Michael Repka, DeLeon Realty Group CEO, joins ‘Power Lunch’ to discuss the moves in housing prices from Repka’s vantage point, how the high-end homes are doing, and what $3 million would buy you in Silicon Valley.

Harrison Gwinnett was 22 when he exited his first company, a spot-the-ball competition website offering luxury watches as prizes. Having successfully identified a market niche, he might have been expected to do something similar for a second venture. Instead he’s chosen to build a Web3 technology company from the ground up. When I caught up with him earlier this week, I was keen to talk about the his motivations for entering competitive and technology-driven sector that has yet to be fully defined.

A lot of money has been poured into Web3 over the past few years. According to management consultancy, Bain & Company, businesses in the sector have so far attracted investment of around $91 billion, with the bulk of that sum being allocated since 2021. If all goes according to plan, a new generation of startups and scaleups will collectively create a new and decentralized internet allowing consumers to control their own data and access a broad range of services without recourse to big-tech intermediaries.

But what that will mean in practice is not absolutely clear. What we know is this. The Web3 world will be built on blockchain technologies which will in turn enable transactional models utilizing tokens and cryptocurrencies. The so-called metaverse is also expected to play an important role, providing us all with a means to interact with each other through immersive worlds. In an ideal metaverse, these virtual spaces should be interoperable, rather than walled gardens.

It all sounds terribly exciting but let’s pause for breath. Web3 is a work in progress. Nobody really knows what it will actually look like because it’s still under development. And while investment spiked in 2021, it has been declining since the second quarter of last year.

And there is perhaps another question. With the likes of Meta spending billions on Metaverse and Web3 projects is there actually space in this market for startups that are starting their technology journeys from the ground up?

Gwinnett thinks so. He founded Unus Labs with the intention of creating an ecosystem for a decentralized internet. One key area of development has been virtual avatars that can provide users with a consistent identity as they move between Web3 platforms.

Spot The Ball

So what is the attraction of Web3. Gwinnett has a somewhat unusual background for a tech entrepreneur. Having left school without qualifications, he spent some time working for law and finance companies before founding WatchLotto, the aforesaid competition website.

The venture was arguably based on an insightful idea, rather than cutting edge tech. As he explains, it was born out of a perceived gap in the market. “It filled a niche at the time,” he says.

Although lottery-style competitions were relatively common at the time, they mostly offered cash prizes. “The only one not involving money was BOTB (Best of the Best), which gave away cars,” says Gwinnett.

Taking inspiration from BOTP, Gwinnett thought he could do something with watches. The logic was that watches, like cars, were aspirational. What’s more, there was a community of people who were genuine watch enthusiasts. “I thought we could build something with a community feel,” he says.

Following its launch in 2016, the company focused on the U.K. and grew – as Gwinnett acknowledges – very slowly until Covid hit and people were trapped indoors. “That was in it began to snowball. After lockdown we raised £1.2 million and went into the global market,” he says.

Over four years, traffic through the site grew from zero to an average of 185,000 users a month across 85 countries, a figure boosted by exposure on the FIFA 2020 football game football shirts sponsorship. When Gwinnett made exit, the company was worth £11 million.

Data Lessons

But why into the choppy waters of Web3? Well, maybe it wasn’t a big stretch?

Gwinnett says it was partly a matter of exploring options that were already on his radar screen . “I was already interested in blockchain and cryptocurrencies when I founded Watchlotto,” he says.

Meanwhile, running Watchlotto, Gwinnett had seen at first hand just how much data web ventures collect as they interact with customers, particularly if they are using social media channels. “We collected a huge amount of data,” he says. “The amount of personal information we had was insane.”

Without A Ceiling

The decentralized web model seemed to offer consumers a means for individuals to control their own data. Gwinnett set up Unus Labs to develop solutions. The core product is Virtual Versions that also provides a wallet for keeping digital information in one place while managing an online identity across multiple platforms. In tandem the company provides tokens for online purchases and access to virtual worlds.

That’s the consumer-facing mission, but there, of course, a commercial objective. Gwinnett sees it, the development of Web3-focused technologies offers a business without – as he puts it – a ceiling.

But just how easy is it for a startup gain traction in this section developing Web3 marketplace? After all, the concept of avatars that work across platforms is not new. For instance, a few months ago I spoke to Sten Tamkivi of VC fund Plural about the potential of Web3 and support of games-focused avatar company Ready Player Me. The guess is that avatars will be big in the third generation internet.

Gwinnett acknowledges the competition but stresses the importance of execution. “Avatars are very difficult to make if they are to look realistic,” he says. Equally important, the technology has to work across multiple systems. By focusing early development on the avatar market, there’s a chance to establish a strong position in the market.

By the same token, there are challenges, not least in terms of finding software developers.

A Long Game

Gwinnett sees it as a long game. He says scaling up will take several years while the wider Web3 infrastructure is being developed. During that period the requirement for funding will escalate. According to Crunchbase, Unus Labs has raised £1 million so far. “In the next two to three years we’ll be seeking about £5-10 million. After that, it could be hundreds of millions,” says Gwinnett.

The prize is to create an alternative to Meta’s vision of the Metaverse, building the ecosystem through partnerships. “I see Meta as our competition,” he says. That’s quite a brave statement, but he argues that startup companies have the luxury of being able to stay lean and focused. Bigger companies, he argues, often forget how to do that.

Web3 development is a highly competitive landscape and only time will reveal the winners and the losers. There is perhaps a bigger unknown. As things stand,outside the gaming market – where there is little firm evidence that online consumers will embrace either the metaverse concept or more widely Web3.

Meta’s Reality Labs has already poured billions into its own Metaverse, but that hasn’t stopped startup companies from experimenting with Web3. From online wearables and avatars to virtual concerts and 3D billboards, there are many routes to carve out a niche within the Web3 universe when it becomes a mainstream reality.

Ashley:
This is Real Estate Rookie episode 280.

Pace:
Every time on a subject to deal, seller gets the number they want, agent gets paid their commission and I get a property where I have an interest rate below 4% attached to it with a payment that I can go out and cash flow immediately without a credit check. And I pay a lot of times 85 to 99% of retail value. So everybody wins. The sellers get more money, the agents get paid commission and I don’t have to go to a bank. Everybody wins in the transaction.

Ashley:
My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we’re bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Rookie audience, do we have a show for you guys today. We’ve got the one and only Pace Morby on the Real Estate Rookie Podcast. If you don’t know Pace, Pace is well known in the BP community, but Pace also has a new book out called Wealth without Cash: Supercharge Your Real Estate Investing with Subject-to, Seller Financing, and Other Creative Deals. Pace comes on to break things down all about creative financing.

Ashley:
Yeah. He also talks about… He gives this golf analogy as to why you may be playing this real estate game with just a putter when you should have all of your clubs. So I thought that was a super interesting analogy, but very, very relatable.

Tony:
Yeah. Almost like David Greene esque, right? With the metaphors there. It was good.

Ashley:
Yeah. And then we actually walked through how to get a deal today, as in get a deal in one day. So the main reason we have on, as Tony mentioned, that Pace just wrote a book, Wealth Without Cash. So head to biggerpockets.com/wealthwithoutcash to pre-order this book. Make sure you pre-order before May 2nd. Pace actually goes through what you get with the pre-order besides just the book. And let me tell you, these are opportunities. I think me and Tony might just purchase a couple books to get the entries.

Tony:
One of the prizes, I’ll just hint out one of them, but you can literally get on a television show with Pace if you are one of the lucky winners here. Pace also, in addition to the book coming out, he’s got a bootcamp coming out with BiggerPockets about creative financing and subject to, and that starts June 18th and then ends on August 26th. So if you guys head over to biggerpockets.com/bootcamps, you can learn more about the Creative Finance Bootcamp.

Ashley:
And of course, if you are just a rookie investor and want to learn anything and everything about getting started in real estate, there’s also the Rookie Bootcamp that I am co-hosting with Tyler Madden that will be starting those same dates over the summer.
Pace, welcome back to the show. The last time we got together with you, we were actually live at BPCon and got to do a live recording. And now we’re back to being virtual. So how have you been?

Pace:
That was special. San Diego BPCon. Now the new BPCon is in Disney World essentially. Orlando.

Tony:
Yeah.

Pace:
So it’s not in Disney World. I just look at Orlando and I’m like, “All of Orlando is Disney World.”

Ashley:
Did you see that we’re actually going to Universal one night too? They rented out Universal Studios.

Pace:
I saw that. The last night as the cap party. I’m super excited about that.

Tony:
Pace, I don’t know if you know this, but that was one of our best performing YouTube videos, or I think it was the best performing YouTube video for the Real Estate Rookie Podcast also.

Pace:
Wow, that’s cool.

Tony:
You got some big shoes to fill today, brother.

Ashley:
Yeah.

Pace:
Yeah, I just was so excited to hang out with you, guys. You guys were great to meet. And Tony, your spouse, and just everybody in the whole BiggerPockets leadership, it was just so cool to hang out backstage and do that podcast. So thank you so much for having me back.

Tony:
No, of course, brother. We’re here to talk about something special today, right? Pace, you have entered rare air as now an officially published BiggerPockets author. Obviously, we’re going to talk about your new book, man, Wealth Without Cash: Supercharge Your Real Estate Investing with Subject-to, Seller Financing, and Other Creative Deals. But before we do, man, you’re obviously the king of all things creative finance, so we thought it’d be cool for the Rookie audience just to kind of get a quick breakdown of what it actually means to do a deal subject to, what is seller financing, and kind of what are some of these creative strategies.
So Ash, I don’t know. Where should we start? You’re a wealth of knowledge, Pace. I just want to make sure we get the audience the best stuff.

Ashley:
Yeah, let’s start with what are the options for creative financing. When I started investing, I didn’t even know you could go to a bank to get a loan. I just thought you had to have cash to buy a property, because my mentor, that’s what he did. He used cash to buy properties. So what are ways that you can do creative financing? Let’s start with that.

Pace:
I think the biggest challenge in real estate is that there are so many ways to succeed, whether it’s from the BRRRR strategy, yes, using cash, all of these things that creative finance I think is very daunting for people because what it does is it takes the 10 ways to be successful in real estate in cash or traditional methods and it multiplies by 10. There’s literally 100 different ways to make money with creative finance, maybe even more. I’ve never seen a transaction ever identical to another transaction because of how creative you can be with it. But what exactly does that mean?
So if you look at this, here’s what you’ll see. You’ll see that there are all… Everything starts with a seller, right? Whatever deal you’re working, there’s always a seller of a property involved. And then that seller is either A, represented by a real estate agent, or B, they are unrepresented, right? And what we call as real estate agent, those are on market. And up unrepresented, we call those off market, okay? Whatever strategy you choose, you’re going to go after a seller in one way or the other, A or B. That’s basically it. Going on market, I see something on the MLS or Zillow and I’m going to reach out to this real estate agent and I’m going to try and get this real estate agent to help me work a deal with this seller. Or B, direct to seller. You’re going to the seller direct maybe based off of a pain point like probate, foreclosure, expired listing, whatever it may be, and you’re working leads.
So here’s where creative finance comes in. What I learned is that when I was doing nothing but traditional lead gen, I would’ve to generate about 50 leads for every two deals that I did. Why? Well, sometimes the sellers are not motivated. They don’t want to sell at all and there may be just kicking tires. But what I found more often than not, it was either A, B, or a combination of both of them, which was C. It was either A, the seller wants too much money. And even agents run into this all the time where an agent will go talk to a seller, seller says, “I want you to list my property.” The agent sees that the property’s worth $300,000 by comping it and then the seller says, “I want $350,000.” So you have basically unrealistic sellers, right?
When I first started Ashley, I also did not know that people could get a hard money loan. I thought a hard money loan was like a loan shark.

Ashley:
With the baseball bat?

Pace:
Exactly. Like they’re going to break your kneecaps if you don’t pay them back, right? What you don’t know hurts you dramatically. And what creative finance does is it helps those sellers that want too much money. Then B is maybe a seller has a lack of equity. And you’re seeing this more and more and more right now, especially if you look in Maricopa County where I live, I live in Maricopa County, Phoenix area, and you pull up expired listings. If you’re a rookie, write this word down, expired listings. You want to go get a subject to deal today? Go after expired listings. Typically, agents are representing a seller. The agent has six months typically in 99% of arrangements to sell that house for the homeowner. And if they can’t, then that listing gets broken and the agent no longer represents that seller and now that becomes what we call an expired or unlisted or delisted property. If you want a subject to deal, that’s where you go, is expired listing.

Ashley:
Can you just tell everyone where they can get those expired listings? What are the steps they have to take?

Pace:
So first off, I would make friends with real estate agents because the easiest and the free cheapest way to get them is just get them from a listing agent or a real estate agent who has access to the MLS because they get that information for free, okay? Second place I would go is I would go to maybe PropStream. BiggerPockets has a great software as well. There’s so many different ways to pull that up. We get ours from PropStream.

Tony:
Pace, just really quickly. Not to go too far down the rabbit hole, but say I’m a brand new investor, I’ve never done a deal before and I want to reach out to agents for the purposes you just mentioned. What am I saying to them to get them to take me seriously and actually give me deal flow?

Pace:
Okay, cool. This is great. This is where I’ll tie that all into your question. So either A, I was running, I’d go generate 50 leads, I would go get two of those deals cash because I’d have super motivated sellers out of 50 leads, right? The other 48, they either, seller wants too much money or the seller has a lack of equity, or a combination of both, which is C. So what I learned is that I could utilize subject to and seller finance. And there’s a handful of other things as well, but I won’t go into them because we only have limited time, but like notation agreements and lease options and all of those types of things.
Another strategy I talk about in the book is called the Morby method, which is a strategy I created about five years ago. We won’t go into that today. But there’s so many ways to make money. The two primary things you want to go after are subject to and seller finance. So what you’re doing is if you’re going to reach out to an agent, what you want to do is you want to start off the conversation always about their commissions. Always. “Hey, my name is Pace Morby. If I was able to get your commissions paid, would your seller be open to terms?” Some agents know what terms are, some agents don’t. Basically navigating that conversation, some agents go, “What do you mean terms?” You go, “Well, again, if I could get your commissions paid, would your seller be open to me taking over their existing payments? Or if your seller doesn’t have payments and they own the house free and clear, would they be open to seller financing the property to me?”
Now the agent will hesitate. Sometimes they’ll go, “Oh. Ah…” You go, “Look. By the way, I’m not going to negotiate the sales price. I will even come up to the number that the seller and you are looking for. I will get your commissions paid, but I am a terms buyer. I’m going to buy only on terms.” Now the process of subject to and seller finance, here’s what I found. When I would go after these 50 leads, two deals turn into cash and another eight deals will get done with creative. I found that utilizing creative finance subject to, which we can jump into what that is in just a second, and seller finance, utilizing these two strategies, I could 4X my conversion rate and 4X my monetization.
And by the way, it is way easier to buy a property, subject to, than it is with cash. Way easier. The only reason why people are confused by subject to is because it’s not always talked about and it’s new. It’s kind of like when Ashley and I both learned, “Oh wait, people aren’t actually cash buyers? Like 99% of people are not buying with cash?” They’re actually, if you use the correct wording, you would say, “I’m a hard money buyer.” We’re not cash buyers, we’re hard money buyers. We buy houses to flip them using hard money. So it’s just like learning a new language.
Subject to sounds confusing, but it’s actually way easier. It’s faster to close out a title company. There’s five less people involved. It’s way easier to get under contract. There’s rarely inspections, there’s never any appraisals, there’s no banks involved, there’s no loan payoff requests, there’s no applications. There’s none of that going on, which are all the complicated parts of a cash transaction. And so in subject to, you don’t have any of those things. So it is way easier for me to go to a homeowner and say, “Your asking price is not the problem for me. Whether you’re willing to do terms or not is my main concern.” It’s like, “You’re not going to negotiate my sales price?” No, I’m not. All I want is I want the interest rate. I tell sellers all the time, “I’m not really buying your house. I’m buying the interest rate attached to your house. That’s really what I want. Your house just so happens to come with it.”

Tony:
Pace, so much, so much good information there, brother. So much. And I just want to pause for a second because I want to clarify a few things for our rookies before we keep going.

Pace:
Of course, yeah.

Tony:
So first, if we take one step back, can you define what subject to means and define what seller financing means and explain how those two concepts are different from going to a traditional bank to get financing on a property?

Pace:
Of course, yeah. So let’s look at it like a car. Let’s say I want to go buy a Toyota Prius and I go to a bank to go get a Toyota. I go to the car dealership. The car dealership says, “Okay, well what do you want? How much can you afford?” And then what do they do? They go to their finance department, they run your credit, they look at your job credentials, they look at your W2. They look at all the things just like you do through a mortgage and they see if you’re worthy enough to buy that car. Okay, great. In a car transaction, much like a real estate transaction, you are paying over retail for every house.
By the way, do you know every homeowner pays over retail for every house that they buy? No homeowner buys houses with equities. They buy at full retail on the MLS. And after all their commissions and closing costs and all their additional fees and all the moving expenses to get into the house, every homeowner starts by buying a house underwater, right? But it takes months to go through that process. So I look at that and I go, “If equity is not the main goal in the very beginning, equity will build over time, my tenants will pay down over time, really what I want to do is avoid going through the bank.” So why don’t I just go to somebody that has a Toyota Prius and say, “Hey, do you have a car payment on that Toyota Prius?” And they say, “Yes.” I go, “Great. Can I just take over the payments on that Toyota Prius? Instead of me going to a car dealership paying over retail, getting a new loan, going through the whole process, can I just make the payments on your existing loan?” Seller says, “Yes.”
And if you go on my YouTube channel, I bought a Kia, subject to, where I found a seller that goes, “Look, I bought this on a dealership last year, it doesn’t have any equity and I’m trying to sell the Kia on Craigslist, but I’m getting lowballed.” Welcome to real estate. That’s the same thing. Homeowners buy a house, a year later, they try and buy it for a job transfer or maybe they’re getting redeployed if they’re in the military. They go to sell to a real estate agent. How much does it cost to sell a house through a real estate agent? 3%, 3% and another 3 to 4% in closing costs, home warranties, inspection items, et cetera. You’re like 10% to sell a house. It costs 10% to sell a house.
So for a seller that doesn’t have a lot of equity, I just go to the seller and say, “Can I just take over your payments?” And that is the process of subject to. I take the deed, right? Because here’s the big difference. If I go to Craigslist right now and I start calling people that own Toyota Priuses, you’re going to run into some people that own them outright, they paid cash for those cars. And you’re going to run into some people that still have car payments on those cars.
Seller finance means the the car is paid off and I can just say, “Hey, I’d like to buy your car on payments. What payments do you want to set up where I just make you a monthly payment and you become my bank?” That is called seller finance. Seller is financing me, seller finance. And then subject to, I just go, “Oh, you have a car payment. No problem. I’ll just take over the car payment exactly what it is. I’ll log into your account, I’ll make the payment every single month. Registration gets put in my name. Ownership gets put into my name. And I’m the owner of the car, but the payment stays in your name. We avoid all the bank fees.” The only person that makes money when I go get a new bank loan to pay off your existing bank loan are two banks. You don’t make any more money and I definitely don’t make any money. So what am I doing going and getting a new loan to pay off an old loan? Why don’t you just let me take over the old loan?
I’m not call talking about assumptions. I’ve never gone through a credit check. Nobody’s ever looked at my job history. Nobody’s ever looked at my bank account, see how much money I have in it. Nothing out of all the transactions we do. So subject to is when somebody has an existing set of payments that I can take over, an existing debt. Seller finance means I work directly with a seller and we structure a payment that works for the seller.

Tony:
Pace, before you go into seller financing more, I just want to note that when you were on on episode 236, we did go through as to why a seller would do that. Like why would they trust somebody taking over their payments? So if you guys want to learn more about that, go back and listen to that episode as to how come that doesn’t affect their DTI, like how you use the third party servicer, all those things. So if you really want to learn more about subject to, go back and listen to that episode.

Pace:
Yeah, so what I’m essentially doing is I’m going to homeowners or agents. Probably half the deals I do are with agents involved. The other half are with seller. And why is it half-and-half? It’s half-and-half because I go to the agents first and I tell the agents, “Hey, it looks like your house has been listed for over a hundred days and cash buyers are already telling you this is not a good fit for the marketplace. You’re asking too much money. I will be one of the only buyers you will speak to that do not care about the purchase price. So if I could get your commissions paid, would you be open to talking to your seller about me taking over existing payments or creating a payment structure that makes sense for both of us?” 50% of the agents say yes. 50% of the agents say no.
So the 50% of agents that say no, do you know what we do, is we put them in our CRM and we track the house until it doesn’t sell and when it goes expired, we then call the seller directly and say, “Hi, we tried talking to your agent about this house two months ago and talking about taking over payments. Did your agent ever bring that up to you?”
“Nope, my agent never presented your offer to me.”
“Great. Would you be open to letting us take over your payments?” They go, “You would be willing to do that?” So the paradigm shift for me was like the same paradigm shift you had Ashley when you went from learning from one person that buying cash is how real estate investors make money to realizing that 99% of real estate investors don’t use their own cash, they use private money or hard money. There was that whole light bulb moment of like, “Oh my gosh, what have I been missing?” It’s the same thing with me. When I got into creative finance, I used to think that sellers would be not open to this. And then when you actually have the conversation with the seller, the seller is like, “Wow, you would be open to that?” It is the polar opposite of what you would assume.
Now, of course, just like if I walked into my neighborhood and knocked on my neighbor’s door and said, “Hi, I’d like to buy your house,” most homeowner’s houses are not for sale. So you’re not just going to talk to a random person to buy their house whether it’s cash or creative or even listing through an agent. 95% of houses are not for sale, nor will they be for the next couple years. So what you’re doing in this situation is I’m looking for agents that have listings that are over a hundred days and then we start reaching out to the agent saying, “Hey, I am a cash buyer. However, if this house was a good fit for a cash buyer, it probably already would’ve sold. However, I’m also a terms buyer, so if I can get your commission paid in the process, would your seller be open to letting me take over payments or seller financing?”
Again, 50% of agents are educated on this and they get excited at the prospect. The other 50% of agents that are new or unseasoned or their broker hasn’t taught them this, they go, “No” or “Yes, I’ll present it to my seller, but I know they’ll say no.” We just wait until the listing goes expired and then we buy those deals anyway.

Tony:
Page, just one clarifying question here. If I’m putting myself in the seller’s shoes and we’re doing a subject to deal, this is the one thing that I think would make me nervous, is if Tony and Pace agree to a deal, subject to, where Pace is taking over my mortgage and I’m transferring title to Pace but my name still stays on the actual mortgage documents, what happens to Tony if Pace decides to stop paying?

Pace:
Well, there’s a handful of things. This is where maybe we get a little bit into the weeds if you’re okay with it. In every single state, there’s something called an executory contract, okay? You guys have heard of them under different words. Land contract, contract for deed, agreement for sale, these types of things. You guys ever heard those terms before?

Tony:
Mm-hmm.

Pace:
Okay, that’s called an executory contract. All states this is legal. And what is that? It means that I can take over your payments, but you still hold the deed as security just in case I fail to make payments. So it’s a subject to light basically. It is the exact process of me buying and controlling the property, except the deed never transfers into the buyer’s name. The seller puts it into a safety deposit box or whatever way you want to hold it. The deed stays in limbo until the buyer pays off the house, sells the house, or refinances the house.

Ashley:
When I did a subject to deal, we actually had the seller sign over the deed, but it was never filed. Our attorney almost held it in escrow.

Pace:
What state was that? In Florida?

Ashley:
New York.

Pace:
Okay, New York. So New York would be contract for deed or a land contract, so depending on what attorney you went with. And they hold it in limbo as security for the seller. Now, why don’t I just do that all the time? Why don’t I just do that in a way where I do an executory contract? It’s even simpler, right? It’s like, “Well, now the seller has security.” The problem with that is that the buyer does not have the ability to write that property off on their taxes utilizing depreciation. So if I’m an real estate investor, one of the most attractive things to me is actually when you’re brand new and you’re a rookie, you really want cash flow. But once you get to a point of cash flow where it’s paying for your expenses and your lifestyle and employees and all that kind of stuff, the main motivator for me to buy properties is no longer cash flow. The main motivator for me is to buy as many properties as I can so I pay $0 in taxes every year.
And so if I buy on an agreement for sale, that’s what we call it in Arizona or a land contract in Florida or contract for deed in New York City, they’re all the same thing. They’re just called something different per state. Exactly the same thing. Umbrella term is executory contract. And if you guys are watching this or listening to this, you can type in Pace Morby executory contract on YouTube, and I have a lot more information about it. But you did an executory contract because what that does is it keeps the seller even at a higher level of security, but what it does is do a disservice to the buyer where the buyer no longer can use that property as a tax benefit.

Ashley:
Yeah, we did it where it was held until the back taxes were paid off. So it was held as kind of leverage for that. And then once the back taxes were paid off, then it went into the Farm LLC, and then it was continued the payment. So it’s like a mix of them, I guess.

Pace:
Yeah, we call that a dating contract. A dating contract means you guys are dating for a certain amount of time until you decide to finalize and get married. And so you dated, you were dating and you had control and you were in a relationship. And then when that thing, whatever that trigger was, sometimes it’s down payment assistance, sometimes it’s an IRS lien, sometimes it’s a mechanic’s lien, sometimes it’s a tax thing like what you’re talking about Ashley, and then once that is cleared and handled, then the deed will transfer into the buyer’s name and consummate that dating contract.

Ashley:
Do you think for somebody that is maybe going to be in a situation like that, to make sure that that kind of trigger happens in the tax year that they’re purchasing the property so that for those tax advantages, their name will be on the deed for that current tax year that they bought it?

Pace:
You can use depreciation in any year you own a property. So even if you decide not to utilize depreciation on, let’s say I buy a house, 123 Main Street, and I decide, “Oh wow, I’ve already wiped out all my income this year from the other houses I bought, but now I have five or six houses that I don’t really need for tax benefits,” you can always save those for next year or the year after. So you’re not forced to use depreciation in the first year you own the house. It’s a good question. If you need the tax benefits, then yes. If you don’t need the tax benefits, then you don’t need to worry about that and you can wait until the following year.
Man, I could talk about taxes for literally four hours. It’s one of the most intriguing things that like, “I haven’t paid income taxes in seven years,” and it blows my mind. People go, “Well, how do I make more money?” I go, “Keep more money.” Immediately a way to make 30, 40% more money than what you’re making today is don’t give 30% of it to the IRS. Keep it. And the way we do that is by being… Isn’t it weird? We get incentivized to invest in real estate. The IRS is like, “Here’s a bonus. Go invest in real estate. Keep your money just as long as you put into an investment.” What? It’s crazy. So that’s the reason why subject to is so alluring is because now I have the deed in my name just like you did, Ashley. You just had a hiccup where now your hiccup was taxes.
Tony’s reference or question is discussing the hiccup between a seller being overly concerned about having somebody have the deed in their name and the mortgage in the seller’s name. That’s easy to overcome by one of two things. One, be a more credible and better negotiator, which is me, or two, say, “Okay, well if you are worried about having the deed in my name or my name on title while your name is on the mortgage, why don’t we just do an executory contract where we hold the deed in limbo until I execute on a sale or refinance or pay the property off?”
Because what you get… Even if, Ashley, your attorney kept that property in limbo for 25 years, that’s a traditional land contract, contract for deed bond for deed, agreement for sales, just again executory contract, if they kept it in limbo, you always have control of the property. And guess what you get? You get all the cash flow, you get all the appreciation, you get all the loan pay down. Let’s say you bought it subject to, and your tenants are paying down that existing loan, you get the credit for that. The only thing you don’t get is the tax bonus or the depreciation. And so it’s 90% as good as a subject to deal, but man, 90% is pretty cool too.

Ashley:
Yeah. I think that’s so great to clarify those two things for everyone because they are two completely different options in that one aspect. And that’s where it goes into looking at what your own goals are, your why or what you’re trying to strive for in real estate and if the tax advantages is a really big thing and you went and did the land contract and you realized, “Oh no, I’m not going to get any of those tax benefits. That was the sole reason that I was trying to get into real estate anyway.” So I’m really glad we went through it and clarified that.

Pace:
Yeah. I mean, this is the thing, is I could talk about executory contracts, arbitrage, lease option, all these other strategies. There’s so many strategies to buy real estate. All it comes down to is this, distill this down to something very simple. If I’m playing golf, am I going to win or defeat my opponent if they have a full bag of 14 clubs if I only have one club? No, because if you understand golf, you’ve got a driver to hit the ball really far. You’ve got a putter to just put it 2 or 3 ft or a couple of inches in some situations.
You imagine trying to chip a ball with a driver or trying to get a driver to hit a ball out of a sand trap? Essentially what people are doing is they’re showing up to a real estate transaction with a putter. When somebody like me shows up to a real estate transaction with a full bag of golf clubs and they look at, “What’s going on? How can I help the seller? How can I help the agent get their commissions? And how do I get into this deal with no credit check, no credentials and actually using, if I need to, if I need to bring money to the table, bring a private moneylender?” And all that comes down to is all of the options. So executory contracts, like what we talked about, right?
So Tony, seller’s willing to do a subject to deal, but they’re overly concerned about their security. Easy. Executory contract, right? Seller wants to sell the property to me, but they want to make sure that I’m as credible as I say I am. Okay, do a dating contract like Ashley did. Say for six months, let’s do an executory contract where I have control of the asset and after six months it converts to a full sub to deal because now I’ve shown you for six months I can make my payments on time, manage the property and put a tenant in the house. This is not even possible in a cash transaction. None of this is possible.
And so all these sellers that want too high of a purchase price, guys, I will pay, in some situations, 50,000 to $70,000 over a retail ask. An agent has something listed at 600 grand. And in order for me to get into that deal with no money out of pocket and really low interest rate, I’ll go, “Well, what’s the number that gets you excited about giving me the terms that excite me?” And they go, “Well, we have it listed for 600, but if you buy it for 650, we’ll do a no down and 0% interest deal, or a 2% interest or a 3% interest deal.”
“Great. I give you the lever on your side that gets you excited and you give me the lever on my side that gets me excited.” You can’t do that in cash. And so to distill this down to the most basic version, is if I talk to 50 people or 50 opportunities, whether it’s coming from a wholesaler, an agent, or directly to a seller or a probate attorney referral or wherever the source of the lead comes from, let’s say I gather 50 leads, everybody is offering a cash offer, you’re going to get two deals out of those 50. I’m going to get 10, right? That’s all this comes down to, is how can I have more tools to bring to the situation to help everybody involved? I would say the biggest problem with creative finance… What do you guys think is the biggest problem with creative finance?

Tony:
Lack of understanding.

Ashley:
Yeah.

Pace:
The number one person that doesn’t understand it is the licensed agent.

Ashley:
Having that middle man.

Pace:
Well, what it is is they get a license. So all my partners are licensed. I choose not to be licensed. But all my partners are licensed. There’s a benefit to being licensed. But we see a lot of real estate agents that are not trained by their broker or nobody’s talking about it at their brokerage. They’re not hanging out with other real estate investors. So when somebody brings an opportunity to their client, subject to, seller finance, executory contract, lease option, arbitrage, whatever the strategy is, the agent immediately goes, “I didn’t hear about this in real estate school. My brokers never brought this up. That must mean it’s illegal.” And so what happens is the agents are not educating themselves and they’re not learning, “How do I double or triple my commissions by bringing more tools to my sellers?” They’re not going out there and learning that on their own because nobody’s telling them to do so.
And so, one of the big things that we’re doing this year is our initiative, a big goal I have is I have three attorneys and myself going around the country and we are creating continued education courses for licensed real estate agents so that they can learn subject to from attorneys and from myself. Arizona’s first, Georgia’s second, Florida, Texas, et cetera. We’re going around and teaching through their continued education course that their brokers are able to approve, and they get their continued education credits learning subject to in seller finance. So instead of me complaining about the industry and saying, “My gosh, why aren’t these agents doing this?” I go, “Why don’t these agents know this?” It’s because somebody’s not taking the workload on their back and said, “Let me go educate them legally in how to do this properly.”
And more importantly, teach the brokers to teach their agents. So once a month, we have an agent class in my office. As long as you’re a licensed real estate agent, it’s free. We usually get 1,700 people that sign up. We can only let 300 people in the door. We do this for free, six hours once a month. I bring in an attorney and an escrow officer that’s been doing creative finance for 48 years, I believe. I just give and give to the industry because what ends up happening is then agents bring me deals and they go, “Oh my gosh, I had no idea I could do this.” So that’s honestly the biggest problem with the industry. It’s not even the sellers. The sellers are excited about these opportunities. They love it. Seller finance helps mitigate capital gains. The sellers get more money. The sellers get a percentage and a return and securitize investment against their own real estate that they understand. Could you tell I could talk about this for like 25 hours?

Tony:
Yeah.

Ashley:
Yeah.

Tony:
But it’s so much good stuff, Pace. There’s so many angles to it, which again, which is why I think people need to go pick up a copy of your book, Wealth Without Cash. You talk about a lot of this in there.

Pace:
Can I tell you something that I did about the book because I’m not… I hate to say this, but I’m not a big reader. What I did is I made that book so special. I made every chapter gets a three-hour deep dive on the context of that chapter by me creating a video companion guide. Kind of like when I was reading the Bible for the first time, I’m reading the Old Testament, I’m like, “What the heck is going on in the Old Testament? This thing is the weirdest thing.” These weird names and people stabbing each other, It’s like, “Why is the Bible telling me about all this weird stuff?” And then somebody came to me and goes, “Hey, read this companion guide. It’s a companion guide that helps you understand the context of each chapter at each verse in the Bible.” And all of a sudden the Bible became super cool to me and it was so fun.
So I said, when I write a book, a book with BiggerPockets, I want to create a video companion guide. So every chapter gets three hours of context on whiteboards and breaking down deals. The first chapter of the book, check this out, this is so freaking cool, I bring in a live audience to record this video companion guide in my studio right over 15 feet away. I’ve got like 15 people in. I go, “All right, guys. Welcome to the Video Companion Guide with BiggerPockets” and my phone rings. I look down at it, and it’s a seller that I’ve been negotiating with on a deal in Boston, Massachusetts. He says, “Hey, Pace, I’m in town in Arizona. I thought maybe I could just stop by your office and we could finalize the details of my deal.” I go, “Yeah, come over. I’m recording. If you don’t mind, just come over to the studio.”
So for an hour and a half, I broke down my pitch, my negotiating, and I lock up a live deal in the first hour and a half of the video companion guide right there for the BiggerPockets. Whoever buys and pre-orders that book, you’ll get that. The seller’s like, “Wow. So you’re just going to negotiate with me right here with cameras in my face?” I go, “What better place to do it?” The audience is sitting there like, “I can’t believe Pace is pitching and just bought a duplex in Boston, subject to, in an hour.” Then I went through every objection he had. He had six objections. I went through every single one of them live, with a live seller. And then we signed the contract, he leaves, and now I already own the property. So if you want to really learn subject to in seller finance, that book is going to help you. But the video companion guide you get with it is a masterclass. It is so awesome.

Ashley:
Is that just for pre-order, Pace? I want to make sure that’s clear.

Pace:
It’s only for pre-order, yeah.

Ashley:
Yeah. Everyone, just pre-order to get that, because that is going to be huge value to everyone. So you guys don’t want to miss out there.

Pace:
Yeah, and I’ve got like chapter 17 is about the legalities of subject to seller finance lease option. I have an upcoming class coming in two weeks where I have two attorneys and my escrow officer, and we’re doing a six-hour breakdown of how deals are done legally and referencing the IRS’s website. The IRS tells you as a buyer and a seller how to handle your taxes when you buy or sell subject to. Then there’s all sorts of legislation that references subject to nationwide. It’s everywhere. So I go through and I’m doing a six-hour class on that. And they get that six-hour class that is the companion for chapter 17. So chapter 17’s eight pages, but you get a six-hour legal class attached to that chapter for the pre-order.

Ashley:
Pace, we’re running out of time here, but-

Pace:
Always. It’s classic with me.

Ashley:
… for our Rookie audience, I want to give kind of an example, a scenario. So just imagine that you are sitting on a park bench, you have no money, no cell phone and you need to do a real estate deal today to be able to eat tomorrow.

Pace:
Easy.

Ashley:
What would you do? Just kind of break that down for us real quick.

Tony:
And no existing contacts, Pace. You can’t tap into the people that you already know. You’re starting from zero.

Pace:
This is easy. I didn’t know it was easy. Again, back to Ashley’s reference earlier, it’s like I didn’t know what I didn’t know, you know? I own a nationwide title company, so I understand how title companies work at a pretty deep level. There’s always a marketing department in every title company, okay? Have you guys ever done lunch and learns with title and escrow officers? Like they come in and they pay for your meetups and stuff like that, or they sponsor things for you?

Tony:
No.

Pace:
You’ve never done that?

Tony:
No.

Pace:
Okay. If you guys are doing meetups in your local town, get a title company and say, “Hey, do you guys have a marketing department I could talk to?” They’ll come in and pay for all your food, all your marketing, everything.

Ashley:
Wow.

Pace:
Every branch of my title company and every title company I know has a monthly budget of about $10,000 that they can go and do luncheon lunch for mortgage officers, real estate agents, and real estate investors, okay?
So what I would do, I’m sitting on a park bench. The first thing that I do is I walk to a any title company. There’s as many title companies or closing attorneys in every state as there are Starbucks. They are everywhere. Drive around. Google it. Just walk down the street. You cannot go a mile in Phoenix, Dallas, anywhere without seeing escrow title, title in escrow, closing, whatever. Walk in there and say, “Can I talk to somebody in your marketing department?” And what does the marketing department do? Their entire job is to get investors like me, real estate investors or real estate agents and loan officers, to send files to their title company.
I even challenged BiggerPockets to document this by the way. I said, “Guys, I can show your audience how to… Get a camera guy on me for six hours. I’ll start on a park bench, no cell phone, not even a dollar.” They were like, “Well, you can start with 100 bucks.” I’m like, “No, I want any money.”
I go to the title company and I say, “Can you guys pull a list for me?” The best place to get a free list with free phone numbers where you don’t have to pay for skip tracing? Your marketing department at a title company. Any title company will do this, okay? And what you say is you go, “I want all the expired listings that have expired in the last 60 days and I want all their phone numbers.” In Phoenix, that’s about 600. That’s too many people for me to call in one day. I can’t call 600 people in a day. So I’m going to now make that list even smaller. So I say, “I want people that have purchased their home between 2018 and 2021.” Why? Because they all have 3% interest rate on average. I then also want to make sure that they have a VA loan or an FHA loan. Why, Ashley?

Ashley:
Low down payment so they don’t have a ton of equity.

Pace:
Boom. So now I’ve got a list of people that tried selling so that I already know they tried to sell. Their listings expired, so I didn’t have to tell them that their house wasn’t worth what they were trying to get. The market told them that. The agent told them that. I then make sure that I get interest rates at the interest rates I want to buy a subject to deal. And then I make sure that they don’t have equity. You put those four filters on it, you’ll get a 600 name list down to probably 80 to 100 people, okay?
What I do is I then call those people and I say, “Hey, my name is Pace. I see your house was on the market. I’m just wondering what were you looking for on the market that you were not able to obtain?” And I let the seller talk. The seller says, “Well, the agent couldn’t do this. The agent this, the agent that. Blah, blah, blah.” I go, “Well, good thing is I’m not an agent. I’m a real estate investor. And while most people that have submitted offers to you, tried to buy your house with cash, I come with a different set of tools. I have the ability to take over payments and get you the number you need to get out of that house.”
By the way, I’ve already done this before multiple times and I’ve recorded and documented the whole thing. We did this three months ago. So you’ll get a seller. Within 80 calls in one day, you’ll get probably four, five people that are willing to do a deal with you that day. I would then have the title company print out the contract for me. I would then either A, ask somebody at the title company to drop me off or take me to the appointment, or B, I would do a DocuSign through the title company to the seller using their computers.
The next thing I would do is once I have the contract, subject to, taking over the mortgage, I would call somebody that does Airbnb. I would call somebody who does sober living. Primarily sober living. This is the easiest one to do, sober living. I’d call up one of my sober living operators and say, “Hey, I know you’re looking for more houses to rent. I will let you rent this property from me. Put your sober living facility in here, but I need a deposit today on the rent. I need a first and a last month’s deposit.” I can take money right there, cash, before I even close escrow on the deal and I can buy my food, I can buy an Uber, I can get a cell phone, I can do whatever I need to do. In one day, I can have money in my pocket from thin air.
That list is a guaranteed. If you went to a title company, got that list, made 80 calls and you couldn’t get a seller to say yes, then you didn’t make a single call. There’s no other plausible reason why you wouldn’t get a house under contract, is that you literally just didn’t do the work.

Ashley:
I really want to have a follow-up episode where we have one of our listeners who actually does this and contacts us and tell us how they got their first deal just by doing this.

Pace:
Oh, that’d be great.

Tony:
Yeah.

Ashley:
Yeah, that would be super cool. So whoever does that, let us know.

Pace:
If you guys ever want to do this, I’m throwing this on the table, if you ever want to run a contest where somebody comes and spends a day with me and does this by my side, I will take them out in the field, we will both start on a park bench and I will walk them through and show them how to do it. I’ll walk to the title company, I’ll show them how to get the list. I’ll do half the phone calls for them and document the whole thing and then have them come on. I’ll do whatever you want. It is the easiest way to get a deal today, get paid today that I’ve ever thought of.
Now, I could assign that deal too, but I don’t do a lot of wholesale anymore. Probably 85% of what I do is buy and hold, I keep everything primarily. And I’ll do some assignments, but not a lot. 15% a month maybe, probably closer to 5%. I would keep the deal. But you could assign it to somebody like me in one day and I’ll pay you money right now. 5 grand for an assignment, 10 grand for an assignment, 15 grand for an assignment.

Tony:
Ash, that might even be a cool episode for me and you to go to Arizona with Pace and see if we can knock that out in a day for our Rookie audience.

Pace:
That would be sick.

Ashley:
And then he sends us out on our own and we compete who gets the deal first.

Tony:
And see who gets the deal first. That would be pretty cool.

Pace:
That would be cool. Or you could even do a live audience where you’re like, “Hey, let’s set up at the title company and have Pace make the calls and have a live audience of 10, 15 newbies sitting there and watching us do it.” And then here’s what happens. Action gets other people to take action. So when people are in the room with me making calls, they’re like, “Oh my gosh, that’s it? That’s all you’re doing?” Yeah, it’s so simple that the biggest reason people fail is because they overthink how simple it really is.

Ashley:
What I think of right there when you said people taking action makes others want to take action, I think of Forrest Gump when he starts running, and by the end he’s just had all these other people that just start following as they want to run too.

Pace:
Seriously. That is really what this industry needs, is more people that are taking action like you guys and leading the charge and creating communities. Because we all learn through… We’re all monkey see, monkey do. Like I cannot learn how to frame a house by watching YouTube. I have to be on site and watch people pick up the hammer. “Why are you using a screw gun versus a hammer on that situation?”
“Well, because the angle here and I can’t get the angle of attack, so I’m using a screw gun to go…” You have to learn on the job and people have to be willing to let you learn by your side. And so I’ve always let people go on appointments with me, go to title companies with me because that’s how I learn, and that’s how I assume everybody else needs to learn as well.

Tony:
Pace, I just want to let people understand how impactful these strategies can be if done the right way. So how many deals have you done or how many units do you have right now currently that are subject to?

Pace:
I mean, I’m everywhere. Look at this board, right? Probably this year, my target is to buy another 500 single family homes this year.

Tony:
Wow.

Pace:
500 single family homes, all subject to and seller finance. We currently have roughly 1,800 doors in our portfolio. Not a single one of those doors required a credit check. Nobody asked for my job credentials. Nobody asked me for “How long is the money sitting in your account seasoned?” None of those questions were ever asked. Not once on any 1,800 doors we have. And again, you look at this whole entire board. If you look down here, I’ve got a deal right here in Hawaii, circled, 2% subject to deal, an acre and a half on the water. In Alaska, Anchorage, same thing. It was over here. There we go. Now I’ve got a… Anchorage, Alaska, I bought a duplex last week, 2.5% subject to deal. I will buy deals from Alaska to Boston. There’s not a state you can’t buy in. California, New Jersey, New York, all the places that are challenging to do wholesale. You can do subject to in all 50 states, and I’m doing them.
So here’s how impactful it is. People that don’t understand subject to and seller finance look at a big haystack and they’re thinking, “Oh, I got to find some cash deals. Those needles in the haystack.” I look at the haystack and I go, “Subject to and seller finance is the haystack.” It’s everywhere. It is the whole entire market for me. I don’t even look at cash deals. I don’t waste my time on cash deals. Why would I look at cash deals?
The thing that’s the most impactful when I was primarily wholesaling eight, nine years ago, I realized, yes, the seller gains the convenience and speed of a wholesale transaction by selling their house at a deep discount. But the reality is when I use subject to and seller finance, it is the only transaction in real estate that is a true win-win win. Wholesale? The seller has to take it in the shorts in order for the wholesaler to get an assignment fee, in order for the fix and flipper to sell it and make money. And that transaction requires that, and it is perfectly fine and it is needed in the industry for sure.
But what happens a lot of times, or every time on a subject to deal, seller gets the number they want, agent gets paid their commission, and I get a property where I have an interest rate below 4% attached to it with a payment that I can go out and cash flow immediately without a credit check. I pay a lot of times 85 to 99% of retail value. So everybody wins. The sellers get more money, the agents get paid commission, and I don’t have to go to a bank. Everybody wins in the transaction.

Tony:
Pace, what a masterclass, brother, on how people can get started in real estate investing today. I think it’s super timely because there’s a lot of folks that are hesitant to get started, especially in our Rookie community, right? A lot of these folks that are listening haven’t done any deals before. So I think this gives them a great, like you said, I guess another tool in their tool belt to get started, brother. So obviously, Pace, man, if you can just tell people the details of the book, when the pre-order starts, and all the goodies that come along with it.

Pace:
The pre-orders pretty cool. I told BiggerPockets, I said, “How can we make this book so special?” I think 10 people will win a day with Jamil and I on our TV show for season 3. We’ll fly them out. Another 10 people will be able to do a whole class with me in person in my Phoenix office. And then everybody that pre-orders before May 2nd when the book comes out will get basically a 20-hour masterclass on creative finance, two to three hours per chapter on average, giving full context. Because as much as I love reading, I’d rather listen to stuff. That’s why audiobooks are powerful. So of course the audiobook is there too. But the Video Companion guide really breaks down whiteboards and teaches you, the listener or the consumer, the way I needed to be taught in the very beginning.
If I learned everything in this book when I first started, it would’ve cut my learning curve down by probably five years. I had to go figure it out slowly and surely. So I condensed it pretty powerfully and gave you guys as much as I possibly could for the people that decide to pre-order. So thank you for giving me the platform to talk about it.

Ashley:
Pace, I also want to mention that you are doing a bootcamp too for BiggerPockets on creative financing. So you can go to biggerpockets.com/bootcamps. That bootcamp starts this summer. Well Pace, thank you so much for joining us.

Pace:
Thank you guys so much. Appreciate you.

Ashley:
I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson, and we will be back on Wednesday with another guest.

Stoicism is a school of philosophy that is gaining popularity among startup founders for a good reason – its values and the mindset it teaches are very well suited for overcoming adversity and keeping yourself mentally healthy in hard situations.

Marcus Aurelius – the Roman emperor from 161 to 180 AD, is without a doubt one of the most famous Stoic philosophers. Despite living two millennia ago, his wisdom is to a large degree applicable to startups for the simple reason that the character qualities and values that help people prosper personally and professionally are timeless and not context-dependent.

So, here are 6 quotes from him that will help you on your startup journey:

1. The more we value things outside our control, the less control we have. – Marcus Aurelius

As a startup founder, many things are beyond your control, such as market conditions, customer behavior, and economic trends. Moreover, your time and resources are limited. Consequently, instead of worrying about these factors, it is essential to focus on what you can control, such as your product development, sales and marketing strategies, and team-building efforts.

Of course, you still need to be cognizant of your environment even if you can’t control it, as it presents opportunities and threats.

2. Confine yourself to the present. – Marcus Aurelius

As an entrepreneur, it is easy to get caught up in future goals or to worry about the outcomes of your efforts.

Planning is important, but overthinking the future could counter-productive. The same is true about analyzing the past – taking lessons from past mistakes is crucial, but dwelling on them is destructive.

By confining yourself to the present moment, you can stay focused on what you need to do right now to move your business forward.

How do you climb that mountain? One step at a time.

3. How ridiculous and how strange to be surprised at anything which happens in life. – Marcus Aurelius

As a founder, you need to prepare yourself to be surprised and to be wrong quite often. The whole idea of the early startup stages is to test your ideas against reality and to find out in what way they need to be changed before investing in them heavily.

If you hold your beliefs too dearly, then you wouldn’t be flexible enough to succeed in the extremely unpredictable and dynamic tech environment.

4. Each day provides its own gifts. – Marcus Aurelius

While this thought is mostly about appreciation, it is also true about opportunities. To be a good startup founder you need to be able to spot them and seize them.

Of course, you need to be ready to create them as well.

5. Conceal a flaw, and the world will imagine the worst. – Marcus Aurelius

As a founder, you would make mistakes and fail often – when you deal with innovation, this is unavoidable. Because of this being honest with your stakeholders (and yourself) is crucial for two reasons. First, to build trust. And second – to buy yourself the freedom to take the optimal course of action without fear that the people around you have different expectations that you’ve built through dishonesty.

6. Have I been made for this, to lie under the blankets and keep myself warm? – Marcus Aurelius

Turning an idea into a real, working business is without a doubt a very hard task. What would motivate you to continue moving forward when the going gets tough?

If you embark on a startup journey, you need to be prepared to abandon comfort for the sake of ambition and more importantly – for the sake of what you find meaningful.

Median asking rents are beginning to dip in many markets, according to new data from Redfin, a turnaround from the skyrocketing rent prices observed last spring. The median national asking rent fell to $1,937 in March, a 0.4% year-over-year decline. Median asking rent prices are lower than they’ve been in over a year, and the days of bidding wars for an apartment are coming to an end in many markets. It’s indicative of a correction from overinflated rent prices that resulted in part from a pandemic-driven demand for more space. But rents are still about 20% higher than they were when the pandemic began. 

Why Are Rent Prices Cooling?

From the supply side, new housing construction has finally caught up to pandemic demand. In 2022, there were more multifamily housing starts with five units or more than in any year since 1986, according to Census Bureau data. And the number of completed multifamily buildings with five units or more surged 72% in February, reaching one of the highest levels in decades. 

Rental demand is also waning. Due to rapidly-rising rent prices in 2022 and fears of an upcoming recession, renters are discouraged from moving and incentivized to stay in their current leases. And housing affordability issues are causing more older folks to move in with their adult children, even before their health declines. More young people are renting with roommates and parents as well. These factors are causing rental vacancy rates to rise, returning to their long-term average. 

The short-term rental market paints a similar picture—investors rushed to meet the demand for vacation rentals during the pandemic, and the surplus of properties is leading to increased vacancy rates. That’s true even as demand remains surprisingly strong amid inflation-strained budgets and recession fears.

Where Are Rent Prices Falling the Most?

1. Austin, Texas (-11%)
2. Chicago, Illinois (-9.2%)
3. New Orleans, Louisiana (-3%)
4. Birmingham, Alabama (-2.9%)
5. Cincinnati, Ohio (-2.9%)
6. Sacramento, California (-2.8%) 
7. Las Vegas, Nevada (-2.4%)
8. Atlanta, Georgia (-2.3%)
9. Phoenix, Arizona (-2.1%)
10. Baltimore, Maryland (-2%)

The largest declines in median asking rent prices were in Austin, where asking rents dropped 11%, and Chicago, where asking rents dropped 9.2% from the previous year. Last May, Austin had the highest year-over-year increase in rent prices, at 48%, according to Redfin data. This was a result of tech companies relocating to the area and attracting new high-earning residents at a time when mortgage rates were increasing. In the second quarter of 2022, lead data began to show renters looking to move out of Austin. Now, rent prices are normalizing in the city due to curbed demand. 

Cincinnati saw a similarly significant year-over-year rent increase last May, so rents are normalizing there as well. In Chicago, the rental supply increased during the pandemic as new landlords tried to cash in on high rents, and many chose to rent rather than sell at the tail end as homebuying demand decreased, according to Chicago Redfin real estate agent Dan Close. 

Where Are Rents Rising?

1. Raleigh, North Carolina (16.6%)
2. Cleveland, Ohio (15.3%)
3. Charlotte, North Carolina (13%)
4. Indianapolis, Indiana (10.5%)
5. Nashville, Tennessee (9.6%)
6. Columbus, Ohio (9.4%)
7. Kansas City, Missouri (8.1%)
8. Riverside, California (7.2%)
9. Denver, Colorado (7%)
10. St. Louis, Missouri (4.2%)

In some metros, rents just keep rising, but even the 16.6% year-over-year growth in asking rent in Raleigh doesn’t come close to the increases shown in last year’s data. A thriving tech scene in cities like Raleigh, Charlotte, and Nashville continues to bring new residents in droves, keeping rent prices inflated even as new residential buildings are erected. 

At the same time, high home prices and rising interest rates turned many would-be homebuyers into renters. For example, in Denver, skyrocketing home prices in recent years have led to a growing group of high-income renters who were priced out of homeownership. 

Jennifer Bowers, a Redfin real estate agent in Nashville, says asking rents are also rising in the city because a huge influx of investors bought properties in the area. This contributed to soaring demand by increasing the competition for starter homes, thereby making it possible for investors to charge top-dollar rents. Investors accounted for 26% of home sales in Tennessee during 2021, according to Pew Research. 

What This Means for Investors

This data doesn’t necessarily mean that investors should flock to multifamily investment opportunities in cities like Raleigh and Cleveland. After all, imagine if you had bought a home in Austin last March in an attempt to capture high rents up 38% year-over-year. A year later, you’d be lowering your asking rent and waiting for an average 16.3% decline in year-over-year home values to turn around. 

Thinking one step ahead could yield better results. If you can find a market where home values are still relatively low, and rent prices are likely to rise due to projected job growth in the area or overflow from nearby hubs, you’ll be in a better position to reap the rewards of local rent increases. 

Still, there’s no crystal ball foretelling the perfect strategy. Real estate and rent prices will always fluctuate, though some markets are more stable than others. Maintaining flexibility and having patience may serve you even better than nailing the perfect timing for your purchase.  

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Nitin Chexal of Palladius Capital Management says the U.S. economy is generally “robust” and “very healthy,” though there are short-term headwinds to deal with.

Closing the gap between a freelance practice and a scalable business requires a shift in mindset, and taking a leaf out of the startup founders’ book would put you on the right trajectory:

1. Productizing Your Offering

You and you are time are not scalable. This means that the first and most important step is to solve this problem. There are generally speaking two ways to do this – with people, and with technology. The first way will turn your practice into an agency. The second, which is more interesting for this article – to a startup.

Productizing your offering means turning your services into a product that can be sold repeatedly to multiple customers at minimum cost, or at least getting as close to that ideal as possible.

To do this, you need to identify the core elements of your service that can be standardized and packaged. For example, if you’re a freelance writer, you could create a series of templates or content packages that can be customized for different clients. If you are a designer or artist – a course or a package of tools for artists and/or designers.

Productizing your offering requires careful planning and a focus on creating a high-quality, repeatable product that meets the needs of your target audience as closely as possible. At the same time, it also means your goal is to customize it for individual customers as little as possible, which is a 180-degree shift from the way a freelancer usually thinks about their work with clients.

For example, an ebook is a perfectly scalable product – you can sell it to an unlimited amount of people with zero customization and close to zero marginal cost.

2. Shifting from a Solopreneur Mindset to a Team-Oriented Mindset

As a freelancer, you may be used to working on your own and handling all aspects of your business. However, to scale your business and turn it into a startup, you’ll need to shift from a solopreneur mindset to a team-oriented mindset. This means hiring employees, contractors, or freelancers to help you with various aspects of your business.

Productizing your offering might require expertise that you don’t have. You should be prepared to involve other people and invest financially in this project.

3. Developing a Comprehensive Business Plan

Freelancers may not always prioritize long-term planning, but a comprehensive business plan is crucial for turning your business practice into a startup. This plan should outline your vision, target audience, revenue streams, and growth potential. It should also include details about your marketing and sales strategies – as a freelancer, you may be used to getting new clients from referrals or from directly applying to jobs or gigs. This is usually not sufficient if you are selling a new product, however (or a productized service). Your marketing efforts need to be scalable, and you need to make sure that the cost of acquiring a new customer is sufficiently low to be covered by the price of your product, otherwise, your efforts to scale your business wouldn’t make economic sense.

Moreover, since you would be investing time and resources into this project, it is important to have basic financial projections.

If you don’t intend to search for outside partners or investors all of this information doesn’t necessarily have to be presented in an official business plan. Creating one anyway, however, is still a good idea as it helps you structure your thoughts and see potential problems in your plans.

This article is presented by Steadily. Read our editorial guidelines for more information.

Investing in real estate comes with risk, and having the right insurance coverage is critical to protecting your rental property investment. Just as each property is unique, your insurance policy should also be custom to your dwelling type, location, duration of the rental agreement, and more. 

Understanding the nuances of coverages for short-term, medium-term, and long-term rentals is especially important, as the wrong type of policy can render your claim denied by an insurer. This is because the risk of a long-term tenant is perceived differently from that of a property rented out on a short-term basis, such as an Airbnb or vacation rental. So, how do you know if you have the right coverage in place? In this article, we will take a closer look at each type of insurance policy and its key differences.

Disclaimer: This article discusses insurance coverage in general regarding what is common in the insurance industry. Every carrier’s policy is different, and it is the responsibility of the insured to review their policy for coverage, terms, and conditions. 

Short-Term Rental Insurance

Short-term rental insurance is designed to provide coverage for properties that are rented out on a short-term basis, typically for a period of fewer than 30 days. This type of insurance is often used by property owners who rent out their homes on vacation rental platforms like Airbnb and VRBO.

Short-term rental insurance typically includes property damage, theft, and liability coverage. This means that if a guest damages your property or steals something from your home, your insurance policy will cover the cost of repairs or replacement. Additionally, short-term rental insurance often includes liability coverage, which can protect you from lawsuits in the event that a guest is injured on your property.

Some short-term rental insurance policies may also include coverage for lost rental income if your property becomes uninhabitable due to damage caused by a covered event. This can be particularly important if your rental property is a major source of income for you. 

Many short-term rental hosts rent out a second home previously covered by a homeowner’s insurance policy. It’s important to note that homeowners insurance covers properties from specific perils such as fire, lightning, and hail, but homeowners insurance policies specifically exclude “business activity.” And because most STR hosts do not live in their rental properties, coverage limitations likely apply. If your insurance company catches wind that your home is not actually occupied by you (or whoever is the policyholder), and the property is damaged by a renter instead, they will almost always reject your claim.

There is one exception in which your homeowner’s insurance may cover your short-term rental, and that is if you are also living on the property. If you have a multifamily property and are living on the premises, your homeowner’s insurance carrier may offer a “unit or residence rented to others” endorsement. This endorsement will cause your premium to increase but will likely be cheaper than purchasing a new line of insurance altogether.

Most insurance providers offer pretty affordable plans, considering the coverage included in short-term rental insurance policies. In addition, you can get a free quote from each insurer to determine how much you’ll need to pay each year.

The average cost for a short-term rental insurance policy ranges between $2,000 and $3,000 every year in the U.S. However, this range can increase up to $9,000 per year if your rental home is in popular tourist destinations like Florida or California. 

It’s important to note that short-term rental insurance policies are not one-size-fits-all. Depending on the insurance company, policy options may vary widely, and the specific coverage you need may vary depending on the location of your property and the length of time it will be rented out. 

Medium-Term Rental Insurance

In insurance, there is technically no medium-term range. Policies either fall into short-term or long-term rentals. Carriers typically look at anything under six months as short-term. However, some carriers extend this to include anything under 12 months. This type of insurance is often used by property owners who rent out their homes or apartments on a temporary basis, such as business travelers, travel nurses, or people who are in the process of relocating. 

The type of insurance policy will depend on the carrier you are working with. Coverages for mid-term rentals are similar to short-term rentals, including property damage, theft, and liability. 

A good, comprehensive policy will include three key protections:

1. Property damage – This covers any damage to the property caused by fire, water damage, vandalism, theft, irresponsible tenants, or other things that could damage the physical structure of the property. Not all policies are created equal – some basic policies only cover the perils that are named like fire, lightning, smoke, and hail. Other policies are broader and cover everything unless it is specifically listed as an exclusion on the policy. Virtually every policy these days includes a COVID-related exclusion.   

2. Loss of rental income/rental income protection – Should something occur that causes your property to be uninhabitable, such as a fire or burst pipe, this coverage provides temporary rental income reimbursement that acts as a replacement for the rent a landlord would be receiving as usual if a tenant was occupying their property. Insurance companies will verify your financials to support the rental income amount, so a landlord won’t be collecting $1,000 per month on a property that was previously rented out for $500. 

3. Liability – Covers any medical or legal fees and settlements, such as lawsuits, bodily injury claims, and settlement costs, that could ensue if a tenant or a visitor were to get injured on the premises.

Additional coverage you may want to pursue to further protect your investment:

• Flood insurance covers flood damage which almost every policy excludes. This is often a separate policy, but can usually be purchased through your same agent.
• Earthquake Insurance covers earthquake damage which almost every policy excludes. This can be purchased similarly to flood insurance as a separate policy. 
• Guaranteed income insurance covers partial or full rent payments if the tenant is unable to pay, something many landlords experienced during the height of the pandemic. This one is always a separate policy.
• Personal property coverage covers your furnishings if you are renting out a furnished rental unit. This is usually available in every landlord policy, so you just need to increase the limit high enough to cover your furniture. If you don’t have a furnished rental, you can still carry a small amount of personal property for appliances and other things you might be keeping at home.

Keep in mind that the amount and type of additional coverage vary from insurance provider to insurance provider.

Long-Term Rental Insurance

Typically called “landlord insurance” or “rental property insurance”, these dwelling policies are intended for people who rent their homes to others on a long-term basis. New landlords often confuse landlord insurance and homeowners insurance, but there are key differences between these two policy types.

A standard homeowners insurance policy protects against building/personal property damage and liability, but it only applies when the property owner lives within the residence. If you’re renting the dwelling out, homeowners insurance won’t cover any ensuing damage.

A landlord may get by with buying a homeowner’s policy if the insurance company doesn’t know they’re renting it out to others, but when the company starts investigating the first claim, they will find out it’s being rented out to someone else, and they could deny the claim and cancel the policy.

Your standard landlord insurance policy will have similar coverages mentioned earlier: dwelling, liability, rental income protection, certain tenant damage, and structures other than the main dwelling, like sheds, detached garages, etc.

You can also consider additional coverages, like an umbrella policy, which provides extra coverage in addition to what’s covered by landlord insurance. 

When it comes to selecting the right type of insurance for your needs, you need to know what is covered and what these policies do not cover. The only way to know that for sure is to read the terms and conditions of the policy you are selecting. This can vary from one policy and one insurer to the next; however, some of the most important exclusions to landlord insurance include the following:

• The tenant’s property. Most policies do not cover the tenant’s property, and many landlords require or encourage renters to obtain their own policy for these items.
• The tenant or landlord’s car. The same applies here, as the tenant should seek out their own coverage.
• Landlord insurance does not cover repairs to major systems.
• It does not cover damage caused by the property owner, such as if a property owner causes damage to the rental itself.
• It does not cover anything that stops working due to normal wear and tear or a lack of maintenance.

Long-term landlord insurance typically costs around 25% more than traditional homeowners insurance. An average policy price is around $1,070 nationwide, dependent on a number of factors, including geo-location, property condition, replacement cost, etc. 

Conclusion

To learn more about short, mid, and long-term rental property insurance, visit Steadily.com to get a commitment-free quote. Steadily has a team of landlord insurance experts who can provide licensed guidance on insurance for rental property owners.

This article is presented by Steadily

Steadily is America’s best-rated rental property insurance provider. Get coverage online in minutes for all property types and all policy durations, including short-term rentals. Visit Steadily.com to get a free quote today.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.