Welcome to Cleveland real estate investor. On this podcast, you'll hear about every aspect of the real estate investment business. You will talk to your rockstar investors about their businesses, how they built them, where they came from, and where they're going. Who am I? I'm Joe Lieber and I've made millions of dollars from the real estate investment business over the last 20 years. If you're ready to hear the good and bad from a guy who's learned this business from the school of hard knocks and get educated by some bad ass entrepreneurs, then put your helmet on, strap on your chin strap. Let's ride.
(00:36): Hey yo, what's going on out there. Thank you for tuning in to hear me Blab on another podcast show. Appreciate you loyal listeners. I really do. I really do so. Hey, tonight, I want to talk to you about something I've been thinking about this week. This comes from haven't been feeling well like the last four days and no, it's not. Corona virus has been kind of sick and it started making me think four days, just kind of being a little lethargic and just not really mind out of the game, not feeling good, just wanting to, you know, relax. And I'm thinking, damn, what if I couldn't work? Like, what if I was really sick? Like, God forbid, what if I got cancer or something, something serious, you know? And you've got to go through six, nine months of chemo or something. And you're like, I am checked out, right?
(01:27): Like, no way I'm done. Or, Hey, what if you have to get a surgery, like a major surgery? What if you had a gift freaking like a bypass surgery or something, and you're just done. And there's a difference, you know, because 15 years ago I was always come from the mindset. You cannot work me dog. Like I cannot work. You I'm a beast. Like you can't stop me. I'll work 12, 15 hours a day, whatever it takes, I'm going to make money. I'm going to put food on the table and then something happened. And it was actually a a financial advisor that said to me, well, I'll do what if you can't work? You know? So I'm gonna tell you a story almost like 2002, right around there. I think. And I was just coming off of my little mortgage stint being a mortgage broker.
(02:18): And I was starting my real estate company, getting things like it was always going, but I was like getting it really going, like starting to get some traction. And I'm sure this has happened to, I think this has happened to a lot of you, but like, you know, you got your buddies that you went to high school or college with, like everyone seems to like get these sales jobs or something. And I have three or four buddies get jobs as financial advisors. Right. And they would go get a four year degree, a finance degree. And then one of these places would pick them up a Merrill Lynch or something and their job, you know, what they do. They go out there and try to get people to set up, to get 401k's or Roth IRAs, or just put money with their company. And for whatever reason, you know, my friends would always call me only like entrepreneur in my class.
(03:04): And they're like, ah, you know, he's gotta have something, you know, I did. I always did. Okay. So I didn't have nothing, but I had a little something if you know what I mean? And they always calling me, Joe, start a Roth IRA with me, man. You know, I remember this guiding Brian coming over to my house. That time I had just moved to Middleburg Heights about my first house. I was like 23 or something. And he's trying to get me to fire up a Roth IRA. And I'm like, Brian, you know, I got, I'm putting this money to work and I'm just giving, investing money. And you know, I only make 59 and a half. Like, what the hell is he talking? I'm 23 years old. Like it's so far away. Yeah. I want to hear about it. So just put a little bit in there, bro.
(03:43): Cause there might be a day that you can't work. That's where I came from that while I was like, Holy smokes, man. I was already at my kitchen table in my Indian Creek house in Middleburg Heights. And I was like stuck with me. What if I can't work? Like, and then just this week I started thinking about that when I feel great. Now I'm good. But I was thinking about that. What if I could no work? Like what if I really was sick? Okay. What does that look like? You know, and that's the gospel. What I'm trying to get across to you cats tonight to start thinking, I don't want to sit here and preach like, Oh, you have to have passive income from rental properties because rental properties is really not passive income. Rental properties is an active, passive investment. And as soon as you try to make it a passive passive investment, and you're not gonna get any money, someone's going to take it from you from property managers and leasing agents on down.
(04:39): But what I want to do is I want to give you a strategy that I have done. And I have a few of these and I want to tell you about it. And it is pretty darn passive to a point. And the thing I want to tell you about his mortgage notes, like being the bank. Oh, is it being like the landlord and having all the operations, when you're the bank, you now remove yourself from all operations, anything that happens with that property, it's not your problem. You have one responsibility. You're the bank, that's it. When the sewer line backs up and it has to be dug out for six grand, you're the bank. You don't get that phone call. So I've created mortgage notes in the past. So I'm going to run you through. I feel like an example of what, I mean, there's a couple of different ways to do this.
(05:28): There's no, just one way, but I'm just going to like kind of talk out loud. Just kind of be a little bit raw and uncut about like how they're structured, but it just gives you an idea. And this is not like a perfect example, but it's an example, right? So you can buy a house. Let's say West side of Cleveland, 35, 40 K 10 K rehab. You're all in 55,000, 60,000. Maybe now how the price of right. I so much, I don't even know anymore. They're going up so high, but we'll take that asset. And then you can sell that house a couple of ways. One way would be, let's say you do it to an owner, occupant 90 K get 10% down. Not everybody has all this money to put down, but get 10% down on 90 grand. Right? They have it. They can get it.
(06:16): You can get it. And you're going to look for a borrower who can't necessarily qualify for a traditional loan because I remember just originating loans. I hear stories to me as law officers, they're hard to get. It's hard to get loans, man. You gotta be clean. They want everything. They want to see everything. So how it looks for that person who has 10% down was Shawna talking about a whole lot of money or so about nine grand and finance them. All right. Maybe they have an automobile late 10 months ago or something, or like an old collection or something. They can't get off their credit. That's holding them back, but finance them. Right? So [inaudible] 10% down, $81,000, a 30 year term like total fair owner financing, eight to 9%. So let's just do this in the middle eight and a half percent. That creates a six 22 payment.
(07:10): So you've got nine K in your pocket and you got six 22 a month. Now, if you have a cost basis of 55,000, you're going to pay yourself back nine grand. So now you have $46,000 still in the deal, right? But you're getting six 22 a month and you've got a piece of paper that's worth 81 face value. Now, if that were to term out over 30 years, I mean that paper was probably worth $200,000 at least. Right. But it probably won't go that long. They say every seven years to someone, either refinances sells or defaults, but it's still really good. And then that's passive. You're just the bank. You can set up a servicing company to service that paper and issue the 10 99 or 10 90, whatever it is, 10 98. I, and you won't have to do anything and account for escrows and make sure your house is insured.
(08:07): And they'll do all that for you from 25 bucks a month to hire a real mortgage servicing company. And that's the super passive, because not only will they not know who you are, but they are literally like a bank. Like you're not going to call your bank and your house, are you? If the roofing's be replaced, no they're going to like what they think you're an idiot, right? You can't, it's the same thing here. They own the house. If the title they're responsible and that was go back this for a second. So you got an $81,000 piece of paper where you got nine grand their down payment. So your cost basis is 46. Now let's say that you want to have some scalability to this. Well, you can sell the front end of that note and get your 46,000 back, right? So you can maybe the first five years of payments and pick up the payments on the back end.
(09:00): Basically you could sell the first five years and then payment 61 through three 60 are yours. Or you can bring an investor in. Maybe you'll bring a private investor to cashew out your $46,000. And then what you want to do is just match the payment up to the payment you make to the investor and, you know, get them paid off in five or six years out. The atheist said, get a calculator. I want to figure out those numbers, but it's right there, probably between five and seven years, you can pay that off and then you'll pay the investor. If you were to bring 46,000 to a deal. And then
(09:34): Can you get the rest of the note? And then even better if I just said every step
(09:38): They will sell refinance or default. Well, great then. So your investors out of the way in year six. So now you have a, still what about an $80,000 note? I mean, you know, on a 30 year mortgage, it's all loaded with interest for the first 20 years. So you can come in after six years, you have literally no debt on the property at all, and you could pay to foreclose and take it back. Well, pretty sweet. You know, you got a free house, right? I'm gonna have to, we won't do that to anybody or, and that's not the intention, but if you default, I mean, you're going to lose the house. It's just how the world works. So that's like a really cool method right there, right. To create true passive income. Now, not all you cats can do that. All right. Now I'll be honest.
(10:21): You know, if you're living out in California or you're out of state, I mean, maybe you do it in your own area. Cool, good for you. It's a strategy. But in Cleveland, you know, if you're out of state, it's going to take a heck of a lot more work to try to put something like that together than for us local boys. But it works. It's a strategy, you know, you can probably really do it anywhere that you want to play some capital and it's ramp up time. Right? So, no, you're not gonna like get instant money today, but imagine building 10 of those 20 of those, right over the course of a few years as those start paying off and you can have some serious income some, and you're a mortgage holder. I mean, it's cool. I've done a few like this, you know, I finance investors and they put down not 10%.
(11:08): I haven't put down some pretty decent down payments can be 30, 40, or even 50% down. And then I financed the notes and that I played bank a lot of times and was on different terms. I used to do shorter term. Gnosis people don't want 30 year mortgages the investors, but it's a different person you're dealing with as well. Right. You know, I mean, I'm going to deal with a high net worth investor that I finance. So it's cool. I've got a few pieces of paper like that, but that is pretty darn passive. You know, the default rate is very, very low with someone who's high net worth like that, but it's a strategy, right? I just wanted to, it made me think this week, because I was thinking, damn, you know, maybe I need to just get more paper together and literally play bank.
(11:54): And if I run out of money, which I will, because I'm not a Rockefeller, alright, the endless supplies of money, but I can sell off portions of these notes. Right. Or I can raise money, paying myself back and just basically take the payment from the borrower, give it to the investor for a period of time. And then they're going to pay off. It's gotta be ramp up time. It's gotta be ramp up. Just like my friend told me his father's an orthopedic surgeon. Any of us that are making money to us in his forties, he told me, he's like, well, dude was surgeon. There's ramp up time. I mean, you go to college, then you got to go on to medical school. Then you got to go do residency. Then you got to work in an office or a hospital for years and years. And then finally you get out there and you have your own private practice, you know?
(12:40): And that's when that's when the big bucks start rolling in. Right. But he told me a lot of these top surgeons are, you know, in their forties. And it's kind of like that with real estate, right? Like there's going to have to be ramp up time. You know, all this, you see all this, you know, get rich quick and people are flipping houses, being millionaires. And it happens. They do. They are, they're doing very well, but it's not the norm. And this is kind of a slow and steady race. It works though. It will put you where you want to go, where you want to be. It works telling you I am living proof. It works. So I just want to share that with you tonight, get your mind thinking about a different strategy about something cool, like that mortgage notes, pieces of paper.
(13:24): You can also buy defaulted paper and kind of cut in backwards like that. Instead of like creating it, we can buy paper that I originate. That's an option. I'm a whole lot of it's to sell right now. I can't even hold on to it. But if you ever want any, I can put you on a list for it or something. And when it comes up, that's all just wanted to talk to you tonight about that strategy and just kind of make you think different things. So thank you. Thank you for tuning in. Have a great evening.
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