00;00;07;16 - 00;00;34;07
Unknown
What's up? Welcome back to the Seven Figure Flipping Podcast. I'm your host, Adam Witney. And today I want to talk about an insane creative finance model that's being used by institutional and big builder house sellers. So Pluto Homes is who I was looking at. I have a member of my staff at some figure flipping young guy. Amazing human.
00;00;34;07 - 00;01;00;09
Unknown
Been with our team for a long time. Just incredible. He's getting married. He's looking at buying a house. Kind of the normal American dream story. And he brings to me this really interesting thing. He says, hey, I'm looking in this new construction neighborhood where houses are selling between 4 and $500,000. But there's a few houses in the neighborhood that are being offered for literally half the price.
00;01;00;11 - 00;01;28;04
Unknown
What's going on here? So we dive deep into this, and it's a program called Pathway Homes. And what the builders are doing is they're selling half of the house. Now here's where it gets tricky. You buy half the house and then you lease the other half of the house from them. So you're a renter on half, and you're purchasing half to get a loan for half the house like you would normally.
00;01;28;07 - 00;01;48;22
Unknown
You can put in as low as 2.5% down. They'll help you with some closing cost, and you can get into homeownership faster and for a more reasonable price. But now they've hooked you also as a renter on the second half. So now you own half. So you can't really get out of that. You're not going anywhere. You have this feeling of get your house, but only half of its really yours.
00;01;48;22 - 00;02;11;08
Unknown
The other half belongs to the person selling it to you. And there's a couple things with this. There's nuance. There's small print. Well, what about the other half? Can I buy the other half out? Well, sure you can. And in some cases they do do a, an interesting rent to own on the other half where, you know, the purchase price out front.
00;02;11;11 - 00;02;40;18
Unknown
But in other cases, the purchase price for the other half will be set when you're ready to buy it. So the value could go up over the next two years, and you would have to buy the second half of your home at a higher price. This is probably one of the craziest models I've seen. Now in our business, us the 300 deals or less a year with mom and pop investors were not institutional.
00;02;40;20 - 00;03;01;17
Unknown
We've had to find ways to find niches and find ways to get efficiency and be profitable in our business. We've had to use new exit strategies. We've had to, find where the inefficiencies in the marketplace are for us. We're doing a lot of mobile home flipping and land home package type stuff. We're also doing creative finance stuff.
00;03;01;17 - 00;03;38;18
Unknown
And in our Georgia market and those efficiencies have made our business massively profitable. And maybe we're not as bad at real estate investing as some of you guys think you might be. Maybe we're smarter because if the institutions are doing creative finance deals and rent to own to get inventory sold and get the cap rates are looking for, and they have millions of dollars of payroll and smart analytical people.
00;03;38;18 - 00;04;10;23
Unknown
As an investor, don't you think that it might be worth considering expanding your toolbox? Understanding creative finance, understanding how to create more margin your deals by getting creative or finding the inefficiency in the marketplace. If Pluto Homes is doing this in Tennessee, this is in Tennessee, by the way, where our headquarters is, and they're doing creative finance and rent to own deals are selling half of the house to people.
00;04;10;26 - 00;04;47;24
Unknown
That's bringing liquidity into their business and creating consistent cash flow over time. It's the thing we all strive for. There's most certainly something to this, and it's something worth looking into as a buyer. The question, though, is what? Well, should I buy half of a house? So as I talk to my team and the people in our team considering doing that, are you okay owning half of the house, paying rent for the other half and the price potentially going up later?
00;04;47;26 - 00;05;05;16
Unknown
What if you can't afford it later? Then are you really an owner or do you become or are you just maintaining a lifetime, renter ship? Which is fine, by the way. You can be a renter for your whole life. It's not. It's your choice. It's what's most beneficial to you. I like to own things. I really despise renting.
00;05;05;16 - 00;05;32;07
Unknown
Personally. I like to own it. And the truth is, is most of us don't really own much of anything because we put bank debt on it. The banks that really own it, they have the first position liens. So, is that just in your mind? I don't know, it's very personal, but I think that if you buy half of a house and you're renting, half of the house is the combined mortgage and rent less are more than you can afford.
00;05;32;10 - 00;05;48;13
Unknown
Just because you can get into it for cheaper doesn't mean it's going to be monthly. The month is going to be financially sustainable for you. All of these are things you have to look through in your decision lens. What happens to the other half of the house over time? Does it take? When can I buy that other half?
00;05;48;13 - 00;06;04;18
Unknown
What are the terms in which I could buy that other half? Those are the questions you have to get answered because you can't just say, I'll buy half now and then you for x, the value of that second half 2 or 3 years from now and then I can't afford to buy it. Then I'm stuck. You don't want to get stuck.
00;06;04;18 - 00;06;27;10
Unknown
So how do you put yourself into a position of advantage? Now if you're the if you're on the buying into this, recognize and realize that these people are here to make money. They are not here to help you get into a house for cheaper. They are here to monetize and the most efficient way possible. We're talking about institutions here where everything is a number they're looking at cap rates are looking at ROI.
00;06;27;11 - 00;06;52;21
Unknown
They are not interested in the neighborhood or the people. We'll just be honest with ourselves here. Now mom and pop investor, different story. People like us who live in our communities and do real estate in our communities. There's a genuine care there for the community. Obviously, we're all here to make some cash so we can continue to take care of the community, but it's these folks are not here to help you buy things cheaper.
00;06;52;21 - 00;07;11;01
Unknown
They're here to make money and get their investors returns. So I would look very hard at that before I make the decision to do something like that, I would tell you to proceed with caution. I would tell you to do very deep homework. I would want to see all of the paperwork and all of the the fine print on this.
00;07;11;01 - 00;07;28;25
Unknown
But think about this. You're looking at a neighborhood on Zillow, brand new Bell Pluto Homes and these houses are going for 4 or 500 grand. And then you see one for two tenants. You're like, what is going on here? It turns out you're buying. It's called the Pathway Home Program. And you're buying 50%. You guys can look it up.
00;07;28;28 - 00;07;55;16
Unknown
I think it's a fascinating thing. And as a real estate investor who made some hard pivots over the past 18 months to create massive margin, by the way, our company had a 40% net margin last year. That means 40% of our gross profit of our revenue was net profit. It's incredible. And we did that because we found the appropriate niches and the inefficiencies in our marketplace.
00;07;55;16 - 00;08;18;18
Unknown
So, the mobile home flips, the land home packages, the creative finance deals that we're doing that very few people are doing the way we do it, brings a lot of liquidity into our business. So and then we're doing really cool, unique, very targeted marketing that's hyper efficient. We actually just did a two day marketing and sales workshop, which I'll probably do a podcast on that.
00;08;18;20 - 00;08;51;27
Unknown
Here in the near future and how amazing that was. But I walked into some very flipping members who came to this workshop through our targeted omnichannel niche, sequential marketing play. And like, I think people are going to make millions of dollars from that. Like, literally, they're going to take that, execute that, and instead of just spending tens of thousand dollars a month on, marketing and direct mail and things like without intention, where you spend ten to make ten, you spend 20 to make 21, like your margins aren't high enough.
00;08;51;29 - 00;09;10;12
Unknown
They're going to be making big margins the same way we did because we game the play. If we circle back to the Pathway Home program, there's two ways to look at it and think about this. The first way is, as a buyer, should you do it? I think you need to get really deep into what happens with that other 50% you don't own.
00;09;10;12 - 00;09;29;01
Unknown
That's going to be where the decision comes. How do I get that other 50%? How soon can I get that other 50%? What are the strings attached with that? And what's that going to cost me to both rent and pay a mortgage? And then as an investor you should be looking at it from what are these guys doing and why are they doing it that way?
00;09;29;01 - 00;09;54;19
Unknown
Because that that is insight into what's working in today's market. These people are not fools. These are billions of dollars, hedge funds and backed money, institutional money behind these people. These are multibillion dollar publicly traded companies like this is not this is serious stuff. So if they're doing that, they're doing literal creative finance, rent to own stuff. What does that mean to you?
00;09;54;21 - 00;10;15;26
Unknown
You should expand your toolbox, start to think about what makes the most sense for your company. Look at your market, what is the current inefficiency in your marketplace, and are you filling that void? If you have seen anything like this in your marketplace, I want to know about it. Send me a message. I'm on Instagram at official Adam Whitney.
00;10;15;29 - 00;10;35;24
Unknown
Send me a damn on Instagram. I want to hear like, what are you seeing in your marketplace right now? Are you seeing builders do crazy stuff like this? Are you seeing your prices go down or your prices actually going up? Are they holding steady in your market? I'd love to know. I only see my markets, Florida and Georgia and Tennessee, but I'd like to know what's happening in your markets too.
00;10;35;24 - 00;10;50;09
Unknown
So send me a message on official Adam Whitney on Instagram to our most active. I'd love to love to chat with you in here. What's going on in your markets? Thanks for tuning in to this one fascinating, interesting thing. I will see you guys on the next show.
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