I'm learning a lot from you. I'm seeing your knowledge. I I watched I I went on your I guess you have a little some seminars that you had done in the past. So I've watched some of those, and I see see some of the some of your speakers. Very very I'm I'm still absorbing everything.

I love it. I think it's a great strategy. It's not intimidating because once you have the knowledge, I feel like it's a it's a no brainer.

It pencils out. It makes sense.

Yeah.

Because cash flow is everything. And knowing as a landlord, like, when they call me and say, hey. My AC's out. In my mind, I'm a troubleshooter, so I know maybe it's the capacitor. So I I have boots on the ground.

I call them and I say, hey. Check the capacitor. And then you know? But I I've gotten that call on the July 4. And then I was like, oh, if if it if it couldn't be a worse time Alright.

You know? And and but you I don't wanna get those calls up. I'm right now, I'm I'm I'm 56. I'll be 57. I'm I'm just I don't want I can't see myself in my late sixties answering calls like that.

Right. Welcome to Property and Paper Live. This is Dawn Rickabaugh, your host. I'm so happy to have you here. If you're on YouTube or podcast, please go over to notequeen.com and sign up to be on a newsletter.

You can join our private community, and you can be a citizen of the realm, and that's totally free. That's a very fledgling fledgling community, and that's the place where I host the entire replay. The one you're listening to now is gonna be about the first half of the call. So you won't don't wanna miss out on the rest because we always have such juicy conversations and real, and we're not holding anything back here. It's just like here we are having a mastermind, you know, stumbling through life and and sharing sharing our wins and our and our knowledge with each other.

So, anyway, we've been going here for a minute. And, now, Adam, go ahead. What what do you got?

Well, I'm prepping to take an ibuprofen, so let me quickly swallow that. A little shoulder ache. My wife and I own a triplex in Los Angeles and have decided that it's the good time to sell. And so we're getting ready to market and thinking through some of the the learnings and lessons that you've brought. I'm I'm thinking about how to potentially sell it do sell it seller carry.

The basics of the deal are that it'll probably sell for about $7.50 or so. We have current loan on it of about $3.75.

Mhmm.

And when we bought it, I borrowed about a $175,000 from my wife. So when it sells, she's supposed to get paid back and then pay back the standard mortgage, and then that's kind of the the rest of the money that we've got. Mhmm. But I'm not sure. You know, we might find somebody who wants to buy it and put down a smaller down payment.

Maybe we carry some of it. But, you know, with with with only about that much equity in it, of figure 375,000, I'm I'm struggling with how we would do a self alert carry without coming up with some cash ourselves to close out that first mortgage.

Yeah. Any

other thoughts that might be suggested, I would I would appreciate.

Very good. And you're in your teeny bit garbly, going in and out.

Okay.

I'm just gonna repeat it. Adam's got, a, triplex worth $7.50, and you've got a first of $3.75 plus the $1.75 that you borrowed from your wife to buy it. Am I getting that right? Or is that

Call a it a quiet second. Yeah.

Call a silent second, if you will. Boy, that was recorded on your flesh. I'll tell you that. That that there was not in public record for that. But, basically, you're encumbered at, plus $1.75, yeah, minus closing costs.

So maybe what are you thinking you'll get away with this $1.50?

Yeah. Not not a whole lot. But the the the $1.50 plus the $1.75, that that's our gonna be our netback, and that's okay. So

it's it's

time to sell it. I'm just not sure if that if we can structure it in any way to do a seller carry. It's not enough of a gain to we paid about 600 for the property, so we've got some gain, but, you know, after all the selling costs and everything, it's not enough to go through a whole $10.31 to try to hide it and and not pay taxes on it. So the question is, you know, do I do an installment sale that defers those taxes out longer, or do I just let it be a wash and and move forward? Well I don't know how, but we'll see.

Yeah. I I mean, to me, I don't know. Other people can give their opinions, but, like, I would carry if someone came in with enough to pay off the first. I don't think I bring cash out of pocket to do it or just sell it and, take take the some liability off. You know?

Your to get your profits. You know, California isn't exactly having policies that that favor things. You know? So it's depending on how you know, what your portfolio overall is like. Personally, I would not take a small down payment or come out of pocket just to carry it.

I don't know. But if if if I did carry, it would I I'd want a big I would want enough of a down payment, you know, at least half. So, you know, that's about that. Right? But then, you know, then you don't you gotta figure out the opportunity cost.

Are do you do you guys know how to you're if $2.50 $2.02 75 is coming back to the family, Do you guys know how to make more than $5.06, 7? Would is there some debt you could pay off? Are there any hard assets that you'd like to position into as we prepare for a very inflationary time. You know, it would it'd be a what's the opportunity cost you're leaving on the table? Owner just because I love owner financing doesn't mean every every deal makes sense for that.

Yeah. I just I just have read some the more things I read and things I'm just like, woah. I'm not sure if I was a first time home buyer or something, I would say, let's go ahead and spend a million dollars and stretch to get in our first home. You know? I don't know.

There there's a lot there's crazy prices. I was talking to a client of mine in Florida, and and they have the same kind of rents and property prices practically as Silicon Valley in the Bay Area. And I was like, good lord. So there's, you know, there's still places where things are absolutely crazy. And parents are giving money to the next generation to give them a chance to get in.

That's the only way that they can that they can do it. The older generations, the boomers have to give up some of those juicy gains that, you know, that we got through, monetary policy and good times in the nation. You know? So, I don't know. But, anyhow, so the topic oh, and I just wanted to remind people now that we're recording.

I did get some an email from someone, in the last couple of days, and I was like, you know what? It's really it's really intimidating to be on the calls. A lot of your people know so much. I feel like I you know? What what I read between the lines is, I'd I would feel stupid to ask the kind of question that I really need to have.

And I just wanna remind you guys that the point of this call is is for the beginner. And but if no beginners ask questions or email me in advance or chat chat it or something, the I I don't know that you have the question. And I know it's embarrassing, but I just, you know, it took me seven years of hanging around this conversation before it was just second nature. And I asked a lot of questions over and over and over. So please don't be embarrassed.

Because I guarantee if you have the question, there's a bunch of other people that have the same question, and they're not on the call live, or they're just too embarrassed to raise their hand and say, excuse me. Can you just explain that one word that you've been using for the last half hour? Right? So, but, you know, I just wanna just just remind people, please engage. And if you're if you don't wanna come on live, put it in the chat or email me privately in advance of the of the next calls because I really want this to be a friendly place for beginners.

And but if nobody else pipes up, then those of us that show up are just gonna talk about, you know, what we're what we're doing. And so let me stop for a quick second. Does anyone who's come on in the last couple minutes have a question or

a Can Adam do a short term rental or Airbnb?

Oh, thanks for piping up. Is it Zed? Yes. Hi, Zed. Hi, Donald.

Go ahead.

Adam. 100% no. Yeah. 100% no. It's a multiunit property in the city of Los Angeles.

It's illegal to use any short term rental less than twenty nine days.

Wow.

And tenant rights for any tenant that's been there for more than thirty days is essentially a lifetime tenancy, and it's in an area that has an extremely anti landlord attitude. And it's time for Adam to exit stage left or right or stage back, whichever stage exit I can

find. Yeah.

Makes sense.

Yeah. Which is interesting because with, Pat Jackson, he I've I, exchanged into a six plex in Saint Joe, Missouri.

Mhmm.

We're turning the whole thing into short term rentals.

And,

basically, it's gonna be more like a motel in a neighborhood, And and and nobody seems to care at the moment.

Oh, well, that's great.

Right.

Yeah. You know, here, that just reminds me. They they in Carson City, all of a sudden, they've woken up to, wait. There's short term rentals. Who has a license?

Nobody has a license because they don't have a license. Right? So then they're all like, how dare these people? How dare these people do exercise their property rights and and do things? We we need to be getting money, and we need we need to be zoning and telling them where they can have them and where they I was like, oh my god.

Here we go. You know? So we we've been running ours for a while, and it's like, you know what? I don't know what's gonna happen, but you just have to always know be watching the regulatory risk that you have can take down your business. Right?

You so if they make it untenable or they say, oh, where you have your Airbnb? It's not allowed or something. You know, I'll just go to minimum, you know, thirty day you know, monthly. I'll minimum. And there's plenty of those people.

I mean, it wouldn't be my favorite thing, but there's plenty of those people that they're relocating. They're on job assignments, and they're

Traveling nurses.

Traveling nurses. The legislators here come every other year for five months. So I'll just change it probably into that, but all you always gotta be thinking everything's phenomenal. And then something like, oh, the city wakes up and says, how dare these people? You know?

They haven't even had a process. You there's no there's no short term rental license to even buy. And I'm just like, okay. Since I like to, I I I like to ask for forgiveness rather than permission, it's like, I'm gonna just go ahead and exercise my free property rights, my property rights to do you know, blah blah blah.

Well well, the other piece to that, though, is that if, you know, if you can get any kind of permit or whatever, like these these ones in Saint Joe, we're actually paying room tax voluntarily and is get is to get yourself grandfathered in. Because as they change the rules, it's a little harder, or they they when they write the new rules, they tend to give priority to people that are already grandfathered in in at times, but it just depends on every political entity.

Yeah. Yeah. So, you know, so one thing we're doing is just like, okay. That income that we assume will just keep going. You know, there's always points of failure, third party risk in almost everything that you're doing.

So just to be aware, okay. That could be coming. And if so, what will I do? And in the meantime, hey. It's let's start collecting a list of people who stay with us repeatedly in case we, you know, go to just managing it privately, you know, by referral only or something like that or just people that have stayed with us before, or just go go to the monthly thing and and just not overcomplicate it.

But, anyway, interesting.

One more. How about a nursing home?

Oh, nursing home. Are you talking about for the triplex?

Yeah. Nursing home or those homes where people are rehabbing from addiction.

Right. Halfway house kind of thing?

Yeah.

I think this is to you, Adam.

So I have two of the three units are rented, and one is vacant. The two units that are rented are they have lifetime tenancy rights, so I can't evict Now there is a rule that says that in California, you can go out of business using something called the Ellis Act, but that also means that you have to pay each person about $30,000, and you can't re rent that property as a rental for at least two years.

So Two years.

Convert it to be something else. Yes. It's Okay. Yeah.

It's You know?

It's it's punitive.

It's I'm in a hightail out of California. Yeah.

And and, yeah, and to answer Don's kinda earlier question, what would we do with the money? The plan is to take that money from there, free the up and clean up our other round fees and then go sell out of state or just not just because every three months, the legislator here is making it more and more uncomfortable for a small landlord that's time to change.

Yeah. So I think you said you're planning to fix up other rentals that are out of state. Is that what you said?

No. Fix up ones that are I I have some rentals in Los Angeles that need work, like

Oh, gotcha.

20 and $50,000 each, and then prepare those to to also be sellable. So the plan is take them take the money from the first one, picks up the others, then sell those. Those ones have even stronger equity positions. I mean, I have some with, like, 20% on the value ratio. So maybe I can do a carry on some of those.

But

Yeah. It's just Yeah. It's

expecting a small time landlord.

Yeah. Yeah. Yeah. Yeah. So my point is I would I'd be rolling out of California, but, like, if on those high equity ones.

But I still I I wouldn't carry in those situations unless I got a big down payment. I would not take a small down payment. I would take 40% plus if it was me just in case Yeah. There's even more more problem or additional collateral. Like, if you don't want the capital gain from a big down payment, just see if they'll put up additional collateral so that you're, you know, you you defer most of the gains, but you still have enough protective equity to to make it sensible.

Does that do you follow?

Yeah. And I follow what you're saying.

Yeah. It's like, okay. What else do you have that you could if I'm only gonna take, you know, 15 or 20% down so I don't have to pay all the capital gains. What else you got with good equity, strong first position equity that you could put up as additional collateral? So just a just a thought there.

But, yeah, the writing on the wall the writing on the wall for for this stuff. Anyway, you know, a lot of times when when I'm talking to people, they're coming into contact with the idea of owner financing for the first time. It's like they're kinda their minds are blown because the myth prevails amongst so many people that owner financing is only for bad credit risk, for crappy properties and crappy buyers. Right? And why would anyone do that?

No one would why would any seller do that? And so I always just tell these stories of, well, as it happens, that one of well, the first property that we bought, this is many years ago now, but that besides our primary residence was a commercial building that was just a couple blocks down the road. And our little four kids, their diaper butts and their pitter pattering and everything around the house, it was kinda hard to work. So we needed a studio away from the home so some actual productive work could get done so we could pay the rent every month. So, anyway, we'd been walking we'd go to the boba shop, and and we'd walk by this building all the time.

And pretty one day, we noticed a little sign in the window, and it said it was handwritten on a eight by eight and a half by 11 white piece of paper taped for sale. Call John. And I'm like, we don't have any money, but I'm gonna call John. You know? Anyway, so one thing led to another, and I think I think the price of the property was something like $300,000, give or take.

And they said I said, well, how much are you gonna need? And he said, well well, right off, I'm not gonna take all cash. I'm just gonna tell you that. And I go, oh. So him him and him and his wife, Pat, who wore a purple knitted beanie all the time, and they ran a travel agency, and there was papers and magazines everywhere stacked up everywhere.

Anyway, they said, this is our primary retirement vehicle. In fact, they paid off their commercial building to get it free and clear before they paid off their personal residence because this was their retirement plan, like, the core. One of the most important pieces is they were gonna carry so that they could defer capital gains. They could have good income for retirement. They were gonna charge an interest rate that was double what the going rate for a CD at the bank was, and it was still a fair rate.

And they wanted to leave a great inheritance. Right? So they wanted the income. So this was their plan all along. And they wanted a 100,000 down, and I said, well, we don't have a 100,000.

I I I probably didn't even have 10,000 I could have put down right then, right, with just at the time in my life that it was and all these four little kids, you know, running around minivans and kids seats and sandwiches in the morning. So it's, you know, the whole bit. It's so gosh. It seems like a long time ago. But, anyway, they said, well, honey, if if you can come up with $50,000, we'll we'll carry the rest for you.

And so my mom loaned us $50,000 for the down payment. And, anyway, I just oh, the big negotiation I did after, you know, these spending a few years hanging around at no conferences and things, it's like, oh, I said, well, you know, it's gonna take us a while to fix it up so that we can actually rent it out. There was three units, and we were gonna owner occupy one. And the other two tenants would cover the principal and interest on the mortgage, so we would basically be renting for taxes and insurance, which was much better than, you know, paying 1,200 a month for some crappy little square box somewhere. So we went bigger than what we needed.

So, anyway, I just said, can you can we have half the interest rate and half the payment for the first eighteen months? Because we're gonna need to put a lot of money in it to get it up to up to par. And they said, okay. So, basically, we had half the regular payment and, half the interest. And so they charge us 7% interest.

They could have gotten, at that time, I wanna say, three and a half or three three and three quarters at a CD in the bank. So they were gonna do double what their next, best opportunity was. And they were deferring capital gains. Right? They they paid very they didn't write the IRS a big check at closing, and they had great income.

But that eighteen months of, the the interest rate made it so that it was almost like $20,000. The before we went to the regular long term deal, it it, we were able to pay down $20,000 extra principal just by asking for just a short time of a smaller interest rate. And so that that helped us in the long run too. So, and what they did is and they can. They could at that time because it's a commercial building.

They put a prepay penalty. Why did they do that?

They don't wanna be paid off just like me.

Yep. Because if they get paid off, what happens?

They they share it. They share it with the IRS.

Yeah. The IRS has to get their peace. Right? Since this was their primary retirement plan, they were gonna do everything to protect it. And they just lived a few blocks away just like we did.

So it was all very everyone's very close and watching over the property and knows what's going on. But, anyway, so I had a it was a thirty year amortization at 7% due in '15 with a 20% prepay penalty if I paid off early. But that worked out great for us because, you know, for I mean, look. It was no money except for we had to come up with the money for the rehab, but my mom put up the money. My mom put up the money.

I had I had some investment that happened from a a job I worked at previously that all of a sudden and I put it I put it in something oh, I I must have put it in, like, GLD or some gold miner or something and just it happened that it quadrupled in value, and that's what paid for the rehab. I took that out. Like, you know, I had to roll over from a previous job. 40,000, it turned into a 160,000, and boom. I had money to rehab the property with.

So, anyway but just saying that and I did. I ended I tried to get around that prepay penalty because we we had to sell, and we we moved, you know, out of the area. And and I tried like the Dickens. I say, look. You know, I tried to get him to take an early payoff.

His parents had died, so the son that was supposed to inherit everything tried to get a short you know, get him to take a a little bit of a short payoff. Hey. We came into some money. Can I want and and he just wouldn't take it? And we're going, dang it.

So we had to pay him the extra, you know, 20% penalty when we sold. But the property during that time, I think it went from 300,000 to 900,000. So I don't know. We did alright. We did alright.

But, anyway, the the point I'm making there is it's it's, I just wanna myth bust. Bust the myth that people won't carry, and why would they? This is a perfect example. I don't know. They just don't they kinda broke the mold of this because it seems like the there's if you know, you know.

You know, a lot of these older folks that it's just been in their blood. This has been their plan all along to build up a small portfolio of free and clear properties, manage them themselves, work hard. Right? And then when they get too tired or they're unable to do all the repairs themselves, then they turn their paper, their real portfolio into a paper portfolio. And, usually, they net about double every month.

Right? Because, well, the appreciation made the house go up a lot, and, also, they don't have property taxes to pay. They don't have insurance to pay. They don't have surprise maintenance and repairs bills to pay. So this, for the people that know, this is really, it's just a no brainer to them.

You don't even have to talk them into it. They're like, it's just obvious. So any comments, questions, or other stories from other people?

I can just share my one broker story where I had a I was teaching real estate principles, and I had taught the agents that all you know, as per California law, all offers have to be presented. And they saw this cute house that they liked, and they wanted to offer this was, like, an 11% market. This was back in the eighties, but they wanted the seller to carry for thirty years. Seller was 88 years old.

Yeah.

And so and but they said, you gotta present all offers. And I went in. I presented the offer. The guy looked at it, looked went right through it, and said, I'll take it. And which, you know, my first question is why would you do that?

And he said, I don't need cash. What would I do with it? And I don't want my kids to inherit cash. He was basic he was basically estate planning, you know, through that seller carry.

To to give them to give them cash flow instead of Exactly. Yeah. Instead of a lump sum that they'll Yeah. They'll go through really quickly. Well, they he may not have known about selling notes.

Right? Because they'll go, oh, let's sell the note.

And and and that's up to them, but, you know, he was doing it his way. As it turned out, he still lived about another five or six years, and the house was sold. And and and we we know that people refinanced it because the rates had dropped. But still, it was my wake up call to never assume what the other party is thinking.

Well and and, Dave, you're you're writing making loans and buying notes that that you plan to leave to your kids. You know? Right? And and so it's just a way to to manage the money. And and it's funny because people don't like, they don't think, oh, I've gotta sell all of my real estate before I die, but they think they have they can't carry a note longer than how long they think they're gonna live.

And I was like, why? You're you're just you're leaving it to the next generation anyway. Right? And, you know, to to that story that you told, you know, giving them cash flow, things that help them live and not have to manage a property. You know, a lot of kids, they inherit it, and they're like, yuck.

I want nothing to do with this. And they get rid of it as quick as they can and often at a at a at a discount. Thank you so much for engaging with my content. If you'd like to participate live and hear the rest of the replay, please go over and join our free community, citizensoftherealm.com. Hope to see you around the queendom.

Take care.

So I have some rentals, and at some point, I would probably be interested in, seller financing, but I know my underlying mortgages are not gonna be paid off at that point in time. And I'm wondering you know, I hear people talk about selling subject to the existing mortgage, and some people are like, oh, yeah. Go ahead. You know, the banks never called a loan. And other people are like, no.

That's not true. You know? They're doing it more and more, and I'm just wondering what your take is

on that. I love the way

it pencils out. It may it's

a win win situation. I I I don't I I think people are afraid of what's not traditional or what's not what they've been taught. They usually used to advocating responsibility to others Mhmm. And they don't feel that they are smart enough or what. But we don't have to be the smartest.

Right? We could use you, and

then we could use other people. Yeah.

You're smarter than us in certain areas. Right. But that's I'm okay with that because I've been doing that all

the this information and go out there and create financial solutions just one mom and pop to another. See you next time. Take care, everybody.