Leon Johnson Shares How to Design Your Lifestyle Through Creative Financing

Steve Trang: Hey, everybody. Thank you for joining us for today's episode of Real Estate Disruptors. Today, we have Leon Johnson, and he flew in from Hattiesburg, Mississippi to share how you can design a lifestyle that you want through creative financing. If this is your first time tuning in, I'm Steve Trang, founder of the OfferFast Homes app, the only MLS for off market wholesale properties, and I help entrepreneurs create businesses that support their family lifestyle and goals through mentorship. I'm on a mission to create 100 millionaires.

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And this is a live show, so please ask your questions for Leon to answer. You ready?

Leon Johnson: I'm ready.

Steve: Alright. So first question is simple. It's what got you into real estate?

Leon: Well, that's a that's a good question. I I was in the military, and I had, what I did gave me a lot of time to read. And I was was trying to decide what I wanted to do with my life, and I was I had an entrepreneurial spirit. So I checked out some books about real estate in the library, one of them being, I think it was Robert w Semino's 1,000 questions about real estate. And so I just started reading it, and I really enjoyed it and loved that.

And and then from there, I decided I wanted to get a salesperson's license. And so I went knocking on doors.

Steve: Oh, you're a realtor.

Leon: Realtors' doors. Uh-huh. And, got turned down two or three times. They didn't take me, you know, a little air force guy and probably gonna be gone. And so one guy did take me seriously, and he asked me a bunch of questions.

And fortunately, having read that book, I answered all of his questions. And he said, I think you should get your broker's license. So that's what I ended up doing. It was good. I got

Steve: You got your broker's license too.

Leon: 1975, July 15, I took the test in Jefferson City, Missouri. It was handwritten. And, thirty days later or actually, August 15, I got my broker's license. Found out I passed the test that day.

Steve: That's great.

Leon: So anyway

Steve: So that got you into

Leon: Brokerage.

Steve: Brokerage.

Leon: Yeah. Sales and brokerage. Did that for a short time in Warrensburg, Missouri. And then I transferred to another franchise owner, franchisee in Lee's Summit, Missouri and managed an office for him there.

Steve: Mhmm.

Leon: And I did that for two years. And then quite by of course, I bought a duplex and and, with my GI bill, didn't take any money. I'm fresh out of the military, no money. Bought this duplex, lived in one side, rented one side out. And then a little later, I had a guy that worked in a service station across the street.

You know, I'd got my car oil changed and whatnot. Said, Look, I need to sell my house. And I said, Well, I'll come see you on Saturday. So when I went out there to see him, after a while, I told him how much for the house, you know, what I could sell it for. And he said, Well, I need to really sell it fast.

And he kept on and kept on. And I said, so he goes and pulls out a letter and he's being foreclosed on. He's three months behind in his payments. And I said he said, why don't you just buy it from me? And I said, well, how much do you want for it?

And this is a four bedroom, two bath house. Drove by it the other day. It's worth about 200,000 now, full basement. And he said and I'd told him we could sell it for 55,000 at that point. He said, I'll take what I paid for.

And I said, what was that? And he said, $21.09. Mhmm. So I ended up getting an ex wife out of the situation, an IRS lien off of it, and a couple other little title issues, bought that house, and that's where I brought my first child home to. Oh.

We moved into that house. And I rented out to Noah's brother, Christopher

Steve: Okay.

Leon: And, who's now a state senator in the state of Mississippi.

Steve: Oh, I didn't know that.

Leon: But, anyway, that made me start thinking, how can I find other deals like this? There must be other deals like that. Mhmm. And even as a broker, I didn't understand the trustee sales and how that worked, the mechanics of it.

Steve: I think there's a lot of brokers today that still don't understand that.

Leon: Exactly. After being in business for twenty, thirty years.

Steve: So

Leon: but so I sought out. I started looking how to how can I find these? And subsequently, I started buying a ton of property subject to. And back in those days, it was FHA and VA loans had no due on sale clause. So you didn't have to assume them.

There was no worry about them being called or any of that. So we bought a lot of those. Through the years, we just bought a ton of them. And, so that was it. I mean,

Steve: you know,

Leon: that kind of gave us our our shot into into buying.

Steve: So you did the brokering thing.

Leon: Mhmm.

Steve: Wasn't exciting?

Leon: Wasn't I I I went two years without a warm meal at home. You know, you had a ton a ton of salespeople. And and back in those days, we had no computers. I had two secretaries. And and I, as the broker in that in Missouri, at that time, had to do the seller side of the closing.

So we were typing warranty deeds and we were and they were pre formed type warranty deeds. If there's anything different in there like subject to, you had to write that in. Right. And and I was doing the closing statements for the sellers. Yeah.

And so those were having to be typed on regular old typewriters. So I had two secretaries. So I was, you know, helping salespeople and then burning the midnight oil to get warranty deeds ready and and closing statements ready. And that's

Steve: But it wasn't fitting your family well.

Leon: Yeah. I mean, it was, but, you know, I mean, you get tired. You get burned out of that. You know, you get tired of of, you know, kids in the back seat of your car. If you're hauling them out, they ice cream running down your back and that sort of thing.

You know?

Steve: So you were talking about distressed properties, and we've also we've also you know, the reason why you're here, we're talking about, creative financing.

Leon: Mhmm.

Steve: So how soon from when you acquire that first foreclosure property or, you know, property facing foreclosure to when you started doing creative financing?

Leon: Pretty soon. And that was kind of a creative financing deal back in those days as to as to buy it subject to. You know? Mhmm. Kinda.

Kinda. But it was kind of the norm too because a lot of, you know, people when they sold their house, they'd let somebody do that. But not too long after that, in 1978, I went to a, real estate seminar, which I think you've heard about, Jack Miller and John Schaub. Jack's dead. John's still giving seminars.

He'd had one this past weekend down in Still? Yeah. Basically, the same one I did in 1978. Great guy, super guy. He's been a mentor through this years, and he still is a great guy.

And he wrote a book, Building Wealth One House at a Time. Mhmm.

Steve: You can

Leon: get it on Amazon. And I don't make any money off that, by the way. But went to a seminar, and I learned a lot. It really changed my way of thinking. And How's that?

That there were so many other things that you could do that was outside the the norm that were good things to do, how to solve people's problems, how to structure deals that were different than your typical so much down, so much month kind of deal.

Steve: Yeah. You

Leon: know, and work in the owner financing type deals. So one of my first ones was, I learned this little technique, if you will. And I started trying to figure out where I could use it. And so I'm pouring through the every week, you'd get these big old MLS books. And when I was pouring through those MLS books.

You know, you'd have stacks of them. You'd have to figure out ways to get rid of them. But anyway, I learned about carrybacks. And so I started pouring through. And as luck would have it, I had a part time salesperson who had a house.

She had inherited it. She had rented it out. She wanted to sell it. It was free and clear. So I offered her, like, dollars 3,000 down and to carry the balance of that for security back against two other properties that I own in the form of a second note and deed of trust.

So it left the property I was buying free and clear. So I went to the bank and borrowed a first on it, used that money to pay her her down payment. And then and this is in the seventies. You understand. The house prices were not high then.

It's a three bedroom, two bath house with full basement. And I bought it for, like, $21.09. Mhmm. But I went home from the closing from buying that house with $17,000 in cash

Steve: Right.

Leon: Which I used that to buy two or three other houses.

Steve: Exactly. So So

Leon: that was one of my first kind of creative deals.

Steve: So you started in '78. Well, you you started learning about creative financing in '78. Yep. Was there like, did you take the information, run with it, and that's the only thing you did? Did you try all sorts of different things and, like, kinda come back, like, why am I doing these other things?

Well Came back to creative financing.

Leon: And and there's another side story. I got, and and that's a long one. I don't want to bore it, but I got hooked up with a guy who really took me to the cleaners.

Steve: Oh.

Leon: And and that also happened about the same time as in 1979 and '80, interest rates went up to, like, 18%. Okay? And the market just shut down. And it happened kind of concurrently with this bad deal with the other guy, which I was kind of numb for a while. And it took me about two or three years to start getting my head up again and going again.

And, of course, I started doing all kinds of creative stuff and and just worked my way back out of it. And through the years, of course, I've owned other businesses, H and R Block franchises, insurance agencies. My wife still owns an insurance agency. But you really need if you're going to get in this business, you need something to get your food money and rent money, house money

Steve: Mhmm.

Leon: From. And that can be a w two job. You know, there's nothing wrong with that. Work is noble. But you need to set aside funds or have friends and family or somebody you can borrow from to start building your long term estate.

Yeah. And you never ever touch that money. Don't eat your seed corn, so to speak.

Steve: Well, can you elaborate on that? Because I think that's something that you know, right now, there are a lot of people who are wholesaling, and they're making lots of money.

Leon: Exactly.

Steve: And then that money gets spent.

Leon: That gets gets spent. You're you're not gonna build any wealth wholesaling. I will promise you that.

Steve: Because So let's talk about that.

Leon: Well, when when Adam and and Christopher were pretty young, you know, we started doing a bunch of wholesaling, okay? And just because they're kids and they want money, and so we wholesaled a bunch of stuff, you know. And, of course, what makes a good long term investment is good long term financing. That's what makes a great investment. The difference between a property that's a good investment and not a good investment is financing.

So we'd keep the, you know, the good long term financing kind of deals. And, of course, all that money that you've wholesale, it's gone.

Steve: Right.

Leon: And, you know, I was telling PACE a little earlier, you know, people don't realize when money dries up, and that can happen for a lot of different reasons, that the money supply shuts down, goes down, whatever economic reasons. And that happens every so often. I've seen it about three or four times in the last forty years. There's not going to be any wholesaling. There's not going to be any.

It's kind of like when the tide goes out, you'll see who's wearing bathing suits or not.

Steve: Right.

Leon: And so, you know, my philosophy is is you better get some good long term holds financed correctly, where you're cash flowing. And when you get enough of those, you can the idea is to replace your earned income with non earned income. Mhmm. Replace labor based income with capital based income. And I told my kids, work really hard for unearned income.

I didn't say don't work. Work is noble. Work really hard for unearned income. And unearned income is an IRS term. It means money that's not earned.

It means like rents and interest and royalties and those kind of things. Work really hard for those things. Maybe capital gains. And wholesaling is a business. It's a it's just like a w it's a ten ninety nine w two kind of business for the most part.

Steve: Yeah. My buddy, Brian Daniels, right, and he says it's just a really, really high paying job.

Leon: Exactly. It's exactly what it is. And if you don't invest that and if you don't invest it correctly, where you know, I tell everybody I'm lazy jokingly, you know, because I don't want a J O B. Not at all. But I enjoy what I do.

And and every time I get a chance to add cash flow that comes in every month without me doing anything, that's what I'm gonna do. And you do that through rents and interest.

Steve: So let's talk about that. Right? Like, you got someone because a lot of people are listening to show. They're wholesalers. Right?

Leon: Mhmm.

Steve: So they're making lots of money.

Leon: Oh, yeah.

Steve: What advice would you give someone that's making $2,030,000 dollars a month and wants to start building a portfolio, wants to start having creative using creative financing strategies to basically get cash flow to support their lifestyle or whatever they wanna do with it. What advice would you give to someone like that?

Leon: Okay. There's a couple of different things. Number one, they need to learn how to manage people and property. They need to learn property management and learn it good, and so that you know how to handle people and how to handle the property and expenses and all those kind of things. People are spending a lot of time in learning systems, which is all good, okay?

There's nothing wrong with that. I mean, but it goes all the way from driving dollars, knocking doors, to the systems that Rhett and Adam are using and you guys are using to find your wholesale deals and whatnot. But the first thing I would say, if that's all you're doing, you're leaving a lot of good opportunity laying on the table. You're passing up on a lot of good deals. Because as wholesalers, what wholesalers look for is, wholesale prices.

And there's a lot of deals that you can get, and I think they're leaving on the table that you can buy with whole sale terms. Mhmm. And and there's a big difference. I will pay more than market value for a piece of property if I get the right terms. And there's a lot of cases I would rather do that than buy at 60¢ on the dollar for cash.

Steve: Yeah. I think one term or one expression you said multiple times on stage at Real Estate Roundup was most people like to buy on wholesale prices.

Leon: Mhmm. And

Steve: you like to buy

Leon: Wholesale terms. Yeah. Wholesale terms. And and and by the way, you are invited to New Orleans March for our creative intensive. You can be my special guest there.

Steve: I have VIP access?

Leon: Yeah. VIP access. That's it. Everybody's going to be a VIP there. Yeah.

But we'd love to have you. And we're going to dig two days of that. We're going to dig into it in detail. You know, what are wholesale terms? And why do you want whole sale terms, and what do you say to the seller to get wholesale terms?

But to answer your question, what advice, you better be taking that high price money, the high income that you're getting from flipping houses is $20,000 or $30,000 a month. And if you're not setting aside a whole bunch of that to invest and start learning how to, you know, and you're gonna think, man, this is a waste of time. You know, I just bought this place. I've got it rented, and I'm cash flowing 300 a month. This sucks.

You know? Yeah. But let me ask you. Isn't there a Wrigley Mansion here in Arizona somewhere?

Steve: I believe so. Yeah.

Leon: I think it's Scottsdale. Here somewhere close, I think.

Steve: Yeah. I think it's on a golf course.

Leon: You know, when they were selling gum originally to build that mansion, you know how much they sold that gum for for a packet?

Steve: Like a nickel?

Leon: About a nickel. Yeah. So it was Nichols that built that mansion out there, you know. Yeah. And so if you if you do $200 or $300 a month and and, you know, you end up with 10 houses, then, you know, that's $3,000 a month.

That's not much money. But if interest rates spike or if the money supply goes backwards and the loans aren't being made anymore, people are still gonna be working, and they're still gonna pay rent. You might have to adjust that rent, but at least you got an income every month.

Steve: Yeah. You know, it's interesting you mentioned you've seen it three times where, the things went really south with money supply. So, you know, my I got into the business in 2007. So I got to witness one of them.

Leon: Mhmm.

Steve: But there was still, like, money. It was really tight. Yep. But, you know, I there was a lot of wholesaling going on. You're saying that the other times, it was even worse than that.

Oh.

Leon: Oh, yeah. Way worse.

Steve: Can we talk about that? Because I haven't experienced it. And most people listening haven't experienced that.

Leon: 1974 and 'seventy five, right before I got into the real estate business, a friend that I met later and became a great friend after that owned four building and supply stores like a Lowe's or Home Depot. This was before Lowe's and Home Depot. He owned those in Kansas City. And he was doing really well. In 1974 and '75, he went bankrupt.

He had to close them all down because there was no building going on. There was you know, nobody was buying houses through the traditional means. There was no new money out there to buy houses. And then, again, in 1979 and 'eighty, when interest rates spiked up to like 18%, very few people qualified for loans. Even if they could get the loans, you know, they, they, you know, you just couldn't qualify for them.

And that drove house prices down. And, I mean, it flushed out realtors and everybody. I mean, you know, title companies, realtors, anybody that was in the mortgage companies that was in the business of, you know, real estate changing hands, they basically just washed out. Yeah. And then they come back again, you know.

And then you have there's been a couple of other times not quite as bad. And then long comes 2007 and 2008. I didn't even really notice 02/1978, you know. Really? And I just during that period of time, I just picked up low hanging fruit.

And, So what's a low

Steve: hanging fruit in your world?

Leon: Well, you know, I was buying, and I was wasn't even really out there looking. It was just kind of stuff that, I'm walking through the forest and, boom, there it is right in front of me, so to speak. You know? Yeah. And it's right there, and it's easy to reach up and grab.

And and and it would be people that I knew about through my circle of influence that, you know, had a problem, unfavorable circumstances around which they were owning the property. And a lot of them I got lazy for a while. I've had a bunch of cash, flush with cash. And you can get lazy if you have a bunch of cash, and you just go pay cash for everything. Mhmm.

So you can do that, you know. But it just depended on what the circumstances was. So what

Steve: have been some, like, really favorable terms at that time?

Leon: Buying, and and which I'm still doing now. Even in the best of times in forty years, we're still doing this. But just buying properties, nothing down, 100% owner financing, low interest rates, long term, no balloons.

Steve: Gotcha. Okay. You

Leon: know? And and we did a whole bunch of those just in the last twelve months Wow. In the last two, three months.

Steve: Using the same strategies that Brent and Adam were using, or is it still a Well,

Leon: basically, you know, we have a little RIA in Hattiesburg. We don't charge any fees or dues. And I have people all the time who, you know, we we try to raise the education level in that in that group and and network and whatnot. And you have a lot of new people who come, and and they find opportunities. And we teach them how to find opportunities.

Steve: Mhmm.

Leon: And they bring them to us.

Steve: Right.

Leon: You know? And so I go with them on those deals. And, one of the last ones I closed was, you know, somebody new and never done a deal, and they wholesale to me. Mhmm.

Steve: You know, I

Leon: have people wholesale to me all the time.

Steve: Yeah. And So they're getting their fee, and you're getting the terms that you want.

Leon: Yeah. And, of course, Brent and Adam, they they're doing all this new stuff that I don't even have a clue and understand. Understand. With acronyms, I have no idea what they are. And, you know, they do the wholesaling.

We do some retailing, some wholetailing. And and then anytime it's a circumstance where there's a good chance that that there can be terms on the deal, they send me. So it seems like I'm going out every day.

Steve: So this it was free and clear.

Leon: Or almost free and clear. It don't have to be totally free and clear.

Steve: But So what are some, like, you know I'm gonna call Leon with this deal. Like, what are some things I need to look for? So, okay, this is probably a deal I wanna send Leon to.

Leon: Okay. Alright. Sick and tired landlords can be one. It can be people who are out of town and the house is vacant, it's been vacant for a long time. Older people, as a matter of fact, in their 70s are giving me thirty year terms, no balloons, 3% or less interest behind in their taxes.

Maybe it's a house that is occupied or not occupied that needs a lot of rehab, and they don't have the money to do it. And so people are fixated on price. Right. And so the, you know, the house has fallen in. Two months from now, they're going to lose their house because they're three years behind in taxes.

And they still want to argue about price. Well, fine. I'll give you your price, but I want my terms. You know, if they choose the terms, which is cash cash is terms I get my price, and it's got to be wholesale. But if they let me choose the, you know, if they choose price, then I get to choose terms.

They get their choice. I don't care which one they choose.

Steve: Right.

Leon: I'll take the other, but I get I get the other one. They don't get to do both.

Steve: Yeah. That's what I I came back from the event, in in in Mississippi, and I told a couple of my friends, like, you gotta watch out for these older folks because I met Tony Robinson senior in Dallas, and then I met you in, in Mississippi. I was like, okay. These old guys, they can dance circles around us.

Leon: Well, I wouldn't say that. You guys are too sharp. I'm telling you.

Steve: So one thing I heard you say at the event, also, is is it really stuck out for me was you only have one regret. Oh, yeah.

Leon: I can tell you what that one is.

Steve: Yeah. Let's talk about that.

Leon: Yeah. You know, young young folks do stupid things, and I did my share of stupid things, maybe more than my share. You know? And I'd accumulated through the time a pretty good set of houses. And one thing that I did move, though, know, that caused me to sell a bunch of them.

But the biggest regret, just to bottom line it and then come back and talk about it, was selling a bunch of properties I wish I'd kept. You know, like that one house that I told you about, that one that I bought for $21.09, did it subject to, that the value of that house now is is like $220,000

Steve: Yeah.

Leon: Okay? And I could have kept it and collected rent all those years. And I sold that house.

Steve: And

Leon: there's a bunch of those houses. And so what happens, you know, we get impatient. We see, oh, we've got this equity. We could sell this house and get this money, advice that I can give is to newbies starting out, doing their first deal or

Steve: two, is, first of all, learn how to manage or

Leon: at least get your feet doing well. First of all, learn how to manage or at least get your feet doing wet. And buy some properties and just keep them. Don't ever sell them, not in your lifetime. Let your kids get them.

And the and the basis in the property goes up to the market value the day you die. And

Steve: Is that right?

Leon: Yeah. So you don't so they won't pay if they sold it the day after you die, they pay no capital gains, no recapture of depreciation, or any of those things. So your idea should be to never kill the chicken, just get eggs from the chicken from now on. Right. Don't ever kill the chicken.

Okay. Don't ever kill the goose that lays the golden egg. And There's other ways to harvest your equity out of that those properties. Don't sell them. But young people get impatient.

They say, well, we need this money for this, so we'll sell it. That's one of the biggest mistakes you can make. Keep that. Eat out of something else and give your efforts time to compound.

Steve: Mhmm.

Leon: You gotta give your efforts time to compound. You get older faster than you think you do. I've gotten I've gotten old so fast that I haven't been able to adjust to it. Okay. It happens fast, faster than you ever dreamed.

And so just hang on to those properties. And one day, they'll be paid off. And as time goes on, rents goes up, your spread goes up, you collect more money per month, and that money is taxed differently than a business type income. You know, there's no Social Security tax on it. Anybody that that's a young person that thinks they're going to draw Social Security, I never thought I would.

My wife, I've never seen a check. My wife gets it all. But anyway, you know, it's probably not going to be around. Don't look for it to be around. Yeah.

And, just, you know, one day you'll be well taken care of.

Steve: Right. Charles Nguyen has a question about what are some of your favorite creative clauses you put into your deals?

Leon: Well, you know, it all depends on the deal. But let's just use an average deal that we do all the time, over and over and over again. And it's not anything just fantastic. But on our deals where we get seller financing, and by the way, I don't use the word seller finance, owner finance, or or any of those terms. Don't call up anybody and ask them, will you own or finance?

Because the answer is going to be no. But what are some of the once you get to the point and you've gotten them to agree to sell to you on terms, I like to put in there the no due on sale clause, number one.

Steve: Mhmm.

Leon: That's written right in my contracts. The other thing is that that property is going to be the sole security for the note. Okay? And if people don't understand that, because if you ever get foreclosed on and the amount is less than your note that you owe, they can get a deficiency judgment and tie up other properties that you have. Okay.

Okay? Yeah. So, you want that property to be the sole security. Not that you're ever gonna screw somebody over. That's, you know

Steve: But just protect yourself.

Leon: But just protect yourself. And the other thing is I ask, and I've never had anybody turn me down, is say, look, you know, I don't know if you know of something that exists out there. I say, you know, you've heard of JG Wentworth. You know, I want my money, and I want it now. You're going to get all kinds of people writing you letters and maybe calling you, wanting to buy this note that I'm giving you at a discount.

And in the event that they do that, is there any reason why you wouldn't give me the first right of first refusal to buy that instead of that because I don't want to wake up one day and you sold it, and I have to start paying somebody else. I'd rather if you're going to sell it, I'd like to have the right of first refusal to buy that. Oh, no. No reason why I shouldn't put that in there. So the way it reads is, is that they have to shop it with three different note brokers.

And then they tell me about it in writing. I've got ninety days to make up my mind if I want to buy it or not.

Steve: And

Leon: if I say yes, I've got another ninety days to come up with the money to buy that note.

Steve: Right.

Leon: So what happens to I call that a poison pill. Mhmm. And when a note broker reads that, what are they going to do?

Steve: They're not going to buy it.

Leon: They're not even going to make an offer.

Steve: Right.

Leon: So I'm in line to buy that note first. And I do that a lot.

Steve: Yeah. I love it. Very, very creative. And that's the kind of stuff, right, you do this for forty years.

Leon: And one other thing, while we're on that subject, these people that are so price conscious, you know, this house, I'm not selling this house for less than $200,000 I'm just not gonna do it, you know. And they're two months away from losing it for taxes. They got a leak in the room in one room. The sheetrock's falling down, and they won't budge on price. Okay?

And we say, okay, we'll give you that price. And it's because their mother bought them the $3,000 chandelier, and and they've got all kinds of sentimental values about that house, and it's it's real personal. And so they're not going to take less than that price. So give them their price. A year down the road, they don't have the house anymore.

That sentimental value is gone. And and they have a piece of paper that says

Steve: x amount of money is on the balance.

Leon: But the reality is amount of money is on the balance, but the reality of it is they're getting $800 a month every month. And JG Wentworth, I want my money, and I want it now. And all of all of a sudden, that that 800 a month is not sentimental. That note is not sentimental like that house was. You see what I'm saying?

Yep. And then before Christmas or sometimes at an event in their life, you're sending them a little note maybe every month that says, in the event that if you ever need any extra money and if I have it available that, you know, I might pay a year in advance for a 15% discount. Or I might pay you ten months in advance for a year off on payments. Right.

Steve: That really creative ninja stuff. That's the

Leon: And the sentimental value is gone, and they

Steve: do it. Oh, yeah. They're definitely a lot more likely to work with you.

Leon: Mhmm.

Steve: Let's see.

Leon: Or they die and their kids, you know, would spend it all in a week if they had it. They'll sell it as a discount Right. Or trade them a new car for it or whatever. Yep. Okay.

So I'll let you ask a question.

Steve: Let's see what else was there. Warner Coraga wants to know, what's the easiest way to explain terms to a seller?

Leon: Well, one thing that I like to do, and it depends on who you're talking to. Okay, print out IRS Publication five thirty seven and read it. It's about installment sales.

Steve: It'll

Leon: teach you a lot about the tax situation and whatnot. And if you're talking to, read that question one more time. I'll make sure I'm real specific.

Steve: What's the easiest way to explain terms to a seller?

Leon: Okay. Explain terms. Okay. And the and the easy way is not to call them up and say, will you own a finance? The answer is no.

Okay? So what you do before you really get into explaining terms, you want to find out about that person's situation. And like this morning, I don't know if if when he started filming me, but my first question was, is do you have kids? How old are they? Where are they?

What do they do? And especially with an older person, okay? There's There's a method in my madness there. And people like that when you ask those kind of questions, you know? And they feel like you care about them, and you should care about them.

So you build some rapport. In in my town, it's hard for me to go on an appointment where I don't connect with somebody they know. You know, in a big city like this, it might be a little more difficult. So but you got to build rapport. And you got to tell stories and let let them know about deals that you've done.

And they have to understand that you're trustworthy and that you're competent, first of all, okay? And so then, I use the term installment sale. And if if they're a homeowner who,

Steve: you

Leon: know, they have lived in the house two out of the last five years, if they sell it and make a profit, if they're single up to $250,000 married up to $500,000 there's no taxes on that profit, zero taxes. So, they might not know that. A lot of people don't know that. You can explain that to them because they worry about paying taxes. When we just did, she was worried about that.

And I had to explain

Steve: that to

Leon: section 121 of the IRS code, you know, that she was not gonna end up having to pay any taxes, only on the interest. So we got the interest down to one and a half percent. And I used another property for collateral, which left that one free and clear.

Steve: Yeah.

Leon: So that's a whole another thought. But explaining the terms to them, the next thing you want to do is ask them what they're going to do with the money. And you got to learn how to do that. And I kind of jokingly, I say, look, now there's two reasons. I'm going to get real personal with you now.

I'm going to ask you something. If I bring this bring your price that you're asking, this $200,000 up here in a brown paper bag, and we put it out on that table there, and you count it and it's all there, what are you going to do with the money? And a lot of times, you can you can discover their sense of urgency by how easily they answer that question or how fast. If they're a little slow, they don't have a big sense of urgency. Or if they tell you it's none of your business, you know, there's not a big sense of urgency there.

And so I kinda if I see that they're pausing a little bit, then I say to them, one of the reasons I'm asking is, is if you've got an awesome place that you're gonna go invest in, I might I've got some more money I might wanna go invest there. Right. But the other thing is, if that's not it, what would you do with the money? And they and they tell you a lot of times, they'll say, well, I'm gonna go put it in the bank and draw interest. And my next question is, what if what if I could get you three times what the bank's paying you?

Oh, okay. And what if I could, structure it maybe where you pay even less taxes? What if I'd bump your price up a little bit and would come down on the cause you're going to get taxed on the interest. But so we make the interest less, pay you a little bit more in principle, which is tax free because of section 121. And you end up do you like paying the IRS?

You know, no, I don't like paying taxes. So so that's one way that I explain it. And I like to pull out that publication five thirty seven and maybe have it there where they can see it. And it says installment sale. And I say, you know, something you might consider doing is an installment sale.

And if the IRS has written up a whole big old section of rules on that, made a whole publication about installment sales, it must must be something commonly accepted and done widely throughout the country. And if the IRS has got rules about it, it must be legitimate. Right?

Steve: Right.

Leon: And so then they will consider it and say, you know, here's how we would do it. And you will end up and you might even say to them, let's figure out, okay, what would happen if you went to the bank and put it in the bank? What kind of rate of return are you gonna get. And it's probably 1% if they put it in something they can pull out every month. Mhmm.

And and say, okay, how much a month are you gonna pull out? And you get your calculator, and you figure out how much how many months they're gonna get if they put in their bank pulling out that much, and you show them how much they'll get dealing with you. Right. And many times, it's many, many more months that that they will get, you know. Yeah.

And then you also in explaining the terms, you total up what the price total price you're going to pay them over that three sixty months. And the next thing is why you ask if they have kids, people have this notion that the day before they die, they're going to pile all their cash up on the table and all their kids can come get it the day after they die. But if they have CDs, it stays in the bank and the kids draw interest. If if they've got a note and deed of trust that I'm paying on, I just I tell them a lot of times my kids might be paying your kids. And my kids know how to manage property, so, you know, they're good.

Steve: I love that.

Leon: My kids will definitely be asking for a discount for paying in advance too. I guarantee you that.

Steve: Let's see what else is there.

Leon: And and while you're looking, if if that seller is somebody who has had a rental property for years and they're looking to cash out, you could read that publication five thirty seven and save them a ton of taxes, where on the homeowner, there was no taxes. There's a lot of reasons for somebody that's owned rental properties sell it on terms because they get to draw interest on money that would have gone to the IRS, and they'd never draw interest on it. Right. Okay. So anyway

Steve: Blake Hobart's had a question. If you got a seller who really wants their name off the loan, do you have a worker on that?

Leon: You can pay it off. That's about all you can do. Mhmm. Because even if you assume and agree to assume and pay it, and you get it's hard to do that because of the what my friend calls pretender lenders. You know, it's mostly service companies servicing these notes, and you can never get anybody to make a decision.

But even if you did assume it and agree to pay it, that still leaves those other people on the hook. So about the only way to do it is pay it off. And a lot of people think they have to have it paid off in order to go get another loan. But if somebody takes it subject to and and you run for about a year, now you could ask somebody that's currently a mortgage broker this question, and they can answer it better than me because and and qualifying somebody for a new loan, do they take into account that the fact that somebody else has been making that payment for a period of time or whatever? So sometimes they'll give you credit for that and off balance it out so that it's not going against you.

But if they wanna sell bad enough and their sense of urgency is bad enough, if they're hurting bad enough, if they're about to lose it anyway and have a foreclosure on their credit, any number of reasons transferred out of state, they'll do it and leave it on there. But not everybody's gonna do that. Not every deal's a so called and don't use the word creative finance with a seller. You know? Yeah.

You just you don't use fancy terms. You describe what it is. Instead of saying, I'd like an option to buy your house, you say, I would like the right to buy your house.

Steve: Mhmm.

Leon: Just explain explain what it is that you're doing and describe it instead of labeling it.

Steve: Right. That's simple enough. Yeah. Right? Don't overcomplicate it.

Leon: Yeah.

Steve: So, you know, I really appreciate that, you know, having someone that's seen many, many things, right, has the experience. I think you're the only person that said, like, you aren't motivated by, I think, Rich Dad Poor Dad. Right?

Leon: Oh, I like the I like the book. And and in fact

Steve: wasn't your first book.

Leon: Oh, no. Oh, no. Not that I would recommend. And I don't recommend people reading it because one thing they learn is what is an asset in there in that book, Rich Dad Poor Dad. Yeah.

He's got two or three books that I really like, but I'm not impressed with his upselling stuff.

Steve: Right. Of course. I don't think many of us are. So what are some other bits of wisdom you can give, you know, for a lot of the younger folks that are getting into business? We talk about don't ever sell.

Right? Don't eat your seed corn.

Leon: Mhmm. And but but now there's exceptions to that. Yeah. When you if you're out prospecting, don't be technique driven because there's going to be some situations where you can't get good long term financing, but it'd be a great flip. And you can use that cash to help you do your long term stuff.

Yeah. You see what I'm saying?

Steve: Right.

Leon: And and I used I started out for years. I was technique driven. I'd find a new technique, and, boy, I'd go hunt situations where it would work. You can't do that. What you have to do is have a whole bunch of tools in your tool bag.

And when you show up on the job, which is that seller's house

Steve: Mhmm.

Leon: And you find out what their situation and problem is, then you decide which tool to pull out that's gonna work in that situation, and you cannot leave any deals laying on the table.

Steve: Gotcha. Anything else you wanna leave? Because I I know one of the things we were talking about, I had mistaken we were talking on the phone. Right? Like, I thought you had you were doing half mil Mhmm.

Per month cash flow. Yep.

Leon: That's my friend.

Steve: That's my friend. Somebody else. And they started late in life. Right? And it's, like, after he retired.

Like, 50. Yeah. So after he retired, he was able to get to half mil

Leon: Yeah.

Steve: Cash flow. But, you know, we're talking about designing a lifestyle. Yes. So you wanna elaborate on that?

Leon: And and and you you bring you make me think of a point and make sure I hone back in on that question there. You hear you hear people all the time say, well, how many houses do you have? Well, how many do you have? And see, that means nothing because a guy could have 75 houses and not have them financed right, have negative cash flow, have balloons come and do, and that sucker's in trouble.

Steve: Mhmm.

Leon: Okay? But you got this old guy over here that's got about eight or nine or ten, fifteen houses. And he's worked to get them free and clear. You know, there's a young guy in our group in Hattiesburg, Mississippi that I admire he and his wife so much because he's real young. He's put a lot of sweat equity in.

I think he's got like five houses, free and clear. And he's a young guy. Yeah. Okay? And

Steve: You're talking about the guy that was speaking on stage?

Leon: No. He was not on stage.

Steve: Oh, he wasn't?

Leon: Okay. No. But this is this, ask that question again. Let me I sidetracked myself. Oh, I know what it was.

Yeah. People are asking, who's better off? Mhmm. Who can put more money in the bank every month? The guy that's got the 70 houses with screwed up financing, negative cash flow, balloons coming due, or this guy over here that's got eight or 10 houses, and he's cash flowing.

You know, he's bringing home $5,000 a month. Yeah. You know, who's living the best? So the number of houses that people have don't impress me. Mhmm.

You know, it's how they're set up. And if they if they have, you know, 20 and it don't take a whole bunch.

Steve: It doesn't.

Leon: It does not take a whole bunch. And and I think I told you on the phone, you know, if if there's anybody out there and you're trying to get your first deal, or you've gotten one or two deals, or whatever, don't give up because you see people like Pace who is a superstar, like Steve Trang who is a superstar. These guys, you know, they they know how to build systems and all that. And if and and you can just be an average person working an average job, and you go buy some average houses, and you rent them to average tenants at average rents, and do that over and over again. Don't get impatient.

Give your efforts time to compound, and you can build an extraordinary income that's low on taxes and also with mailbox money, and you can go do what you want to every day and not be worried about whatever. You know? You you replace that labor based income with that capital based income, and you gotta give it a little time. Don't get impatient.

Steve: So one thing that, Pais and I have talked about, I'm I can't remember if we said this on air, is that now that he's become so comfortable with subject to and creative financing, he will never get another mortgage again.

Leon: Yeah. Oh, gosh. And and look, I don't like dealing with banks at all. If I wanna refinance a house over here, I might go find one that I'll I can get terms on and get them to use the house that I want to finance as collateral, leave that house free and clear, and sell that house, and get my cash. So that's how you can harvest your cash whenever you are, say you're getting older and you want to pull money out instead of selling the house, you just harvest you get a loan in it.

Steve: So let's talk about this substitution of collateral. Mhmm.

Leon: Alright.

Steve: You've brought it up a couple of times. Can you elaborate what you're talking about when you're substituting collateral?

Leon: The mortgage or substitute the collateral or whatever. Basically, it's using another property that you have free and clear or near free and clear to give as collateral instead of that subject property that you are wanting to sell maybe to raise cash. You walk the mortgage over. We had one last year that I was gonna sell and owner finance. The house was a mess.

And even our guy, that rehab guy, didn't wanna fool with it. Mhmm. And we had a lady that we were working to help her get a house, and she she took our rehab guy, and he didn't wanna fool with it. And so I was just going to owner finance it out and just get a little small spread and and wrap the loan that was on it. You know?

And so we had a cash buyer show up. He said, you know, we're going to sell it for about double the price, owner finance. This guy shows up about 75% of what we were asking, he was going to pay cash. So not even a month into the deal, I called the person I bought it from and said, can I give you this much nicer house over here for collateral? She and her husband drove by and said, sure.

So I gave them that house for collateral, and the other guy came in and paid cash. And all the loan that I had gotten owner financed on that first house, I put in my pocket for cash to go buy other deals with.

Steve: Yeah. It's very it's a very interesting topic. I think probably need, like, a whiteboard or something. Well,

Leon: and and and over at, Pace's place early, I showed people how you could buy a house for a 100,000 and sell it for 90 and have a great deal. Sell it five minutes later for 10,000 less, and it'd be a great deal. And it's one of those deals where buy the house for a 100

Steve: Mhmm.

Leon: Carry the financing against another free and clear house that you wanna keep long term financing on, and then turn around. And if you had to take a loss on that house, say, a $10,000 loss, and you figure what your payment is on the 100,000, and then just plug 90,000 into present value and hit calculate interest, and the interest rate was 4% on the 100.

Steve: Mhmm.

Leon: It went to 4.9 on the 90,000.

Steve: Yeah. Wow. So so

Leon: that way, 4 0.9 is still a great deal, and you have that money that you could go buy houses for for a discount cash price or buy a whole bunch on terms.

Steve: And I think that was one of the biggest takeaways for me was, reading the book Invest in Debt. Right? This whole another world

Leon: It is.

Steve: Moving a property. Like, it's just you need a master's degree, I I feel like, to really understand that book. But it's a really interesting topic. Eric Bryan wants to know how often are you doing lease options?

Leon: Not real often. You know, as me as a buyer or as a seller?

Steve: I would probably imagine as a seller.

Leon: Okay. As a seller, I do them every now and then. Mhmm. You know, not real, real often. It depends on the property.

Steve: And if it's probably one that I don't wanna

Leon: keep long term, if it's not gonna attract the kind of tenants that I want, maybe it's a a older mobile home out in the country or maybe a mobile home on an acre lot or something. And, we turn around and do it on a on a lease option.

Steve: One thing I think, we were talking about was this is back in Mississippi. You know, you got all these loans out there where the interest rates are three or 4%. Right? And people are buying subject to

Leon: Mhmm.

Steve: Do you have any concerns about the banks calling those notes due eventually to get their money back?

Leon: There is a possibility of that. There's always that possibility. If interest rate spikes way up or whatever, our you know, banks are banks are a little different than, you know, long term mortgages where they're locked in. So but that that could very well happen. Mhmm.

Steve: It

Leon: could very well happen.

Steve: Have you seen that happen before?

Leon: I have not had it happen to me, but I've met people who have had it happen to them. I met a guy somewhere at one of the real estate seminars that told me he had four that was from the same lender called on him at one time. Mhmm.

Steve: And what did he have to do in order to

Leon: I think he might have gone and refinanced them. I don't remember what he said he did, but I think he went and went and got them refinanced. Refinanced. But if you've got a lot of financial friends or whatever, they can come take you out on some of those deals. You know?

Yeah. I mean, there's things you can do. Let's say there's 50% market value. If I got caught in a trap and I couldn't pay it off, and let's say the house is worth I like to use a 100. That's easy.

A $100,000, and I owed 50 on it, and they call the loan. By the way, that's the ones they're gonna call is the ones where there's the most equity in.

Steve: Mhmm. You

Leon: know, if you owe almost the whole thing, then they're probably are they're

Steve: not they're

Leon: not gonna call that one. But, boy, if they can gain some ground in there, they'll call it. But let's say I owed 50% or a little less, but let's just say 50%, $50,000 and I was in trouble. I would split that with Steve Trang. And I would say, Steve, come pay this thing off for 50,000.

Steve: Mhmm.

Leon: And I'll let you have the house for $50,000 But I want a right to buy it back anytime in the next ten years for 75,000. Right. Or for 25,000 over, you know, what you've got in it.

Steve: Yeah.

Leon: Or we could calculate what a great yield would be on your money that would be satisfactory to you. And that way, I don't get totally locked out of the deal. Mhmm. And I share with my friend.

Steve: Yeah. That makes complete sense. Kyle Federman wants to know, your do you own a property management company? Do you Mm-mm. Okay.

Leon: No. I used to be a broker, but I let my licenses go because I wasn't, you know, listing and selling and appraising anymore. And I didn't wanna do that.

Steve: So Are you still managing your properties?

Leon: I still manage my properties. And I do, and I love it. That's why I like single family houses.

Steve: You're talking to all the all the tenants. They all you're on a first name basis with all of them.

Leon: Pretty much. But the way I do it, sometimes I go three or four, five years and never hear from them. Rarely do I hear from them. I tell them, you know, I do the $100,100 dollar a month discounted rent, and I tell them, look, the toilet stops up. Don't call me.

You know, if you have something big, call me. But, otherwise, I don't wanna hear from you. If you do, it's gonna cost you a $100,100

Steve: dollars.

Leon: And, you know Any

Steve: concerns about deferred maintenance because of that?

Leon: That happens. You know, that's gonna happen. Yeah. My longest tenant was twenty three years. My longest right now is fourteen years.

I'm pretty sure in that house it had some deferred maintenance when I rented it. I'm sure it's gonna have some now. Yeah. One thing you could do in those cases is after they've had them several years and and you you think that they might be gonna go buy a house or something, I wanna finance the thing for them. They've been paying it for you for years, doing an installment sale, and then the deferred maintenance is theirs.

You

Steve: don't you

Leon: don't get it back and then have to spend 15 or 20,000 on it before you do whatever you do with it.

Steve: Right. You know, I love this topic because, I have my own property. It was our own rental property we bought in back in 2008, 2009, right, when the economy was rough. We bought the house for 140,000, and we work out the math. The The rent that she paid she was a tenant with us for ten years before she moved out.

Ten full years.

Leon: Mhmm.

Steve: She paid the entire mortgage Yeah. For us. Yeah. So we have a house free and clear Right. That's paid for by someone else.

No money in

Leon: it.

Steve: Can't ask for a lot more than that.

Leon: That's right.

Steve: And you just you only need a handful of those

Leon: That's right.

Steve: To live comfortably.

Leon: Look. 10 of them. Yeah. 10 of them. And then you're not hassled by a whole bunch of things all the time.

You can take trips and not worry about things so much.

Steve: You can be in Phoenix enjoying the weather.

Leon: That's right. That's exactly right. And, you know, I've stole this saying from a friend a friend and a mentor who's not alive anymore. But he said, you know, if you let property management companies manage your property, they charge you 10%, and they lose 20% for you. But the best thing to do is have a financial friend if it's far enough away that you don't wanna manage it and do a master master lease it to them.

Mhmm.

Steve: Okay. So two things.

Leon: And then they're talking about the math talking about me having a management company. If I wanted to manage somebody else's property, I would do it on a performance based master lease, more than likely.

Steve: What is a master lease, performance based master lease?

Leon: Well, in commercial real estate, they call it sandwich leases. You know, you lease it from the property owner at a certain price and lease it to someone else.

Steve: He sold it.

Leon: Yeah. But a performance based one is you lease it from them with the idea that you only pay them when you collect rent and you pay them a percentage of that, like seventy, eighty, 90%, whatever you work out.

Steve: Mhmm. And What is this part about losing 20%?

Leon: But well, what happens is is is they have their own work crew, and they call them up. And and that guy charges them a $100 to change the toilet out, and they charge you $200 or $2.50, or they're real slow about getting things fixed. And they they, you know, they don't they don't treat it like it's their own. They're not hustling, really. They they just kinda do their regular thing till it gets rented, you know, put a sign out there.

Steve: Yeah. They're in no rush.

Leon: Yeah. So you'll lose about 20%.

Steve: Yeah. Now that makes sense. Our entrepreneur wants to know, when you're taking these properties, are you taking them in a trust, in an LLC? How are you taking titles on these properties?

Leon: I do a little bit of all of it. I like land trust because we can do that in Mississippi. Somebody's telling me you can't do it in Arizona because the title companies won't insure them or whatever. But but I like land trust, especially on my long term hold stuff. I do have some stuff sticking out there just in an LLC.

And I've got a couple properties that's actually in my name.

Steve: Really?

Leon: But they're covered up with debt. You know, I mean, a predator looks at them, a predator attorney looks at them, and, they're gonna say, hey, there's nothing there, you know, for a contingency Yeah. Predator.

Steve: Yeah. There's nothing to get from this guy. And nothing there. There's no juice.

Leon: Yeah. No juice there.

Steve: Scott Federman wants to know, are there certain principles you have or things you do to screen the tenants that you're managing?

Leon: Oh, yeah. Yeah. And and and, look, I've made some terrible mistakes before. I've had some horrible tenants. I've done, you know, I've had some bad ones.

But after a while, you you get a sense of how you can screen them. And, one of the things that we've just started doing is, it's called RentSpree, rentspree,.com. And, man, it checks them out really good for you. And the way that works, you don't collect a fee. They go online either from a barcode or to the web website and log in to that house, and they pay their $30, and you have access to all that information.

You can print it out and put it in a file.

Steve: I use SmartMove for that.

Leon: Same kind of deal, Yeah. SmartMove.

Steve: Yep. So Terry Buell wants to know, are you doing sub two only or also doing land contracts?

Leon: When I buy Mhmm. I never buy on land contract. Never buy on a contract for deed ever.

Steve: Okay.

Leon: I sell on some.

Steve: You wanna explain why?

Leon: Yeah. What happens when you've paid the place off, they're divorced, dead, out of the country, and can't deed the property or won't deed the property to you?

Steve: That happens?

Leon: That happens a lot.

Steve: That sounds terrifying.

Leon: It it is. Yeah. It is. I mean, don't that's always been my rule. Don't buy on it, but I'll sell on it.

You know? Because I feel like my family and and whoever I'm with is gonna give whoever a fair shake. They're gonna do what's right. But your average civilian, you know, they have life changes and whatever, and they you know, this is just a one deal thing to them. And so, consequently, you know, you could get in trouble there.

Steve: Yeah. That makes a lot of sense. Never thought about that.

Leon: But subject to, I mean, I at this point in my life, I'm not doing a whole bunch of them. You know, I I like doing some short term ones. Like, if I am going to if it is gonna be a flip, you know, that particular property, for whatever reason, would be better to retail it or whatever Yeah. We, buy it subject to catch up the payments, make the payments while we're putting new flooring and carpet paint, whatever, you know, new roof, air conditioning, getting it all done and getting it listed and sold. We'll list those retails.

We have great realtors, friends, and we list with them and let them sell it retail and then pay it off.

Steve: So what does a day in Leon's life look like?

Leon: Well, you gotta understand that I'm what they call a spender ender. There are stages in this ballgame. You have beginners, you know, that's just starting out, don't know anything. Then you have people who's kinda starting to get the hang of it, and they're builders. And then on the when you get my age, you're supposed to be a spender ender, you know, where you're just kinda relaxing and enjoying and not doing anything.

You know? But, and I'm still going on a lot of because Adam and those guys feed me deals that have the opportunity to do seller financing. And so they send me on those kind of deals are ones where there's and see, I don't call seller financing or subject to really creative financing. I mean, that's kind of like a cookie cutter thing, you know, for the most part. When there's people have real problems, there's judgments, title problems, special circumstances, and you really have to get creative.

But they send me on all those kind of deals. And then I have people calling me all the time that does that. And occasionally, we'll have a vacancy on something we or something we buy that's vacant. You know, we What

Steve: we say is, you know, someone sends you out, like, this looks like a deal, sub to opportunity, something like that.

Leon: Sub to or owner finance?

Steve: Sub to or owner finance. What we say is the percentage of those that you end up copy the terms with.

Leon: One out of three or four. Really? Mhmm.

Steve: Yeah. It's really good.

Leon: And the reason I say that, I've just thought back to to probably the last four I went to, and we did one of those. Mhmm. And we might end up doing one or more of the others. Might just sometimes it takes time on Yeah. Especially owner finance deals.

Sometimes it takes months. Because? To gain, the trust of the people Mhmm. You know, and let them get to know you and just, you know. I can think of one case, a friend of mine, it took him ten years to get this one piece of property.

Steve: That's patient.

Leon: And he'd go by about once a year and sit on the patio and talk with this lady. And, one day he went by there, and he was gonna stop and talk. And there were painters were out there, and they had a paint sign out in the yard, you know, so and so painters painting this house. So he got out, and he said, where's the lady that owns this place? And they said, oh, she died, but her daughter's here.

Or we've got her daughter's number. So he called the daughter, and the daughter said, are you so and so? And, he said, yes, I am. And he said, well, my mom left a note on her desk that if she died, to sell that place to you.

Steve: Wow.

Leon: So he ended up getting it.

Steve: What was so special about that house that he went there every year?

Leon: Well, it was actually a fourplex. Mhmm. And the lady lived in one of the units, and this guy's daughter owned the fourplex next door. And they they just wanted that one next door to it.

Steve: There you go. That makes sense.

Leon: We've had them, you know, the Adam's had people call him four, five, six years later that he sent cards or letters to.

Steve: Wow. Warner Kerger wants to know how much cash flow are you looking for per deal?

Leon: You know, again, it depends on the deal. If you're getting it at a low interest rate and you got a lot of, amortization, you know, a $100, you know, a 100, $200 if is is fine with me. A couple $100. Hey. I'll do it.

Mhmm. Wrigley Mansion, nickel nickel at a time, built that mansion.

Steve: They were giving some of those away. Right? Back in the baseball cards. Oh, yeah. Exactly.

Exactly. So they were sometimes even free.

Leon: Exactly. Exactly.

Steve: Jared Kelly wants to know, how are you overcoming the seller's objection, Well,

Leon: let let me there I'm glad that you asked that question. That's a good question. And sometimes I make make the offer. I haven't done it in a long time. But I made this offer the other day, and we still don't have the deal.

But I offered them a twofer. I said, look, I've got another free and clear house right over here. You can go drive by it. That I'll tell you what I'll do. I will and I would have gone three.

I offered one year. And and if I get a chance to get in front of them again, I'll say, well, look. We'll do it for three years.

Steve: Mhmm.

Leon: I'll give you not only your house as collateral, but I'll give you this other free and clear house over here. And if I make all my payments every month and never late for twelve months, twenty four months, thirty six months, whatever, Not using that longer than that. If I make them all on time, then you'll release that property over there.

Steve: Mhmm. There you go.

Leon: Just give them extra collateral.

Steve: Simple enough. That makes a lot of sense.

Leon: So that's one thing you can do.

Steve: Alright. So

Leon: And and the other thing is, you know and and I tell if I've got a competitor that's trying to do the same thing as me Yeah. And they don't have much property management experience, I pull that card out. I say, look, you know, me, if I'm selling something on or on owner finance, which I occasionally do, it's probably a property I don't want to keep for whatever reason. It's not going to attract the kind of tenant that I want. I said, I have I I will take 10% down if the people are gonna live there and whatever.

But if an investor comes along, I want 20% down. And I'll tell them that. And I'm trying to buy a house from them. And and I tell them the reason that I do that is because I don't know how good of a property manager they are. And I've been doing this for forty plus years, property management.

I mess up every now and then, but I'm pretty darn good at picking the right people. And my longest renter was twenty three years. My longest right now is fourteen years. I've got a whole bunch, five and six years. And so you have to sell your ability as a good property manager that you're going to get good people.

It's not going to tear up their property. And so the dissension and doubt about the other guy who who might not, you know, check his people out is good.

Steve: That's fascinating. I never would never have even thought about that. Pardon? I never would have even thought about selling your property management skills.

Leon: Oh, yeah. Management is is really a currency Mhmm. In this business that if people will learn that, they can use that currency to like in a new guy starting out with no money, if he's got good management abilities, he can do go do master leases and create an incredible cash flow and never own a piece of property.

Steve: I think it's really popular right now with Airbnb. A lot of guys are

Leon: Are you doing it with Airbnb?

Steve: Yeah. Vincent Felix wants to know, what would you recommend to someone who is trying to purchase a property on owner finance for the very first time?

Leon: Well, hello, Vincent. How are you, my friend? For your very first time, just go at it the same way I do. Go talk to a whole bunch of people. You know, you might have to practice a little bit.

You know, never ever say sell or finance. Will you own or finance? Will you do any of those kind of things? And find out about the people and the situation. And if the people's motivated enough, if they're if the circumstances is uncomfortable, they will people are not rational.

Steve: Mhmm.

Leon: It's irrational to think that everybody else acts rationally.

Steve: It is.

Leon: So, you know, so there's some irrational they will act irrationally and owner finance something to get out of a bad situation.

Steve: Right.

Leon: Just don't jump in the quicksand with them, you know, and hope pull them up out of it.

Steve: Sarah Tibbetts wants to know, if someone wants a down payment, do you always negotiate that term for the down payment as well? Or as well, or what do you do there? Yeah.

Leon: I mean, it depends on their situation. I try to get by with none in terms. You never buy anything that your tenants can't afford.

Steve: Mhmm. So

Leon: it's got a cash flow, you know. So you wanna get the terms right. But I try to buy with no down payment and make and get cash flow. And I do that a lot, but it depends. You know?

I've gotten bought a whole bunch of deals where nothing down. I just bought one. I didn't want to put this much down. We put $32,000 down on a $75,000 deal, and I didn't want to do that.

Steve: Well, there must have been something special about this deal.

Leon: Well, I got they used another property for collateral Mhmm. And one and a half percent.

Steve: Okay.

Leon: So, you know, I wanted that loan. Yeah. So we did it. And then we've sold that one on a contract for deed, and we got 10,000 of our money back on that one. So we only have, like, 22, 25 in the deal.

Steve: What would you consider to be your superpower?

Leon: My superpower? Relating to people, talking to people, being a people person. And I say this all the time. People first, not sticks, bricks, and dirt.

Steve: You

Leon: know, people want to go count the bathrooms and count the bedrooms and, you know, see how many bricks is in the house and ad nauseam, you know. I want to know what the people's situation is, and I and I want to know about their family and what can I do to solve their problem? And I I try to relate to people

Steve: Yeah.

Leon: You know, and find common ground. I'm okay. You're okay. And and I'm I'd have to say I'm pretty good at that.

Steve: I would say you and Adam.

Leon: And Adam's very, very good at it. He is very good.

Steve: What is the greatest lesson that you have learned?

Leon: Greatest lesson that I've learned as it pertains to real estate and this deal. You know, you can pick one thing and go do it. And there's people that make tons of money just specializing in one thing. But if you get education, just keep educating yourself. Don't quit.

Yeah. Just keep going to seminars, even if you think you can't afford it. When you get there, you talk to people and light bulbs flash on

Steve: and

Leon: you hear something in there, and and it's always something that pertains to something you're doing right now. Yeah. So spend money on education. That's a great thing. And I've always liked to learn, so that's been easy for me.

But I guess, one thing is is give your efforts time to compound and don't sell out all your properties. Keep keep everything you can keep. Sell enough to keep you going for that immediate cash. And

Steve: And then Matt Smith says I was asking, do you ever negotiate no interest?

Leon: Oh, yeah. Yeah. Yeah. Yeah. You bet.

And do you know you go talk to accountants, and they're gonna tell you, oh, there's imputed interest. But, in fact, I posted that. I've got a new page that Adam did for me. I don't even know how he did it on Facebook, but I one of my first posts was on there that under $250,000 and you're buying from a homeowner, there's there's no imputed interest on that.

Steve: Can you elaborate on that?

Leon: Yeah. I mean, the IRS, they everybody claims you could impute interest. If you negotiate no interest, they could say the IRS comes in and said, oh, well, you gotta count so much of that as interest. Mhmm.

Steve: Well, if

Leon: it's under 250,000, that doesn't count. That That rule doesn't count.

Steve: Oh, fascinating.

Leon: So so, yeah, if you know that, then people are worried about imputed interest if that ever comes up, and it doesn't a whole bunch. But, and one thing, you can offer to pay a higher price and no interest.

Steve: Right. Yeah. It's funny. Pace and I were talking about that the other day. Yeah.

He's raising the price so he can do zero interest.

Leon: Yeah. And and it's to their benefit if they're a homeowner because of that section one twenty one and then the fact that the interest would be taxed and the other is not.

Steve: Right. So you do that. The strategy is to have zero interest. So you have a note with your interest that you could sell.

Leon: Well, you don't you can't sell it.

Steve: You So what is

Leon: you owe them. You're paying on that note. They own it. They could sell it.

Steve: They could sell it. So

Leon: You have the you could go buy it buy it, back. We did one. Tell you how bad of a business person I am. Adam Adam had sent a letter to this lady. It finally went out.

She wanted 100,000. The house was in bad shape, but she had a lot of sentimental value. And Adam would not pay above 60,000 for it and kept on going back and forth. She was two months behind in taxes. She was an attorney in three states, had been.

Okay? She stuck on that $100. So finally, Adam said, okay, we'll give you $100. But here's how we're going to do it. We're going to give you 10,000 down.

And the 90,000, we're going to pay you out at 500 a month over 180 payments. She said, okay, I'll do that. One year later, she's in trouble, needs money. I paid her a year, dollars 5,000 for a year advance in payments. That was a thousand less than a year.

Okay. Two months later, she calls me and she needs a place to live. And I had just put a mobile home on a piece of land, so I traded her a mobile home for the next three years' payments. 18,000, I had 10 in the mobile home. Okay?

And then she was worried I was going to sell the land that it was on. And, and I really didn't want to sell the land. I wanted to keep it because I had another mobile home on this three acres that was paying $200 a month lot rent. You know, everything's cheaper in Mississippi. Out here, you get $65,700 a month.

There, 200 a month is a stretch. It's got to be nice out in the country, you know? All right. So we had, like, 10 or 11 in the land. And but what she really had at this point, she had a note that said the balance was 59,000.

But what she really had was a piece of paper that said it was gonna be another forty six months before I started paying her 500 a month again.

Steve: Right.

Leon: Okay? So I said to her, I don't know if it'll help you or not. But and she was going to have to pay me $200 a month lot rent too, okay, and not receive them the 500 for forty six months. So I said, look, if I what if I gave you this land for that balance of that note? Because what would happen instead of you waiting forty six months to start getting 500 a month, you'll have the benefit of 400 a month right now, 200 from that that lot rent over there, and you won't have to pay me 200.

Mhmm. And I'll give you $8 for that extra $100. She said, I'll do that. So that house that we got on an interest free loan is free and clear now, and it's about $140,000 house.

Steve: And you got it for?

Leon: Well, we paid a 100. Mhmm. But when you figure and then pause

Steve: All the deferred payments.

Leon: We ended up with about 60 in it.

Steve: So you got what you wanted after all.

Leon: Actually, a little better because if we'd paid 60 for it, we I think we put 18,000 into the house.

Steve: Mhmm.

Leon: So we would have had 78. We ended up with only about 60 in it.

Steve: That's incredible. I love it.

Leon: Three bites out of that apple after.

Steve: Is there a book you've gifted more than any other?

Leon: Richest Man in Babylon, George Clayson. Can I give that to you know, we the reason I gift a lot of books is usually to kids, high school kids, and ones that really show an interest in, you know, kids I go to church with or I go to speak to little groups, you know, where there's high school kids and stuff? And if they really show an interest and ask a bunch of good questions and stuff, my wife orders a big old box of those, and and I make sure they get a copy of it.

Steve: I love it.

Leon: And then and then the one that I recommend to a lot of people is, is the one I recommended to you that you have or Adam and them did is Invest in Debt, Jimmy Napier.

Steve: Yeah. That's a tough one. I still gotta go through it again.

Leon: See, I don't think it's tough to you.

Steve: Well, it it made a lot more sense after we met. Okay. Alright. Before we met, it was really, really overwhelming. After we

Leon: met key is people don't understand there's a whole world of notes out there

Steve: There is.

Leon: And and how notes and real estate synergize with each other.

Steve: Yeah.

Leon: People don't realize that. But there's a big world of note buyers and sellers out there.

Steve: Secretive world.

Leon: It's almost secret. But yet I've got a friend that spends a couple 100,000 a year marketing to buy notes.

Steve: Incredible. So you guys have something coming up in March. Can you talk about that?

Leon: Yes. Creative intensive. We're gonna do two days of what you and I just talked about.

Steve: Mhmm.

Leon: Two days. And, and you are invited as a guest. Okay?

Steve: Yeah.

Leon: We'd love to have you come down. It's in New Orleans. Right. So, you know, just be careful when you're out and about, but you know about the big easy, the big all the stuff, you know.

Steve: Oh, yeah. We were there. I was there in December.

Leon: Our event coordinators, she said she's coming a couple days early and staying a couple days late. And, but, yeah, we're gonna talk, and Pace, I think, is gonna talk. And I don't know if you're talking or not.

Steve: Adam and Brent

Leon: works all this out.

Steve: I think Dave Day is gonna be talking, who's another genius. Dave Day.

Leon: Okay. I've never met him. Yep. But, they're gonna have me fill in most of the two days and with the other guys coming in for, you know, our two different deals over the two days. And then it's gonna be a small group, 75 spots.

And, and I don't know how far I don't keep up with any of that stuff, so I don't know how close they are to being sold out. But but keeping it small, we will be able to ask people can ask a lot of questions, and then there's gonna be a lot of one on one time with folks Alright. You know,

Steve: If someone wanted

Leon: to go outside the seminar.

Steve: If someone wanted to go check it out, how would they do that?

Leon: Oh my goodness. I think it's Brent Brent's gonna kill me, but I think it's

Steve: Well, you posted it again. Roundup. Roundup. Live slash creative finance.

Leon: That's it. Roundup. Live slash creative finance.

Steve: Yeah. Brent and Adam, they stepped in.

Leon: Oh, thank you, guys. I appreciate that. Helping out. See, they know my weaknesses.

Steve: So I'm gonna let you think about one last thought you wanna leave the listeners with while I make a few quick announcements. Guys, our monthly meetup is tomorrow night, February 6, at 04:30 at Dave and Buster's in Tempe. We got Zach Keeps. He's gonna talk about how he's got the single largest private portfolio in all of Phoenix, a lot of them free and clear. So if you guys wanna figure out how he's done that, come tomorrow night.

And then Max and I, we received amazing feedback on our two and a half day event. People mentioned they love the transparency and the level of detail. We dived into each topic. So if you want to double your business, visit disruptors.com to see if the workshop makes sense for you. And next week, we got another Phoenix guy, Doug Hopkins.

I'm excited to sit down with him. So tune in next week. We got Doug Hopkins talking about how he's doing well with TV and radio. Last thoughts.

Leon: Well, especially to new folks. You know, starting out with no money and don't know anything, go get an education. Go. I've told my kids, go get a go and get all the education you need to get a broker's license, but don't ever take the test. If you've got local colleges that teach any kind of college courses on real estate appraisal, finance, whatever they teach on real estate, maybe even some insurance, go take all those courses.

Just sit in them if you can. Even if you don't, you know, I don't know if you can pay to sit in some of those classes, just whatever. And just learn everything you can about, you know, the details. Learn what a deed of trust and what a note and what a mortgage is and what a mortgage is versus a quitclaim deed and just learn all those things. Learn what, you know, subject to is, all those kind of details.

One of the things I see is people coming into the business, and they want a wholesale, so they start trying to learn all the systems and nothing against that. Okay? And they they get they learn how to scale up, and they learn how to get lists, and they learn how to do all these these things and boom, they find an opportunity. What do I do with it? What do you what do you how should I do this?

How do I write this contract? Do you have a contract? You know, what should I put it? You know, and they just don't know what to do with it. Go education.

Go learn as much as you can. And then once you start buying, give your efforts time to compound. Don't sell out too quick.

Steve: I love it. Buy and

Leon: hold as many as you can.

Steve: Thank you very much.

Leon: You bet.

Steve: Thank you guys for watching.