Lessons - The Psychology of Scaling Real Estate Empires | Cody Sperber - Entrepreneur, Philanthropist & Real Estate Mentor

In this lessons episode, discover the fundamentals of creative financing in real estate, learn how to structure deals using seller financing, leverage subject to transactions, and negotiate terms that work for both buyers and sellers. Understand why creativity, not capital, is the key success in real estate. Your origin story is great, and I don't want to just gloss over the fact that I'm worried that with too much education, similar to what you experienced when you're first going to these gurus, with too much education, people start to look at it as one plus one always equals two. So if I understand all these terms before I go to my first house, I'm going to for sure close the deal. And I think that they miss a human component. I mean, you've figured this out with your first house. I mean, my backgrounds and sales, sales is always human. Marketing is always human, and people feel they can hack the system by over indexing on knowledge before they even start. And I don't feel like that ever works. And to your point, it didn't work for you for 14. It doesn't matter how many contracts or systems or anything you know, if you can't build a rapport with the person, especially with one of the most emotionally charged and important transactions in many people's lives, selling it by far home, by far, you're not going to close the deal. So I appreciate that, but I still want to understand if somebody is good at the rapport building human component, then where do they go from there? Yes, that's where I want to nerd out at some of this. Yeah, and I think I love creative finance because once I understood, I can buy past the banks. And in some cases, get the seller, it's called seller participation. Get the seller to literally hand me their house. No money down, no interest rate, 0% interest, payments that are affordable. And I just like take those 33% this is where everybody needs to start. Go to a mortgage calculator, us mortgage calculator dot org. They're free, right? Just go to Google any mortgage calculator. There's only three levers that we need to learn how to pull, right? If you think about how loans work, you have down payment, like how much like first you have the amount, right? So it's like, how much are we buying this for? When when I'm negotiating with the seller, the biggest sticking point is always price, right? And if you understand like, if I'm trying to buy your house, you want 500 grand for it. And I want to pay 350 grand for it, you're going to tell me no a lot of times. But if I say, I'll pay 500 grand right away, you're like, okay, what would you're thinking? Let's do this. And I'll pay 500 grand if you are willing to just be a little creative with me for a certain period of time. It doesn't have to be forever, where instead of me going to a bank and borrowing at 8% and making it totally unaffordable for me to pay you your price, I'm willing to pay you full price if you give me good terms. You be my bank. You're the banker's always the smartest person in every transaction because they don't care about the real estate. Like once you sell or finance me a house, if the toilet breaks, it's not your problem. You're not a landlord. You're the bank. You have a note. You have an income stream that we're creating. And so if you own this real estate free and clear, we have, we're negotiating over price, but the levers we're going to pull are down payment, interest rate, length of loan. Those three things are really the terms we're going to go back and forth on. Because to you, price is important. And then maybe the next thing that's important is earning interest on your money. If I'm going to carry back the note, I want to earn 3%, 4%, 5%. Well, okay, just think about chess. You make this move. I make this move. You make this move. I make this move. And if I only have three levers to pull, we're already agreeing on price. I now find out through conversations that you want to earn some interest because initially, I'm going to try to offer you something where it's principle only payments. But then I hear you say something like, you know, that ain't going to work for me. The last guy tried to do that to me. I said, no, I want at least 4%. So right away, I know that's going to be a sticking point. I might be able to get you to three, but I probably won't be able to get you to zero. Now I could get you to zero. If I increase the price from 500,000 to 520, you might go, I'll do that. But let's just say you want 4%. Well, then I'm going to extend out the length of loan from 30 years to 40 years, or I might say, okay, but then I'm going to put 0% down. And you said, no, no, I want some money down. And I say, okay, well, if you want money down, would you be willing to take principle only payments? Would you be able to take, if you want 10,000 dollars down to show that I have skin in the game, what if we put zero down initially? And then in six months, I put five grand down and then the one year mark, I pay the other five. It's like a tiered or, hey, you want 4% interest? Great. In year zero, I pay zero, year one, I pay 1%, year two, two percent, three percent, four. And it's a tiered interest rate system up until year five, where it flattens out at 4%. What I'm trying to teach you guys is it's literally where you pull a lever, I pull a lever. It's negotiating back and forth on terms. We start with free and clear real estate because it's the easiest to wrap your head around. Now, once I understand how to do that and structure a creative, or a seller financial, now I can come back and go, all right, well, what if they have a mortgage on their property? How do I take over that really great? How does it exist right? Yeah. Why would I not want to try to convince the seller to sell me the house with the loan in place? People need to, and there's probably a million questions going through people's head right now. Like, well, you can't just take over somebody's mortgage. Like, are you assuming it? No, we're not assuming it. We're not even asking the bank. This is called a subject to transaction where we're taken over the property, subject to the existing mortgage staying in place. So if you already have a 3% mortgage and I buy a lot of houses this way, by the way, I'll show up and say, I'll pay you the price you want, no realtor fees. So you're going to save money on realtor fees. And I'm going to step in and I'm going to start making payments. This works really good for people who bought in the last few years or refinance in the last few years. Maybe only put 3% down. I just did a house in Vegas like this six bedroom five bath pool spa. I paid the lady eight grand down. That's it. And she needed the eight grand to move. She wanted moving fees and I like she wanted to move. But I just have a quick question because one of the questions I want you to answer and you can answer it at any point. You're on you're on a roll right now. But what about Pete? This is this for a certain type of market because if you're saying that I can go into a free and clear, I can do a I can do this strategy with the mortgage and I'm going to have a subject to and I'm going to take that over. The biggest question that I think I can think of is why would this person do the deal with you? Yeah. I need a 500 K wire. Yeah. Well, not everybody needs a 500 K wire. So a lot of people, when they bought the house in like the last two years and they only put 3% down. And then now the economy sucks. And prices have come down in a lot of markets, right? They come down 15 20%. There's price drops happening on the MLS every single day now. It was never like that because of supply and demand. Now it's happening all the time. So now I I don't have a lot of equity in my house. And if I try to sell traditionally, by the time I pay real trophies, closing costs, market it for three months because the average days on market is now 60 to 90 days. By the time I pay all that stuff, I make zero dollars anyway, right? So if I roll in and I say listen, screw paying real trophies, I'll pay you, I'll take over and pay you full price for your house. And I'll take over your mortgage. I'll start making mortgage payments. I'll put all my banking information in your online mortgage system. And it'll just pull payments right out. If you don't trust me, we can hire a third party servicing company to like be an independent third party that watches me make the payments. I pay them. They pay the mortgage. They give you a receipt. And now everybody in the transaction knows that we're all good. Let me take over your mortgage maybe for five years or 10 years. And then after that, I'll refinance and cash out. But you got a great two, three percent mortgage. Let me just start making payments on that. I'll pay eight grand cash for your moving expenses. You're out. I then come in. I fully furnish out the place. I fixed a couple little things and I turn it into an Airbnb. Now this thing's making me nine grand a month. It's costing me three because your mortgage is so good. And I'm off to the races in three months. I make all my initial hour maybe four months. I make all my initial capital outlay back. And I got this great little Airbnb in Las Vegas. That's just print and cash six grand a month and pure cash flow. I put it in my portfolio. Forget it. Move on to the next one. I now have this mortgage that maybe last 10 years where the lady is going to leave her mortgage in place. And at the 10 year mark, I'm going to refinance or sell the property or pay it off. Do whatever I want to do with it. And if for some reason I don't want to deal anymore, there's a little clause in my thing that says at any point in time, I can hand it back to you. There's so many levers that you can pull. So when you go into these situations, like you have the human component, but then there's all these different levers to create a finance. I love that. I mean, so I'm building out a private equity firm and we're doing very similar things with businesses. Very obviously, too. There's going to be a ton of businesses. Exactly. Very excited. But very, very similar, but different. I mean, a lot of seller financing, a lot of creative financing options. But you don't have the one thing that I miss about real estate is there's no tax advantages in business to the same extent. The same degree is not as much. You can leverage LP money. You can leverage other people's money. But still, I feel like even there are lenders set up exclusively just for real estate. Because lenders feel like real estate is tangible, more tangible than a business. So it seems like it's easier to even raise money for an acquisition. If you even want to raise money. Good deal. The money flows towards great deals. I realize that. It's wild. Actually, how many people are like, well, you know, if you have real estate, come talk to me, but like not really interested in that acquisition. Just remember this. One of the other lessons are things my mentor used to say is in real estate, you'll never have a money problem. You'll only have a creativity problem. That's a, that's a, that's a ball. It's a baller phrase. That's some of your stuff right there. Yeah. And when, and really what he was saying is stop thinking that you need, oh, don't wait to get started because you have to have all this cash. It's, I can't even tell you how many times I didn't have the resources. I didn't have the answers. And it's made me tens of millions of dollars over the years by figuring out a creative way to structure a deal. How many doors do you have now? I have about 50 luxury Airbnb's. I have a 298 unit in Georgia that I'm a partner in. I have an 81 unit in Arizona by ASU. These are bigger ones. Own lots of little single family rentals in like tertiary markets. Like these are like creative finance deals. Like I used to take over a ton of double wide manufactured trailers in Kingman, Arizona. Like these random little markets where seller financing is common, right? It's like you can't qualify for a loan on a double wide trailer on a two acre parcel. But it's still great real estate that the the manufactured house was in great shape. And it still rents for 1,300 bucks a month. So it's like these, these property and I got into it for 350 bucks a month. So I make a thousand bucks in cash loan. I got dozens and dozens and dozens and dozens of those floating around in a bunch of different states. 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