Episode 49 – Buying and Selling ON TERMS!
For more details visit: http://www.TheGoldCollarInvestor.com/show49
In today’s show, Pancham interviews Chris Prefontaine, Founder, and CEO, Smart Real Estate Coach. Chris is a 3-time best-selling author whose expertise lies in purchasing real estate “On Terms”.
So, what does it mean to buy a property “On Terms”? How has the ongoing pandemic made this investing strategy an even more attractive proposition? Chris explains in simple terms.
Additionally, he regales audiences with some investing stories and shares some of the biggest takeaways that he has learned over his real estate career spanning three decades.
- 00:50 – Chris’s background information
- 02:00 – How did Chris get into real estate?
- 03:06 – Chris’s first real estate deal back in 1991
- 03:48 – How can you buy a property “on TERMS”? Chris explains…
- 07:00 – Does the seller have to vacate immediately once a deal is struck?
- 07:55 – How does financing work when you are buying “on TERMS”? How can an investor earn a profit?
- 09:12 – Typically, how long does Chris hold on to a property after buying it on TERMS?
- 09:49 – Can you adopt a passive approach if you are investing “on TERMS”?
- 11:20 – What was the ONE thing that Chris learned from the 2008 crisis?
- 14:25 – How has COVID impacted Chris’s business?
- 16:03 – Does Chris have interests in both single-family and multi-family investing?
- 18:52 – Taking the Leap Round
- 18:52 – When was the first time Chris invested outside Wall Street?
- 19:32 – What fears did Chris have to overcome when he first invested outside Wall Street?
- 20:13 – Can you share one investment that did not go as expected?
- 21:59 – What is one piece of advice Chris would give to someone who is investing in Main Street?
- 23:05 – Chris shares his contact information
Welcome to the Gold Collar investor podcast with your host Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the wall street investments and create multiple income streams.
Here’s your host Pancham Gupta.
I this is Joe Fairless. If you want to diversify out of Wall Street investments, then listen to the gold collar investor podcast.
Pancham: Real estate is such a diverse field that you learn new things every day. Today I learned about buying real estate on terms meaning that you can buy without signing on the loans personally, without putting in money and without having to work with the banks. Does that sound interesting to you? It did to me. So I invited Chris Prefontaine to the show to talk about it. My guest Chris Prefontaine has been in real estate for 30 years and After he lost a big part of his portfolio in 2008 crisis, he completely changed his strategy to buy real estate on terms and never signed on the loan again. Chris has been in real estate for almost 30 years and is founder and CEO of smartrealestatecoach.com is also the host of Smart Real Estate coach podcast. He is a Three Times best-selling author. Chris, welcome to the show.
Chris: Thanks for having me. I appreciate being on.
Pancham: No, thank you for your time. Chris. Are you ready to fire up my listeners break our Wall Street investments.
Chris: I am pretty stoked. I’m ready to roll.
Pancham: All right, great. Great. So let’s get started. So Chris, you’ve been in real estate for 30 years. That’s a long time. You know, it’s been only since 2012. So eight years for me and you know, 30 years is a long time. So that’s great. How did you get into real estate so what’s your background like you know, what made you get into it?
Chris: Yeah, I actually grew up in a family company. It had nothing to do with real estate, but it was actually a welding supply and industrial gas system. So nothing to do with it. But my dad would always build his own buildings, because he had brick and mortar buildings, or five of them around New England, and then have the company leased them off of him. And as a young kid, I didn’t get that. I said, Well, the both of you How can you do that? You know, I didn’t understand that. So then as I got a grip on that, and then I saw he interacted the network with other people doing land development and things like that. So I was around it and I just got the itch very, very early. I knew I’d do something in real estate.
Pancham: Okay, so basically, you joined his company, which was like when you initially got into it, like right out of college, you got into it, like real estate or the company itself.
Chris: The real estate was a part. I remember doing my very, very first deal through someone I met through him in 1991. So I’m dating myself a bit there, but that’s when I started on my first deal.
Pancham: Oh, wow, that’s great. So what was that deal like..
Chris: It was actually a single family home a budding a golf course that had an extra, they had enough land to subdivide. And so I always loved doing that. So I subdivide the land and then on the land built a two unit building that we sold off each unit and then kept the home. And so it was a pretty neat deal, because 1, 2, 3 those three deals there when we’re all done.
Pancham: Wow, that’s great. So we’ll probably get into that a little bit later. So, you know, you were, you know, I read your bio, and you’re pretty big on buying and selling real estate on terms right. So what does that really mean? Like can you explain to our audience and actually I want to learn as well.
Chris: It means buying property without banks without personally signing loans without putting up vast amounts of cash and it means buying them on lease purchase or owner financing. And there’s a third way it’s more advanced but it’s when we buy a property subject to the existing financing, meaning the loan stays in the seller’s name. So those are the three ways we buy. So we control anyone time, say 50 or 60 properties, just our family company, not counting students, and none of those. Are we on any kind of loans of any sort.
Pancham: Wow. So the three ways that you mentioned like, you know, that sounds to your intro was that you don’t have to be on the loan personally. You don’t have to have cash and you don’t have to have literally anything.
Chris: That’s why you got to have some skill sets. But you don’t need to put your assets or your family’s assets on the line by signing personally, I made that mistake already back in…wait for the crash.
Pancham: Yeah, we will get into that. So give us an example of this, like, you know, if you would, for an example, which is a term deal, and you’re not putting in any money.
Chris: Sure. So all of our lease purchases are actually pre built the agreement. Entire forms with a $10 deposit. So let’s paint a scenario. There’s all kinds of examples, but let’s just pay one. Let’s say you’re the seller, and your home we agree is worth around 300,000 market value, and you owe 250. Now, some people don’t have equity, some people are debt free, but let’s just say you owe 250. So in theory, you have about $50,000 of equity, if you can get it sold. Most of our leads come from expired listings that didn’t sell or for sale by owners that couldn’t sell. So they didn’t, but we said to them, okay, and if it’s your home, I say, Okay, great. So you didn’t sell but I can still protect your 50,000. In here’s how I’m going to do it. I’m going to lease purchase your property, that means I’m going to pay the underlying mortgage. Until such time we cash you out, let’s do 36 months, I’m going to pay that underlying mortgage and I’m going to pay that mortgage off which won’t be 250 anymore, right in three years, and I’m going to give you your $50,000 cash. That’s a just a simple example of a lease purchase. So I didn’t put up any cash The deed did not transfer in at the end of that term or before, I’m going to have a buyer cashed out with conventional financing. Because we work with buyers that need time. They need time to enhance credit, or they need time to save more down payment or get what the bank calls seasoning. That’s what we work with. And frankly, right now, this was always great. I’ve been at this for about nine years just doing this now, but it’s incredibly popular and sought after now because of COVID.
Pancham: Yeah, I can imagine that. So just to summarize what you just said that you would go and look for sellers who have let’s say some equity in the deal. And in the other example $250,000 loan and $50,000 equity, you would just leave the house from them and pay the rent, you know, whatever the amount is right like the lease, right? Then do the sellers still live in the property? Have you asked them to like leave or you have different scenarios?
Chris: Okay, good question. So we have…depends on their situation, the answer is we’re going to let them stay until we find a buyer. But if we know their day, so they have some, you know, constraints, we’ll work with that. But as soon as we find our buyer, we then put them in the home, and we start making the underlying mortgage payments about 30 days later. So yes, they have to vacate eventually.
Pancham: All right. So until if they are staying in the home. So basically, they are paying the rent to you. And then you are taking care of the mortgage. Is that how you set it up? Or this?
Chris: Okay, so this kind of queues up though, it’s important to explain this. So when I put a buyer in your home, so you’re the seller you’ve left now I’m taking occupancy, let’s just say September 1, October 1, I stopped paying the mortgage because mortgages are paid in arrears mostly. And so I captured that first month’s rent from my buyer in its entirety. But more importantly, we create three paydays on every deal. So from the investor standpoint is amazing. Pay Day One is when I’m ready. right into that home, they are putting down a non-refundable down payment, we need to make sure that these is serious buyers that need time versus just someone looking to rent and have a hope someday to buy. And they’re both out there, though. So that’s significant. The second payday is that difference between what you just said that is, I’m going to pay the mortgage, I’m going to collect a rent payment from my buyer while they’re getting mortgage ready? Well, there’s a spread there…$300,000. And then on the back end, it’s really neat because we get the mock up in price. So that house might be 329 that I tied up with you for 300 or whatever the market will bear. But that mortgage of 250 as we said earlier is already lower. So that pay day three is pretty significant. Those three pay days for us total around $75,000 average per deal.
Pancham: Wow, that’s pretty amazing. So you’re basically making money on the spread upfront. Then second is actually towards the end is the major payday where you are actually marking up and your profit right Majority of your profit, right, the longer the deal, the time goes on the longer dies need time you kind of make the spread in the middle.
Chris: In this more principal…pay down that’s a fine line because some properties. We will have an end date with our seller, we need to make sure the buyer has an earlier end date to make it work. Other properties, we are all long term, and we’ll let the buyers take their time. It’s a win for them and us. Don’t be stressed out we get much more property, right?
Pancham: So I personally invest in, you know, multifamily buildings and I passively invest in mobile home parks, cell storage, all these different kinds. How would you compare this to, you know, that kind of investing?
Chris: Okay, so every one of those niches are very good, right? Obviously, there’s all kinds of niches and sub niches in the business. So this can be can this be done passively in actually…Yes, we’re quite active, but I have now done it. So we’ve scaled it and I’m not in the trenches every single day I’m overseeing my son and son A lot. So all that to say you can be passive, or you can build it and scale it. Or you can just be an investor if you wanted to do that. But yeah, you can participate at any level in these types of deals. I tell people, once you learn how to navigate what I call, how to be that transaction engineer, in other words, any deal that comes to you, especially in the single family or small building’s face, you can find a way to do it on terms. Once you get to that point. What if you just did a deal or two a year? Or what if you just did your own home? That’s a win. So I think it’s a really cool thing to have in your tool chest. It’s how we are able to pivot especially during COVID. To say, okay, we’re going to stay in the niche. We’re just going to focus on certain deals now. Nothing else changed. In fact, our volume tripled because of what just went all the chaos.
Pancham: Yeah, so let’s talk about that. I want to talk about two things here, right, like you touched upon COVID and you also touched upon 2008. So what were your biggest lessons from 2008 crash and I’m sure you probably even start 2001 but 2008 was the you know, real estate specific crash so that and then now because of COVID, like you said, people are getting difficulty and getting loans from the bank and how has that impacted your business? And what are you changing, if anything with your strategy? So 2008 crash first and then let’s talk about COVID.
Chris: Yeah. And just to clarify, so prior to…Oh, wait, there was several storms, right? Yeah, it was. It was the 90s, early 90s. This is my son’s accident in 2000. There’s a lot of curveballs that came, so you need to not navigate that. And so as a result of that, and as a result of all the lessons learned, which then is what we’re doing now, we’re first and foremost not to take on personal loans. So in other words, I had great credit back then. So I said, Alright, great. Therefore, I can go get loans. That’s what people do. They go to the rehab loans, they do the government loans. That may sound flashy and cool and easy, and it’s cheap money now, but if you’re assigning personally if anything happens to that property, or the market, the Banks are knocking on your door, there’s no way around it. And so when the market value is dropped two thirds in some areas, a third in other areas a half in other areas, banks came looking so I had 22 properties or 23-ish that had to be either sold off liquidate in some way foreclosed on or short sale. That was a full-time job for about three and a half years. And so I said to myself, okay, if I’m going to go back into real estate because I wasn’t sure. I was that burnt out. I said, what would it look like, and what it looks like is what we’re doing today. So, we no longer touch loans as we said the beginning we no longer put up cash, we no longer go solicit investors. I think that’s an awful lot of work and a lot a lot of risk. And so my risk tolerance is a lot lower now. Meaning I don’t want to deal with anything like that. You want to put my head on the pillow at night, know I’m okay. And so when we do deals like this, I don’t want to say it’s out of thin air but we are creating deals with little to no money. And so once you understand how to be that transaction engineer, you can go out and create those. The 2008 was awful, but in hind sight is wonderful ‘coz it is why we’re doing what we’re doing now.
Pancham: But it’s so anything that you did before 2008. So you said that you were signing loans personally. So all this stuff that you’re doing today, none of that you were doing before 2008. Everything came in after 2008
Chris: Believe it or not, no. And I was a broker, even relative from like, 95 to 2000. I sold my company to banker, and even during that, I have pieces of the knowledge. But I didn’t put it all together. Like did I know you could lease or lease purchase stuff? sure that I know you could identify yourself. Sure. Why did they focus on it? I don’t know. But I can tell you now, we’ve built quite a machine that not only does deals for us, but we’ve got what we call associates, students all around North America, who we help do deals and revenue share, because that’s the fastest way as you know, to learn is being in the trenches with someone who did it.
Pancham: Yeah, no, absolutely not a big fan of that. So thanks for answering 2008 you know, these are lessons that you learn and you pivot, which you did, clearly. So how in today’s environment now we are in the middle of pandemic, right COVID-19 environment, everything is like upside down in terms of, you know, like unprecedented time. So, how is this helping your business? Like you said, it’s tripled your volume. Tell us about that. And then how you’re dealing with this thing?
Chris: Well, similar to…oh, a as far as how fast that happened. It’s like you flip the light switch when this happened. And sellers went from a pretty decent seller’s market to oh my gosh, how can we possibly sell now realtors can’t get in some, some can. Some can’t, but you can’t do open up you know, all these things hit them. And then buyers were going to the closing table. My attorney told me this week after week going to the closing table and getting already have the loan set up and then getting denied before funding because they either had a cut back of ours or they got laid off or the criteria just went higher in the bank. Yeah. Those things that are going on the banks right now are feeding all of that business to us because frankly, we’re the only doors open so to speak. We’re offering terms they don’t need to go to a bank right now. Now do I think nobody knows? Nobody knows. But do I think banks are going to loosen up? If tomorrow there was a vaccine, for example, with the banks go, Oh, great, and just loosened other criteria. I doubt it. They’re going to test the waters for a while, it’s my guess. And so I don’t see an end to this. So not only buyers and sellers coming to us for help. realtors are sending people to us. And we have people like in your audience in my audience that say, Okay, I might have been dabbling in real estate before, but I want to get ahead of this wave of terms. And so we’ve got other niches coming to us saying, teach me how to do that, because they saw how we weathered it. So quite frankly, you could have I have 1000 more students across North America right now. We wouldn’t touch the business that’s just there.
Pancham: Wow. That’s pretty amazing. So your niche that you have is mainly single family homes or you do commercial as well?
Chris: Good question. So I teach broadly single families. Okay, but as a result of that, do other properties come into the mix for us than our students? Sure. Let me give you a couple quick examples. I’m building I’m not in it today, as I told you about my home office, but our building that was there yesterday, is was bought on terms on an island. We live on an island here. So most people would say, oh, nobody’s going to do that. Why would a cell do that? Well, almost two years ago, I bought it on terms, owner financing, no banks, no personal signature. He’s happy. I’m happy. It was a great arrangement. We did it for you. And we did a six unit. It doesn’t self-directed IRA’s. And so you put up $500 and 116 grand comes back from a simple little four unit building in a self-directed IRA. Those are pretty neat things to do. So the answer to your great question is, you can literally do terms with cars, boats, planes, you name it. We just happen to focus on mainly single family.
Pancham: Got it today. No, that’s great. So is there anything else that you would want to add to this like before we move on to The next section of the show which I call taking the leap round.
Chris: No, I, your questions were spot on as far as chronologically too.
Pancham: So I appreciate that. Great. So we’ll be back after this message. If you are an accredited investor and have been thinking about putting your money to work for you, then I have good news for you. I have created an investor club which I call the gold collar investor club. I will be putting together investing opportunities exclusively for the group. These are the opportunities where I have done the due diligence for you and will be investing my own money alongside you. If you are interested, please sign up on the goldcollarinvestor com/club, I repeat thegoldcollarinvestor.com/club. I will reach out to schedule a 30- minute phone conversation to discuss your investing goals. Once you sign up, this can be a good opportunity to dive Let’s sci fi and take some chips off the hands of Wall Street to produce some passive income. And in case you were wondering, what is an accredited investor, accredited investor is someone who has earned more than $200,000 as filing single or more than $300,000 filing jointly for last two years. Another way to qualify as an accredited investor is this your total net worth is more than $1 million excluding your personal home. It includes your stocks, 401K’s, IRA’s, cars, etc. Just not the equity in your personal home. If this is you, I would highly encourage you to sign up, Chris. This is the second round which I called taking the leap round I asked these four questions to every guest on my show. My first question for you is When was the first time you invested outside of Wall Street? Was that when you bought that piece of golf course?
Chris: It was. It was funny as we just as I hear you say that I’m thinking myself, I don’t invest in wallstreet period have I dabbled? Sure. But I still don’t want to step on anyone’s toes. But my opinion is really simple. Real Estate, I went through several cycles, it can’t go to zero. It’s not possible, my house can’t go to zero, my stock can. And so for that simple reason, I stay focused on what I know best and what I can produce wealth and income at the same time.
Pancham: God no, that’s great. So my second question, and that may not be relevant for you because you were young. And what fears did you have to overcome when you first interested outside of Wall Street, which was that back in 91? You’re still young, by the way, look very young.
Chris: Well, thank you. I have two grandkids. So you’re my best friend. I am coming back on the show.
Pancham:Yeah, I mean, when you’re younger, you do have blinders on right somewhat, but I can remember some of my fears then were when we were building the second on the second property. I remember one other buyer had some hiccups with their financing. And so with me with at that time my kids were two and one. So that could be a risky time is the only thing I worried about back then.
Pancham: Okay. And that’s it. All right. So my third question is, can you share with us one investment that did not go as expected?
Chris: Well, actually, there was 23. Because they were overleveraged. Right.
Pancham: 23. Wow, you counted them?
Chris: Well, that was the other way so and the terms world just to bring it forward? They’re always fine. The three paydays are always going to be produced. It’s a matter of Did you mess up on pre qualifying the buyer, you could have done a better job. Did you mess up on not looking at the property inspected? Those are things that eat into the three paydays so they don’t go as ideally as you’d like. But there’s always three paydays. That’s kind of a neat cushion.
Pancham: Right. So going back to it, like is there anything any investment any particular deal that comes to your mind that you would like to share? Like what happened?
Chris: Well, yeah. I had a building ahead. I want to say like five or six units in it, and it was rent producing. But when it came, some of those businesses went out of business. So that was one of the 22 or 23. That was over leveraged relative to what just happened to the market that had a lot. So that certainly didn’t go the way I wanted to, right. We thought a lot of people thought, okay, I’ll buy these, I’ll sit on the principal come down, my NOI will improve and I can then sell the property. Well, when you drop a market by a third or two thirds, that’s a tough thing.
Pancham: All right. So in that case, in that particular building, did it get foreclosed or short sale by the bank?
Chris: I think that one probably was one of the three or four that got foreclosed in trying to think it was on Park Avenue. Remember the address yesterday? I think that one got foreclosed.
Pancham: Okay. All right. You know, I always said these are seminars, right, you, you learn from these?
Chris: They certainly are. There’s no other way to do it sometimes. So that’s why I said earlier, we try to get in there and get in the trenches with them. So they don’t try to reinvent the wheel.
Pancham: Yeah, exactly. Alright, so my last question for you, Chris. Is What is one piece of advice would you give to people who are thinking of investing in the Main Street that is outside of Wall Street?
Chris: Yeah, I mean, this is I guess this answer, as you’re saying, I’m thinking is pretty generic, literally, for any business in any entrepreneur, but it is applicable to a question that is, number one, find whatever that investment is going to be. First of all, find that investment. Second of all, find someone that did it, or is still doing it, and third follow that person. So I don’t care if it’s, we’re outside of stocks, but even if it was stocks, if it was real estate doesn’t matter. Go find someone that’s really proficient at it and current, and then follow them. In my opinion, follow for 36 months. And I know it’s easier said than done because people get distracted by the shiny object syndrome. But if you do that in any business venture, in my opinion, you’ll have success because success leaves clues someone can show you how to do it.
Pancham: Exactly. I love that, quote. Success leaves clues. You just have to follow the breadcrumbs. Yeah, that’s great. Thank you for sharing your wisdom here and time, Chris. how can listeners reach you if they want to connect with you and learn from your experience?
Chris: No, thank you, they can go to smartrealestatecoach.com, as you said in the beginning. And if they don’t mind dealing with listening to me for another hour, they can just go to our free webinar. And if you want, I didn’t say this, but I’m happy to do it for all your listeners, we can actually give them access to electronically because of COVID. Two of the three best-selling books. If you want me to give you the links…
Pancham: Absolutely. That’d be great. All they’re going to do is go to these links and say they heard us on your show and we will honor it. The first one is free.srecbook.com. And the second one, I’m just double checking my notes here to make sure I don’t get it wrong. Newrulesforflrfree.com. And you’ll get a hold of all that right now. We’ll put them in the show notes and make sure that listeners have a way to access it. That’s great. Thank you, Chris, for your time today.
Chris: Thank you appreciate me on I hope. That you learn something from it. Thanks for listening I appreciate you if you have questions, email them to me at firstname.lastname@example.org. This is Pancham signing off. Until next time, take care.
Pancham: Thank you for listening to The Gold Collar Investor podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook at the gold collar investor. The information on this podcast are opinions as always, please consult your own financial team before investing