Today is July 4, 2024. Happy 4th of July everybody! We celebrate America’s independence. We celebrate freedom.
Freedom and independence come in many sizes and shapes. Today, let’s discuss Financial Independence.
Two quick thoughts: First, for most Americans, Financial Independence is a choice that’s achieved through hard work, study, and sacrifice. Second, and this is an old Jack Miller quote, “It’s inconvenient to be physically alive but financially dead.”
Let’s start with the dry stuff:
- According to the Census Bureau, the average American 65 and older brings in $50,209 yearly. Unfortunately, this same group spends $57,818 This is a short fall of $7,600.
- 80% of Americans 65 and over financially struggle to make ends meet and are nowhere close to being financially free.
This morning, I breakfasted at the local Waffle House. Nothing better than scattered, smothered, and covered to start the day! When I walked in, Ms. Bonnie was there to greet me.
Kim and I moved to Adairsville, Georgia in the fall of 1999. We bought a horse ranch – OK, back then it wasn’t a horse ranch, it was a big brick house sitting on top of a 34-acre mountain of Georgia red-clay dirt! We spent months cutting trees, planting grass, and putting up fence line.
Back then, because our home was being rehabbed, most mornings we ate breakfast at the local Waffle House. Ms. Bonnie, the same Ms. Bonnie who greeted me this morning, was our cook. Kim and I loved (and still love) her. She was always happy. She always had a kind word for us. She was a great cook.
Again, this was 1999. Kim and I were far from being masters of creative deal making. Buying our Adairsville ranch was our biggest and most creative deal up to that day. We paid $265,000 for the property, of which we had $9,000 cash and could NOT qualify for a $255,000 loan.
The creative structure: We bought the property subject to the seller’s $112,078 mortgage; plus gave the seller a zero interest $141,900 seller-carry note with a three-month balloon. We then sold our Sutallee, Georgia ranch and paid off the seller-carry note, which took every cent we had.
This is a great example of a Structure Stacking deal…using multiple creative deal structuring tools to make a single deal work.
It’s important to remember, in 1999 Kim and I were baby real estate investors. We had found Dyches Boddiford in 1997, and Jack Miller and Pete Fortunato in 1998. We were far from fluent in the language of creative deal making!
Let’s fast forward to today and breakfast at Waffle House. Ms. Bonnie, after greeting me warmly, told me she had a problem. She said she mailed her rent check on June 27th, but unexpectedly her car payment automatically deducted from her account the next day. She wanted to let me know her rent check would be made good tomorrow and we could cash it.
Let me say it again: Kim and I L-O-V-E Ms. Bonnie. Every day she goes to work and spends hours and hours standing over a hot stove. She’s one of the most dependable people I’ve ever met. She never fails to give us a big smile and a hug when we walk in. Without a doubt, there are angel wings with her name attached waiting for her in heaven!
Something you should know: In 2018, we put one of our Elm Street investment homes up for rent. Ms. Bonnie put in her application. She was living in Cartersville but wanted to live closer to her Waffle House. She’s been renting from us ever since. Ms. Bonnie has taken great care of our property and pays her rent on time.
Here’s something else you should know: Currently her rent is $1,045 per month. We could easily rent the Elm Street house for $1,800 per month. Why don’t we? Because we love Ms. Bonnie!
As I sat at the counter this morning eating the wonderful breakfast she made me, I couldn’t help but to watch Ms. Bonnie. Did you know we’re both in our mid-sixties?
I got to thinking. Twenty-five years ago, when Kim and I met Ms. Bonnie, she was standing in the same spot working her butt off. None of us were anywhere close to being financially free. Heck, none of us had more than $20 in our pocket. Today, Ms. Bonnie is still standing in the same spot, working way too hard trying to keep her head above water while Kim and I achieved financial freedom some years back.
Financially, why is Ms. Bonnie where she is, and Kim and I are where we are? It sure isn’t because of hard work. Ms. Bonnie can work circles around me any day of the week and twice on Sunday. It isn’t because I’m smarter. Ms. Bonnie has been managing Waffle House restaurants and employees forever. It isn’t because Kim and I got lucky. We’ve earned every single thing we have.
So, what is it? I’ve spent all day asking myself this very question.
What did I come up with? CHOICES!
Kim and I made choices that were different from the choices sweet Ms. Bonnie made. We made the choice to seek financial freedom. We went to countless classes learning from the masters (Jack, Pete, and Dyches) about how to structure deals so we could make impossible deals not only possible, but profitable.
And it didn’t stop there. We IMPLEMENTED!!! Over the past 25 years, Kim and I have knocked on thousands and thousands of doors and made thousands and thousands of written offers.
We made choices. We sought financial freedom. We sought education. We implemented.
Kim and I are very different from the investors we were in 1999. Back then I could barely creatively structure a Subject-to Deal combined with Seller Carry Financing. In comparison, let’s look at our latest creative deal. We closed this deal exactly one week ago.
- Kim found this deal while knocking on homeowners’ doors two weeks ago. This is Kim’s deal!!!
- The owner faced losing her house at the July 2, 2024, foreclosure auction. (Two days ago)
- The owner’s house has a fair market value of $265,000. Her mortgage balance was $80,000. Her arrears totaled $7,600.
- The owner was being inundated with investor phone calls and text messages. She was getting 40 to 60 calls and texts a day!!!
- EVERY offer she got was a Big Damn Hammer offer: They’d offered to pay between $130,000 and $150,000, and she would have to move in 30 days or less.
- Problem: The owner didn’t want to move. She couldn’t afford to move. Her mortgage payments were only $813/month PITI. No matter, EVERY offer she got required her to move quickly!
- Our Offer:
- You don’t have to move from your home.
- We’ll buy the exclusive right to buy your house (a Pure Option Deal) anytime in the next 30 years. We promised to not exercise this right for the first 8 years. (The owner determined this number, not us.)
- The Option Consideration is that we agree to pay your mortgage arrearage, bring your mortgage current, and stop the foreclosure so you don’t have to move.
- The Strike Price (the purchase price when we exercise our Option) is: Current Mortgage Balance – Arrearage = Strike Price. ($80,000 mortgage balance – $7,600 = $72,400 Strike Price)
- When we exercise our Option, we will buy it Subject To your mortgage. Currently the monthly mortgage payment is $813 PITI. (Just like with our horse ranch, this also will be a Subject-to Deal)
- The Option will be secured to the property via a Security Deed.
- The Result:
- The owner accepted our offer
- The owner sold us a Pure Option on June 27, 2024, five days before the July foreclosure auction.
- Her arrears were paid up. Her foreclosure was stopped. She doesn’t have to move. She’s thrilled!
- Strike Price: $72,832.05 ($80,452.77 mortgage balance – $7,620.52 arrearage = $72,832.05)
- Amount of Equity We Now Control: $192,167.95 ($265,000 Current Fair Market Value – $72,832.05 Strike Price = $192,167.95)
- If we exercised our Option today, bought the property, then rented it, our net monthly cash flow would be $1,387 ($2,200 Current Fair Market Rent – $813 Mortgage Payment PITI = $1,387)
Yes, this is one heck of a deal. Yes, Kim found this deal by door knocking. Yes, Kim structured this deal. Yes, every day I thank my lucky stars that I’m married to The H-O-T Redhead!
Back to the point: Every day since 1999, Kim and I made the choice to achieve financial freedom. We didn’t let the hardships (of which there were many) and the sacrifices (of which there were many) stop us from achieving this goal.
Look, there are a thousand reasons to quit real estate investing. There are only two or three reasons to keep moving forward. Twenty-five years from now, don’t end up in the same spot where you are today.
YOU make the CHOICE about where you’ll be financially 25 years from today. Make YOURchoice the right one!
Want to learn more about ADVANCED Creative Deal Making? Go to BillandKimCook.com. It’s packed with you-won’t-find-it-anywhere-else structuring techniques and strategies. You’ll also find in-depth video interviews with many of the best real estate investors in the country. Bill and Kim Cook have been successfully investing in real estate since 1990. Their portfolio consists of single-family rentals, Lonnie Deals, a small mobile home park, plus notes and options.
