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Hey, welcome to today's show, I have a special guest, James Brown. We're gonna talk about real estate and lease options. I hope you stay tuned to the end because some stuff has always not always said at the beginning of the episode and you listen to the episode, and I hope you get some value today. So today, we have James Brown. First, where are you in the in the worlds because sometimes we talk to people in Canada, sometimes people in other countries are US based 100%. Yep, yep. Based in Colorado, but we we can work in any any state really. So. I love it here. Okay, awesome. I'm actually going to Colorado in like two weeks, two weeks from or so end of the month I want to Colorado. So I'm going to Denver. So I'm excited about that. Nice. Nice. So, um, how long have you been in real estate? And how'd you end up in real estate is my second question I usually ask. Let's see, about five years ago, I started like diving in deep, you know, I got serious about investing, and just kind of went down the rabbit hole, I was just looking at a way to supplement my graphic design business income. And you know, by the traditional way of just buying a rental, one at a time. And I've realized there's a lot of other ways to make money. kind of landed where we're at now, although still looking at a lot of different things. But yeah, we can get into all that for sure. We talked a lot of people, and he's like the burr method is the only way to do real estate. And then he talked to, like, every is like in their own niche. And it's like, there's so five years, five years in real estate. Are you sure? Are you strictly in Colorado? Are you doing stuff nationwide? Yeah, nationwide, trying to stay focused on most stuff here in Colorado, because I'm here and I'm licensed as an agent as well. So there's benefit to me being able to come control things and help directly without relying on a bunch of different people. But I can still make that work. In fact, most of our lease option deals have been out of state, just because we're networking with people all over the country. Yeah, I usually don't interview very many agents. But I have friends that are agent investors and like, like, I'm an agent, because I don't want to deal with agents. I do my own stuff. That's my agent duties. So I want to like a meet up recently with him. And I'm like, like, anywho here's an agent. He's an agent like, No, I'm not an agent. Don't tell anybody. I'm an agent. You know, it's funny, it's like you go Google real estate agents are and let it autofill. It is not good. You know, people just have a horrible opinion of agents in general. So yeah, I can see that. It's fun messing with investor agents, because they're like, don't tell anybody. I'm an agent, or my agent. He's an agent, everybody calling out you sliming dog. It's pretty funny. I like messing with people, especially when they don't like that part of it. Yeah, Edge stand it, but I got licensed to, for multiple reasons, just general knowledge, you know, a baseline knowledge of how things frickin work. But then it helps me to be able to put deals together and represent clients. So it was kind of a byproduct of investing to start so but it's opened up other opportunities to help people buy and sell, you know, primary residences, as well as investors with regular rentals as well. So, gotcha. So, five years in the business, how big is your team now, as far as operating and managing all these options? My partner Toby Hanson and I are the main owners of real home solutions. We've we've got a network of other people in different markets with similar business, business to setup. And so we all kind of work together. If we've got a tenant buyer or an investor lacking one or the other, we can kind of mix and match and help each other. So. Okay, so let's kind of dive down what what is a lease option for those who don't know, what is the lease option? It's a lease with the option to buy in the end. So rent to own basically, rent to own Okay, so it's a rent to rent to own contract. Are you working with sellers directly on the front end, you're working with agents like what's that front end process looks like to find those deals. So we're Reverse engineering. So instead of having the property and working with a seller and then going and finding somebody that's a perfect fit for that house that wants and needs to rent own, we do it the other way around, we find tenant buyers that can't get qualified, that have a good chance of buying in the future. And then we match them up with an investor and let them go let the tenant buyer go pick out a house on the market, or if it works out, we can, you know, if we have an off market property that matches what they're looking for, that works, too so. So are you so you find you find your lease lease buyer at the end? Are you doing subject to are you doing like you have your own financing in place, and just owner financing them from there, how's that How's that look? Basically like seller financing, so the investor that can get a loan buys it. Some will pay cash upfront, if they've got enough to buy outright. But most put financing on it like a regular rental. So they're leveraging their ability. So that that gives them the ability to but you know, do more than one at a time. So they've got their loan, and then you know, they've got a lease with their renter until that renter can exercise their option and buy it. So what what benefit? What benefit is does it give the I know the answer is but what benefit does it give an investor to get a loan and essentially, owner finance it to another end buyer? What benefit does it bring them because like if they have the property, they already bought it cash or they can get financing for it when I keep those rents or why not sell it cash on the market? Well, so, you know, some investors will do both a regular rental to hold it long term. And do these, this is kind of a way to accelerate how much you're making. And then, you know, maybe two or three of these, build up some cash, and then go in buy a rental and hold that. But most investors just want to do multiple ones at a time. And then, you know, when the renter ends up buying, we're hungry for another one, we'd like to get into some of the benefits like upfront, we're looking for people that have around 10%, or more sometimes up to 20%. To put down. That changes the whole ballgame. Compare it to compare that to like a renter who's got a small security deposit, they don't have any plan of buying the place. So they're they don't have any vested interest in it really, you know, they've got this renters mindset. And there they are going to be calling, you know, toilets running or, you know, those kinds of things that a regular renter puts you through as a landlord. In this case, you know, they're putting significant money down with the intention of buying. So they they've got that owners mindset, they've gotten to pick out the house. And that money actually goes directly to the investor. Part of it gets kicked back to us for putting the deal together. But they've got this big chunk of money up front. So what's beautiful about that as its insurance, because it's non refundable. If the buyer backs out, we set this up. So that's highly unlikely, like we rent own business has been given a bad name by operators that either intentionally or unintentionally put people in a bad position. And we do not want that to happen. So just to kind of back up a little bit, the main thing we do is screen them really well figure out, you know, where they are now, what it's going to take for them to get qualified. And we work directly with a lender because the lender is going to give them the loan in the future, right. So once once we've gotten together as a team, we all know what the game plan is, then we go looking for houses. So if that's something that you set them up with a lender on the front end, so that way they already know they can possibly refinance in the future. So you're not setting people up for failure. Exactly. Yeah, that's the key. That's the key. You know, the other big rental companies don't do that. They kind of leave it up to the buyer to their you know, some people are like really eager they want to get in a house and maybe that's not the best scenario for I'm so and it's not for a lot of people. Yes. How much are you asking down as far as like, as like percentage of the property value is gonna vary depending on how much the seller has to put down? How does that front end look as far as how much you're gonna put down? Yeah, so we look for 10% minimum, we can, depending on how much they pay per month, and how much they agreed to buy it for in the future, we kind of move those numbers around. But, you know, we look for 10%, sometimes people have more. And what's beautiful about that for the investor is, normally you get an investment property have to put down 20%. Minimum, right? If the tenant buyers putting down 10, you're putting down half the amount that you normally would, which allows you as an investor to go do like to have these at a time, which most do. So go ahead, sorry, yeah, well, if they put down 15, or 20%, you know, that's even less than you have to put down as an investor. So. So I know some people they do that do lease options, they do like different variations of this, where all the payments they make, they give the credit the buyer on an amortization schedule, and they just raise the interest rate. And some they give them the option to buy, and they essentially pay rent with the down payment with the option to buy. What, what kind of ways are you guys formulating that? Well, so when you're talking rent credits, it wouldn't be the full amount. You know, it'd be what rent credits are is like, if you're not getting 10% down, so Well, let me back up, 10% down, I like that number, because when they go to get their loan, they've got 10% waiting for them to use their equity. Yeah, yeah. Well, it's they can use, you know, say they get a loan for 5% down, okay, they've got five 5% of that 10 goes to the downpayment, then they're gonna have closing costs. So that should cover that, plus a little extra equity. You know, that's why we can kind of back off, but they've already pre paid that amount with rent credits, that's like, the other programs where, you know, they get 1% down, say, so that buyer is going to have to save up along the way. So that they've got that downpayment, and enough for closing costs. In this case, we're getting up front. But we we could do rent credits, if we took last down, in fact that it's kind of a forced savings plan, just so that, that tenant buyers putting that money away, so they don't hit the end of that option period. And go, oh, I can't get it alone. And, you know, that way, we don't want them to give up their money. You know, like, that's not good situation for anybody. Gotcha, gotcha. So, you're hooking up with a lender on the back end, the and like I said, I want to I want people to understand this on the on the on the investor side. So the investor side is getting a down payment for the property. In such she had been cashflow as well, just like a renter, but they're not dealing with renter problems, like management. And the reason why it says because my second deal I did was a lease option never did a lease option before before that I did a lease option to end buyer. And I negotiated some, some, some good terms on my side where they didn't necessarily have the full down payment upfront, but they gave me a large sum. And then they gave me large sums of money for like the first six months to give me that full payment that I was requiring. And then he's been he's been living in that property for two years now. So it's one of those things where like, I understand the basics of it, I'm just trying to make people understand the benefits on the back end, the benefit and the back end as to is taxes because we're technically still the owner, because you're probably doing some type of contract for deed type thing. Right? Well, we can't we can't. Can't do that in Colorado, but I know, Jesse or partner in Minnesota, he does quite a few of those with some guys that have like a small fund that they're using. So yeah, there's kind of there's two ways to do that contract for deed or, or a lease option. We've been exclusively doing lease options. So the lease option gives the seller essentially long term rental because most renters they like staying in one place for a long time anyway without running creases. So for them, are you are you installing rent increases with their long term balloon essentially. And what's the terms of the balloon for the lease option? Well, yeah, it depends. I mean, we've done just a straight rent where it does is an increase over the one, two or three years. It most of these are one to three years. And actually 12 months in a day or more, because if if they buy within 12 months in one day they get the investor gets hit with short term capital gains. Yeah, like a flip. So we don't want that to happen. And most tenant buyers need that are going to do this are going to need that amount of time anyway. So yeah, yeah, but yeah, most of them, we just haven't go up like 50 bucks a month, you know, something similar to what normal rent would go up. Gotcha. So, investor has buys a property or they get financing and property refinance a property says you pull their equity out, they can essentially lease lease, or at least owner finance it to the end buyer, they get a down payment, cash flow per month. And then at the end of the end of the term, they get some type of payoff spread in between the amount of price at that time, and you make that you make the agreed upon price on the front end, right? Of what is going to pay it for, do you put a increase on it on the end of what a percent, let's say the ARV is 250 might sell it for 280 or 300,000. Just because it's it might take them three years to buy it. And you're essentially getting forced depreciation on the front end. Yeah, yeah, exactly. You know, like the Denver market has been going up 18% a year. And of course, things are gonna be flattening here. So we've been doing like 6% investors still doing well. And that gives the tenant buyer some room, you know, if things come down, that there's still value in the house. So yeah, that's, that's the big thing is like, if you oversell the house, and the value doesn't reach up to that point, they're essentially negative. They're they're they're upside down on their property, which not to happen. You don't want that to happen, because then they'll they'll feel like, what's the legalities of it? Because essentially, that I'm sure it's happened. I haven't heard any personal stories of that. But if they sold our house on our finance, they they saw oversold too much, potentially upside down, the the owner finance buyer put down $20,000. And they're one sue because they felt they were wrong by the investor or the mediator for the investor at that point. What's the way to like, mitigate that risk? Well, I mean, things are flexible, like, if, if we just want to extend the option, period, that's one way and let the market kind of come back, you know, your appraisal on it and see, see where it is, you know, no one wants to have to come up with extra money to make that work, you know, so. Alright, so if you renegotiate the extension, or you're asking for another down payment, or How's that look, because sometimes people need longer, and they're willing to negotiate that down payment again. Right? Yeah, we haven't had to do that. And but it's, we we do have, in our most recent contracts, we will do like two years with a third. And they, it's kind of up to the investor, what they want to do, you know, they could extend it for free, you know, most investors are happy to just keep cash flowing. So they don't want to ruin that. But we have put it in there where if they do need and want to go into like a third year, they pay like 1% of the purchase price for the privilege of extending that so they don't lose their money. So most people will be very happy to protect their money by just paying that fee to extend it. Yeah. And like, verbally listen to this, like, I did my first lease option deal. I've talked to my tenant, maybe twice in like two and a half years. Like I just haven't talked to him. Money comes in on time. He doesn't call me issues happen. I don't even know what's up with the house. You know, it's one of those things where like, it's a it's like a set it and forget it type thing. And is that your same experience? You've seen in your answers? You do a lot more of these than I do. Yeah, exactly. Yeah. Like, you know, if you're an out of state investor, you have to pay eight 10% for a property manager. This you don't have to do that. You know, like you said, you might get a call once or twice a year. So you're saving that money if it's out of state or the headaches of doing it yourself, you know, so that's a that's a huge benefit. Especially, you know, tired landlords that have been through this and are getting calls. They're like, ah, like, people want to throw their hands up and just get out of the business where something like this like, it's so much easier. Yeah, It's creating objects creating opportunity that's not necessarily there just having to get having the availability to give it. What is no worries. All right. So what is and like I understand the back end. So how this is a this is a technical question, how are you collecting payments? Because I know a lot of people have trouble collecting payments as a small time business, how are people clicking payments? To make sure because you always, if you're essentially property managing yourself, how do you how do you make accepting payments easier? As far as on the rental side? It depends on the investor what they want to do, you know, like, Somebody just sent an invoice through Venmo Are you still there? They just lose you. I think we lost our host. So but you carry the answer a little bit. Oh, sorry. I was like, Ah, I don't see you your video. No, I hear the answer. I have editors edited out. Okay, you want to ask the question? Yeah. It was a how, how are you clicking payments as far as, as because I, because we do a lot of land. And people were like, Oh, how do you keep track of amortization schedules and payments and all that stuff? How are you clicking payments on the on the investor side? Because technically, you're you're self managing your property, because you're not paying that management fee? Yeah. Everybody's using different stuff. You know, I know a lot of people like cozy.co, which is now I think it's all wrapped into apartments.com. So I'm just get it direct through through Venmo. So there's a lot of different ones out there, but we don't, since we're not really involved in that. It's we don't have like a system like, hey, use this, like forcing anybody into it. So what have you used that you like that I could recommend. Um, it's one of those things were like, you're gonna get varying options. A lot of people they use different, I forget the the ones people use for land. But some people will use mela check. And we don't have any problem with that. It's usually based on the customer, we try not to force the client down a certain path unless they're, they prove themselves untrustworthy. Or we have to like, automate it in some way. But so for us was like, you can send a check, you can send cash kind of figured out your own way. And we'll deal with that way. And then that doesn't work well, for some down some force thing. Because like, so we, I'm sure it gets crazier Abby, as you have more and more clients. So on your side, you're mostly setting it up for them, and they deal with it after that front end transaction of you finding them a end buyer, potentially, right? Yeah, yeah. And then we're always here. Like if something comes up, or like have a question or need us to jump in, and do anything like we're there, all the way through to the end, you know? So one thing, one thing I've heard a lot of is that sometimes your benefit, it's not necessarily a good benefit, but it's a benefit then happens is that sometimes people will terminate their agreement for the option to buy your property, and then they move out, and you sell it again, has that happened a lot, where people just cancel their option. That hasn't happened with Toby and I. And I know like, Jesse, for instance, he's he's had it happen a couple of times, but most people do the way this is set up when you're getting that much money upfront, you're going through with the lender and, and letting them pick the property, you know, over 80 85% do close. So we don't want that to happen, but it can. So I gotcha. I think it's one of the one of the cool things that you're doing is that you're working with a lender up front so your majority of your end buyers are going to come through and finance the property as long as they keep it as long as they have their W two income that doesn't go away. They have still the ability to close get the financing in place and what what's preventing them from getting the financing in the first place. What what makes them qualified to go through your own finance process versus going through a traditional lender. There's a lot of different reasons. I mean, all it takes is one checkbox that they can't tick you know that for them not to get it most like a good fit for this as self employed, people were writing way too much off, they just weren't claiming enough income, and they need to flip the switch on that for a couple years. Or they're just new as a business owner or 1099, they just they need the time that that's I like that the best, like, it's just time they don't have to fix anything like credit and credit can be, you know, myriad amount of things that could be wrong. And so if they do have credit issues and just need to get that up, we'll get them, most lenders have a good idea of what they need to do. If we need to bring in a credit repair specialist to help them. We've got some good credit repair people. So once we know, you know where they're at, what it's going to take and how long then, then we move on from there. Gotcha. So it's providing, what I like about is you providing a niche, a niche product to the marketplace that is needed. Because there's a lot of entrepreneurs out there that aren't doing this, I have the tears of income to qualify for a mortgage. So they're kind of stuck in limbo. And that's, I think it's another point too, is that a lot of entrepreneurs, they get stuck in limbo, because they don't have two years of income, or tax statements to even prove that they do have income. So it's one of those things where like, once you're an entrepreneur, you really have to face a lot more battles. And a lot of people don't have the information or know how to face those battles themselves. So there's, they're stuck renting for a long time. So I think it's definitely a good service you provide to the community in general. You network with a lot of realtors, I'm sure. Yeah. Another reason why I got licensed is to network with other realtors and lenders, because lenders and agents, we're all in the business day in and day out and running across people. So yeah, I'm always putting the word out to them. Like that last question I answered, like, Who is this good for? Let them know who to look for. And then they can come back to me. And, and we can all work together. It's cool, because we're all winning in lender gets a loan closed upfront with an investor, and then in the future with a tenant buyer. So that's two loans for the investor. And then, yeah, the tenant buyers winning, we're winning, investors winning. So that's pretty cool. Creating Win Win opportunities. So how are you finding the end investors on the other side to get because I understand finding the end buyer is gonna be easier because referrals and marketing in general, get the end buyers but the investors that want to do this as like a plethora of investors that want to owner finance properties are tired landlords that already own properties, just want to owner finance them at that point, even for like portfolio owners and stuff like that. Yeah, yeah, we can do it, like, the traditional way that if you've got a portfolio or just one property, they want to sell it off, we can do that we can do it the reverse. And then that opens up to pretty much any investor. You know, it's it's good fit for tired landlords that are just, you know, hired that like this model, and also busy professionals who've got money, they've got good w two jobs and the ability to go get loans, but don't have the time property manage or figure out this business and, you know, go find tenant buyers and, and set up several contracting contracts. It's, you know, that's, they just want to you know, do their job, go spend the weekends with their kids and whatnot, you know, not not have to create a whole business in a box, you know, so we do that so gotcha, gotcha. What is a quote that is yours or somebody else's that you resonate with? Hmm I can't think of one you gotta get one for me do your best be have integrity? Your name is your name is only your name is untarnished till it's not. There's a there's a lot there's a lot of quotes that are out there. I've heard some really good ones because I was asked that question. And yeah, people usually have good ones. So now that you've heard a few yeah, like I can't come up with one. You can't me. I gotcha. I got you. That's what happens. It's what happens. Where can people find you online? What's your website? How people get a hold of you? What's the best way to go down this path with you to create opportunity? Yeah, A hybrid real estate investing.com is our or investor side site, I can send you the link with with our landing page so they can watch a video, we've got a 17 minute video that walks through this. And I'm sure we missed some stuff along the way on this podcast. So that's good to watch and then reach out and we can answer any questions. There's always going to be questions because there's moving parts and it's kind of different for most people, you know, unless they've actually done this. A lot of variables for sure. And a lot of unknown questions that you don't even know how to answer. Ethics. Especially for new new investor that's not even how to rental you know, yeah, I gotcha. All right. Oh, hi, real estate.com Definitely go check it out. Genuine. Real Estate investing.com hybrid. The link will be in the bio because I said it wrong. Hybrid real estate investing. We'll make sure everybody has it. Thanks for your time, James. I appreciate you coming on. Thanks for giving up your time. And I hope people will learn something new because there's always value in there and you have to extract it in some way. Thanks for coming out. Have a great day. Thanks.
Host/ Ceo/ Speaker
I have been an entrepreneur since 2018. I come from a regular home just like most people. My dad worked on the roads in the Chicago area for over 30 years. He always taught me to work with my brain, instead of my body. Your body can only take so much abuse. I learned so much from my father. He always pushed me to work smarter and not harder.
I have owned and operated a trucking business for 2 years. I started learning real estate in 2019. Fell into the Data & Skiptracing business in 2020. My partner Anthony & I started Hivemind in 2021.
I have done a ton of different jobs coming up from painting, to door-to-door sales, telemarketing, truck driving, and loading trailers. What I learned most is that I want to stay in the digital business space. The leverage you can have delivering digital products to the marketplace can yield limitless possibilites.
I started The List Guys in 2020. It is a data and skiptracing service. We provide seller and buyers list nationwide. My clients have been getting great results and I am proud to help people killing it.
I started the Hive in 2021 with my partner Anthony Gaona. It is a real estate and business mastermind. It also comes with a all in one CRM, that can host unlimited websites and users.
Starting the Hivemind has been an amazing journey so far. Seeing one of our users make his 6 figure month in June 2021 leveraging our software, I know there will be plenty more to come!
Investor / Agent / Author
Go here for the full bio. https://hybridrealestateinvesting.com/james-brown-bio/