Subto + Seller Finance (Hybrid) – Masterclass Video 6 w/ Pace Morby #Finance

okay guys welcome back Pace awesome here we’re I don’t know how deep we are in the series now but we’ve been doing a ton of CashNews.cos all creative financing and on this CashNews.co specifically we’re going to talk about a unique strategy which is a combination of

subject two and there’s Equity so how do you cover that extra Equity guys if you’ve missed any of the other CashNews.cos in the series there’s a playlist link below we’re putting all these CashNews.cos in that playlist it’s like your

library on creative financing pace is revealing all of his strategies all of his secrets and he’s just really giving so much value in this series they’re long CashNews.cos because what pace does is he not only explains the strategy how to acquire him how to exit them but also gives

really good stories on deals he’s doing and those stories allow you to really understand it better and allow you to use those stories as you’re talking to sellers or agents or whoever so it allows you to simplify because we tend to over complicate allows you to really simplify these

strategies so that you can really Implement them in your business and remember some something guys is that facts tell stories sell yes and so if you’re not telling stories to your agents your Brokers your your sellers whoever your private money lenders you’re really

missing the mark and you’re going to ask these questions like Jerry I’m not closing enough deals Pace I’m not closing enough deals how do I it’s like you’re not telling enough stories people live Through The Eyes of other people right we’re cavemen at the end of

the day we just want to sit around a campfire have people draw hieroglyphics on the Rocks tell me a story through picture and so if you’re not doing that you’re failing yeah in fact take these strategies and go explain it to someone who’s not a Real Estate person

knows nothing about creative financing and if they understand it then you know that you understand it right and so Pace has his Grocery Story your uh your one F-150 story these the bunny story all these stories that pace uses to help a seller who doesn’t understand these Concepts to really

grasp the idea and people don’t do things they don’t understand so if the seller does not understand what you’re doing they’re not going to do it a confused mind says no no definitely yeah so in this CashNews.co we’re going to really dive into this unique strategy

which is a hybrid between a seller carry and a sub 2. so Pace first when is this a situation and why is this so important because this is this is a common strategy it’s a common where you’re going to have a seller who’s got this extra Equity on top of existing

Debt happens all the time single family multi-family commercial all the way across the board hotels whatever I think Jerry’s got a good hotel yeah it’s exactly this situation okay love it so um I’ve probably bought a good 15 percent of my creative

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance deals utilizing hybrid now hybrid means they have a Debt let’s say with Wells Fargo but they also have a lot of Equity so let’s say

it’s a I’m buying the house for 200. they owe a hundred thousand dollars to Wells Fargo at three percent interest I’m like I don’t want to go get a new Loan to pay off that three percent Loan I want that Loan there’s

the value is in that Loan right but the problem is they have a hundred thousand dollars in Equity so what I do and I have oh I have a great story it’s will away in in Decatur Georgia I have a deal where I have four liens on the property so I have a first

position I have a second position Loan mod and then the seller has a uh two notes on the right private notes or whatever yeah so he’s a personal friend okay okay and they recorded these and they’re so here no this is what it is he has a first position Wells Fargo

Loan he has a personal friend that gave him a Loan a long time ago and then the seller and I he had all this Equity I created two Credit one I created two separate notes here’s why I did it and let me let me stop you for a

second guys and I think it was CashNews.co two we talked about yeah we so go back to the series if you don’t understand lean position lean priority notes mortgage or deed of trust we go through those instruments and we really explain them so if you’re confused by what pace is saying be

sure to watch that CashNews.co then come back and and listen to this stories go ahead right so here’s here’s what I did so the guy’s name is John I buy his house subject too he has a personal Loan that he owes his friend I take that Loan subject

to then the seller’s like well I have about a hundred and fifty thousand dollars in Equity I then create a seller Finance note at 150 but I also create

a fourth note with the seller because I go well I need to clean up the property and I need to renovate and get it furnished would you Loan the money to me because you have the cash or get the cash he just didn’t want to deal with the property anymore so he gave me 30 Grand in

a fourth position note it paid for the closing costs I paid myself 10 grand up front I got it up and going it’s 1931 well you’ll have to cut a 1931 will away I make and when you added all of those liens in it had a total of whatever 200 or whatever yeah the total was 200 000 okay so you

were happy to be in you were happy to have it I love that Debt yeah and I love this because I did I didn’t have to come out of pocket the property Nets me like 1100 a month on Airbnb net net net and so I’m happy about it because again this is something pesos said in all

the CashNews.cos I think the value when you understand creative the value is not in the price it’s in the use of that asset or that property right and so you’re saying I’m fine to have all the these leans on here I’m finding to be not a lot of Equity maybe

because I’m Airbnb in this property and it’s making me all this Cash Flow right in fact that property that you saw in my YouTube channel about me nitpicking my Airbnb apart yeah that’s the house oh it’s that one yeah it’s like my guys have duct tape

the shower anyway so and here’s here’s when you acquire right you’re taking over somebody else’s Debt and they have all this Equity don’t buy it on a wrap okay so here’s what a wrap is here’s the existing

Debt right a hundred thousand dollars owed to Wells Fargo at three percent if a seller wraps that and sells it to you here’s what a wrap is they literally go I’m gonna wrap my hundred grand around that and I’m going to charge not only the three I’m not going

to charge the three percent I’m gonna sell this property for two hundred thousand dollars at six percent so what they’re doing is they’re selling their underlying Debt to you and they’re arbitraging so they’re upgrading their three percent to six

percent and then they’re taking their hundred grand and they’re charging you six percent too that’s a wrap so I want to separate those two notes so I can take that sub two Loan clean I want it clean you want the three percent on the hundred right and if they want

six percent interest I only give it to them on the hundred so this is why I call it hybrid sub to seller Finance I’m acquiring both notes now wraps would be great when

you’re the seller and you’re trying to leverage that asset of a three percent Loan but there’s it doesn’t make sense if you’re the buyer and you’re structuring the creative #1a73e8; text-decoration: none;">Finance deal right you don’t want to buy wraps you only want to sell wraps right there you go okay so in a situation where a seller has a lot of Equity you typically here’s what I’ll do seller will go I want to sell for 200

000. I go great if I if I buy for 200 000 would you give me the terms I need and they go well what terms do you need I go I need to get the asset stabilized so I’ll take over your 100 000 sub 2 Loan at three percent and I’ll create a hundred thousand dollar note or

promissory note in second position I want to make no payments on that for 24 months while I get this thing stabilized but I’ll pay you full price I’ll pay you exactly what you want and they’ll very frequently go well I want a down payment I go okay great and I’ll get a down

payment where do I get my down payment I’m established so I A lot of times I’ll use my own cash but when you’re brand new you use a private money lender and the private money lender Crea pays that down payment now you have three notes this is this gets a little hairy for people

right like you’re like oh wait I have three Loans now yep I have the Wells Fargo let’s say it’s a thousand dollar payment I have the seller none;">Finance at 90 grand because he sold he gave it to me at 100. I gave him 10 grand down he seller Financed me at 90 000. no payments then I have a second or

a third Loan right number three boom boom boom the third one is a private money lender that gave me the down payment the closing costs and whatever so I’m into the deal no money love it yeah so let me explain my deal because it’s very similar actually so a hotel right

yeah so it’s a 22 unit Boutique Hotel San Juan yeah you guys gotta ask yourself this question like why is Jerry not bringing me in on this deal like that’s the main question you should be asking well it’s Puerto Rico City so it’s Puerto Rico it’s a it’s a hotel

and I’m buying this from so the sellers bought this and they started a rehab but now they’ve got other things going on they just want out now they don’t want to finish it it’s vacant needs another 250 000 to finish it and get it get it going but it’s in an amazing

location super high demand I like this asset so I’ve come in and so they’ve said to me look Jerry we want 2.5 million dollars for this property we have an existing Loan of 1.25 yeah okay so in essence I said okay I’ll take over that Loan I want a

three-year structure because I need two years to get it seasoned and stabilized and I can do a reFinance with SBA I talked to SBA they said give me two years of financials

we’ll do um an SBA at five percent say A Small Business Association Administration yep yep and they’ll do a five percent Loan because SBA Loans are amazing so you’ll buy for 2.5 they have an existing first position at 1.2 yep what are they going

to do with their Equity how are you structuring this so the Equity is exactly what you just said it’s a seller note and it’s zero percent for the first two years which is all you probably need yep so no so it’s no payments no principal no payments

zero percent for two years if I roll into the third year the third year I start paying eight percent interest only if I go the third year I’d do that deal all day long because I told him I said look my intent is to recolor: #1a73e8; text-decoration: none;">Finance out in two years you wouldn’t be the the great thing about that is you don’t even need two years it’s 22 units you could probably crank through that in six to eight months you would still will probably keep all you would

keep going all the way through to the end of the second year because you’ve got a great Debt in the 1.2 and you have an amazing Debt in that remaining one point whatever with no payments no interest yeah and you would wait all the way till the two-year

balloon and reFinance the whole thing and what was interesting pace is uh what was really interesting about this deal is this the sellers are investors right because

it’s a hotel and so they were asking kind of like some of the stories you’ve told in these other CashNews.cos they wanted their cake and eat it too so what they said is they said look we’ll carry it for you but we want all this interest we want you to put money down we want all

these things and we want a high price what’d you say so I said them I said look at two five I’m not doing all these other things you got to give me better terms right instead of teeter-totter you can’t have both sides on there so what I did is I said listen if you if you what

you’re really talking about by asking for more is why don’t I just come in and I cash you out with new Debt but if I cash you out and you don’t have one point that’s right that’s exactly what I was at really I said one seven one eight and I’ll

cash you out I’ll bring in new Debt right and they’re like well we don’t want to we’re willing to wait to get more upside okay then make it more favorable for me give me more space for me to do my thing I’m willing to pay more but give me much better

and they’re like what do you want I told them zero I originally wanted zero zero down zero payments on all three years but they said look if you’re telling me that you can get an SBA in two then we want you to be highly motivated to exit in two so let’s add an interest payment on

year three which which is actually very smart because I’m extremely motivated or even worst case scenario even if you did have let’s say a challenging time refinancing for whatever reason you go one year of an interest-only Loan on that Debt it’s

not that big of a deal you can still operate still Cash Flow with that yeah it’ll be Cash Flowing mad on this unit because it’s they’re 22 units super high demand over there there’s a hotel there’s uh not a hotel there’s a

restaurant in the bottom unit of the hotel the the you know ground level that is been there 10 years so they’re paying a lease payment what are you going to call it you’re going to rename the it to iguanas or something it’s called abracadabra’s the restaurant uh the hotel is

called Looking Glass guys should we rename the restaurant is that what we should do or is it a lease that they’re leasing you can’t change it they’re they’re there they’ve been there 10 years but we’ve named the hotel Looking Glass because in the main lobby it

goes all the way up to the ceiling and we’re putting a glass pool on the top floor with a railing and there’ll be a bar up there it’s really fun yeah it’s really fun it’s like we call it Instagram worthy so people will want to go here because it’s super unique

and gosh I love it yeah what I love is you didn’t so now what you’re gonna do so you’ve got the first position sub two second position seller carry zero payments zero percent interest for two years you still need to come in with money to do the renovation so you’re using a

private money investor on my 250 rehab right so guys remember the CashNews.co we talked about notes and lean position and all that kind of stuff he’s got a first position sub two he’s got a second position seller color: #1a73e8; text-decoration: none;">Finance he’s got a third position we get so many private money lenders that totally understand this they’ll go in third position fourth position a lot of times there’s no issue here this is going to be a great asset for you yes

be a great Caster where did you find this deal so a wholesaler brought it thank you to the wholesalers out there you guys are amazing bring us all the deals and I’m not in a place in my business here where I want to be an operator so the wholesaler who brought me the deal uh you actually know

know him really well he’s got the time energy and effort amazing guy on the ground willing to so so I brought him in as and brought him in Equity now he’s not bringing any financing just operations he’s going to be the operator he’s gonna be the operator and

I’m cutting him on a piece of Equity he’s thrilled because he’s he went from wholesaler to now owner because I’m not paying him a wholesale fee I said would you rather have a wholesale fee or Equity and he’s like dude I’ll take

Equity I I’ll hustle all you know he’s thinking about he’s hungry he’s young he’s motivated The Branding he could do with you like being partners with Jerry Norton that’s such a big deal for them I think I remembered that he he brought this is it

on a corner it’s kind of a cute like purple yep you’ve seen it yeah I’ve seen it and I was like this he brought it he’s like you want to do this deal with me and Jerry I go I don’t want to do deals with where iguanas are more prevalent than human beings that’s

Puerto Rico that’s Puerto Rico but here’s the here’s the thing I love about this you’re playing Monopoly right like somebody else already has money in place and you’re just moving money the way you want and structuring it the way you want to go and own a freaking hotel

with a restaurant in it you’re reading it it’s better actually it gets better because uh in Hospitality in Puerto Rico there’s a tax incentive because the the island needs more more Hotel because of the demand for tourism so they give a 40 tax Credit what the

freak Puerto Rico gives a 40 tax Credit and 40 meaning your total purchase and renovation your total acquisition for the asset over and they now they spread it out over years now I don’t need the tax Credit so you can sell the tax tax Credits

they’re transferable and people buy them for 90 cents what the freak so there’s another couple hundred thousand dollars that I’m getting just by the tax Credit that they’re offering what’s interesting is like that’s even a a note right

essentially there’s you and the the state or you and the government have a promissory note that you get a some sort of no is created some sort of document is created that you can assign to somebody else guys it’s just and it’s they’re they’re Puerto Rico is really

motivated to do these because they want more Hospitality so it’s not like a grant where it’s like paperwork and you’ll never get it how long do you meet the guy they’re motivated they’re excited to help you do it they show you what you need to do how how long until

you’re the king of Puerto Rico playing around right there’s but there’s a lot of opportunity the thing here’s the last thing on this one CashNews.co is I look at this and this is why I love doing CashNews.cos with you is because you’re doing it and you’re

actively out there creating these opportunities is there any end to these types of opportunities no end there’s no end to these types of opportunities Bonkers yeah and in a place like Puerto Rico where there’s right now Credit is a big issue in Puerto Rico because

there’s only two Banks they’re not really lending there’s not really a good hard money solution there’s some but there’s just not a lot of Capital yet but there’s all this opportunity especially like with Airbnb luxury is huge so I’m doing

some luxury new construction because guys like me are moving there and there’s not a lot of houses for them so there’s all this opportunity and what it means because Credit is so hard to get there that creative financing is like really prevalent it’s like the main

way of transacting in Puerto Rico is seller financing like when you talk to sellers unlike in the mainland this whole explaining process it’s really simple they bought and sell they buy and sell with creative financing all the time but I thought I thought it was illegal yeah no it’s not

illegal yeah actually very normal very normal so awesome so hybrid is one of our strategies super cool technique it allows you to then do multiple ways of putting deals together you acquire on hybrid you never acquire unwrap you smart dyspo unwrap you never dispo on hybrid perfect makes sense yep

okay awesome guys so that’s that one uh in the next CashNews.co which one are we going to cover one of the other ones maybe uh Lisa we haven’t done lease option yet so maybe the next CashNews.co will do lease option but guys again we’re doing a series like this where pace is

breaking down these different strategies for creative financing think of creative financing as this big umbrella and then inside that umbrella you’ve got unique strategies that fit certain situations yeah and your job as a as a what do we call it a transaction engineer transactioneer a

transaction year is to take each person’s situation and the property and find what is the best way of structuring this deal that makes sense for everybody makes sense for you makes sense for the seller and when you have this Arsenal or this like toolbox of strategies you’re unstoppable

yeah the only I would tell you the two main things that you’ve got to acquire in your journey is you’ve got to acquire the understanding of the tools and the ability to explain those tools and there’s not a single seller you can’t help and then throw in some uh take Massive

Action in there and and oh well I assume they’re watching flipping Mastery that’s all they’re doing is taking action but that’s the key take action right now hit the Subscribe button make a comment down below tell Jerry how much he’s a flipping freaking genius right

now and we’ll see you guys in the next CashNews.co all right let’s do it