cash flow coming in no matter what happens. Yeah. You solving a win-win there. Yeah. And that's the biggest thing is like, you know, as not knowing a lot about real estate, which people that get into real estate that first time, they don't know a lot about real estate, right? But society tells us that the best way to create passive income is to buy rental properties. Yeah. Well, there's nothing passive passive about rental properties. Exactly. Nothing. Even if you have the best property manager in the world, you got to manage that property manager.

And then if you have debt on the property, right, like most people do, you know, let's say a big storm like Hurricane Helen, which came through our area last year, and you now you got to go uh replace a roof or an HVAC or whatever that may be, your cash flow, right, is now gone for a year, two years, maybe even more. Mhm. So that passive cash flow that they were relying on is gone or doesn't exist anymore. So, we had a quick question coming from Facebook uh from Jason. What it kind of what's your current rates you're getting from your borrowers that are own occupant? And does it down payment or not? It doesn't.

Um it doesn't. Um you know, really for us, we're between the 10 and 12% range. Um and you know, we do have some uh what we call our our hot spot, our sale box, I guess you could say, in our area. you know, our sweet spot is if we have a property that we can sell for 250 or less, right? We're averaging about 15% down. So, we're going to average about $30,000 down. And then, you know, that's really most of our buyers, we have a waiting list, the biggest thing they're looking at is what the monthly payment is. And they're more they're more willing to put more down just to get the monthly payment to a certain point, right? But from an interest rate standpoint, the only time we we really start seeing any type of push back is the closer we get to that 12% mark.

Got it. Right. So, for us, it's really the interest rate is really depending on the spread. And I like to have typically a at least a 2% spread between what I'm borrowing at and what I'm lending at. Right. So, if if my a uh private lenders is 8%, I'm want to you I'm trying to sell at 10%. Right. But if that average goes up to 10%, then I'm looking at 12%. Yeah, you bring up a great point there with the interest rate because I remember doing that uh when I was creating loans back in the day. Um same kind of thing. We were charging 10 10 10% was your our typical interest rate. And so we I'd get questions from others that would say, "Oh, how you how are you getting these guys at 10%." And you say, "Look, that's not the concern.

The concern of most people is what's my monthly payment and can I afford this monthly payment? And that interest rate is really like down the list on important details. Uh they're really concerned about how much can I afford this month, next month, next year, the next 25 years. Are you are you basing your pricing based on the rentals in the local market? Yeah, we we want the the monthly payment principal and interest to be around what they would be paying in rent. Right now, they'll have to pay taxes and insurance. We make sure we escrow those, but we we give them an idea of what it should be.

So when we market it, we're marketing just, you know, the monthly payment, Nathan, like like you mentioned, because think about how people go shop for cars. Exactly. What monthly payment can you afford? Yeah. Right. So the same thing happens on houses. But what would happen if your market gets to a point where it it just doesn't work? Your rental market may be lower and it it makes it difficult. What would you do if you're in your local market if rentals are killing you and you can't you have to lower or you your math says I have to lower my interest rate to get the payment down to match the rentals.

How would you handle that problem? So the biggest thing is if I have debt on it is is a spread, right? There has to be a difference between what I have in the property with my lenders and and what I'm selling it for, right? So it's the same thing from the buy. We make our money on the buy. Yep. So, it's all about negotiating. You know, I don't have I never have more than 75% of uh you know, private money on a property based on the value of the property. Yep. Right. Um so, I like on average right now, I think we're about 63%. Um across our portfolio, but you know, the biggest thing is if the rental market obviously if the the numbers start coming down on rent, a lot of times we see prices coming down, right? And the prices on what we're buying the property for, right? Um Fortunately enough, in the upstate of South Carolina and the Greenville market, I mean, it's a hot market and it just keeps going up and up and up, which is great, but affordability is key, right? So, you know, we got to be at that, you know, 250, you know, a lot of times less 200 of the sale point.

And so, if I'm selling a property at 200, two, 210, I got to be all in it at 150. Got it. So that that's another thing I'm looking at is when I'm look when I'm creating a note for my borrower for me where we make our money is in that spread. So one of the first things I look at is I want at least a $50,000 uh instant spread, right? Instant appreciation. Yeah. So if I have 150,000 into the property, I need to be able to sell it for 200 or more. Now I I hope one of the takeaways that people are getting from this is look at the numbers. You know, don't fall in love with the house. don't love fall in love with the situation.

Look at the numbers. Do the numbers work? Yes or no? Period. And then go from there. And then and then back into it like you're doing. If I'm going to buy it for this, I have to be able to sell it for that. Is that a realistic number? Yes or no. And like that's it. Don't try to fall in love with the situation and get so creative that you're you're making it you're trying to shoehorn it in and forcing it to work when really it doesn't work. Exactly. Exactly. Yeah. No, go ahead. No, I was going to say I got like three big criteria I look at when creating a note, right? Or even analyzing a property if I should buy it.

Um, can I create at least $50,000 of instant appreciation, right? I think I just gave myself a thumbs up. Can I create at least $50,000 of instant appreciation? Um, the other thing is can do am I going to get at least a 2% interest rate spread? Yeah. Right. And then the last one is, is it going to cash flow $500 or more a month between what I'm paying my lenders and what they're paying me in principal and interest, right? And is that hardline black and white? No. I mean, there's certain things, tweaks that we can do to to make a deal work. And, you know, I might not have that $50,000 spread, but if I have a 0% interest rate and I'm selling at 10 or 12%.

Sure. Yeah. Right. Yeah. Um, so there's there's a lot of different factors that come in, but those are the first three things I look at and if I can see that, you know, then I'm like, okay, this could be a really really good deal. For those who are saying, and we me and Nathan talk this on the show constantly, is um, my notes written at 7 and a half%. What do you tell the investors who are creating notes at seven, I heard 3.68 the other day, but what do you say to investors like yourself that are creating them and going, "Yeah, I wrote them at 7.5." Yeah. So for me, um, when I think of when I hear that, right, uh, I'm like, the value of your note just went down significantly, right? If you ever needed to exit that note, and a lot of people, I think they write those notes thinking that they're going to stay in that note for forever, right? Well, for us, you know, that we're just a pathway to home ownership, right? We're helping them stop renting, start owning, and putting their foot in the door, but our number one goal is to get them refinanced in one to three years.

Yes. Right. So there has to be some incentive on their side to want to refinance. Get your money out. If you Yeah. If you just loan to them at 7 and a half%. They're not going to get much lower than that at the bank, right? So when it comes down time for them to be thinking about a refinance or you want them to refinance out, they're not motivating them, right? Or not as I look at that. Yeah. And I look at that and I the people that are offering 7% I think why are you trying to compete with the bank? If they could go to the bank they would. They can't. And that's why if the market gets too tough and is there a point where you say listen I'm going to rate it a 10% but the house stays on the market for 180 days because the interest rate too high would you handle that so for us um we we're very proactive and I was having this conversation the other day and people ask you know how do I find buyers well that's our primary thing is just like and it all comes back to the wholesaling piece of it right you got to find properties but you got to have buyers for those properties.

So for us, you know, we do a lot of marketing for finding buyers first and foremost. So we have a waiting list. We know what buyers want. We know what they're looking at. Um so when we're creating, you know, those notes 10%, we know that fits in our buyers, you know, um their their affordability range, right? Or what they want to pay. Um so that's a big thing for us. So we don't really run into that a lot. Um because we we price it the way it should be priced. Uh now the biggest thing for us is like if we have a property and we've had a couple over the last year that are more like hey we need to sell it at $299 right well the biggest thing on that is we always ask for 20% down so they had to come out more of pocket now we'll adjust that our our internally our floor is 12%.

Um, absolute rock bottom is 10% down payment. Um, because I think any anybody that has less than 10% into a property that's getting owner financed is doesn't have enough skin in the game. Absolutely. And I think that significantly devalues the note, right? But even if we drop that down to 12%. Well, we still got to look at the monthly payment and does that monthly payment fit within where they want to be? And if you know, if the principal interest is over $2,000 for most people, that might price them out of the the deal. Yeah. Yeah. So, we've seen some of those that sit longer. How do you market define your borrower? Going back to Facebook, right, where it all started.

So, um, for us, it's Facebook and and when people ask me that, they're like, "Facebook Marketplace?" Not necessarily, right? We post on Facebook Marketplace, but that's not where we get the most of our leads from. It's Facebook groups, right? So, the majority of our buyers are Latino, right? And if there's three things I know about the Latino population is they always have cash, right? They always pay their bills. So they're in there paying their bills on time, if not early, right? They're big on community, so they spread the word, right? And they typically want to try to pay things off faster.

Yeah. Right. But uh the biggest thing is they deal with people that they know, like, and trust. They love dealing with people. That's why a lot of wherever you go, the Hispanic communities, you can tell where the Hispanic communities are, right? Because they all want to be near each other. We got the the west side of town, you know, White Horse Road, that's the Hispanic community. Um, so dealing with people that they know, like, and trust, having somebody on your team that is a big influence in the Spanish community is huge. Got it. That's good. So, the girl that runs our owner finance program, she's Mexican.

She used to claim my house like four or five years ago. And and then one day she asked, you know, I asked her to come clean my office. She found out what we did and she was she's like, "Can I talk to you?" And um we had a conversation and she was like, "Yeah, everybody keeps telling me I need to be a real estate agent, a realtor." And I'm like, "No, you don't. You need to come work for me." Yeah. So yeah, she's out of the 40 plus families we helped over the last couple years, she's brought probably 38, 39 of them. Fantastic. Great. Because they trust her, right? I'm just a face, you know, she walks through the office and meeting we're doing closing and stuff.

She's intro introducing me as Elfe the boss. I'm like, "Oh, no." But um that's key. But yeah, going back to Facebook, Facebook groups, I join yard sale groups, garage sale groups, uh buy groups. Those are all the people that are, you know, that are looking for when you market owner financing, monthly payment, down payment, this, those are the people that are responding. the Latino groups. I try to buy, you know, join every Latino uh group. Um I don't do it I don't market a lot in real estate groups like real estate agents or investors because that's not who we're looking for, right? Right. Um, but I do, uh, other than the Facebook communities and the Facebook groups, um, real estate agents are a good one because they've all had somebody that wants to buy a house and maybe they didn't fit those boxes that the traditional banks require them to have, but they have a down payment.

They can show proof that they can afford the monthly payment, so they meet the ability to repay standards, and they just need somebody to help give them a foot in the door. Absolutely. So when you're dealing with these bar borrowers, what are you posting in these groups? Are you doing images? Are you doing text? What's your trick with trade want to call it? Yeah. So usually we'll do a picture of the house or if we don't have a house at that time, you know, we'll do like what we called a ghost post, right? A house that we had previously or a house that we're looking at or whatever, just a picture of the house and we'll just put some copies such as, you know, the area of town that the the propertyy's located.

three bedroomedroom, two bath, 1400 square foot, $30,000 down, $1,500 a month, and just let people start reaching out about more information. Right now, if that propertyy's already sold or if it's not a real property that we currently have, you know, then we just open we're open up the conversation and say, "Hey, unfortunately that property is no longer available, but tell me a little bit about what you're looking at." and then trying to get an idea of what they have for the down payment, uh what they're they can afford on a monthly payment standpoint, what sides of town they want to live on, how many bedrooms, how many bathrooms, things such as that.

Perfect. Yeah. So, are you manly doing all this posting or are you doing kind of automation and do this? No, I got a a team like I my owner finance specialist, she does a lot of it and in her groups. Um so, seeing it come straight from her is is huge. Um, but I also have some VAS that post in in these groups for me. Um, so I'm not doing a a lot of AI per se right now, but you know, kind of moving in that direction, right? Absolutely. So, the big part about this, me and Nathan have been talking about this for years, the paperwork. Yeah. The paperwork, the collateral. Yeah. For those who don't know and maybe came from where you were wholesaling, what are some of the key things that you said, "Oh my god, I didn't know.

Thank God I know now." That woke you up. Yeah. So compliance, what does that mean? A huge one. What does that mean? So one of the things that if we're selling a properties to owner occupants, there's still certain rules we have to follow, right? And if we don't follow those rules, one, it can put you in a lot of legal trouble, but two, it can significantly devalue your note if you ever needed to exit that note for whatever reason. And or if that person that you know, the borrower that bought that property from you all a sudden stops paying or has an issue and they want to come after you, they hire an attorney or whatever it may be and say, "Well, this guy knew that I couldn't afford it anyways." Right? if they wanted to play that game, well, now they got a leg to stand on because you didn't do anything to verify that they could afford it.

Right. Right. And so the reason that the DoddFrank Act uh is in place is because of back in, you know, 2008 in those times where predatory lending was a big thing and people were literally going after using that as a strategy, getting a down payment, knowing they couldn't afford the monthly payment, taking the property back, and doing it again. Yeah. Right. So fortunately enough, I learned that early on into my financing career. So I did that from day one. Yeah. So and it's a requirement on every deal that we do. We have to underwrite everybody, right? And then we also service everything through a third party note serer.

Yep. Makes sense. Fantastic. Makes sense. So who's currently doing your arm alone? Do you have someone in house? Are you hiring outside? Yeah. So uh biggest thing is like earlier uh you mentioned that Dan Deppen with call the underwriter sponsored the show. So we used Dan or Call the Underwriter for years uh from our first probably 20 25 notes but we were doing it such in such volume that I decided to bring it in house. to hire the RMLLO uh that does underwriting for us now and delivers all the disclosures, does the ATR certification, does all that stuff. And that way we know that we're doing everything legally right and we're we're dotting our eyes, crossing our tees, we're getting everything buttoned up.

Um but also we know it's going to increase the value of our note. Yes. As well. Yes. And so we also have a a servicing company that can service any loans or notes but only in South Carolina. So Okay. Okay. So, we're only doing the servicing piece in South Carolina. I'm sure you're doing this, but just checking. Are you having the the borrower pay the servicing cost? Absolutely. We carry everything over to the serer. Everything's escrowed. They're paying the underwriting fee. They're paying the closing cost. They're everything. So, yeah. So, for again, for the people that are doing the owner finance, it doesn't cost you anything.

It it's it's nothing but good can come of it. And it doesn't even cost you anything. you can pass on that cost to your borrower and it's that much better of a note. The only way it would cost them is if they do the initial uh application for compliance and that person doesn't get approved, right? They get denied, right? So, if the uh the investor decides to front that money, well, 200 bucks, 100, you know, something bucks later, they might be at 150, 200 bucks, but that's probably the best 150 200 bucks they ever spent. Yes. Yeah. Save a world world of headache. But what we do is we have a lot of people that makes the borrower pay that initial 150 200 bucks to do the application.

That's their application fee. Yes. So those people who were in your spot who are doing seller plans and they say I'm going to do servicing myself. What do you tell those people? Don't do it. Don't do it. Uh well I mean they can Yeah. If you got a handful, one or two or whatever, and you and you're really really good at keeping good records and everybody's definition of really really good is each his own, right? Um, but you know, that's if you're keeping records on yourself, that means if something legally comes up, then you the auditor might come in and, you know, say, "I don't like how you're doing things." Right.

Whereas you keep that at arms length by using a third party um you know, that's certified, that's licensed, and you know, let them handle it. Yes. Right. Well said. It's amazing how many people don't do that and they they try doing them in the house to save some money. Um and I think what most people don't realize is that when they get into default, you're going to really wish you had a serer handling everything because you don't want to be that responsible party to be checking things, looking at things and realize you did something wrong that really screws up your deal and you're defend you're hoping the judge will save the day and fix it.

Right? So with these regarding these, you know, these borrowers, these properties, these paperwork, what are some of the biggest mistakes, story you can share that went wrong that they can learn from? Oh, let's see. Um, well, here's a story, right? And we did underwrite it, and this is a little little different off the realm of what you're asking, but this is our only foreclosure we've ever had to go through, right? And being that we've done over 40 of these, that speaks volumes to our underwriting. Um, but one of our early properties that we did owner financing on, um, property I bought for $145,000, sold it for $210,000 or $215,000 asis.

Got $50,000 down. Um, the property appraised at $215,000 asis. So, I got it bought it good. Um, they went in and completely renovated the entire property. So, after the renovation, appraisal came in at 300,000. Um, but the guy, he was a Hispanic guy, Latino guy, owned a Mexican restaurant, and this is a couple years ago, it just so happened he got picked up in a big international drug cartel ring. Oh. Oh, and so the reason I knew that happened at the time it did is because my wife told me about it and I was just looking at the pictures and the names and I was like, I know that guy, right? Um, and I didn't know him like like I've met him or you know like personally but the name is always in our you know when we're looking at our records, right? And uh so but there he was in jail for 60 days.

During that entire 60 days, his wife came in paid religiously. They they would great payers. They paid, you know, at least two weeks early. A lot of times they'll pay more or whatever. And then uh he got out after 60 days. Well, about 30 days later after he got out, we noticed that their due date was was come up and they're usually paying early. So that's that's not right. So we started reaching out to him. Couldn't get in touch with him. Finally sent our guy out, our boots on the ground guy to look at a property and he's like, "The property is abandoned." Wow. So, being that it was a, you know, contract for deed situation, right? Um, and the fact that he wasn't there, we could, you know, we didn't have anybody to sign the deed back over to us.

Um, we actually hired a private investigator to go try to find him or somebody, you know, related to him or whatever. And after about 3 weeks, they came back and they're like, "We're pretty sure they fled the country." So, we had to go through the foreclosure process and whatnot. But guess what? Once we got the property back, we sold it again for $50,000 down. Yeah, that's not the route you want to do, right? Correct. But that stress the point that you can do everything right and things you didn't expect can happen. A perfect borrower can get stuck somehow. And you can do the best underwriting possible, but the only underwriting you can't do is the future.

You don't know what's going to happen to people, and it sucks. um it doesn't matter what kind of underwriting you do, you cannot predict what's going to happen in the future. So for those who are really interested in this kind of stuff would you tell people to get into this out of wholesaling or rentals or that kind of stuff? Would you suggest this? And why would you suggest something like this? Um because it sounds so legal. Yeah. So you take the legal part of it by having a third party company, right? And you just follow the process. Trust the process, right? and here's a checklist of everything you need to do.

Um, so you take that part out of it, but yeah, I mean, obviously I'm very passionate about it, so I encourage people to consider it as an exit strategy. Um, to be successful at it and do it at scale, it it is work, right? Is you're it's an active investor, right? It's uh for me is you got active landlords, right? But I don't I don't like the the the phone calls late at night, the repairs and all that stuff, the maintenance requests. um with this is just make sure that one if I set it up correctly, right? If I set the note up correctly, then that becomes extremely passive on the back end because I'm using a third party serer.

Yeah. Right. Yeah. Yep. Um but the work to get to that point of finding the properties, putting the deals together, finding the borrowers, all that good stuff is very active and it's it's a a lot of it sales and marketing, right? Yeah. Sales, marketing, and relationships. Yeah. Yeah. So, for those note buyers out there really excited about hearing your stuff, right, and looking to buy your stuff, are you willing to sell partials, whole loans, all those kind of things. I've sold whole loans. I haven't sold any partials yet. I just haven't educated myself a lot on the partials. Uh starting to get into that a little bit more.

Um but yeah, I've sold notes. I've s, you know, there's some situations where we've had some RTO's or lease options and I've actually sold those and uh or some of those. I didn't even realize that people were willing to buy them when I first got into it. Right. I bought those. Yeah. Yeah. So, but the biggest thing for us too is if it's an RTO or lease option, we're still underwriting. Yep. Yeah. Right. And the ones that we have sold is, let's say it's a Latino population, um, and they're cash, you know, they're a cash operating, you know, culture. They might not have a bank account or they don't put a lot of their money in the bank.

So to meet those debt to income ratios, whatever, they need 12 months of bank statements showing a certain amount of money being deposited. Yep. Right. Right. Right. So, um you know, that's how kind of how we not necessarily get around that, but put them in a position. Right. So, hey, 12 months of deposits. Let's say we tell them go put $5,000. You might make $20,000, but go put $5,000 a month in this bank account for the next 12 months consecutively. So, now you you meet that requirement. Yeah. Right. Makes a lot of sense. Hey, so what's the what's the term on your notes? Like how how many years are you doing these for? So for us, we always do a 30-year mortgage.

Um because the reason we do that is because 30-year mortgages are heavy front loaded with interest. Yeah. And we make our money with interest, right? Um and then and then we have an actual um in my office office building, there's a uh mortgage company that we've partnered with and their job is to what we call chase the refi. Right. So, we introduced them throughout the process of us financing them. And the guy is a tall, skinny white guy with glasses. You would never know it, but he lived in Uruguay for 12 years or 15 years. So, he's fully fluent. Okay. And Wow. He he doesn't get paid until he gets the refi.

So, yeah. He can meet with them and know know what they need to do, whether it's credit, whether it's, hey, I need 12 months of bank statements. I need to do this. I need to do that. And then just follow up with them and walk them through the process. Awesome. Very good. I I love the fact you said that people who are charging low interest rates, you want to motivate the buyer to refi out. Um you don't want them to be comfortable, right? You don't want them sitting there at a low interest rate for next, which most homeowners today are sitting at a 3% interest rate and the banks are wishing to get that house back to refi and they can't.

There's no money made, right? It's amazing the world you're in. Um now, I know you do some teaching. those who were on the call and on the YouTube and the podcast, we'll share the link to get a hold of V on. Um, I would encourage you to I met Vaughn a long time ago and everything he says is true and he's honest, which is two great things to work with someone. Uh, no, like and trust is a big thing for all of us. Um, so feel free to reach out to him. Before we let you go, Nathan, let you go with the last question. Yeah. So, you've been doing this a while now and you with your background with wholesaling and everything else.

Um, given where we're at now, what do you see coming up? Like what's your what's your crystal ball prediction here for what you're doing? Is there are you anticipating doing the same thing or is there going to be a change of strategy? What do you what do you feel? Absolutely. Like so for us, it's kind of a little bit different market, right? We've seen a lot of shifts in in in the South Carolina market and especially in the upstate over the last couple years from from a wholesaling standpoint because it's now illegal, right, in South Carolina. Um, so that did take a, I guess, a revenue stream, but we're already starting to make that pivot anyways.

Um, but there's always going to be people that need owner financing, right? There's always going to be people that don't tick those boxes that the traditional banks have, but they're tired of renting. They want to stop renting and start owning. They just need somebody that's willing to give them a foot in the door. Um, I do think it's interesting because, uh, we were having a conversation, I think before we we jumped on the call, but, um, that, you know, there's there's funds out there now that are, you know, possibly looking at nonQM loans and funding nonQM loans and things as that. So, I think you'll see, uh, people like that start to come into the industry a little bit more.

Um, but yeah, you know, there's for us, Dave, you talk about no, like, and trust. It's all about relationships, right? And if you build a relationships and a reputation in the communities uh that you're working in, then you know people do business with people that they know, like, and trust. Yeah. So, for funny story, um last week I just got uh you know, um honored at a 10-year gayla for the Hispanic community uh put on by Insize Magazine, which is the largest Latino publication in South Carolina. Cool. And I was nom or recognized as one of 25 pioneers in the Latino community over the last 10 years.

Fantastic. Congratulations. Don't speak a lick of Spanish other than Ola must. I'm in there having to listen to everything through an interpreter. Yeah. You're solving a problem. You're solving a problem that they have. Yeah. Yeah, that just kind kind of shows you the impact that we've been able to have on the community that they they recognized us or even volunte or um honored us to be one of the pioneers. So, that's amazing. Well, Von, it was a pleasure having you on. Hold on for after hours, guys. If you want to get a hold of them, the links inside the chat. Um it was awesome, man. It's it's you're fresh breath air.

The fact you have all your stuff together is raress community. There's a lot of people doing this incorrectly, half done the correct way and it shouldn't be done that way. You have to be professional. Uh everything you said has been spot on. Um I encourage more people to do it the way Von's doing it. So again, I thank you for coming on this Friday afternoon. Again, Van, appreciate your time. Thanks for having me. I appreciate document..