Ready To Quit Your Job? This New Strategy Will Make You $230K Per Year | Subto Show

On today's Wholesale Hotline (Subto Edition), Pace walks us through a creative finance deal and breaks it all down. Today's episode is part of our Throwback Series where we re-air some of our most popular shows. This episode originally aired on 10/25/2024. Show notes — in this episode we'll cover: Pace breaks down a real estate deal where he expects to make $300,000 by connecting people. How Pace went from a blue-collar contractor to structure high-value deals like this. Olivia, a real estate agent, seeks help for a 1031 exchange client looking for single-family properties -- listen in as Pace helps her navigate the deal. Why deal-finding and networking are the most important keys to success in real estate, far surpassing traditional saving and investing approaches for big financial gains. ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ ☎️ Welcome to Wholesale Hotline & Subto Breakout✌️✌️! ☎️ Need discounts and free trials!? Check this out for the softwares/websites/contracts/scripts/etc we use in our business: ✌️ https://shor.by/pace-youtube ✌️ ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ 🗝🗝 FREEBIES 🗝🗝 📑 FREE assignment contract: https://www.pacejmorby.com/assignment... 📑 FREE wholesale contract: https://www.pacejmorby.com/wholesalec... 📑 FREE cold calling script: https://www.pacejmorby.com/coldcalling 📑 FREE cold texting script: https://www.pacejmorby.com/text 📑 FREE foreclosure script: https://www.pacejmorby.com/foreclosure 📑 FREE disposition checklist: https://www.pacejmorby.com/dispo 📑 FREE comping cheat sheet: https://www.pacejmorby.com/comping 📑 FREE guide to pulling a water list: https://www.pacejmorby.com/water 📑 FREE guide for taking photos on appointments: https://www.pacejmorby.com/photos 📑 FREE seller lead form for talking to sellers: https://www.pacejmorby.com/seller 📑 FREE access to my upcoming ebook: https://www.pacejmorby.com/exitstrate... 📑 FREE profit and loss template: https://www.pacejmorby.com/profitloss ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ Want a site to host your podcast? We use PODCASTICS!: https://www.podcastics.com/?&_rid=12536 ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ 👽✌️ Learn from Pace and Cody 👽✌️ 🔸Follow Pace on IG: https://www.instagram.com/pacemorby 🔹Join our free dope creative finance Facebook group: https://shor.by/8vxk 🔸Dive deeper within my mentorship: https://go.subto.com/pace-sunday-service 🔹Watch Sunday Service live on my YouTube every Sunday at 7 PM PST 🔸Tune in to Wholesale Hotline live on my YouTube every Monday 5pm PST ⚠️ #CreativeFinance #Investing #Wealth #RealEstateInvesting #Wholesaling #SubjectTo ⚠️ ➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖ 🚧🚧🚧 DISCLAIMER 🚧🚧🚧 ❎ I am not a CPA, attorney, insurance, contractor, lender, or financial advisor. The content in these videos shall not be construed as tax, legal, insurance, construction, engineering, health & safety, electrical, financial advice, or other and may be outdated or inaccurate; it is your responsibility to verify all information yourself. This is a Podcast for entertainment purposes ONLY ❎

• 0:00Speaker 00

  Hey guys, Pace Morby here. Welcome to Wholesale Hotline Podcast. Today, we're going to be talking about wholesaling and how you can get started. But I want to tell you, wholesaling is not just an amazing way for you to get started in real estate, but you can also build cash flow and build a portfolio in the process. Today's episode, you will walk away with tremendous notes, but I want you to remember, we do a live episode every Monday night over on my YouTube channel, youtube.com/pacemorby. Head over there and you can meet other audience members and do deals in the live chat. Remember to subscribe, give us a little bit of love, and make some comments in the show notes down below so we know what to talk about in the future. Enjoy today's episode.

• 0:46Speaker 00

  We're back at it again with a whiteboard on a real house that we bought, subject to no money out of our pocket and actually got paid $15,000 to buy the deal. Today, we're going to be breaking down all the numbers. How is this possible? How do I structure these deals? Where does the money come from? If you're not using your money, but you have closing costs and the seller gets some money, where does that money come from? We're going to explain all of these numbers today and how you can also get access to some of that money. So let's jump right into it. House on 3932 West Myrtle Avenue in Phoenix, Arizona. This is an amazing story. We actually have a playlist of the first call I had with her, my first appointment with her in person, second call I had with her closing the deal. We have a walkthrough with Jack Selby at the property. Jack Selby is one of the co-hosts of Ice Coffee Hour.

• 1:31Speaker 00

  So 3932 West Myrtle Avenue was a property that we cold called the seller. I went to the appointment, locked up a sub two contract, and here is the purchase price of this house. So 3.68, 3.85 and 6 cents. That is a very weird number.

• 1:48Speaker 00

  And the reason being is because we took over basically three mortgages. Okay, so first lien position. The first lien is a loan that she has had for quite a while. The loan is 3.75 with a bank, the loan she used to buy the house. She still owes 109,441 and 71 cents on that. So we took over that. We are going to be making that payment, that payment every single month. I'm gonna break this down for you guys, give you guys all the goods. That payment every month, we're gonna add up and say, Pace, how the heck are you gonna make money on this? $1,099 per month. That includes principal, interest, tax, and insurance, that full $1,099. Okay, there's another lien, we didn't really know about this until we opened escrow,

• 2:32Speaker 00

  but there's another lien against the property, another debt she owes, and that is her home equity line of credit at 3% interest. Right now, she owes $127,943.35. That is also through a bank, okay? So that is subject to, I actually have two subject to loans on one house. Subject to for the first lien position, subject to we're doing on the second lien position. Now, the payment on that is $1,300. Cool, so can I take over HELOC, subject to? The answer is obviously yes, here's the address, you guys can pull up the parcel number, you can pull up the county records, see that I actually own the property. And these loans that are in the seller's name, by the way, the seller's name is on both of these loans.

• 3:15Speaker 00

  Even though she walked away from the house, I own it. Cheryl Lynn, you guys can go pull up the documents on public record and find that the loans are still in Cheryl Lynn's name. I didn't have to qualify for these loans, I didn't have to use my credit, I didn't have to get permission from the bank, I didn't have to do any of those things, which is cool. Now, the seller, one of the biggest reasons why she sold to us is because she wanted all her equity out of the house. She had put a lot of time, energy, and effort into making this house into an Airbnb that did not cash flow, but she spent all this time, she took pension money, she's a retired schoolteacher, she took pension money and poured it into this house, and she's like, "I just really want my money back out of the deal." I go, "No problem, I'm happy to give you all that $130,000, we'll put you in third lien position."

• 3:59Speaker 00

  She's the seller, therefore she's financing me, 0% interest, yes, that's legal, and yes, it happens all the time. She's giving me 0% interest at 131 grand. Here's the cool thing. She's taking zero payments for the first 12 months so that I can get the house cash flowing, making money. So she gave me that reprieve. Okay, so 12 months, $500 is her monthly payment once those payments start. So right now, I don't have a payment for the next 12 months. I get the house operating, cash flowing, making a bunch of money, and then those payments start kicking in. That third lien position also is a five-year balloon, which means in 12 months,

• 4:42Speaker 00

  I start making payments, then I have five years of interest-free $500 payments that I will make to her, and then I'm required to pay her off in either lump sum, sell the house, refinance the house, whatever. There's now a company out there that will give me loans in second lien position, and they'll refinance all three of these loans and let me keep the first lien position in place. Firstandseconds.com. So think about that. In like three or four years, when I have to refinance the third, I have to refinance my gator, I have to refinance the second lien, I don't want to get rid of this 3.75% rate that's been getting paid down for years and years and years and years and years. I can go to firstandseconds.com. First and Seconds

• 5:25Speaker 00

  will refinance these three loans and leave that loan in place and consolidate all of this into only one loan. So people ask the question like, well, how do you refinance out your lender? How do you refinance these things if they have a five-year balloon? How are you refinancing? My answer always was you sell the property, you refinance it, or you pay it off in cash from the cash flow from the property. But now, the answer is go to firstandseconds.com, get a second lien position, and wipe all that stuff out. Insane. Okay, so my next lien is my gator, and I don't know exactly how much I needed for this, and that's one of the cool things, is that we're going to tell you exactly how much I need right here. Check this out. I needed a thousand EMD, but that gets refunded back to me, so I don't need to worry about

• 6:10Speaker 00

  that. I'm going to pay myself the pace fee. I like to pay myself on every deal, 15, 20, sometimes $30,000 upfront every time we buy a deal. So I'm borrowing money from a gator to pay myself a $15,000, I just call it the acquisition fee. I pay myself a $15,000 acquisition fee. The seller is behind on her payments on her first lien. So this house, this- Lane was behind. She had her HELOC was also behind on payments, so 7,000. Closing costs with the title company is getcreativetitle.com. Paid them 3,500. We had a TC fee. If you guys need a TC, email [email protected] and she'll help you find a TC that can help you run these transactions for you.

• 6:53Speaker 00

  [email protected]. We then had a title policy. This is an insurance policy that makes sure that all the paperwork was done right. I get an insurance policy. Doc prep, this usually goes through an attorney, which is nice. Renovation and first month's payment. So I borrowed enough money to renovate the property and cover the first two months of payments of these two payments and this payment upfront. So I borrowed money to pay for the payments for the first couple of months and the seller got $5,000 to walk away. Okay, so these are all my numbers. Literally every cost. My team, I've made money in the process, closing costs, insurance, couple of months of payments, renovations. I have $0 in the deal.

• 7:36Speaker 00

  This is how I'm buying deals with no money, no cash, no credit, none of that kind of stuff, and I'm getting paid in the process. So when you see me on Instagram or you see an ad of mine that's like, "You can buy this with no cash, no credit, no credentials." That's what I'm talking about. I did not use a W2 or my own credit or anybody's credit for that matter to acquire any of these three loans. Okay, all three of these loans were given to me. I just take over the payments. This one was given to me at 0% interest with no payments for the first year, which is freaking awesome. So what is the dollar amount that I need to go to a gator for? The dollar amount is 15,000 plus 5,000 equals, okay, this is the actual number I need.

• 8:16Speaker 00

  So 60,540, okay, so $61,000. So my total cost of getting into the deal. Pay attention to this because this is where people are like, "Pace doesn't buy houses with equity." This house actually is going to be underwater in equity. You're absolutely right. Okay? So 368 plus my 61, I'm going to be 400, my actual purchase price with my, my purchase price is these three loans. But I'm putting renovations, I'm paying myself upfront, so this is not part of my purchase price. It's my total cost to get into the deal. My total cost to get into is like 400 and... 430 grand, let's just say. So I'm about $33,000 over ARV into this property.

• 9:00Speaker 00

  Now, of course, I've paid myself money. I'm cash flowing. It's going to make money. But that's the next part of this video that I want to point out is that I structured all of this, sub two, sub two, seller finance, PML. I structured all of this because, and I wanted this deal because it's still going to cash flow a significant amount of money when I turn it into the proper exit strategy. And we're going to turn this into a co-living property. I'm no longer doing pad split. They're charging way too much money in fees. They're killing a lot of the clients that I've sent over there. And so we're just doing co-living and I'm no longer going to be using the word pad split. I'm going to be using the word co-living or shared housing. But what I want to talk about today is what is the cost on a monthly basis? And how am I going to make money on this particular property over the next five years?

• 9:44Speaker 00

  So let's erase this now that you guys have seen this. We're going to talk about the actual six ways to make money in real estate. So the total payment on Myrtle, I have to pay a first lien position at $1,099 a month. I have a second lien position at 1,300 and I also have a Gator at $610 per month. So my total payment, let's just say it's 3,000 bucks, just to make it simple for the rest of the video. $3,000. Remember, out of this $610 payment that we have every month, I brought that from a guy named Kyle, who is also a Gator in the Gator community. If you guys want a list of Gators, we'll give you a link in the description down below. So you guys can have $15 million of Gators at your disposal. So out of the money we borrowed from Kyle, I actually got paid 15 grand upfront. So I've already made money.

• 10:29Speaker 00

  So the first way that we make money in real estate is we make money on fees, upfront fees. And I made $15,000 on this house before I even stepped foot in it. Made 15 grand. Now, I could have made that number anything I wanted, but I chose 15 grand because it's kind of like, that's a good number. That's basically where that came from. And also I have to make sure that this $3,000 payment that I'm making every month, I can not only pay that, but I can make more money on there. So we're going to get into that as well. So I made $15,000 upfront. That's the first way we make money in real estate. The second way we make money in real estate is appreciation. The Fed is lowering rates right now. They're in the process of lowering rates.

• 11:10Speaker 00

  We have massive billion, multi, multi-billion dollar companies moving into Phoenix, Arizona. I think that appreciation in Phoenix is going to go bonkers. And I think over the next five years, mathematically, our state appreciates about 8% per year. I know that's crazy, not state, our city appreciates about 8% per year. So if I bought the property for about $430,000, that's my total in, I'm in the deal for that. But what I bought it for was 368, 368,000. So if I have a $368,000 house, it's going to appreciate every single year 8%. How much will I make in five years on this house? First year, okay, let's do the math on that 368. We're going to multiply that by point 08, 29, I'll make 29 grand in appreciation.

• 11:55Speaker 00

  That's pretty good. So 368 times 1.08, my first year will be off of, my house will be worth about 397. That's cool. Now, this is the law of averages. This is not guaranteed. The market could crash, everything could fall apart. But again, I don't buy only for appreciation. I buy for cash flow typically in the beginning. So 394, 397, 440, times 1.08. I'm at 429,000 in the second year. Multiply that by point 08, I'm at 463. I definitely can see this happening, especially with rates going down and the growth of the market here. Then I'm at 500,000, 659. And then my final year of the five-year projection, I will be at 540,712.

• 12:39Speaker 00

  I can definitely see this house going to 540 in the next couple of years. So I will have made about 100 and, let's just say 145,000 in appreciation over the next five years. That's pretty cool, but here's how I look at that. If the property appreciates that much money, 145,000 divided by 60 months, because that's 60 months, right? I will have made 2,000. $416 per month in appreciation. Appreciation really is why people get wealthy. We get really, really wealthy this way. So fees upfront, appreciation, three is going to be cash flow. So let's talk about the cash flow on this property. As we talked about, I have a negative $3,000.

• 13:22Speaker 00

  On the first of every single month, I got a payment that goes to a first lien position, a second lien position, and a gator. I have $3,000 a month that I have to pay in payments. So I already looked it up on AirDNA. I already looked it up as a regular rental. Let's go over to RentOmeter. RentOmeter's pretty good about this.

• 13:40Speaker 01

  Pretty good. Pretty, pretty good.

• 13:44Speaker 00

  All right, so check this out. I would never do this deal. The only way that this would work, okay? The only way this would work, the average I can rent it is for $21.29. And so, long-term rental, right? If I go, oh, I can bring in $2,129 a month on a long-term rental, I'm gonna lose so much money on a monthly basis. Now, I could technically buy this property, assuming the property's gonna go up in value. That's never a good plan. You don't want to assume the property's gonna go up in value at any specific time. You can guarantee scientifically, all the math has shown for the last 150 years, we've tracked depreciation. The houses are always appreciating, always. And when I say always, it doesn't mean we don't have debt dips and valleys and stuff like that,

• 14:28Speaker 00

  but over time, we have a continual gradual growth. Arizona is an average of 8%. The national average is 5%. Okay? I could technically still buy this deal, lose $800 a month, plus renovations, plus lawsuits of evictions and stuff like that. And I could lose a bunch of money, but still make it up right here. I could still make it up right there and make a bunch of money. But I don't want to do that. So long-term rental is out. I looked this up also on Airbnb, and Airbnb says I can bring in about $3,800 to $4,500 a month on Airbnb. That's not enough for me. I need, I want to make more than that, plus... I don't like Airbnb. Airbnb is getting regulated, number one. I don't love that.

• 15:10Speaker 00

  I think the regulations are killing a lot of cities like Atlanta, Las Vegas, etc. And the bigger thing is that the demand is way down and the saturation is ridiculous. Guys, I don't know about you, but I want to be able to go to a property and be like, "Wait, I don't need to paint the walls pink and do like a theme?" I'm sorry. I know it's fun, but after you do it two or three times, it's like, "Really? I'm not making the money I want." Guys, Airbnb is like a hobby. Are there like the select 1% of the 1% of real estate investors in Airbnb that are hyper-successful? Yes, of course. There's always going to be those outliers. But the overall majority of the people in Airbnb that I talk to are like, "I hate this business. It's so saturated. The demand is up, down, left and right.

• 15:55Speaker 00

  It's very seasonal." And so also, you're not really solving a problem. Like, what are you doing as a real estate investor to solve a problem in America? And what are the problems in America? One of the biggest problems in America is affordability. And you'll see what I mean by this, is that the government rewards us with tax benefits as real estate investors to solve affordability. I'm not solving affordability with Airbnb. And also, I hate the Karens that are on Airbnb. I don't want to renovate the property to make it look perfect and have a theme. I don't want to worry about all these stupid things in a text message at the end of the night. Cleaners, all that kind of stuff. I don't want to deal with that. So what I am doing, I'm doing a lot more co-living, okay? I'm doing a lot more co-living or shared housing, right? Rent by the room.

• 16:40Speaker 00

  You can see Zillow's doing this as well. This is becoming a massive opportunity. And so let's talk about the numbers on a co-living property. This house, we've already talked about the numbers in a previous video. This house will end up having eight tenants, okay? Eight tenants in this property. And the average tenant, we have one room that's going to rent for $1,100 a month, and we've got the other rooms that are going to be renting for about $875. So let's just say the average tenant is paying about $900 a month for living in one of these eight rooms. So we're going to do 8 times $900 a month. That also is assuming a 90% occupancy, so here's what the math is. 8 times 900, so we're going to bring in $7,200 a month in co-living. Look at that.

• 17:26Speaker 00

  Airbnb is going to bring in 3,800. I'm going to deal with Karens and demand issues, saturation issues, regulatory issues, affordability, like I'm not doing anything. I bring in twice as much money by renting by the room. Then we're going to take that number and we're going to multiply it by 90% because the occupancy is 90% on a typical co-living house that we have. We currently have 12. I don't have a lot of them, but I have 12. We'll get, we'll get a lot more. Let's take 7,200 times point nine. The actual money we'll bring in is 6,480 because 10% of the time, we're not going to have people in those rooms paying that daily rate. Okay. 6,480 is our actual number. Hopefully that makes sense where that came from. $6,480 for that property. 6,480.

• 18:10Speaker 00

  All right. Now, I, as the owner of that property, I'm going to have a big buffer. I'm going to have a big utility thing. I'm going to have money set aside for an air conditioning going bad. I'm going to set some money aside for evictions, lawsuits. I'm going to set a lot of money aside. So all of those things included, internet, utilities, cleaning, landscape cleanup, a little bit of buffer for lawsuits and all of those other things. I'm going to take a massive $2,000 out per month to do that. Now, this, when you're comparing the Airbnb number, this doesn't have your management in it, doesn't have your uh-oh budget, doesn't have any of that. That's your top line revenue. My top line revenue of co-living is 6,480. So here's the math.

• 18:52Speaker 00

  I have $3,000 in payments. I bring in 6,480 a month. I also have $2,000 in miscellaneous things that I've got to pay for, for running this property. What is my actual net on this property? My actual net on this property is $1,480 a month. Times 60 months. Let's look at what I can make over the next five years on this one property. Dang, that's 88, but isn't that crazy?

• 19:21Speaker 00

  That you can only make $88,000 on all that cash flow after five years. And your five-year projection over here. Is 145 grand. Appreciation, even when your cash flow is crazy good, your freaking appreciation destroys it. So cool. Okay. So the fourth way we're making money on Myrtle is we will make money on the depreciation. Or a very simple way of saying that is the tax benefits, or another complicated way of saying that is a cost segregation. And you guys can go YouTube that word, cost segregation. Maybe I do a cost segregation video at some point soon, but we'll do a cost segregation, which gives us the ability to offset other income this year. So a very quick out calculation, I will not do a long version of this.

• 20:06Speaker 00

  If I bought the property for 368, times point seven, time, or divided by 27.5, times seven, times point 43. I will save real dollars this year of $28,195 of my taxes. So this is real money. That I would have, I would have given this money to the IRS, but I'm actually going to save that. So 28,195, pretty awesome. That's in the first five years. Now, the fifth way that I make money on this is pay down. Okay, so this house, I'm making $3,000 in payments, right? Making $3,000 in payments. Here I pay down a more, I pay,

• 20:49Speaker 00

  principal and here I pay in principal. I pay this house down about $500 to $700 down per month. Which means that the house, as the house goes up in value, the amount of money I owe also goes down. And so the tenants will be paying that for me. But our pay down, let's say $500 a month, times 60 months, we're going to be at $30,000. That mortgage is going to pay down $30,000. Now, another way that we make money is we make money on leverage. Okay, leverage is when my property goes up in value and my mortgage goes down, I have the ability to use that equity to go do other things. And the way I do that is I go to a company called First and Seconds.com.

• 21:31Speaker 00

  And First and Seconds.com, they allow me to pull out my equity on my sub two deals and refinance and pull out all this equity. Meanwhile, Keeping my original note in place. It's insane. First and seconds.com. So I can go and pull this out and all of that money that I received. So the 30 grand here, $145,000 here, Kyle's $61,000 that I borrowed from him. I can go pull that out. And guess what? I can get a big old check for a couple hundred thousand dollars and I don't pay any taxes on that. And so now I have the ability to get a big chunk of money and go buy more real estate. So this house on Myrtle Avenue, not only will it make me 1,400 bucks a month,

• 22:11Speaker 00

  but I got paid 15 grand to buy it. Like that is the crazy thing. I got rewarded 15 grand upfront. That's what most people need to make in a month. You do one of these deals a month. Think about this. Here's the better math. If I did one of these deals a month, I would make $180,000 this year. Okay? Cool. Make $180,000 this year in fees. If I did 1480 times 12 equals 17,760 of these per month net is how much money you're making in cash flow.

• 22:46Speaker 00

  That's freaking great. Most people could be done, done, done, done in one year of doing this and you do one deal a month. That's it. And you use somebody else's money to do all of it. This is sadly, it's not passive income. You don't want to know why this is not passive is because you have to manage this and you have to deal with the crap that goes with it. So just understand that. But this is, you could get your entire retirement set up in one year by doing 12 deals just like this. And we'll see you. Thank you so much for listening to Wholesale Hotline Podcast with yours truly Pace Morby. Head over to the Instagram if you have some questions. I love answering questions in my DMs. Go to Instagram, look for Pace Morby. Yes, the one with the blue check, not the one that's trying to scam you over some Bitcoin. And ask me a question over there of whatever is not answered on Wholesale Hotline.

• 23:29Speaker 00

  Or maybe you just say Pace, I need a YouTube video that's going to help me do X, Y, and Z. Do you have one of those and somebody on my team or maybe even myself will answer you back? I look forward to seeing you hopefully as a guest on Wholesale Hotline as we do more deals together.