How to Offer Full Price for Houses

Mike Hambright: Welcome to the flipnerd.com podcast. This is your host, Mike Hambright. And on this show I’ll introduce you to VIPs in the real estate investing as well as other interesting entrepreneurs whose stories and experiences can help you to take your business to the next level. We have three new shows each week which are available in the iTune store or by visiting flipnerd.com. So without further adieu, let’s get this started.
Mike Hambright: Hey, it’s Mike Hambright with flipnerd.com and welcome back for another exciting VIP interview, where I interview some of the most successful real estate, investing experts, and entrepreneurs in the industry to help you learn and grow. Today I’m joined by Scott Moyes, who’s the president of the Utah Investment Club. He’s the co-founder of Smart REI Group, and he’s known as the full-price offer guy, because he’s willing to pay sellers, get this, full price for their houses. That’s going to be an interesting conversation. Scott’s got a ton of experience to share with us. Before we get started though, let’s take a moment to recognize our featured sponsors.

Advertisement: RealtyMogul.com is an online market place for real estate investing, connecting borrowers and capital from accredited and institutional investors. Get a rehab loan fast and close in as little as 10 days. Rates start as low as 9%.

We’d also like to thank National Real Estate Insurance Group, the nation’s leading provider of insurance to the residential real estate investor market. From individual properties to large scale investors, National Real Estate Insurance Group is ready to serve you.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.

Mike Hambright: Hey Scott, welcome to the show.

Scott Moyes: Hey thanks Mike.

Mike Hambright: Yeah, glad to have you on. So before we kind of get started with learning about why you make full-price offers to folks, which sound sacrilegious to everything I know about real estate investing. For those that don’t know you, why don’t you share a little bit about who you are and what you’re up to?

Scott Moyes: Well, my background is in the financial services business, and I used to do coaching and counseling one-on-one with ma and pa across the kitchen table. And I found that if I educated them, they would be grateful and do business with me. But I had a plan and in order to finance that plan, I needed money, and this was back when the web was first getting hot, and everybody had to have a web page, and it cost a lot to have developers do that. And I accidentally got into the real estate business as a way to capitalize my financial planning business and never looked back. So, that was probably 20, 25 years ago, and I started off doing lease options, and some of the folks that know me have heard my lease option story. We won’t go into it today, but suffice it to say that today I preach that lease options are the most dangerous way to be involved in real estate. I’ve got a nice little story, and people that want to copy that can get that later. But I discovered how to protect myself, and I’ve been doing that ever since, and I’ve been taking property [inaudible 03:57] too.

Mike Hambright: Okay, okay. And so we’ll talk about subject two stuff here in just a second. Because that’s something else that obviously have some positive and negative connotations associated with it. I’ve know some people that have gotten in trouble with them, and I kind of know why. I know that you know why some folks get into trouble with those. So we’ll talk a little bit more about that. So talk a little bit about, I know that you’re big on marketing, and you think that it’s important for folks who want to get started in real estate investing to really become great marketers or to know how to generate leads. Everything starts with a lead, so why don’t you just maybe kind of share your kind of complimented pitch on the importance of that for folks that are looking to get started?

Scott Moyes: Well, the bottom line is, Mike, if you’re not a marketer or you don’t know how to market, then you can’t bring in leads, if you will, or business, then what does it matter what method you decide to use? You’re never going to get any business. So you’ve got to be a good marketer. And of course there are all sorts of ways to market. You’ve got people that send out yellow letters and to direct mail, and then you’ve got people who put up bandit signs, and then you can buy leads. The best leads in my opinion are referrals, but although my partners like to do social media-type marketing, I’m more of a direct type of an approach guy. I believe, look, there are thousands of people out there that are putting ads all over Craig’s List or their newspapers or wherever saying, hey, buy my house. Why aren’t we calling those people? I’m the guy that likes to pick up the phone and simply just say, hey, I like to make an offer on your house, a novel concept, right? But so many people are afraid to pick up the phone. They just don’t want to talk to anybody. Well, you know what guys? If you don’t want to talk to anybody, you’re in the wrong business. But you have to find what marketing methods are going to work for you. I don’t like to wait for people to call me on ads. I never had. I like to pick up the phone and call them, and it’s really a simple process.
I mean, I just pick them up and ask them a couple of questions. If it doesn’t meet with what I’m looking for, then we just thank them, have a very nice day, hang up, and call the next person. And the one thing about making calls though that people are so afraid of is they think they need to spend a lot of time. These days, my only goal of the day, which I’ve already done several times today, my only goal for the day is to make one offer a day. That’s what I call my show up down to. My daily show up is to make one offer a day. To make that one offer a day, these days only takes me three to four phone calls in the morning to sellers. And I don’t like to teach people to make more than 10 or 12 calls a day because they will get burned out. Even if they got all yeses, I don’t like them to make more than 10 or 12 calls a day, because they’re so excited, they forget what they need to say to the next guy, and sometimes they blow a deal, so they know they’re going to be done in a half hour, you can call 10 to 12 people in an half hour. So if that’s all you had to do for the day in your marketing is to make 10 or 12 calls, and you’re done, you go the rest of the day to do anything you want or follow up on the ones that you called the day before. I like to, in fact, what’s really fun, I’ll do this in some of the classes I teach, we’ll actually start making calls to sellers, and I ask them a simple question, and even if they say yes, we say all right, thank you very much. Have a nice day and hang up. They were like, wait a minute, these people just said they would let you take over their payments or whatever, and you said, okay, thank you much, and hang up? Yeah. Well, how come? Because I can, that’s my answer for everything. Well, why would I do that? Well, let me tell you what, about half the time, people have caller ID. About half the time, they call you back. Now, who’s in control?

Mike Hambright: Yeah.

Scott Moyes: The other half, I know who said yes. I put a little check by their name and call them back later. Maybe I call them all back on a Friday. I have little tricks and things that I like to do and use to keep my day short and simple, and don’t overstress me, especially for those who are just getting started. So marketing made simple. Pick up a phone. That’s what I do.

Mike Hambright: And I guess some of how you’re able to make it work, why you may be calling people from off of Craig’s list or other areas, Fizbo’s, and stuff like that is the fact that you are apparently willing to pay more than the traditionally classically trained investor, at least, might be so. Tell us a little bit more why you are the full-price offer guy.

Scott Moyes: I’m the full-price offer guy because no one else will. I’m the only guy that will offer them full price. Now that’s not necessarily true, of course. In some markets, you know in accelerating markets, people are overbidding for houses and that kind of thing, but that’s not the kind of market that we’re in. So I always ask people, look, if I offered you what you’re asking or maybe a little more than what you’re asking, would you be willing to leave your financing in place for a couple of years? That’s basically my pitch right there. The other way that I ask that, and what I prefer to do, and here is some real good information, is I prefer to ask everybody I call, and I call the For Rents first, and I always ask them would you be willing to rent for a couple of years, and then let us buy down the road? Wow, that’s a real simple question. That’s just a simple question, a yes or no. No, thanks. Have a nice day, and then we go on to the next one. But if they say, sure, then we ask them some questions, and go on. But the reason we’re able to offer full price, and Mike, let me kind of correct you on a couple of things. I don’t pay people full price. I offer people full price.

Mike Hambright: Okay.

Scott Moyes: Okay. I don’t pay anybody anything. The most I ever paid anybody to control a property, and not own it, was $10.00. I never pay more than $10.00. Because that’s the only thing that’s considered a legal consideration in most jurisdictions in most areas, right?

Mike Hambright: Right.

Scott Moyes: So my offer is full price if they’re willing to leave all of their financing and all of their equity in place for a couple of years. It could be, depending on the market, it could be three years, five years, ten years, maybe even 20 years. I’ve got some 20 year deals. So when do they get paid their full price? Whenever we finance, I say we, because I use we, not me, whenever we sell or refinance the place, in other words, I’m doing raps, contract for deeds, lease options, lease purchase. All of these Subject 2 type or takeover payment type deals, and we don’t have to finance that property. In fact, we’re never obligated to finance it out at all. We only have the right to do so down the road, and at the predetermined value that we’ve come up with them. So it’s usually there price, if not more. But if we do that in five or six years, then all of the note reduction, appreciation, equity build up, and so on, we equity share with our resident partners. So they’re still getting the full price they’re asking, if not more. But we’re not financing it for two, three, four, five years down the road.

Mike Hambright: Right. So kind of walk through a scenario of a deal with emphasis on why that may make sense for the seller, and then how that makes sense for you and how it makes sense for the buyer as well.

Scott Moyes: Okay, I’ll give you an example of a deal I’ve got going on right now. I’ve got a seller, a tired landlord that has three properties. And one of them we already sold off to another investor. We didn’t want to do any work on it, so we just made an assignment fee, and that was fine. The other two, I’ll give you an example. The value is $235, he owes $165, so he has $60,000 of equity in the property. Now why would a seller that has $60,000 in equity, allow you to just take over their mortgage payments? Well remember, this guy is a tired landlord. The other property is about half that size, and it’s very similar. Well, there is a lot of other things besides motivation doesn’t just mean it’s a negative. It could mean a positive. You can be motivated by more money, greed, if you will. This guy is not greedy. He was just tired of being a landlord. He didn’t want to collect rent. He didn’t want to do management. He didn’t want to do upkeep, repairs. He didn’t want to have to make the payments, and all of that kind of stuff, so we agreed to take over his existing financing, and he left all of his equity in place. Because this about this right now, if you’re the seller, and you’re this guy, if his house is valued at $234, and this deal started two years ago. We’re into it two years now. This deal started two years ago. If he sold the house right then, what would he actually yield?
Now remember 235 minus 165 is not 60,000 in real estate. You’re going to have to subtract probably the repairs and commissions, and closing costs, and we’re not going to offer him 235. And so he may only end up with half of that, maybe 40. Well, he’s not in any hurry for his cash either, so he’s not distressed. I told him look, if you leave your financing in place, well pay all of the closing costs, any real estate commissions, and so on, and you’re going to get a nice big fat check of 60 grand at termination as opposed to only 30, maybe 35 now. Well he liked that idea. Because where is a guy going to go and take 30, $35,000 and turn it in two to three years, $60, $65,000?

Mike Hambright: Okay.

Scott Moyes: Well, unless you have this Bernie Madoff guy, that can magically make your money double in two to three years, and there are those guys, but most people don’t have access to them. He was just going to throw it into a CD, and he wouldn’t have anything in three to four years. So now he’s going to get his full $60,000. So he leaves his $60,000 in place. His payments allowed up to increase the payment by a couple of hundred dollars a month to lease and give our residents a right to purchase the property at whatever the full- market value is in the future minus whatever interest they’re going to have in this equity share situation. So as it came down to it, today, I actually got this house on the market today. What’s really interested is our tenant that had the right to buy is not going to exercise that right, because they’re getting a divorce. With the house appraised today at 275, now I get to share everything above my offer with that guy with my tenant which started at 235. The seller will get his who 60,000, and I just listed it with an agent and got an offer for 275 right now. So our seller has the first right to sell or refinance, but they didn’t want to do that. They gave up that right and turned it over back to me, and I just chose to sell it outright.
If they would have refinanced right now, like a lease option, if they would have refinanced right now, we would have split that entire amount of equitable growth plus all of their initial deposits that would be refunded to them. So they would have come out doing real well. So everything that we do is structured very similar to what you might see in a traditional lease option, or a lease purchase, or a wrap, or a contract for deed, except we place everything in a title-holding trust first to eliminate all the need to comply with [inaudible 16:18], to eliminate the need or the worry about a lender calling their note due, etc. So we structure everything similar to all of the different types of, you can do it anyway you want, but we put it in trust first.

Mike Hambright: And a couple of devil’s advocate questions now on this scenario. So the person that, they basically have a lease with an option to buy or how is that structured?

Scott Moyes: No. In fact you can’t have an option. I got in trouble in Utah doing lease options based on Arizona law. And in Arizona, it’s because it’s case president. And there are five things, and this will answer your question, there are five things that you can’t do or your transaction is classified as a sale. And if it’s classified as a sale, now your tenant has a claim of equitable interest in the property, and you can’t evict. You have to foreclose. I never, ever want to foreclose. I’m going to keep this short. One is you can predetermine a purchase price. Now every guru in town teaches you to do that especially when you do sandwich lease options and so on. Number two is you can’t collect more than one-and-a-half times the normal monthly rent upfront or it’s considered a down payment, and it’s a sale. Number three is you can’t credit any part of an upfront deposit or the rent towards a future purchase, or it’s considered a down payment and a sale. Number four is you can’t require the tenant to do any maintenance, or they can’t act like an owner. Act like a duck, you’re a duck. And number five, and a lot of people will stop me in workshops and seminars at this point and say, well then, why don’t you just do like a lease option or do a separate lease and a separate option?
Well, the IRS ruled against that clear back in 1917 and a lot of the gurus won’t tell you that, because one, they don’t know, and two, they don’t want you to know. There is no such thing as a separate lease with a separate option according to the IRS. The IRS considers it a lease purchase, and a delayed or disguised sell. So if you violate any one of those things, they’re not criminal, but your transactional will be qualified as a sale, and if it is, then the tenant cannot be evicted. They have to be foreclosed on. Well I got nailed in Utah on Arizona law because of case precedent doing the same exact thing. I lost all of my deals. So the deal is they do not get an option to purchase. In a trust, for example, they are one of the beneficiaries, and they only have the first right to purchase, not the option or the obligation, just like I do with my grandmother’s trust on her property. I have the first right. And we don’t predetermine the purchase price, but you have to put a value on the property on the property when you place it in the trust that is not a sales price. Any money they bring upfront is a fully refundable contribution.

Even if you evict them, you have to refund their money. That sounds kind of strange, but believe me, if you ever have to do that, and I’ve done over 300 of these transactions using this trust, and I’ve only had to start half a dozen of evictions and I’ve only had to complete two. There is a reason for that, because there are a lot more positive exit strategies.The big advantage of what we do is that it total avoids violating a lender’s due on sales clause. And yes, we had lenders attempt to call loans due, and once we’ve sent them a copy of the law, federal law, that prohibits them from doing that, they wrote us a letter back saying, oh, we’re sorry. We didn’t know that you knew that. And then, of course, the biggie these days is because we’ve structured our deals inside of a trust, we total avoid any need to comply with [inaudible 20:07].

Mike Hambright: So in this example that you gave, they technically are tenants at that point. They’re paying month rent…

Scott Moyes: They are straight rental tenants with the first right to purchase as one of the beneficiaries of the trust.

Mike Hambright: Okay, and who are they paying rent to?

Scott Moyes: It goes to a collection agent in escrow.

Mike Hambright: Okay, but you’re effectively, so how are you making money during this period?

Scott Moyes: Make upfront money just like any other transaction. We make upfront money. We make cash flow. We share in the not reduction. We share equity share. We share in the appreciation. We can charge them a little extra for a dog or a cat. Nothing is different than any other transaction. It just goes inside a trust first.

Mike Hambright: Okay. And what happens if there is no appreciation and the market stays the same or goes down during that period?

Scott Moyes: Well, they have the first right, not the option or the obligation to sell or refinance the property. We could sell it just like these folks that I was telling you about. Of course if the value doesn’t increase to help return those things then we just extend the term just like you’d do in any other transaction, or we can agree as beneficiaries of this transaction or members of like a LLC, we can all agree to take a little bit of less profit ourselves in order to get this transactions done. So it has all of the flexibility.

Mike Hambright: Does the houses ever go back to its original seller?

Scott Moyes: I have never ever had to turn a house back to the original seller. The worst case scenario in our contracts is we have to give the house back to the seller in good condition with the payments current, because a part of their contract is that there has to be a contingency account in the trust that makes the seller’s payment on time even if the renter or our tenant pays late, keeping their credit and their relationship with their lender intact. If for some reason they don’t pay on time, on the tenth of every month, and automatic three-day notice to pay or vacate goes out to comply with each local jurisdiction depending on where the property is. So from there on, what’s interesting by contract since they are an owner or beneficiary of the trust, they have to evict themselves on their own money. We start the process, but they have to complete it. Kind of cool, huh?

Mike Hambright: It’s interesting because you lose a little bit. So what ultimately happens? Let’s say that they do evict themselves, you don’t get the money. Who’s making the payments for…

Scott Moyes: We have already found somebody to replace them by that time. It usually takes anywhere from 15 to 45 days on average to do an eviction. I had one go 60 days of the two that I done, but there was enough money in the contingency fund that kept the payment current, and we already had a deposit and rent prepaid by our resident coming in. It’s really easy to find residents. Everyone wants to live in a house. They hate apartments. That’s why people are attracted to guys that market lease option programs and Subject 2 programs. You’ve got to know what you’re doing a little bit, but it’s very simple to get into that, and it’s not hard to find buyers for those houses or residences. Let’s say residents, buyers is not the right word for that. It’s not hard to find somebody that will come in with three to five percent and take over payments, no qualifying, no credit, no bank, just pay three to five percent, and come in and take over someone’s mortgage. Holy cow. All I have to do is put an ad in Craig’s List, and I’ll get a hundred calls the next day.

Mike Hambright: Yeah. Interesting stuff. So Scott, if folks want to learn more about this type of stuff, I know you teach a lot of folks how to do it, especially for newer folks, I’m sure it’s not as complicated as it sounds, but it’s a little complicated to understand your first go around, so how…

Scott Moyes: Let’s just simplify it real quick and then I’ll answer your question. If you know anything about all of those others methods that we just talked about, wraps, contracts for deeds, lease options, lease purchases, whatever, don’t change a thing. If that’s what you’re doing now, don’t change a thing. The only thing you change is the paperwork. You just create a trust first and then you do that. That’s as simple as it gets. So whatever you understand about those transactions, you already understand how to do this. You just wrap it in a different piece of paperwork first, and you avoid all the inherent risks and dangers of seller carry-type transactions including full compliance.

Mike Hambright: Yeah, so how can folks learn more? If they want to learn more about what you’re doing or explore it a little more?

Scott Moyes: Well, you know, I told you earlier, I’m not a guy that has stuff to sell. I don’t have kits, courses, seminars, and all of that kind of stuff. But if they want to know more about this, I’d be glad to share with them my personal story which will tell them exactly why I do this and how they can do it, too. So if they would email me, my email address, I have several email addresses, but if they will email me at [email protected]. So t-h-e-s-m-a-r-t-r-e- [email protected], I will send them a link to my personal lease option horror story that will explain my background, what happened to me, and what I did to overcome that. Because I was out of business for a while. It was pretty nasty, and what I did to overcome that and why I do things the way I do things today. It’s pretty compelling.

Mike Hambright: Okay. Well, we’ll also provide that email address below the video here. So folks that are listening and they want to learn more, can shoot you a message and take it from there. Well Scott, you’re working on some really interesting stuff and I appreciate you sharing it with us today.

Scott Moyes: Yeah, I can’t wait to talk to you again.

Mike Hambright: Yeah. We’ll talk again soon, okay. Please stay in touch.

Scott Moyes: All right. Thanks Mike.

Mike Hambright: Take care. Thanks for joining us on today’s flipnerd.com podcast. To listen to more of our shows and hear from incredible guests, please access all of our podcasts at the iTunes store. You can also watch the video version of our shows by visiting us at flipnerd.com.