217 – Mitch Stephen – How To Seller Finance 1000 Doors with Private Money!

Synopsis

Imagine buying 100 houses a year. That’s what Mitch Stephen does as he buys a house every 4-5 days in and around San Antonio, Texas. He’s been doing this for two decades already and has bought 2000 houses in his career. Today, he tells us his seller financing strategy that allows him to do this.

Key points

Getting Into Seller Financing By Accident

Mitch got into seller financing by accident when the note buying industry closed for 5 years. At that time, he had 53 houses in his inventory. He had to get people into those houses, put the down payment, and start making the monthly payments.

He realized that he could buy a house, create the notes and sell the notes all in one transaction. By first fixing his underlying acquisition money, he could make a $15,000-17,000 spread. Now he has $26M in private money,

How Does It Work?

First, Mitch buys the property with private money. For example, he uses the $50,000 of private money to buy a house. He sells the house for $100,000 with a 10% down payment. The buyer gets a 30-year fixed note at 10% interest.

Mitch then carries the remaining 90% at 10% interest and pays 8% on the private money.

His private money loans are non-recourse, collateral-only loans. Mitch sets a maximum for how much money he would borrow from private money. The most is $65,000 for a house he will sell for $100,000.

So far, Mitch has never been foreclosed on or been bankrupt. In his entire career, he has lost a total of only $60,000.

Finding A Buyer

Mitch would put up 25 signs around a house. He assigns a number to call for each house. Any interested party can call that number. They get an automated message giving the details of the house. Mitch’s system then captures the number of the caller and puts it into a text distribution list. He uses Livecom.com.

Mitch then can personally call that number himself. His text distribution list costs 2 cents per number and has a 96% open rate. It takes Mitch an average of 9 days to sell a house.

He also has a Facebook page with 7,000 followers. Since he only needs 3,000 followers to be able to sell a house in 9 days, he’s now trying to push up the down payment. He is averaging at 12% down payment now.

Do Good In Good Times, Boom In The Bad Times

Recessions such as the one we had in 2008 and the one we’re in now tend to be a good time for buying houses.

Most people would rather buy a house rather than rent it. But during a recession, banks clam up and give out much fewer loans.

Without loans, people don’t have the means to buy a house. So with more people needing to rent, rental prices go up. House prices also go down because fewer people are able to buy.

This is the best scenario for someone like Mitch to step in and buy houses. He is able to buy houses on the lowest prices and rent them out for much more.

The key is to be prepared to capitalize on the crash. One way is to have a different source of money, like private money.

Advice From An Experienced Real Estate Investor

Seller financing isn’t perfect. There are ways that you could fail. One is when you over leverage. That’s why Mitch sets a maximum for how much private money he will get.

Another is if you don’t have integrity. Lawsuits can break you, so always honor what you promise.

Lastly, always conform to federal and state laws so as not to get into trouble.

Should You Do Seller Financing?

With the 10% interest on his notes, Mitch’s buyers are those who don’t qualify for the traditional 3% loan, But on his side, he checks out whether they are good people. For him, he doesn’t work as an algorithm. He’s a man who can think and rationalize.

Some people don’t have perfect credit for a lot of reasons. Maybe they don’t have enough work experience yet. Or they make money from a side hustle. Or something bad happened that they’ve already recovered from. Mitch likes to get their story first before he decides.

Selling houses to people has benefits. Renters tend to come in, destroy things, then leave. Buyers come in, fix the house, and stay. They put in sweat equity, so they’re invested and will do everything to keep the house.

Since Mitch is the one underwriting the deal, there’s no outside inspection needed. This means that half the houses he sells, he didn’t do any rehab on.

However, this strategy wouldn’t work in the Bay Area, where houses sell for upwards of $100,000. It will only work in flyover states like Mississippi, Alabama, Nebraska, or areas with affordable houses, lots, and mobile homes.

Key Insights From Investing & Podcasting

Podcasting is a useful way to learn a lot of things. Mitch learned that he can collect principle, interest, taxes, insurance, and even the servicing fee from his buyer.

He also learned about using cash advances from credit cards to finance his rehabs.

Mitch also experienced some horror stories back in the day. One time, he refused to pay the $3,000 FEMA insurance on his storage business. Then a hurricane came and leveled his storage units.

He realized then that he should have paid the insurance, then quickly found a way to sell it, and find another location that wouldn’t require that much insurance.

Last Tips

When you’re just starting, you can be more precocious. But when you have something built already, you can let some things slide.

So get out there and buy something. Quit talking, thinking, and studying about it.

References

More from our guest

• Go to Mitch’s website to grab his free resources at https://1000houses.com/.
• Subscribe, Like, and Share his YouTube channel