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May 25, 2023

Legal Review: Advice From A Lawyer/Investor on Sub-To Strategy, Partnership Formation, And JV Agreements w/ Matt Anderson

Legal Review: Advice From A Lawyer/Investor on Sub-To Strategy, Partnership Formation, And JV Agreements w/ Matt Anderson

 What if you could turn a negative $130,000 net worth into a thriving real estate investment career? Discover how our guest, attorney and real estate investor Matt Anderson, mastered the art of creative deal structuring to transform his financial situation and build a successful business. We discuss Matt's journey from attorney to real estate investor, sharing invaluable insights on sub two strategy, seller financing, contract negotiations, and partnership agreements.

Through Matt's experience, we explore the power of listening when it comes to negotiating a real estate deal. By understanding the motivations of sellers, Matt was able to structure deals that worked for both parties. Learn how Matt leveraged seller financing in a recent deal, and how considering the person behind the deal is the key to success. Plus, we delve into strategies like subject to investing, demonstrating the advantages of buying a property subject to the underlying mortgage.

Finally, we tackle the crucial topic of partnerships in real estate deals. Matt shares his thoughts on vetting potential partners, emphasizing the importance of trust and character. We also discuss the significance of finding the right mentor and how to differentiate between scams and valuable advice. Don't miss this engaging and informative episode, filled with real estate strategies, partnership advice, and much more!

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Speaker 1: What's up, ladies and gentlemen, welcome back to another episode of the Action Academy podcast, the show that helps you get rich, happy, successful and free with a capital F in your life and business. The episode that we have queued up for today actually had some technical difficulties. So what we're doing instead because the show must go on, we never miss an episode we are posting one of the Monday calls within the Action Academy private community, our mastermind group that is attached to this podcast. We had my buddy, matt Anderson, come speak, who has about 40 million of commercial real estate and is a practicing lawyer with his own legal practice. During this call we were able to get some great information on the sub two strategy, seller financing, contract negotiations, partnership agreements all the stuff that you could imagine. We were able to get it from a lawyer's perspective with Matt, so that was really helpful and beneficial.

Speaker 1: Now we do have about 20 minutes of this call that were cut out at the end where we had a Q&A from the members of the community, so I didn't want to post their questions and legal questions publicly, so we're going to leave that private. But besides that, everything else is still in the call, still in this episode. Just remember, and give us some grace, that this is a Zoom video. We're not talking to professional microphones, there's no format for the interview, it's just us speaking to a group of about 50 people. So if you want to be in these rooms, you want to be on these calls twice a week within our community, you can go in the show description and click the link to apply for membership.

Speaker 1: Ladies and gentlemen, in closing, remember this is not free. Got to pay the fee. Please send this to at least one person that you think would get value from today's episode and from this podcast. And without any further ado, matt Anderson, all right, everyone, welcome to another Action Academy Monday, best day of the week. It's another day closer to getting everything you've ever wanted in your life. And we are here with some beautiful people and some beautiful company, and I'm excited and honored to welcome my good buddy, matt Anderson. He'll give his intro and it's going to be nice and humble, so I'll intro for him first. He's got between about what 30, 40 million dollars of commercial mixed use real estate with you and some partners, and you also are a practicing lawyer, so I'll let you introduce yourself after that, man, but I want to make sure that you're strutting your stuff, not pin us both here in a second.

Speaker 2: All right, yeah, yeah, can we just go ahead and get on?

Speaker 1: Yeah man, Who is Matt Anderson?

Speaker 2: Yeah, sure, where I'm at right now is I am still a practicing attorney but trying to focus more on the real estate. So on the real estate side right now we've got 280 doors, multifamily, about 25,000 square feet of office, some notes, hard money, rap loans, a couple of single families here and there and somewhere around 25, 30 million in real estate Give or take a little bit. I've got a law firm, i've got a art ownership of a title company And yeah, that's pretty much the landscape And my background basically has been ever since getting out of law school, trying to pursue my real passion, which is real estate. Investing, and trying to get out of it was a good income but it was still like a form of rat race and golden handcuffs. So it's been a journey over the last seven, eight years just trying to get out of that day to day grind and doing more of what I love and building real wealth.

Speaker 1: Yeah, man, i'm excited. I'm excited because you have a very interesting perspective. You're somebody that really so. We have a lot of like, sunshine and daisies and roses with people that come on. They're like we're going to accomplish your dreams, we're going to go shoot for the stars And I'm guilty of this as well. Matt's the type of dude where he's looking with his attorney brain Every single thing that happens. He's okay. How do we mitigate the risk here? to the best of our ability, like, how do we prevent this potential downside? How do we prevent bad things from happening? Do you want to share some of your stories, or maybe we can? we'll pivot the stories to the backend. Okay, first let's go, let's continue on this journey of transitioning from attorney to more so, real estate investor and your idea about like financing and funding and how you went about some of these deals, and then we'll go into some more of the partnership material for people that are listening.

Speaker 2: Yeah, sure, i'm a very optimistic person and I'm not very risk averse, but I do have that attorney hat on a lot in that background. So when I look at deals, i'm optimistic and I'm going to figure out a way to make it work if I can, but I also want to shoot every hole in it possible. So that's just the way I break down deals, right, And if I try to shoot the holes through it and I still can't figure out a good enough reason to say no to the deal, that's my process. So I started off just doing small stuff like single family house hats and small wholesale deals And my story I was doing that part time. So my story was doing, instead of a lot of volume, it's just doing bigger and bigger deals. So that's what I did over starting in like 2015,.

Speaker 2: I was negative $130,000 net worth, no work, literally waiting tables, driving Uber, waiting to pass the bar exam till now. And it's just started one house at a time, then one small multifamily at a time, and then eventually moved into a little bit some land deals to commercial, to bigger commercial and multifamily. So that's a progression. And one thing I always did was, since I didn't have the luxury of doing volume, i had to figure out a way to get as many home runs as possible or as much equity per deal or cash per deal as possible, and so that's why I got super deep into and I didn't have a lot of cash, so I got super deep into the creative deal structuring rabbit hole and stuff like that, with seller financing some to really anything you think of. I've probably dabbled in it or tried it.

Speaker 1: Yeah Well, we'll dive and go ahead and just buy how this conversation is progressing.

Speaker 1: We'll probably just start with the sub two and some of the creative finance strategies and then we'll finish up with some advice on partnerships and also like when to partner or when not to partner in the back. But first you have dipped your pen in a lot of different ink here and a lot of people that are here are listening and I've given the advice and what we talk about and what we preach in Action Academy all the time is finding your thing is a lot like speed dating, Like you need to test a bunch of different stuff and you need to go around the buffet in the food court and you need to go around and try all the different food and see until you decide which one is actually your favorite thing. So what's some advice coming from somebody that's done like almost half a dozen different strategies to find the thing that you really want to go all in on, because that's a lot of people are struggling here with shiny object syndrome. All that good stuff.

Speaker 2: Yeah, no, i think it's great advice. I think one mistake a lot of people make is they're good at the education piece but they're not good at the action piece, or they've got these fears. there's barriers. A lot of people are afraid to have uncomfortable conversations. For example, they'll go to their local RIAs and they're talk about the things they're learning, but they won't get on the phone with a direct to seller lead and have an awkward conversation. You know what I mean. So it's fun to have these different things you're exploring, but you also got to take action at some point and try it out. Right, that's one of the things I've noticed. So that's what I'd recommend. You get out there, you network, you figure out these things and then you find ways to make some offers, get your hands dirty. If you want to try sub two, so be it. Learn it, get deep into it and try it, and you really I don't know that you can really know what the exact path for you is until you start taking some action and getting into some deals.

Speaker 1: Yeah, and like actually rolling your sleeve up and like getting into the underwriting, getting into the seller conversation over and over again. So let's use that as a segue. Man, you're very good at seller conversations, you've had a lot of them and this has led you to be able to take down a lot of your real estate almost low to no money, down through financing opportunities. Do you want to first talk about the importance of seller conversations before we get into the strategies themselves?

Speaker 2: Yeah, sure, And I think a lot of us just practice like. one advantage as a litigation attorney in particular is I had a lot of negotiations, a lot of uncomfortable and conversations And I think that's just something you've got to practice. And so the framing with the seller, the way they approach the seller, it's all. I don't know exactly what specifics we would want to get into, but it's super important And you have to understand the needs and the wants of the seller right. You can't just approach every seller with a subject to hammer or a seller financing, because it won't work for them necessarily. You've got to find where their needs and wants and what they're really looking for aligns with what your goals are for a deal and make the deal a win-win as much as possible.

Speaker 1: Can you share your story about million-dollar profit from the commercial property and that story about that conversation with the seller and how everyone was turning this deal down? It was listed on like Lootnet and Traxie and everything right.

Speaker 2: Yeah, yeah, so there was the one deal, that's the. There's two deals One was the commercial office building and then the other one was the single family house. Which one were you talking about?

Speaker 1: The commercial office building with the leases.

Speaker 2: Yeah, yeah, yeah. So that one was interesting. I saw it and the only reason I even knew to pay attention to it is because I pretty much look at everything that comes on the market like every day. So I saw this one pop up and it seemed intriguing just because I knew the area and it was a two-story building office buildings like 17,000 square feet. The first floor looked completely rent ready and the price was just really low. And then I saw that it had been on the market for six months and no price drops. It just seemed like there was something there.

Speaker 2: So I called up the seller and she was an owner agent and started talking with her and long story short, as I started calling around and trying to figure out the back story, i called probably like 10 people as I got deeper and deeper on the steel and out of the 10 people I called they're all in this sort of office space in middle Tennessee. Four or five of them had walked the building and made offers already. So I got a pretty in depth back story and like a bunch of different opinions and I started talking with the seller and she had decided. So the whole building was vacant, which was weird because the main floor it's like 8,000, 9,000 square feet of rent ready space, and so I met her over at the building and just started talking to her and she said, yeah, i thought that this building would probably be more appealing to a buyer if it was empty, which is completely opposite of the case, because everybody was scared away by the fact that the building was vacant and they were going to have to have all these holding costs with no income. So that's why people were freaked out and all their offers had been made to her were just straight up like cash offers, thinking of it like a flip or a reaper and trying to account for all this time with no income in this huge debt service.

Speaker 2: I just started talking with her a little bit deeper and spent some time with her. She found out about her family and she was wanting to move down to Florida, and she owned it free and clear and spent some time with her, complimented the building, said it's a great building, and asked her what do you plan to do with this money, though that you're going to retire down in Florida, and she had no plans for the money, no idea. And that's when the seller finance light bulb really started going off in my head And so I basically just said I think it's a great building, i think your price is reasonable, which is what she wanted to hear. She wanted to feel like she was valid Yeah, she wanted validated like she thought that was worth 1.4 million and nobody was offering her that much money. And so I said I like the price, i like the building, but, to be honest with you and I'd love to do it, but if I was going to do it, would you be open to at your price? would you be open to maybe me giving you some of the money now and some of it down the road? And because I just don't think I'm going to be able to pull off the financing I would need to do right now with what I have going on, something like that. I don't remember exactly what I said, and so she said I'll think about that. And then she also started talking about how this, how much she was emotionally attached to the building and how she'd love to. She didn't have any kids and she'd love to leave a legacy, she'd love somebody to buy the building, who's going to take care of it, and that she could feel good about. So we sent her a three offer letter of intent.

Speaker 2: I had several conversations with her. I met her at the building again and we worked it out where she would put 100 grand down and she carried the rest of the building And I moved my extra little sort of business house act sort of thing. I moved my law firm in to cover the entire debt service. So I rented a body and a holding company rented it to my law firm. That paid all of the debt service and then started filling it up And we got lucky. I thought it was going to be a year to rent it up and only took six months. But we rented out the whole building burnt out of. It, got paid for the top floor construction with bank financing, no money left in the deal And now it's cash flow in about 50K a year. So only had to put 100 grand of my own money into it for six or eight months.

Speaker 1: That's it All right And that's how you do it, and it's funny because the main takeaways I take away from that story are you had a lot of people that saw a deal and not the person Exactly. So they make these offers, and I think it's important. You mentioned something I don't know if this was this specific deal, but didn't you say something to the tune of hey, i'm going to send you a couple of different offers. This cash off is going to be really low, like embarrassingly low for me, but I'm just saying that's what I would have to do in cash. That's all I have, right? Yeah, that's right. So that's important. Can you hit on that?

Speaker 2: Yeah, Yeah. So sometimes I'll do this, I feel it out. Sometimes I'll send like multiple offer letter of intent, And I always love to. You never know how somebody's going to receive a cold email or a cold letter or whatever. And I learned this a lot in law, because in litigation there's a lot of a lot of scary shit going on, a lot of adversarial stuff happening, And so sometimes just a five minute phone call before you send an email can be a game changer, right? Because you set the tone and the frame and get to feel the person out before they receive this cold thing and potentially react in a way that you don't expect. So that's what I did on this. I'm like look, I think your building is worth 1.4. I'm just telling you, if I did cash, this is the only way I know how to put it together right now. But that's why I gave you a couple of other offers, because I love to have the building, I'd love to work with you on this, And so obviously she had no interest in the cash offer.

Speaker 2: It helps. It also helps the sellers to see like precise numbers like this and this. They don't always overthink it, but they think you're trying to figure out a way to make it work right And get them what they want. So she didn't care. All she cared about was her price. She financed it to me I think it was 25 year AM at 4% interest. She wasn't going to do anything with money anyway. She got her price. She could brag to all her friends. She sold it for what she wanted And she had no plans for that money. And then she got to help. She saw, she met my wife, She met us. She made comments like oh, I wish I would have got into this. So when I was your age and I'm happy that it's going to somebody around here is going to take care of the building And I'll drive by it and be happy to know you're taking care of it.

Speaker 2: She don't assume that a seller cares about the same things that you do And that's the things. That's one of the things that it's such a simple mistake that most people never, like you said, see the person and take the time to actually listen to what they want, which is so simple. They just assume that they are thinking about things the exact same way as them. But that's not how people are right. People don't always only care about the exact price or the terms, or people have different things going on And there are different things going on in their lives that give them their own personal wants and whys and priorities. So it's just it's mainly just an example of that. I gave her everything she wanted and I was able to get what I needed to make the deal work for me.

Speaker 1: Yeah, your price, my terms, or my terms, your price, sure, yeah. So it's just, there's always levers that we can pull, guys, and sometimes if you go back and listen to Logan Rankin's video on here that owns 1900 units himself with no JVs, no syndication, no, nothing. That's what he does is he'll increase the price and then he'll do like a clawback to where it'll be a couple hundred thousand dollars of a rebate at close, so that they, i'll give you, i'll give you 300,000 over your ass on the loan And then we'll bring it back. So there's always different ways to structure it. You just got to determine why is the seller selling? All right. And another important thing is you didn't position it just oh, you want to do seller finance? Oh no, i feel like that's a big no, no. That I feel like a lot of us will run into will be like are you open to seller finance? Are you open to seller finance? That's like the lazy approach. How would you expand on that?

Speaker 2: Yeah, and so it's a little bit different. I always prefer to be direct to seller. You went through a broker's a bigger pain in the ass and it's a lot harder because you've got that. The bigger thing is you've got that layer of separation between the actual person who's the decision maker, and so you've got to go through this barrier to figure out what is motivating them, what are they really care about, and so that's tough. It can be tougher, it's doable sometimes, but it's just tougher. So that's really. That's really the key.

Speaker 2: If you talk to a seller and what they want and they owe in the buildings 1.5 million and they owe 1.3 million dollars, just not going to work on the seller carry. Or if you find out, hey, i want to, and this happened recently, you find out the recent deal we were doing. I'll share a recent example that helps illustrate this. We bought a building for the seller was at like 7 something million And we ended up getting it for 6 million and the seller carried part of the purchase price.

Speaker 2: We found out early in the conversation that he wanted to go and buy this family farm Right, and that's why he wanted to sell. So we looked up the property was figured out what the family farm is. It was like a $5 million farm, right. So we weren't going to get the seller to carry all that money, but we did get the seller to carry that spread between the 5 and 6 million. So that's what we did. So we figured out why was the seller selling, what was their motivation, and we were able to get them to carry the difference and bring. So the seller brought 20%, basically give or take, and the bank brought the rest of it.

Speaker 1: What were your what I know. You have very specific thoughts on JVs and partnerships and how sometimes you think people jump into partnerships a little too soon and make more sense for them to actually do the deal themselves. Now, in actually Academy, a lot of people partner up and we talk a lot about going from a me to a we, but you have some pretty interesting opinions on this and I'd invite you to share them.

Speaker 2: Yeah, i'll go back to what I said earlier though, which is like the biggest thing is to take some action. You got to get your hands dirty somehow, right, and so if you're finding the deals and you have no money and you're in the way, you know how to move your journey forward is through partnering. You got to do what you got to do, right. But I do think that people sometimes hold on to that fear a little too long And sometimes they'll enter into partnerships because they're just afraid to be the one who takes on the full responsibility sometimes, or some people are just afraid to bet on themselves with their own money. I've seen people who just can't get over that right. They're comfortable doing deals, but they're only comfortable doing it with other people's money. So I think at some point you've got to. You've got to be willing to be open to doing a deal yourself.

Speaker 2: But just partnerships in general, there are a lot of people, a lot of lawyers especially, equate them to like marriage, because once you're in it it's like you're married. You're stuck in that thing. There's not an easy way to get out of it, and if you didn't date long enough or you didn't find out that the person was actually like a complete narcissist. It's not going to be, it's going to be painful, the exit's not going to be fun, and so you got to be really careful. I would say the only time you don't want to be extremely diligent in entering into a partnership and maybe you still want to is when the risk for you is super low Right, if it's one of those situations where it's you know what. This is my first deal. I want to learn how to do this thing. If I don't make anything out of this, so be it. But even then you want to be careful because there's liability that comes with partnerships. So my general advice is to really spend the time to understand the person, put character and trust over everything, and if you have got feelings or instincts that this person's values don't align with you or you don't trust them or you're not 100% sure about the character, then run away.

Speaker 2: Because if a deal goes bad and you're in a partnership and it's somebody who's a great character that's going to do right by you, then even if the deal goes bad, it's going to be painful, but it's not going to be the end of the world. But if you enter into deal with somebody with bad character. Then in the deal goes right, you might still get screwed. If the deal goes wrong, it's just going to be a nightmare, because they're going to. They're potentially just going to do anything but take care of you. They're going to, they're going to find a way to take care of only themselves. So just this could be its own topic. Yeah.

Speaker 1: But do you have any general rules of thumb or anything that you do to vet potential partners that you do go in with? Is there any general rules of thumb? And then we can get into like some legal rules of thumb and see people go wrong with contracts and JV agreements, sure, For me personally, i don't do a partnership unless one of two things are met.

Speaker 2: One is I've known you for many years, i know how you operate, i know what it's like to work with you and I trust you completely. Or number two, you have no control over the deal for the most part, or I wouldn't say no control, but I'm calling the shots right And the expectations are completely clear. And even then, even if that's the case, i still want to know you pretty well and understand your sophistication level and know that you're not going to be a frankly, you're not going to be a pain in the ass. You know what I mean If I'm quarterbacking it. I don't want the person who's my right hand capital partner to be throwing wrenches in the deal or roadblocks or for when I know what the right thing to do is, for them to step in and try to come and do things. So those are really the only two.

Speaker 2: I've only had, i'd say probably five different partners in my life, and one of them is my wife. Back that one, it depends on what we're talking about. Usually I do, but we have different role. We have different roles though. She's. She's the NBA, the number cruncher, excel sheets Organization. If I had to be the one to organize everything, i would be completely broke, like four times already.

Speaker 1: Yeah, i can't relate to that. What is it the sexy people do with their contracts? So I know you handle out of like messy breakups. What is some advice you can give them? Well, they're maybe entering their first JV, maybe they're doing their first partnership on a deal. What's some advice you can give them to make sure that they're legally secure?

Speaker 2: Yeah. So let's start big picture first. I think one of the most common mistakes people. So there's two like extremes that I usually see people do and they don't. They normally don't go in the middle of a good balance on this.

Speaker 2: Usually people get all crazy and they're like calling me and say, hey, i need to know the perfect entity and I want to set up an LC and I need this insurance and this. And I'm like okay, how many deals have you done? zero. I'm like you're spending all your energy on the wrong things. Right, let's just go do a deal first or get something under contract and then maybe call me. And then the other people are the opposite. Right, they'll like we'll go on legal zoom and They'll call their investor buddy, who is not a lawyer, and they'll do they'll have a 10 million dollars from real estate. And then, all of a sudden, they'll be like you know what I thought? maybe I should finally like look at this. I'm like, yeah, you think so. It's funny because it's not very many people are down the middle and really what you should do is be thoughtful every step of the way And then, in my opinion, once you start doing deals, you need to get a lawyer that you trust, that you can look at the stuff floor and don't step over don't step over dollars to pick up pennies.

Speaker 2: Like you got to get over that scarcity mindset. The faster you get over it the better, because if you've got a solid Purchase and sale agreement or a solid LLC and an operating agreement Like, you're getting a bunch of benefits. If you're working with a good attorney who understands what you're doing, you're getting the documents that you're going to be used forever. So the earlier you get it, the more value you're getting out of the money you spent, because you'll be able to use that forever And you're getting education. So that's. The other thing, too is, if you're doing a partnership or You're starting your first entity, if you're working with a good attorney who can spend time with you and understands investing in particular, you don't even know what questions to ask, right, if you're getting into this partnership or this or you're doing your first Handful of purchase and sale agreements, you don't know what you should know you've got.

Speaker 2: But it's amazing, i've got guys who have been my clients for Almost 10 years now, who I just had this happen. There's one of them, go bun, this guy's I won't name any names and they Weren't paying attention and they used an old version of a contract instead of my contract. And then they had to go to court and this is Specific example but they didn't have an attorney fee provision, so like they had to go through this whole case and they couldn't get their attorney fees back. We're literally, if they just would have had the one sentence in there that I had in their contract, they would have had probably a twenty five thousand dollar windfall difference in their outcome. So I Got off on a tangent. But the point is don't get do the deals first. Take some action, but early in the journey, use it. Don't be afraid to spend a little bit of money on education and getting. You're getting it together.

Speaker 1: Yeah, my, my grandfather used to say that you want to spend money on a couple of different things. He's always spend money on tires, lawyers and accountants. You're gonna need all three. Yeah, that's a good one. I was like you know what that's actually like? fantastic, if you're not gonna go discount tired, you're like you're gonna die. Yeah, i like that advice. Let's jump into the sub two strategy real quick, because I don't know much about it. Let's talk about sub two, okay.

Speaker 2: So, just like super basic, sub two means you're taking something subject to Anything really. So you buy a property that's got an HOA on it, you buy it subject to the HOA rules and regulations and restrictions, right? You buy a property and it's got a shared driveway. You got your buying it subject to the shared driveway or the easement or whatever it is. So that's just simply what it is. It means something is coming with the property on the title. So in the investing with the Terminology and doing a sub two deal, all we're talking about is buying the property subject to the underlying mortgage, which means when you buy it, typically you buy a property if the seller has a mortgage on it. You get a payoff statement from the lender, you pay off the mortgage and then now you own it free and clear. If you're buying cash Or your lender steps in, is is the only lender involved. So buying sub two, all you're doing is you're taking title to the property and you're leaving a mortgage in place. That's the simple, just basics of what's happening.

Speaker 1: Yeah, and so what makes it advantageous, like, why is this strategy catching fire? I what? what's the advantage to the investor?

Speaker 2: Let's see. The funny thing is, like this sort of stuff, seller financing is hot right now. Sub two is hot right now. It's because of the interest rates, but this has been going on forever. I've got friends and colleagues who's been doing this for 40 years. This is nothing new. I spent time, i go to some sub two masterminds and some of the guys have literally been doing this for 40 years And that's almost all they do. So this is nothing new. It's just to get hotter in certain markets right And right now. It's gonna be hot for a while because you're gonna have a spread between the underlying interest rates and what you can find elsewhere. So that's one of. So the big advantage is that exactly one of the biggest advantages You don't have to go out to a bank and get a new loan If you keep it in place, right. So if I go and buy a house That's worth a hundred fifty thousand dollars and it's got a hundred twenty thousand dollar underlying mortgage at three percent, i could keep that mortgage in place and my payments are way lower. So that's one obvious Advantage.

Speaker 2: We've done it on flips to. We'll buy a. So, for example, we bought a. I told you this story about the two and a half million dollar house. We bought sub two with a $1.9 million mortgage. We won't get into the weeds of a deal, but I had.

Speaker 2: I had hard money lined up on that deal. For how expensive? I don't remember the math on it, but you could do it real quick on your calculator. What's 14% of $1.9 million? It's going to be pretty pricey, right.

Speaker 2: When we bought it sub two we didn't have to deal with the hard money costs. We bought it, kept the mortgage in place and kept the lender happy for a little bit and then ended up listing it. So our profit on that deal and we've done on many, not many, but several flips have been like that, where we're saving a considerable amount of money because our alternative money would have been a lot more expensive. So those are a few of the highlights. You can get into wraps where you keep the underlying mortgage in place and you sell your finance on a wrap to the seller And then you can get real crazy cash flow because if you've got an underlying mortgage at 3% and you're selling the whole thing at 7%, you're creating a note on top of the underlying but then you're also getting paid an interest difference on the underlying. So those are some highlights.

Speaker 1: Brandon Hicks, I know that you're getting really deep into sub two strategy. I think you're probably better equipped to ask questions on this than I am. Do you have any questions for Matt specifically on this? That'd be helpful for everybody.

Speaker 3: I just started reading your friend's book on creative strategies, pace's book, so I'm just learning some too right now. Actually, i just read through it the other day. So yeah, i'm actually not as well versed on it to know what questions to ask right now. But I've seen things like. I saw a question about do on sale clause and what happens if I don't let's say I take. I guess a question will be what happens if I take over a property subject to and then I stop making the payments. I would imagine the seller is going to ask that question like how do you, how do I know that you're going to make these payments? Why? how can I trust you that you're going to make those payments?

Speaker 2: The big answer, frankly, is they need to trust you and you don't need to do that to be honest with you. But that's a big thing. But you really need to make a track record and make it very clear that you are going to make these payments. But the other thing is a lot of times, a lot of times, it doesn't matter for the seller, like a lot of times, sub two deals are situations where, for example, the people are behind six months on their mortgage, right? So if I don't pay your mortgage? so a lot of times the answer to that question is you're 15 grand behind, your credit score is suffering, you're about to get foreclosed on. If I catch you up and make your payments for a year and stop making your payments, then you're in a better position than you were before I found you, and so that's one example, but it's specific to each deal.

Speaker 2: It is an objection to do on sale clause, and I should have said from the beginning none of this is legal advice. Get your own attorney. All this is state by state by state things going on. You do have to make that. I know, i don't know, i'm a bad lawyer. Obviously It's not like it is sub two. You got to know how to do it right. So I would recommend, if you're getting into sub two, my advice would be to work with some people. It's hard to find a good lawyer. Hopefully you can find a good lawyer in your state that understands it. Most lawyers don't understand it. If not, work with somebody who's got a proven track record. Try to learn, get a mentor, get a partner something like that would be my advice.

Speaker 2: But do on sale. I don't do a ton of these. I've only done like 15 of them, but I've got a client who's going to do more than that this month, more than I've ever done just this month. I know people who do a lot of these, levels to the skies and never stop. Oh yeah, he's creating like a million plus dollars of equity a month on his deals, maybe probably multiple million. I think he did $10 million in equity in one month one time, like last year, but anyways, he will tell you he's got a lot more, a bigger record to source from And he would say that less than 1% of his deals do the do on sale clauses become a problem And when they do, he's got reserves.

Speaker 2: He's got a combination of reserves and lenders who can take care of it Right. And you know, if you've got a and that's why it's important to understand your buy box you probably need to have some decent equity most of the time, And so if I've got a property worth 150K, it's got a $100,000 underlying. If it's a decent property that's cash flowing, it shouldn't be that hard to get $100,000 alone on a $150,000 property, right? So you just need to have your backup plans in place and know what you're doing, have your proper disclosures And there's more nuances to it. You need to understand how to do the insurance. There's some lenders you need to avoid. That can be a very deep rabbit hole to go down. But, point being, the do on sale clause is not as scary as it sounds if you really learn what you're doing.

Speaker 1: Okay, brandon Robbe had another question as well. I'll let you ask it, mr Hawaii.

Speaker 5: Yeah, sure, all right. So yeah, can you do a sub two deal And then if there's equity in there built in, can you put a HELOC on it to tap into it as that new owner?

Speaker 2: That's a good question In theory. Maybe you could. What I've seen people do instead is get higher interest second loans on the property, so they'll keep the underlying in place. Let's say it's a $75,000 mortgage at 3% And it's worth $200,000. So they'll go to a private lender and get a second position, a higher interest loan to pay, and they'll do it that way. The problem with the home equity line of credit is, even though the deal is in your name, there's a mortgage that's not in your name still on the property. I don't know, i guess is the main answer, but I would imagine you're going to have trouble getting a home equity line of credit unless you get the seller to do it or you do it in the seller's name, and I just would not recommend messing with any of that.

Speaker 5: Okay, Okay. And then private lender you're talking like private individual to get that second position. Is that what you're referring? That's right, okay, cool.

Speaker 1: So we've probably got another five minutes to hit on sub two. Anybody have any specific sub two questions that they want to ask? I saw Neil hosting some comments and I see Gina raising his hand. Gina will go to you, thank you.

Speaker 4: What's going on, Matt? I've had a quick question on if you so. You said like the wraparound thing. That was kind of confusing to me. So when you buy it sub two it's still in there.

Speaker 2: The loan. To be clear, the loan is still in their name, but the deed is yours, but the house goes under yours.

Speaker 4: Oh, okay, yeah, i haven't done my homework fully yet, but you can get a second loan on the rest of that equity. I didn't know that.

Speaker 2: Yeah, i mean you have the hard parts finding a lender willing to do it because second position loans are riskier, but for the right person I just did a hard money loan last week. I don't do a lot of them but I would do a. I would do a second position loan for a borrower and set on a sub two deal. in certain circumstances I don't want to feel really good about the collateral. that probably would need to be a house I would want to own and then I would probably want to have reserves lined up to pay off the underlying if they, if anybody, did something stupid. But yeah, you can do it. You just got to find it. especially if you're new, it might be hard to find the lender. Yeah, i probably need to bring up, build up a track record and some relationships for that to be realistic. Yeah, okay.

Speaker 1: Thank you, mr Strublen, thank you.

Speaker 6: So I am curious obviously you go straight to an attorney who knows what they're doing in subject two, and that's going to be your most direct path And then obviously, find a mentor. Find a mentor who knows how to do this. Can be hard or difficult to work with because they're busy as well. Is there any suggestions that you would have to self-educate on subject two?

Speaker 2: Yeah, i would recommend I don't know if there's any great books on this Franklin.

Speaker 1: No, think about it. Brandon said that Pace wrote one. Okay.

Speaker 2: I've already.

Speaker 3: I can't say whether it's good. It just came out two weeks ago.

Speaker 1: Oh really Okay. I'll have to read that. If he had canceled my podcast, maybe he would be able to prove it.

Speaker 2: Yeah, i don't know. I would highly recommend I'm going to share his competition who I can bash for. I would highly recommend checking out the Investor Creator podcast. A guy named Brad Smotherman. He's a good friend of mine, he's a client, he's done tons of these deals and he was mentored by one of the goats of Sub2. There's a guy named David Alexander, who's also a good friend of mine. These guys are legit. They are basically they are savants. I would say they're basically geniuses on this stuff. I would check out the Investor Creator podcast because if you're super interested in this, it'll blow your mind. I was pretty savvy in the real estate world and seller financing and stuff like that and blew the top off for me to be able to have this new complete tool in the tool belt If you really wanted to go deep. He's got a like a mentorship sort of thing specifically on Sub2 that I could connect you to. Which one is that? I think it's called Investor Creator, which is the same name of his podcast, and they get who's the guy.

Speaker 1: His name is Brad Smotherman. Brad Smotherman, can you make an intro so we can get him an action academy? Oh yeah, he's a badass. Okay, sweet, and that's how it works, guys. It's literally that's how we do everything You have to get in touch with this person. Yeah, i'll let you drop a question and then we'll move on to some other topics and finish out.

Speaker 7: Hey, matt, good to see you man. Hey, what's up man, could you recap over the weekend the different pieces of things you analyze on taking a deal and why in one deal you may not take cash flow versus like you would take cash flow And you literally listed out, like the three things that nation of what you would take for each?

Speaker 2: Yeah, and you're talking about like for Sub2 specifically, right? Yep, yeah, and this is something I learned from Brad. You think about equity, which is pretty simply like what you're getting in the deal at versus what it's worth, right. So if it's worth 200K and you can get it into the property for 120, you've got 80K of equity. Well, another form of equity you can think about is debt equity. So, for example, if I've got a, if I buy a property with a 15 year loan for 100 grand with 0% interest, right, and it's worth 200. I could create a spread there on that debt equity. So right, so I could wrap that loan out And this is what I do sometimes for $150,000 at 8% interest or $200,000 at 8% interest, and so not only so. The point is, not only do I have the $100,000 in equity right From the 100K to the 200K in that example, but I've also got a difference in the loans. So that 15 year 0% interest mortgage it's going to lower that principle really quick, versus my 30 year loan to the end buyer It's going to. It's that principle is going to go down slow. So I'm I've got an equity gap there every year that goes by. I hope that makes sense, i'll delay that groundwork.

Speaker 2: So the point is, you can get equity, you can get cash flow, or you can get that debt equity, and so for what I'm looking for is a combination of those things or a lot of one of them, right? So if I've got a lot of equity, i don't have to think about anything else. Right? If I can get a house for 100,000, that's worth 200,000. That's, i don't really have to analyze it deeper. But sometimes I can buy a house for $210,000. That's only worth $200,000 because I've got this killer underlying debt and I know I can sell it with a better debt, for example. And then in other examples I may not have a lot of, i may not have a lot of equity or debt equity, but if I've got killer cash flow and I can get in and out with none of my money in the deal, then it's worth it too. So that's how I think about it.

Speaker 7: Yeah, awesome When going about once you finally do. If you're doing like the debt spread, how do you go about finding the person that's interested in mortgaging out directly from you at that four, five, six or 7%?

Speaker 2: Yeah, and you got to be careful and know what you're doing on that, especially if you're doing multiple of these. But the long story short is a lot of direct to buyer marketing, so like Bandit signs can be effective Social media marketing. There's like a surprising number of buyers who are just not super credit worthy, like they don't have a great credit score or the contractors or for different reasons, they don't have good W2 income but they can afford houses. So it's more people than you would think are looking for this. It's really, if you got a good deal, it's not hard to find. Just connect with the people who are doing them and learn the ropes, basically, and you'll figure that part out.

Speaker 7: So thank you, Matt.

Speaker 1: Yeah, and I want to highlight this too, because it's a major question, right, how do you get mentors, like, how do you vet mentors? How do you know who's a good mentor? How do you know who's worth their salt, stuff like this. And a good rule of thumb that I've seen over the course of everything because now it's got interviewed hundreds and hundreds of people and most of them have mentorships Good rule of thumb that I've seen to pick out the scams and the frauds from people that are really worth their salt is pay attention to who gives the way their best stuff for free.

Speaker 1: Over and over again, i see that the people that have the podcast, the YouTube channels, and they're giving as much away for free as possible because it was never the answers, the execution of the information, that's the answer Those are the people that are really worth their salt. So as soon as you said that they have a podcast, then I'm like, oh OK, cool, that makes a lot of sense, because if your free stuff is better than our people's paid stuff, then imagine what it's going to be.

Speaker 2: And if you listen to the first 50 episodes of that podcast, especially if you've been on your journey for a little bit. If you, it may not be the best podcast for you. If you just learn the basics, but I've been investing for five, six years and heard stuff on that podcast in the first 10 episodes on every episode. I'd never heard anywhere else. This is sweet Yeah.

Speaker 1: So let's plug the podcast one more time. Investor creator. Investor creator Cool. So I'll have him come on Action Academy and speak to start getting paid by Brad.

Speaker 2: I need to tell That's awesome.

Speaker 1: Yeah, no, i mean, this is how it happens. So it's just so I don't look for whatever strategy that I'm into. I'm not going to be Googling like who's the sub to the guy, who's the best contractor in Atlanta, georgia, who's the best realtor investor, friendly realtor in Austin, texas. You don't. It's not stuff that you Google, all right. It's stuff that you go to your people and then you utilize your network and your resources. Because I don't trust Matt. I already know that he does good stuff. So now he gives a recommendation in a referral. It's the same thing. It's a snowball effect. So this is how you guys can utilize Action Academy to branch out into all your other ways, because when I was coming up, we had none of this. It's just Googling and bigger pocket forums. I couldn't find anyone.

Speaker 2: Yeah, i think what you said is brilliant. Yeah, i think what you said is brilliant as far as people who's given stuff away for free. And then the other thing I think I would tack on to that is who is making other people money, right? So if you're, it's one thing to watch on YouTube. Be like Hey, i'm going to landbills, i'll make you all this money, but that's an advertisement. But when you can talk to most multiple people who are raving fans and can tell you look, this guy made me a bunch of money doing this, then you got those two things together. I think you've got a powerful mentor.

Speaker 1: I love that man. So in closing, i want to go over. You've brought up a couple of different asset classes, both big and small, as we've been having this discussion anywhere for doing like an eight million dollar office building to a wholesale deal. There's a lot of people in here that are doing the wholesale deal and they're trying to graduate up to that million dollar office building And that's why they're here is because they want to take down the large multi, they want to take down the large commercial and they want to take that big step to go from who you were like a couple of years ago to who you are today. What's some advice that you can give to the people listening right now to get them, help them move forward in that direction?

Speaker 2: Yeah, networking is always powerful, right, because the more you can model and emulate and learn from people who are doing what you want to do, the faster you're going to get there. And then, if you can add value to that person, you'd be amazed at how much people are willing to help you on your journey. If you're just a good person who is enjoying the game, so that's one thing. And then the other thing is you got to start where you're at. If you're out there cold calling 100 single family houses a day and you're a wholesale one, you're figuring out the negotiations part, right. You're figuring out the talking to the sellers part. So use what where you're at and what skills you have to segue into the next chapter. If you're a killer at finding deals, then figure out who's doing. If you want to do a commercial deal Sorry, i got the baby in the background, i'm not going to hear that But figure out who's doing the commercial deals and use your skills to find commercial deals And then talk with these people. You've built relationships, trust. Maybe you need to do a partnership first, right, because you don't have the leasing skills or the contract skills. So that's. I can only tell you that's how I did it right As I built on my skills. And what's the next thing? And Hermosi talks about, like taking the skills you already have. I'm a big Alex Hermosi fan. Right now I think we were talking about this this weekend He talks about what is the next step.

Speaker 2: Where I have the, i can either take all the skills I already have or I only have to learn like one more skill right. So the best thing for to make you take all the skills you built up analyze what's your best at, what is the result that you can get from that, but not everybody can. And then how can you partner with somebody else who has more skills? And then you learn those right. So if you can find a pick ass deal and you brought it for me, i'll plug myself You brought. If you found a $5 million killer office building, but you have no idea what you're doing, you just know that it's a great deal. Somebody like me could probably do the rest of it for you, right, right. So just use what you got.

Speaker 1: Yeah, that's my exact like. this is what I harp on all the time and tell me if this is in the right direction, cause I think that we're on the exact same page. I just like validating it from other opinions and other voices. So for me it's remember, knowledge, capital or hustle like you need one or two of the three And so you don't have millions of dollars capital, you don't have hundreds of thousands of dollars of capital. Then you're like okay, what asset class I want to get into? So if somebody is, i want to get into triple net least commercial real estate, right, where you don't have to do a bunch of volume. You could do one or two big deals a year and make 400, 500,000. Right. So what I would do is I'd say, okay, this is where I want to be.

Speaker 1: So I'm going to surround myself in a room full of people that are doing triple net least commercial deals. I'm going to be in their world and I'm going to insert myself in these conversations, figure out what they need, and then you're going to say what's your buy box? What's your buy box? What's your buy box? You're going to go, spend all your energy and effort finding these deals for these people and you get a bird dog. Then you're going to go into the deal for a teeny, tiny bit of equity, just to be a small JP partner and let them do it, so you can sit front row and watch them at the closing table, watch them in the management, watch them sign the leases, watch them find the tenants. Then you're sitting there front hand, you have some equity in the deal And then you've got all the confidence you need to go onto the next deal and do it by yourself.

Speaker 2: Yes, i agree with you completely. I suffer. The only thing I would change is the better you are at finding, the more skills and knowledge you build up in that process, faster and the better deals you find. Then you may not even have to ever give away. You don't necessarily have to be a super tiny piece of equity, right? If somebody came to me and this happens if somebody comes to me and they've got a $5 million deal and I think it's worth $7.5 million, i might give them 60% of the deal. I don't know, it depends on the deal. If it's a good enough deal and they've packaged it up together, so it's all relative.

Speaker 1: Yeah, so what is your?

Speaker 2: buy box. Right now I'm mainly looking for one to $10 million office and retail in Tennessee. That's got to be below replacement costs, it's got to be affordable rents And then we're also looking to add to our multifamily portfolio. But that's not something I'm probably actually today. I added epiphany that there's certain markets. I need to be on top of finding more of these two. So those are my two buy boxes Multifamily and office and retail. One to 10 million, basically, i'll take 15, if I find it though.

Speaker 1: Nice, well, open up. This is perfect. We open up to eight minutes of Q&A, so anybody that has any questions for Matt on legal, jv partnerships, commercial baby bird dogging from him. Who knows who's got questions Hey, real quick. If you're still listening to today's episode, i'm assuming you got value from it, so I need your help. Specifically, my two year vision with this show is to help over a 1 million people do what they want, when they want, with who they want, and I can only do that with your help. There are two main ways that a podcast grows. One is through ratings and reviews, and the other is word of mouth. If you could, please leave me a five star rating and a review on Apple podcasts and Spotify, as well as send this to one or two friends that you think would get value from it, we can reach the people that we're looking to reach. Thanks in advance, talk tomorrow.