Wealth Without Cash
Wealth Without Cash

Wealth Without Cash

Dad never really found a way to build a profitable system. He knew how to start—and start over—but not how to scale. Whenever he built a new business, he would grow to a point beyond a single person’s capabilities and then it would come tumbling down like a house of cards. (Location 135)

My parents taught me how to work hard but not how to work smart. I give them all the credit for my work ethic; I challenge anyone to put in more hours than my family or serve more people than we did growing up. But that doesn’t mean we weren’t often on a hamster wheel. (Location 140)

At the time, I just figured anything that didn’t fit my wholesale criteria was a bad lead. I was spending a few hundred dollars per incoming phone call to acquire all of those “bad leads.” About one third of the people didn’t have equity, but they were in foreclosure and needed help. Someone had died, they had lost a job, or some other unfortunate situation had befallen them. I saw the same story time and time again. (Location 235)

I was using Facebook ads, sending postcards, and cold-calling foreclosures when I met Eileen Brown. I had made a little money wholesaling, but I still didn’t know anything about creative finance. One day, I went to Eileen to open escrow on a deal I was working on and discuss some options. (Location 241)

She was a real mentor for me. She gave me the most guidance and did so in the quickest fashion. She said, “Pace, go create as many problems as you can and come to me. I’ll solve your problems.” (Location 260)

With creative finance, you can get started faster but you can also improve over time. This is because every time you do a deal or learn a new skill, you can add another tool to your tool kit. Can you find another way to locate a seller’s bunnies and solve their unsolvable problems, like how I solved Janney’s bunny problem in the introduction? Honestly, for me, it’s an addiction. I can’t help but see distressed properties when I ride around or see problems that can be solved with creative finance when I pick up the phone. (Location 306)

When Eileen first started helping me close creative finance deals, I started to share these secrets on social media. I was amazed that I had never heard of these methods, and many of my early followers had never heard of them either. It got to the point where I could pull up in front of a house, share on social media that I was about to go in and talk to a potential buyer, and the competition would message me and say, “Ahh, I was there three days ago, I wish you weren’t going in behind me.” They knew I had more tools in my tool kit and had a better chance of solving the seller’s problem to close the deal. (Location 314)

Hopefully this is all making sense and it’s clearer that creative finance isn’t just some fly-by-night get-rich-quick scheme. Even if you get your first deal closed today, it could take ninety days to get paid for it. With creative finance, it’s a short-term strategy and a long-term strategy built into one. Yes, you can buy a vacation home or a family home with the tools in this book. But you can also build an empire of 1,000 doors. Ironically, you need the same information to do either because the path to 1,000 doors starts with your first deal. (Location 325)

I’ve seen 18-year-old kids buy rental properties while attending college. I’ve seen single moms build creative finance empires while working from home. It’s all possible with creative finance. (Location 331)

From another perspective, you can take over an existing business with a piece of paper. You can buy a business that’s been running strong for thirty years and start making money right away as you pay off the business. This sort of thing has been done for thousands of years. Most people just aren’t aware it’s happening all around them. That’s creative finance. That’s seller finance. And, obviously, the same is true for the housing market. (Location 547)

The first reason people buy real estate is cash flow. That’s something I’m going to repeat over and over in this book. For me, cash flow is a major priority. I want to make sure there’s more money coming in than going out each month. For some people, this is the only reason to buy real estate. (Location 580)

Cash flow is the amount of profit you bring in each month after collecting all income, paying out all operating expenses, and setting aside any reserves for future repairs. For buy-and-hold investors, cash flow is crucial to increase their income. It allows people to invest in other properties, create a safety net with their expenses, or do anything they want with the excess money. I live off cash flow. (Location 584)

The second reason people buy real estate is asset depreciation—tax benefits. I’m in the phase of my business now where when I look to buy properties, I think a lot about depreciation. Basically, depreciation is the tax benefit of how assets wear over time. To get a little more technical, depreciation refers to deductions in the value of real estate over the lifetime of a property. (Location 598)

Fifth, there’s leverage. When you buy real estate, you’re building leverage for yourself and for your business. I call this the 50 Million Dollar Mindset. If you’re serious about this business, it’s not crazy to build assets worth $50 million. (Location 640)

I like long-term deals for my portfolio, but I also use creative finance on short-term flips and wholesale deals. Everyone is different. What makes up your buy box? What problems can you live with? What headaches do you want to avoid? Some people I talk to only want to buy multifamily properties. Others want to work out of state. And some only want to work on deals within an hour of where they live. (Location 721)

deal. I’m going to give you a handful of options to choose from. There’s subject-to. There’s seller finance. There’s a hybrid model. There’s the Morby Method, which is something I created for creative deals where you borrow money back from the seller. There are novation agreements. There are lease options. There are executory contracts. Then there’s arbitrage. All of these are tools for your kit. Let’s talk about finding your perfect deal, the characteristics of a bad deal, and how to find a good deal in the first place. (Location 724)

For me, I want to be an investor who cash flows (in the Susan deal mentioned earlier, I was able to cash flow $1,000 from the first month). Beyond cash flow, about 80 percent of my deals are in Arizona, where I live, and the other 20 percent are in locations where I visit frequently and know I can find good deals. (Location 734)

When I think about a sub-to deal (aka subject-to deal), I picture a hearty rib eye steak. In other words, cash flow is the primary element that makes up a good deal for me. There are sides, sure, but if that rib eye isn’t cooked to perfection, the plate (or deal) is a bust. (Location 760)

Let’s talk about your first rib eye. When you find a deal within two hours of your house, you know you can drive by on a Saturday morning or stop by after work to visit the property and make sure things are running smoothly. Get out there and drive by the property. Pay attention to the neighborhood. Pay attention to the ebbs and flows of this environment. What are the pros? What are the cons? In addition to maintenance, there’s also a pride of ownership. (Location 764)

High crime is not necessarily a deal killer for me, but high vacancy and low rent are deal killers. (Location 774)

What makes an area good? The basics for me are areas with low crime, low vacancy, nearby schools, nearby companies, nearby airports, nearby downtown areas, and sporting arenas. If you think about these various elements, you can find areas where larger corporations have already done the hard work for you. (Location 785)

These companies are looking for population density as opposed to locations on every corner. The same is true for businesses like IKEA or Chick-fil-A. They’re not everywhere. They’re specifically somewhere. You should think of your deals in the same way. Do your due diligence on the factors that are most important to your deal. If you wouldn’t want 1,000 versions of the same deal, then you shouldn’t even do one version of it. It’s not more complicated than that and most people get in trouble locking in deals that they wouldn’t want to repeat. (Location 788)

This is the most flexible method and easy to get out of for both the buyer and seller. A lease option is a contract between the owner and buyer that lets the buyer lease the property for a specified time with the option to purchase after that time, generally for a pre-agreed set price. (Location 840)

Most people like to use the BRRRR (buy, rehab, rent, refinance, repeat) method; personally, I like to use the SRRR (sub-to, rehab, rent, repeat) method, but this also requires some capital. That said, it has fewer moving parts and it’s one of the simplest exit strategies. (Location 1234)

Let’s say the price is $150,000 and the entry fee is about $15,000. I either have to have my own money or I need to raise the money to get in. With a renter, there’s no up-front fee. The renter typically only pays the first month and the security deposit. With this exit strategy, you also must consider vacant months and any additional marketing you have to do to get a renter. (Location 1237)

But, when you are thinking long-term, you should have some rentals in your portfolio so you can make consistent money over time. You also need to put some money aside for any problems the renters might have. Renters are notoriously rough on rental properties. They break things and things break on their own. You’re going to have to worry about these properties all the time. Renters trash houses and there’s the possibility of frequent turnover, evictions, and other headaches. But, of course, there are benefits. You get tax benefits. You get cash flow. And no one can buy the property from you, which is the opposite of a lease option, where you might lose this cash flow stream after the five-year agreement ends and the buyer is still interested in the deal. (Location 1240)

Next, there’s the group home exit strategy. I own a few assisted living and behavioral health homes. “Group home” is sort of a general term for all of these, but I don’t like to get involved with models that have government oversight or that require a full-time staff of nurses, so I try to focus on group homes or temporary housing when I do these types of deals. (Location 1248)

Whether you use Airbnb or Vrbo, there are countless things to think about with a vacation rental. Personally, I avoided this path for a long time because it’s easy to oversaturate a market and there’s always the possibility of something like the COVID-19 pandemic happening and leaving you with a pile of mortgages and little income. (Location 1265)

The first rule of doing an Airbnb is to base everything on the rental rate. If you can’t cash flow at the rental rate, in my opinion, you shouldn’t take on the property. The second rule is that you need to have capital. You have to market and furnish and maintain the property. Third, you should get a partner. Work with someone who knows what they’re doing because the Airbnb model can be a lot of work, but if you can get someone to manage the property and share the profits with, then that’s a good situation. Then you don’t have to work on assigning cleaners, responding when the Wi-Fi goes out, and all those other little pesky tasks. (Location 1272)

Generally speaking, renters in high-crime areas damage properties. This means you’re always going to have repairs and you’re always going to have vacancies. This sounded like a great deal from the initial pitch, but it just wasn’t worth the hassle for me at the time. (Location 1338)

Driving for dollars is the cheapest possible way to get started in real estate. If you have no money and lots of time, this is the method for you. Let’s get started: What does it mean to drive for dollars? Essentially, driving for dollars is a method in real estate investing where you look for distressed properties or motivated sellers to work with. We’re looking for off-market deals to either wholesale or fix-and-flip, but what we’re really looking for are motivated sellers. (Location 1408)

There are countless telltale signs that a property is distressed. Some of the basics include overgrown lawns, boarded-up windows, holes in the roof or other deteriorating elements of the exterior, mail or advertisements piled up, or bank notices on the front door. Once you track this information, you can start to gather a little research on the property. This would include the property address and also the owner’s mailing address. It’s possible the owner is a tired landlord, a bank, or someone who inherited the property, and this house is now a hassle for them. (Location 1416)

You drive around and look for opportunities. It’s that simple. You find these opportunities next to or adjacent to the path of progress. If you need more of a visual, in my webinar “Find Your First 500 Deals for Free,” I broke down some of my habits and we went out in the field to discuss potential deals. At the first house, I noticed the landscaping had been neglected and the grass was overgrown, but I want to find multiple signs of distress in order to consider it a distressed home. (Location 1442)

Door knocking is coming back in a big way. With phone carriers and text messages being more and more regulated, door knocking is a tried-and-true approach where the only real limit is you. When we talk about text blasts and cold calls, there are lawsuits happening all over the country. They see this as solicitation. This doesn’t mean you can’t do it—I’ll go over both as successful methods—but it does mean you have to be careful. (Location 1474)

Successful investors will be door knocking for multiple reasons going forward. It’s the fastest way to get a contract. With cold-calling, the average campaign takes two months to get a deal. That includes hiring a cold caller, building a list, filling the pipeline, and following up. With door knocking, I’ve gotten contracts within forty-five minutes. Not only are you there in person but you also remove the disconnect of the telephone. Potential sellers see that you are a real person and there to help. You can shake their hand. You can have a real conversation. You can gain their trust. All of these aspects mean you can get a deal quickly. (Location 1484)

If you don’t want to spend a ton of money on county record lists and don’t have time to drive around, looking for expired listings is a way to find homes for sale. (Location 1501)

What is an expired listing? It’s a property that hasn’t been sold by the end of a period stipulated in the listing agreement between the seller and listing agent. The seller decides they want to sell for whatever reason, so they go out and find a real estate agent. Generally speaking, the seller gives the agent about six months to sell a property and they sign a contract that has all of this in writing. Sometimes there’s a buyout clause that lets the seller exit the contract early for a small fee, but this is more on a situational, case-by-case basis. Either way, expired listings can work for you. (Location 1506)

That said, there are still cons and obstacles, as with any type of deal. The seller could simply have a number that is too aggressive in mind. Maybe the home has sentimental value for them. Maybe they’re just in debt in a bad market. Whatever the case, the seller could be difficult and not willing to negotiate. This doesn’t mean you can’t make a deal, but this is a situation where your negotiating and your bag of creative finance tricks need to be on point. You might find yourself making a deal over asking price on a house that needs a ton of work. I’ve done this many times because I knew I could get zero percent down, and then I have an opportunity to find any number of exit strategies to make the deal work. (Location 1525)

One of the most effective ways to create a consistent chain of leads comes from cold-calling and texting. These are two different strategies, but they’re similar. If we start with a text, we immediately want to get the seller on the phone. Getting on the phone is a big part of your success. I want to discuss using a dialer, the benefits of cold-calling, KPIs to track numbers, and even how to use a virtual assistant (VA) to create a conveyor belt of hot leads when you’re ready to scale. (Location 1547)

My VAs might make a hundred calls or more in a day. The dialer also tells you who is calling back, plus you can input notes about the conversation. You’re going to be asking specific questions, so you need to be able to take notes and gather information. For the most part, you won’t get a sale on the first call. (Location 1561)

On average, it takes seven calls to the seller, because you’re building rapport and creating a relationship. This doesn’t mean it’s impossible to close on the first call, but it is more likely to take multiple calls. That’s why you need to be consistent. This is also why we use VAs to help us do all of these rudimentary steps to bring in leads. (Location 1564)

I like difficult conversations as long as I know there’s a possibility of closing the deal. I don’t want to deal with cold calls that aren’t serious, but I will solve someone’s problem by buying a property if I can find a reasonable or creative solution to that problem. (Location 1693)

I told him, “Because the only people educating homeowners are real estate agents and all they do is put a sign in the yard. But with subject-to and creative finance, I don’t need marketing because I’m providing solutions. If you provide a solution that nobody else is doing, you don’t need to advertise.” (Location 1959)

Jamil spent nine months creating his rules by working with hundreds of appraisers and going to appraisal school. Early in my career, I would send properties to Jamil and ask him if they made sense and what numbers I should offer. Using his rules, Jamil knew what to tell me and eventually taught me how to comp and how to find the ARV, or after-repair value. Every deal is dependent on these rules. If a deal didn’t make sense or Jamil said the seller wanted too much, I had to walk away from the deal. Today, I would just shift to creative finance and try to make it work. (Location 1980)

Understanding deal analysis is a little easier with examples, so let’s use one to go over fix-and-flip numbers and wholesale numbers with an Airbnb analysis. This is how I make about $500,000 a year in passive income. In a subject-to deal in Atlanta, Georgia, we manifested a deal with a gentleman named Jamari. Jamari sent me a DM on Instagram. I asked him to get me on the phone with the seller, and after a forty-five-minute call, I was able to have Jamari follow up with the seller every single week until the seller was ready to make a sale. (Location 2109)

Your first hire should be a virtual assistant. If I could go back in time, I would have hired a VA right out of the gate. Don’t hire a family member. Don’t hire a friend. Most people do not understand what it takes to be an entrepreneur, so your old friends are not a good fit for your future business. They don’t understand the extra hours it takes, and they don’t understand the risk you are dealing with being an entrepreneur. You need to find a team made up of people who understand how to work hard. Your first hire should be a VA who can help you with lead generation. A VA can set up a system and run that system for you. If your VA is trained properly, they should be able to make cold calls for you. But, since you’re starting out, you can also have your VA pull lists, skip-trace leads, search for properties, run comps, and build out a follow-up system. With your first hire, you need to decide what they are going to do and what you are going to do and make sure the roles work together seamlessly. (Location 3236)

He’d never heard of this before. He repeated what I said in the form of a question. “You can wipe out my debt on this house?” “Yes, we can wipe out your debt, you keep your name on the house you’re trying to sell, and you qualify for the new loan. It’s called subject-to.” (Location 3394)

“There’s three reasons why a seller won’t agree to seller finance,” I said to Bill. “No. 1: They don’t understand how it benefits them, because I’ve done a poor job telling them the story of how it works. No. 2: They really need the money right now, be it for a surgery or their daughter’s wedding. No. 3: They aren’t motivated to sell the house in the first place.” Bill didn’t skip a beat when he told me that he actually did need to pay for a wedding. (I’ve used the wedding example for years, and it’s true more often than you would think!) (Location 3691)

Already, this was about much more than a wedding. But beyond that, Bill also wanted the money for a down payment on his daughter’s first home—a fresh start for everyone. He told me, “I couldn’t be her foundation, so I wanted to buy her a house that has a foundation.” (Location 3705)

Acquisition people think these sellers are greedy, but in reality, these sellers are just trying to solve a problem in their life. They’ve often got some sort of baggage, and the only solution they have is the equity in their house. If you don’t know this going in, you don’t understand why they won’t budge on their tactic. (Location 3723)

I look for deals on dead lists and in impossible situations. That’s the creative part. The opportunities were there, like pieces of treasure lying in a blue ocean only I could see, and no one else was looking for them. The opportunities are always there. You just need to change your mindset first, and then your vision will change too, allowing the opportunities to appear before you. This is true in real estate, and this is true in life. (Location 3738)

But the real thing I learned was how to solve unsolvable problems. For me, I looked at success as the best form of vengeance. Yes, it took me a decade to figure this out. But I wouldn’t change any of my mistakes, because I’m grateful for the lessons I learned. (Location 3744)

If you have money and want to build a team of VAs, it’ll take a few thousand dollars per month to buy lists and pay your team—but a good closer can close 1 out of 50 hot leads, so that should more than pay for your business. Anything else fits somewhere along the spectrum, and then it’s about scalability. (Location 3807)