As cliché as it sounds, the only thing that is ever truly constant is change. Bearing this in mind, the only way we can take control of the situation is by preparation. And in a changing market, nothing beats having multiple tools in your tool belt to face the changes head-on. Craig Curelop and Zeona McIntyre invite a very timely guest who can provide us with one of those: creative finance. In this episode, Nathaniel Smith, a pharmacist and real estate investor, takes us through his journey of achieving financial freedom through seller financing. He dives deep into his deals, both big and small, and gives us a peek into how he negotiates terms. Emphasizing the importance of relationships in this industry, Nathaniel then shares insights on working with sellers, partners, banks, and, most importantly, mentors. A changing market is surmountable with creative thinking. Let this conversation guide you in navigating the ups and downs of this industry.
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Seller Financing: A Creative Tool For A Changing Market With Nathaniel Smith
Z, how are you doing?
I’m doing great. I was on the BiggerPocket podcast, so people get ready. That’s coming out, but you’ve got a little run for your money there with the nicknames because David Green was all like, “If my name were yours, I would be Z Mac. I wouldn’t let anyone else call me anything else.” I thought it was a pretty poor nickname, but he was all about it. Know that Z Mac is coming for you. Take it up with David.
Z Mac is like anyone with a last name that starts with Mc is the first letter Mac.
It’s a little basic bitch, but that’s okay. He was excited about it.
Z Mac is not happening. We are going to take kick that right out of here. Eliminate and erase that from your memory. It is Z Money. I can’t wait until you change your Instagram handle.
It won’t happen. In this episode, we have a guest that is timely. As the market is changing, it’s important that we get some more tools for our toolbelt and one of those being creative finance. Our guest talks a bit about seller financing and we go into a couple of deals and how to negotiate some terms. That’s great, but I am personally geeking out on this. If you guys get other good information or you want to tell us about your deals, please reach out on Instagram. I’m @ZeonaMcIntyre. Craig probably doesn’t care so come out to me.
You can always send me a message @TheFiGuy. I respond almost to everybody. One thing I want to say about Nate, he is an extremely smart guy. One of the smartest people I know and you’re going to hear that in this episode. He’s extremely intelligent. Another great thing about Nate is that he is a regular guy. He’s not super famous.
He’s got maybe 200 to a thousand people on Instagram following him so if you give him a follow at the end, reach out, and send him a message, there’s a good chance that he’s going to help you. He wants to feel that. Who you want to reach out to for help are the people that aren’t super crazy that have all these followers and who have hundreds and hundreds of people reaching out to them. Find the people like Nate that are smart but haven’t built their audience yet and there’s your potential mentor right there.
That is so true because people get inundated and then they don’t have time. Someone who is maybe in your local area that doesn’t have too much else going on, it’s not hard for them to say, “Shadow me during the day and see what deals I’m doing.” You can learn a lot from them. I love that tip.
Thanks, Z. Let’s bring Nate to the show.
Nate Smith, welcome to the show. How are you doing?
I’m doing good. Thanks for having me. I’m excited to be here.
We’re excited to have you and I’m even more surprised that you were able to take time in a busy October in the middle of hunting season to come and record with us.
No hunts this week. I leave for an Antelope punt up in Wyoming. That’s the next one. I’m excited. That’s usually a good time.
That’s what financial freedom buys you. It is hunting whenever you want. Why don’t we get into that story of your financial independence? Like any good story, let’s take it back all the way back to the beginning. When did you first hear about financial independence?
I first heard about the concept of financial freedom or financial independence probably 19 or 20 years old. I’ve always had this vent of entrepreneurship. My first-preneur was diving for golf balls in the local golf course pond and goose poop everywhere and all that stuff and selling them. Somebody bought me. That’s colorful, isn’t it, Z?
I liked the first-preneur. I was like, “I’m going to use that.”
Were you colorful or were the golf balls that you found colorful? I love pink, yellow, and orange.
Z and I are tracking. It’s more of the image I placed in the mine there.
Tell us about your collecting poop and golf balls.
Somewhere along there, somebody bought me some books. Probably my dad or my mom. Obviously, Rich Dad Poor Dad was in there at some point that triggered some thought-shifting. We all start off like, “We’ll trade our time for more money and more money if we can.” If you’ve read that book, and I know both you have, that starts to question some things and make a lot of dots connect and you go, “This makes a lot more sense.” That was when that happened for me.
You’re 19 or 20 years old. Are you in college at this time or were you too cool for college? What was your deal?
I was in college. I went to a small state school in Wisconsin, the University of Wisconsin-Eau Claire. I’m fortunate enough to play hockey there. I held down some jobs and then from there, I went on to grad school. That’s where my real estate journey began.
What did you major in grad school?
I’m a pharmacist by trade so it was a Doctorate of Pharmacy and then undergrad, I was in Chemistry with Business Emphasis.
Honestly, I always forget that you’re a pharmacist even though that’s probably your main identity. I think of you as Nate, the real estate investor. It is probably a compliment.
That is a compliment. I appreciate that. I was a pharmacist for six years. I still am. I still hold my license.
When you read Rich Dad Poor Dad at 19 and 20, you realize you don’t need to trade your time for money. You probably don’t need to go to school to get this big fancy degree. The rich dad is the person without a degree, a job, and entrepreneurship. It sounds like, “Maybe I don’t want to be the rich dad,” and you still went for this big degree. Why did you decide to do that?
Some of it is rooted in my parents. They are in medical and they wanted me to go on. I want to make them proud. Long story short, they want to have a doctor in the family so I rebelled hard when pharmacists are way over here. That, and then it provided a good, safe, stable income. I knew if I needed to have a fallback plan, I should have a job that creates a good and safe income. That’s the main reason for continuing on with the degree even though I knew I wanted some different things.
I don’t know what debt you have to take on to become a pharmacist. Maybe the numbers don’t work out, but it’s pretty cool for a financial independence person. I have a friend who’s a pharmacist now and he works 1 or 2 days a week. Because it’s such a high-income job, he can doodle around otherwise. I feel like it’s probably easy to get loans when you have a W-2 high-income paying. It’s easy to get homes.
You hit it right in the head and we’ll probably get into that a little bit later. I hung onto my W-2 longer than I need to for that exact purpose. You look so much better when you go to a loan committee. If you have this strong W-2 income, you have a cashflowing asset. As you said, there are certain jobs you can slowly step away from. You can’t be half an accountant or half an engineer, but in the medical profession, you can be a 0.4 nurse or a 0.4 pharmacist. I thought about that too as I went into it. To hold my license with Walgreens, I had to work four hours a month, so I still dabble a little bit as well.
Another cool thing about being a doctor, for any doctors out here tuning in, there’s this thing called a Physician’s Loan. We haven’t talked much about that, and honestly, I know that it’s a thing. I don’t know the details. It’s maybe 0% down, but can you talk a little bit about that?
I haven’t gotten one either but I know it’s 0% down. I have lots of friends that have gotten this. The time in the life that the physician is supposed to use the physician loan is you get your Doctorate, do the eight years of college, then go do what’s called Residency. Those residencies are generally 3 to 6 years for the ones that I know anyways. A lot of times, if you’re going to move somewhere from 3 to 6 years, maybe you should buy a house. If you’re coming off of eight years of school, you have lots of debt, and no income to show, but they know you have a stable degree and are on the path of getting a very high-income job, that’s when most physicians use the physician loan. That’s what I’ve noticed.
I think there’s no PMI. I’m not sure, though. You’d have to look that up.
If you’re a physician, talk to a lender about that. My question is if a doctor is ten years into their practice, they’re making money, and all that, can they still use the physician’s loan, or is it only for people that don’t have that income yet?
I don’t know that. I’d have to look that up as well. I don’t even know if they were on back then when I came out.
We brought on the wrong doctor.
I wasn’t smart enough to know about that loan option back in the day. I should have been.
It’s all good. Let’s get into how you get your first property. What happened? When you went through these eight years of school, when are you buying your first real estate property? Is it in school or out of school?
I was in school. I graduated with an undergrad and I went to Madison. In between that time, I was a guide on a fishing boat in Alaska. To go up there, it took a decent amount of money and I would ask these people open-ended questions to see what their life is because on the boat, for all intents and purposes, there are multi-millionaires all day. I asked them, “What would you do if you were me?”
I was 21 or 22 years old or whenever I was there. A lot of things kept coming back to real estate, “I own rental properties, I do this, etc.” I came home and I knew I was going to Madison to start grad school. I talked my dad into purchasing a house and renting out the bedrooms. There was a phrase made a few years after that. You might know the guy who made it. That is what’s called House Hacking. I remodeled the basement.
It’s honestly not the best investment from my inventory of investments. It was a three-bedroom house up top and I live in the basement. For a couple of years, another buddy lived in the basement with me so I did four roommates. For two years, I was able to live for free, but it just broke even, honestly. We own that. I bought that in ’10 and sold that in ‘15. The only reason I made money is that you bought anything in ‘10 and it went to ’15 is a pretty good time.
Z, what does this sound like to you?
It sounded like the for real deal.
This is the first deal you ever did as a real estate investor, intentional or not intentional. This one seems to be a hybrid of the two. Tell us exactly the details. It sounds like you bought it in 2010. You convinced your dad to buy it. Does that mean he got the loan and he gave you the down payment?
We started an LLC and he had the down payment money. The agreement was that I would manage it, fill the rooms every year, do the leases, and handle all the day-to-day stuff. We purchased it for $275,000 and we put about $15,000 into the basement, making a bedroom, bathroom, etc. When we exited, we exited for $325,000. It’s not smoking whatsoever. Honestly, I tell everybody that’s my worst investment, but also, the one I’m most thankful for because I learned so much about leases, how to deal with tenants, utilities, etc. That was a four-year crash course and has led to much bigger things as you know.
The super important to say is 1) You had utility. You lived there, you were a student there, and you’re able to give your buddies a cheaper place to stay. There’s some value there, but 2) No one gets rich off of one deal. You get rich in knowledge off that one deal and then you can leverage that knowledge and that’s your best ROI. You can use that knowledge again and again and keep double-dipping.
That’s how you grow your portfolio and gain some serious material wealth. It sounds like you were smart enough that you did that. From 2010 to 2015, you’re doing this managing leases. You’re house hacking before it was cool and a term. You cracked the code before the rest of the world did. Do you graduate in 2015? Is that what happened?
‘14 is when I graduated. I stayed there one extra year living like a college kid making much of money.
You guys sold it, but then, what did you do after that? It sounds like you’ve got a great education. Did the real estate bug bite you and you knew you needed to do something a little more intentional?
I started buying even before we sold that. I started buying a little bit heavier in ‘13. I was almost out of school and I like to learn. I learned a lot in those first three years. I kept educating myself by reading books, listening to podcasts, etc. I realized I did a lot of things wrong then I started to adjust my approach. I went back and invested in a more cashflowing market, which was my undergrad market in the town of Eau Claire, Wisconsin. I purchased 2 or 3 more buildings before I graduated in 2014. I knew I had it dialed and I went crazy from there.
We’ve got a lot of beginners on the show. It’s good if we can go through it slowly. It sounds like you have a big portfolio and you’ve done a lot. Can you go into that very next deal? What did you buy it for? How did you find it? All of that stuff.
My next one was a three-bedroom duplex. I wanted to go cashflow more because this one was breaking even in Madison, which is a much more white-collar market. It’s probably the jewel of Wisconsin. If you’re going to pick a town to invest in Wisconsin, it’s probably Madison. Eau Claire was much more cashflow and cheaper prices. If I remember, I purchased the next one, six bedrooms, for $120,000.
We sold it in 2021 for $248,000. We doubled in eight years or something like that that we owned it. I had a couple of mentors. I’m sure you guys and your fans are all familiar with what’s called a Gross Rent Multiplier. We would take the rent times 85 and if I could get it for that or under, I could do some creative things with financing terms. That’s the equivalent for the audience of a 1.15% rule. It’s better than a 1% rule, but not quite a 2% rule trash property.
Nate, you’re a smart dude. Don’t think that we’re all as smart as you. When you mean gross rent multiplier, you take the gross rent and multiply it by X number and you said that number is 85. If we use the loose math here, $1,000 a month rent and 85 is a multiplier, you can buy the house for $85,000. How do you know what that gross rent multiplier is?
A mentor told me that was it. What he explained to me at that time is, “If you can get it at 85 times, that’s what we would call it for slang, you should be able to finance the entire thing.” As you know, I’m a big seller finance guy, so 100% of it is for 5% or less. Somewhere in there and you’ll still cashflow. That was my metric for the next couple of years. That’s how I bought properties. If it cashflowed, I stacked it and tried to put as much seller financing to make my money go the furthest as possible.If it cash flows, stack it and try to put in as much seller financing to make your money go as far as possible. Click To Tweet
I want to talk about seller financing, but if you have a direct question, Craig, you can do that first.
I was going to ask you, Nate, about that 85. Does that change from market to market or is the market not different there?
When I explain this to people nowadays, I’d assume 85 would be a 1.1% or 1.2% rule so it’s better than a 1% rule. I know Minnesota and Texas are like this. Property taxes are insane. They’re crazy. The house here that I live in Colorado is $3,200. This would be $7,000 or $8,000 in Wisconsin. It’s stupid. That’s what we need to do to get more 1% rule nationally. If your audience wants to think of it as a 1% rule, that’s probably what this is more like.
If you haven’t heard what a 1% rule is, that’s just saying that the monthly rent will be 1% of the total mortgage.
What would you say to people that are saying, “What’s all well and good but 1% is not feasible in my market?” Do you think that they’re not finding the right properties or they should be looking off-market doing creative deals?
It’s challenging in a lot of markets. I’ve run up against that as well. Craig is an expert at that. I pick his brain a lot for the Denver market. You need to get more creative whether that’s Furnished Finder, mid-term, or short-terms to get closer to that 1% rule in a more expensive market like Denver, the Bay Area, or Seattle. That’s what I think you need to do. Be more creative.
Tell us a little bit about seller financing because we haven’t had a lot of guests on our show that do that. Can you tell us how you got into it? Did you learn this from your mentor?
I was brought up with it. When you start to buy properties from property owners that have a decent amount of properties or a big portfolio, it’s more common than you might think. I’ve taken over $2 million in seller financing, whether that’s land contracts or down payment money. It’s knowing how to talk about it. Z, you touched on it earlier in the show, my strong W-2 income was a big part of that. They knew I had money to back it up and I was good for it and coming across as a very authentic person. Integrity is everything in this business. That helped. If you want me to dive into it deeper and how I go about it, I’m happy to do that too.
I’d love it if you could go into one of your early deals and I’m assuming you had to negotiate the terms as well. A lot of times, people think, “There’s a price and that’s it.” When it’s seller financing, there’s how long is the loan term? What’s the interest rate? Do I put money down or not? There are a lot of things that are in different levers so that’s why it can be interesting because you can pull these different levers to your benefit.
You hit everything on the head. There are no rules. Once you get out of the bank box, there are no rules about what can and can’t be done. Early on, I partnered with a guy that was a little further in front of me and the deal I’ll talk about is a deal that opened up things. Craig and I have discussed this deal in the past. We bought and it ended up being 32 units. The purchase price was north of $2.5 million. What happened was that we had a full seller carry, which means I got 80% from the bank and 20% from the seller. It was at 5% for 5 years, that was the term, and on a 20-year amateurization, so roughly $500,000.
Also, on top of that, we asked for credits and walked out of closing. I walked into the closing with no money. I walked out with 32 units and $133,000 because we had a $75,000 closing credit and then you got prorated taxes. We closed on the 5th of the month so we’ve got 25 days of rent and stuff like that. That was pretty cool to do. I was 27 when I did that. I was like, “That’s a game changer.”
What did that $75,000 go towards? Were you like, “Immediately, I’m going to put that into the property to renovate it or improve?”
We started renovating right away. There were two apartment complexes that were very mismanaged. We had managed them in the past. My mentor at the time had managed them for eight years. It was a partnership that had gone bad and they needed to separate the properties so we were comfortable with them. Out of the 17 units in that apartment complex, they had 4 vacant. We started in on a couple of vacant units getting some buzz around the apartment building, decking it out, furnishing it up, taking pictures, and trying to get the buzz going again. That’s where a lot of that went to.
To take it back real quick on the seller financing piece, you’re relatively new to real estate investing at this point. This may sound insurmountable to a lot of people, but this was a giant step that you took that anybody could take. You’re no different from anybody else. The whole idea is that you bought this property with nothing down. I can’t do the math of when or what year that was, why was the seller willing and able to partner with you? You had to partner to close on this house, give them 80%, and still take 20% from him, and not bring that down payment yourself.
One thing I’ve noticed in seller financing deals that I’ve done is that a relationship has to be established. It doesn’t have to be a long relationship, but I’ve never successfully done it if there’s an agent involved. In this situation, the seller and my partner at the time had a very personal relationship. There was trust there and he was a professor at the local college. He liked the idea. I think the payment to him was $4,500 a month. He loved having $4,500 come in month after month and in that buyout, he got over $1 million. If I do $1.2 million, he’s like, “I don’t need $1.7 million.” That didn’t do anything for him lifestyle-wise.
There isn’t a way to do this without partnering. There’s no way a bank would go for that. You can’t get gifted down payments otherwise, is that right?
There might be some loopholes in that, but the bank was totally on board. The bank knew exactly what was happening because it will make them subordinate. The bank always wants to be in the first position. The second is that the seller at that point will have to sign subordination agreements with the bank. It was easier to do. This was back in 2015 when we did this. It’s harder now because a lot of it is harder to come by. It’s harder to make a property cashflow at 75% to 80% LTV versus 100%. That’s what we were doing back then.
If I’ve got this path, Nate, you started with a single-family home, you went to a duplex, and then you bought this huge apartment complex. Is that true?
There’s one single-family in there and 4 other units before I did the 32 units. It’s that one-two and then this big deal.
Tell us what it took to do a mindset shift like that. I’ve been in real estate investing for several years now. Every once in a while, when I’m looking for a small multifamily like a quad or duplex, I’ll see an 8-unit or a 12-unit and I’ll go, “Should I do that? Could I do that?” They’re like, “No. Stay in your lane.” How did you go from that to that? There are probably some people here going, “I heard about the stack from David Green and now I want to go from 4 properties to 12 properties.” They want to get bigger and better. How does someone do that?
That’s one of my bigger deals ever even to this day. To your point, my belief wasn’t there at that time. Maybe where yours is at right now. My mentor had the ability to get that done. I was in a side chair like a sidecar on one of those motorcycles riding along going, “There’s no way this is possible.” We then walked out and it hit me. I’m like, “Anything is possible.”
That honestly set me up for what I’ve done since then. I knew that there were no rules as long as I played by some cashflow metrics, etc. so I would challenge you to think. Craig knows I get pretty creative around a balance sheet, a closing statement, and seller financing. There are not a lot of rules and if you can get out of those boxes that banks like to put us in, you can have some fun.If you can get out of those boxes banks like to put us in, you can have some fun. Click To Tweet
If you guys learned it from him. It’s great to have first a mentor. Also, the people you surround yourself with, you can latch onto their mindset. You can ride in the car next to them and see how easy it can be. That’s great.
I tag along with that. This was an extremely creative deal. Was it just you and your mentor that put your heads together and figured it out or were there some books you read or some podcast you listened to? How do you gain all this knowledge?
There’s no replacement for doing obviously, but I was trying to read up on the topic. He would bring it up and I’m like, “I need to learn about this.” He then went me through the deal. My responsibility during that purchase was to negotiate and talk to the bank. I wrote a big letter to the loan committee because it is a unique loan to go through the board, “I want 80% from you guys. I want 20% from the seller.”
I had to give a presentation to the loan committee to be like, “I’m a hometown kid looking for a start. I don’t have any money right now but I got a lot of good work ethic and we know these properties.” Having my ducks in a row being 27 and not deserving that loan if we’re going to be completely honest. I’m doing whatever I could. I just didn’t know enough at that time.
I’d love to go into a deal that is a little more palatable for people. Do you have any smaller deals that you did seller financing on, like a single-family home or a 1-to-4 unit that you could tell us how you went from start to finish?
Let’s get a recent too and this will be applicable for the next several months in my opinion. Most people have one tool in their toolbelt. “I can do a Fannie and Freddie loan. I can put 5% to 20% down and I get 80% to maybe 95% from Fannie and Freddie.” Those are the type of buyers that unfortunately are going to get hurt in the next several months. The experts, the ones with multiple tools in their toolbelts that don’t look at a mail and go, “I take my hammer and I hit this,” are going to be the ones that win. A blanket statement will be, “The winners in the next 18 months will be the ones that don’t use the bank for financing because they’re going to be expensive.”
These were deals in March and April 2022. I’ve done three land contracts now. One was a duplex for $270,000. What had happened is that a duplex right next door, three doors down, had gone up for sale for $250,000. I got a bid up to $270,000 and sold. I had sent a mailer out a week before. I got three duplexes in that little development to call me because they all saw how much that one went for. That was an astronomical price.
I was like, “I cannot pay you that.” Somebody overpaid for that but I was like, “Let’s try to get creative on this.” I knew that it was two duplexes. He and his wife both owned one. I knew that they were free and clear so I said, “If you guys will do a full land contract hold back at 3% on 30 years, I can reach up and touch that price. I can do that.” I knew that I could barely make a cashflow. I made him hold the note for five years. I know that by five years, hopefully, I’m raising rents and I should be able to refinance out in traditional lending. You have to get creative like that. Otherwise, there’s no way I was going to touch $270,000.
When you say land contract, you mean a contract between you and the seller. There’s no actual land. It’s not vacant land, right?
The way it’s been explained to me is the way that I use the term seller financing and land contract, in a land contract, there’s no bank involved. The entire loan is through the seller. A land contract is a type of seller financing, but when I use the term seller financing, usually, there’s bank financing and in a second position, I use seller financing if that makes sense. That’s how I use it. I don’t know if that’s politically correct.
They’re holding the loan and you have a five-year term, did you have money down? What were the other things that you had to do to lock this up?
I went to them and I should tell you how I terraced it. I laid it out to them like, “Guys, that one down the street went too expensive. I do this for a living.” I talked some sense into them and they lean to this and I said, “If I’m going to pay cash for this, I’ll pay you $250,000.” For the next one I did some seller financing, I said, “If you’ll do a 10% seller financing on top of the 75% I’ll get up from the bank, I can go $255,000. If you’ll do the full hold back, I’ll go $270,000.” I did 15% down on that one. It worked out to a weird number of $270,000 and 15% is right around $40,000. It’s not an even number. I went 15% down and then their note was roughly $230,000 and I was able to sneak those out. They’re nice new builds. They were built in 1998. I’m going to love having them in 15 to 20 years.
Why would they want to do the holdback? What’s the advantage for them?
There are a couple you can talk about. You can talk about the deferred gain. That was a big one for them. The payment worked out to $900 and some odd dollars a month for each of them. It was roughly $1,000 to each of them a month. They wanted that for the next five years. They were right around 65, Baby Boomers, and looking to get into retirement age. They didn’t have a need for a lump sum of money. I was like, “Why don’t you let me pay you $1,000 a month?” Each of them got $40,000 so $80,000 upfront to do that deal. They’re like, “That’s plenty. I’d rather take the monthly check.”
I’ve heard from people that sometimes, instead of going with the interest rate, they say, “What do you want as a payment?” That’s a way that they can figure out having a 0% rate. How did you figure out your rate?
It was April so we were coming up. I wanted to give them the most rate possible. I knew the number that would get it done, the $270,000 so then I figured out the most rate I could give them to make it so I cashflowed as well. You’re right. Some people get hung up on that. They want the highest rate on the seller financing terms.
What I’ve done on tighter deals like big deals, say they’re like, “I need 6% on seller finance second money.” I’ll go interest-only on that money for five years. That will help. It takes the principal paydown on that little section away, but it increases cashflow obviously. If you’re up against that, say you can make the deal work, you can’t do it on a full land contract because you do want some principal paydown. If you’re looking for some seller money, why not make that interest-only if they want more interest? Go ahead and give it to them but do interest-only. It eliminates some of your payments and the cashflow is better then. I’ve done that quite a bit too.
My last question and we can move on from here is if you’re paying interest and you’re paying a high price because you’re paying $270,000, what is the real advantage to you that you don’t have another loan on your books?
That’s something that I get asked a lot. I’ve only ever done six so I still have some available. My wife has eight available because she’s in this house as well. I’ve never maxed out my Fannie and Freddie. I was misguided when I first started. I was told that as soon as you went over 10 properties, you could no longer get 1. When I did that big deal that was nine properties, half the bank said, “You’re no longer eligible.” Those are all commercial loans. All my loans are commercial loans except six of them. Those are generally live-in like I moved into them the standard and then moved out in a year. There’s no worry about me having on my books.
The advantage was I couldn’t get 3%, 30-year am from a bank at that time for 15% down for an investment property. Rates at that time are 4.5% for an investment property and 25% down. Your cash-on-cash return goes way down but if you can only do 15% down, it’s still decent. Let’s say it’s $270,000. We know that the appreciation will go way up, but that’s still not a bad return if I can do that.
One more question, Nate. A lot of people may hesitate to get into something like this. They’re like, “What if, in five years, the prices do go down? What if the world ends? What’s the point B? How do you refinance them?” What do you do?
I have a rule. If I’m going to do over 20% seller financing, it has to be 5 years. If you figure out the math, it depends on the amortization schedule of the first mortgage, but generally, a lot of my stuff is on 20 or 25-year ams. That’s where commercial loans generally are. They’re not the 30-year fixes like the Fannie and Freddie that a lot of your readers are familiar with. If you work out the math, you will pay down roughly 20% of the 2 loans before the 5 years is up. No matter if that’s equal in five years, you will still be able to refinance out of that money. These ones are a pretty good example. I bought them in April 2022. The market has maybe gone down or will go down in the next two years.
I’m betting that in the next three after that, it gets up to at least where it was when I bought it. That’s a pretty strong possibility. I’m 98% positive. Let’s say the other scenario. It goes 3 years into its strong appreciation and then goes down while I still got the 20% I’m paying down over the 5 years and I got whatever appreciation. Maybe it came back down to where it was, but five years is a lot of time, and I bet it’s higher. That’s the key. The key is to not have a two-year note or something like that where you’re you’re stressed. That’s what I think.
That’s the best answer I’ve ever heard of that question honestly. You’re paying off a quarter of the loan in those five years. Worse comes to worst, you’re betting it states, even if there’s a high-case scenario. Even if it does go down 5%, it means you’re leaving 5% in the deal and you’re bringing 5% more to the table. You’ve got other properties that got to probably sustain that one for the time being. Great explanation. I love that. This deal, Nate, was in 2017?
The 32 units were in 2015. The land contract example was in 2022 so that was applicable to nowaday’s market.
Where does your portfolio stand now?
We sit across all the LLCs right around 180 doors. I was trying to look at it now. I think it’s 62 or 63 properties. I honestly don’t know the number of properties. Roughly, it’s a triplex if you do the math there. You do a lot of small multis, duplexes, quads, and things like that. That’s my bread and butter.
180 properties are a lot. What is your goal and why bother with that many?
This has changed anybody’s journey to financial independence. The first goal is to get there and then things morph from there. I had a $10,000 a month cashflow goal for a while after I reach financial independence. Now I have this goal that I want to pass my years and age in assets under management in millions.
Right now, I have 23 so I’d like to pass that by the time I’m 40. I want to have $40 million by the time I’m 40 years of age. I don’t know why. I think David Green talks about this more. I have the cashflow now so it’s more about building wealth. Wealth is more built with assets and they appreciate. I don’t know if it’s not sexy when you begin because you want to have cashflow. All that matters is to get free. After you reach a certain level, you’re like, “I want to start working on more wealth than creating things.” That’s where I’m at right now.Wealth is built with assets that appreciate. Click To Tweet
You’re notoriously investing in cashflowing markets like Wisconsin and these cheaper price markets. Does that mean you’re going to start investing in some bigger cities that have that better appreciation?
I’ve been dabbling. I’m trying to find something in Denver. Kait wants to get a mountain house out here in Colorado. We probably will lean into those. I have these two people on my shoulder. I have the keep-it-simple-stupid, “This is what got you here. You should just stay in your lane.” We talked about that earlier. I have these other guys, “You should go big. You’re a professional. You should go to the biggest market and the best upside.” It depends on which one wins every day. It’s which one I feed more, but we’ll probably start dabbling out here a little bit.
For those that don’t know, Nate and I were in Hawaii together for a week and you said something to me where we were thinking about getting into commercial and all that stuff. You’re like, “You work so hard to do the things that you know now and you’ve already made your mistakes. Reap some of the fruits of your labor. Stay in your lane for a little while and build some wealth.”
Once you get to a certain wealth where you want to be, then you go ahead and try that new thing once that’s stabilizing and you’re good. It sounds like the season that you’re in is that you know your market so well and you could probably do that in your sleep or maybe it’s not even challenging to you anymore. You hit your goal of cashflow. Now, you’re looking for that new exciting thing. Is that about right?
That’s exactly it. I look at deals now that come across my plate for my market and I’m like, “That’s boring.” Boring is profitable if I should be fine with that, but there’s a yearning in a lot of people like us that we want to be challenged, go, and conquer the next peak, etc. There are plenty of benefits. You stay in that lane too and I’m trying to tell myself that. My pod is trying to tell me. They say that I got to get to $30 million and then I can start branching out. I got a little bit more work to do where I’m at. I’m excited about that and filling out the portfolio.
The difference between real estate investors and financial independence people is that there are so many people that are like, “I got $1 million. That’s enough. It’s going to be enough for my lifetime. Why does it matter?” It’s so interesting that you’ve got these lofty goals and people behind you. It depends on whom you surround yourself with.
It’s that simple life. I envy the person that has ten doors and that’s enough. Chad Carson preaches that all the time. You don’t need a lot of doors to be financially independent. I think the goal changes. I’ve heard some of the other people on your podcast. They talk about that too like, “Your goal changes.” I remember I probably had financial independence around 29. I had $5,000 a month in cashflow but that was self-motivating to be like, “It validated that what I was doing was working so I hit the gas a little harder.”
It keeps evolving, unfortunately, for me but that’s the type of person I am. Brandon Turner talks about that. The people that get to financial independence, we’ve made ourselves into beasts that can’t slow down. I can’t go sit for two weeks. That’s not going to work for me. Craig knows I’m an active guy. I’m always doing things and that sounds like a nightmare to me. It’s like locking me in a room and not being able to do anything.
I’m going to use myself as an example. I was telling people this at BP. I have twelve properties, I’m financially independent, and I could totally stop. I’ve been curious about commercial or creative financing and stuff like subject to, because with interest rates being so expensive and people being a little more scared, there are some cool opportunities to take over other people’s debt. Even though I don’t need that money and the strategy, even for my clients, it’s a cool tool to have in my toolbelt. When I do come across these off-market properties or desperate sellers, I can have more ways to negotiate.
Subject to, assumable debt, and seller financing is going to be the name of the game to get good deals done or marginal deals done that other people can’t quite get done in the next several months. You’re hitting on the head and where I think that comes from, and I don’t know you personally that well, but you want to be challenged. You have your twelve doors and that is your next mountain.
You’re like, “This makes sense to me. I’m a smart person. This is the next step. Let’s go do this step now.” We all get like that. Ryan Murdoch comes to mind. He’s like, “I have enough. That’s it.” I envy that person every day. That’s awesome. There’s the businessman and the Mexican fisherman. Do you guys know that quote about the parable? It’s phenomenal. I wish I could be like the Mexican fisherman. I lean too much like the businessman. Every day, I strive to be more like the Mexican fisherman.
You could be and I’m going to plant this little seed. I wonder if there’s some other part of your life that you’re avoiding by working so hard in this one lane. This is my beef with GoBundance. I’m going to throw it out right now. They act like it is a holistic view of seven areas of your life. Everyone is there rah-rah-ing about finance and vocation.
They’re all about, “How much money am I making? What’s my business looking like?” The thing is that we’re like animals. We need to be spiritual and healthy. There are so many other areas of our lives and our relationships, but that’s me being woo-woo from Boulder, Colorado. You can tell me to shut up.
You’re absolutely right about that. Craig knows I had a son. I don’t think I’ve told Craig this. I’ve never felt more urgency to get done what I want to get done with whatever this is because I want to spend more time with him and I have my wife Kait here. We try to check in and make sure that I’m giving her what she needs and filling her tank. Sometimes, I fall short of that.
We have to have weekly and quarterly meetings about, “Nate, you need to cut back your work.” Honestly, I don’t work too much now as much as I used to. I used to pin it back, but you’re right, Z. I say that about mastermind groups, GoBundance, or whatever all the time is, they’re the best thing in the world in the worst thing. They’re very motivating. However, you also watch people’s highlight reels and that’s never good. That’s like social media. It’s best and worst.
I got something to add to that too. It’s easy into the minds and in these other groups to compare yourself to other people because your net worth is right there on a piece of paper and all that stuff. You can’t work so hard year round so that you can show your net worth off to 400 people that don’t give a shit about you. All those people don’t mean anything. Who are your real friends? Who are your real family? Whom are you serving? If it’s not serving your wife and your kids, then don’t do it. I can say it, but to act upon it and do it is something that I’ve been working hard on and I’m getting there. That’s a big thing.You can't work so hard year-round to show your net worth off to 400 people who really don't care about you. Click To Tweet
I had one of those moments when we went to Hawaii. Mike invited me. This was back in May 2022. Craig and I have a couple of other real estate guys who wanted to hang out at this house in Hawaii. To your point Z, Mike is like, “Let’s go next week.” It was pretty short notice. We had 2 or 3 weeks if I remember it. He’s like, “Let’s go hang out for seven days in Hawaii.”
Immediately, my brain is like, “Nope. I got two closings. I got this and this.” All these things are why I shouldn’t go and then Kait, my wife, is like, “Why do you work so hard if we can’t go do what we want to do when we want to do it?” It hit home so we went on the trip and it was awesome. We mastermind and hang out. I catch myself not serving the right master. It is what I’m trying to sum up there a lot.
It’s about that time to head into The Final Four. Nate, before we do it, do you have any final words of wisdom for everybody?
People ask me, “What is the main guiding principle that has guided me to success?” The idea of delayed gratification or if you can do something now that you five years from now will thank you for, you can continue to stack those, whether that’s assets or whatever. If you can be mature enough to do that, that’s going to serve you well in life no matter what area of life that is.
Now, let’s head into The Final Four. Z, kick it off.
Nathan, what are you reading or listening to right now?
I usually use Audible. I get a couple right now. I’m digging through 10% Happier by Dan Harris. It’s mainly about meditation and things like that. It’s like what you were saying of slowing down. That’s a big one for me right now and then Small Giants by Bo Burlingham. That’s about companies that have chosen to stay small and perfect their niche. Those are the two I’m digging into right now.
I love that you knew nothing about that.
Nate, what is the best piece of advice you’ve ever received?
It was along the lines of the advice I gave. It was like, “If you can be emotionally mature enough to not seek gratification now but later in your life, it will come back in spades.” That came from those fishing boat trips up in Alaska, just quizzing people that seemed to be in life where I wanted to be. Just asking them questions, “Are you smart enough to listen?”
They would be like, “If you can stack cashflowing assets upon cashflowing assets, you’re never going to be disappointed in 5 or 10 plus years down your life.” That’s the best advice anybody ever gave me financially. There’s obviously other more advice morally and stuff like that that we can get into because money is not everything. For this show, that’s what we’re looking for.If you can just stack cash-flowing assets upon cash-flowing assets, you're never going to be disappointed in five or ten plus years down your life. Click To Tweet
Question number three. What is your why?
The 10,000-foot phrase is to do what I want when I want with who I want whenever I want. That’s morphed as well. When it started as time freedom, now it’s under things like I want to travel with Kait and I want to be my son’s best friend every day. I want to be able to spend time, mentor him, or teach him all the time. We’d also like to get into some philanthropic work later in life. That’s we’re trying to look to set things up so we can go down that path as well. Those are my main whys right now that keep me motivated. It’s mainly my wife, my kids, my family in the future, and then my philanthropic hopes.
I wanted to insert a little story. I met this guy at an investor meetup here. He had a kid that was going to college and his kid was going to get a side job. He’s like, “Instead of getting a job before college to pay for college a little bit, why don’t we teach you how to flip some houses, and maybe we can make enough money that we can pay your first semester?” They ended up getting more than enough for his first year that summer before. Now he’s got this skill and he’s in these business classes and being like, “Dad, nobody gets what we know.” It’s cool that he was able to give him that and they made it a little bit of a game together. It was a bonding experience.
That’s incredible. I want to do something like that. I haven’t put my finger on exactly what it will be, but hopefully, he’ll know what to do when the time is right.
Nate, final question. What is your superpower?
My superpower is creative financing and I work pretty hard. I work stupid amounts if I have to.
That’s such a cool superpower. Maybe it’s because I’m into creative financing right now.
That’s what makes Nate the great, elite person that he is. Something more fun like can you rub your belly and tap your head at the same time? What’s something you can do that other people can’t?
This is something that a lot of people don’t know. I have a slight hearing deficiency. When I was little, we do those auditory tests. They dinging your ear in your school or whatever. I have had a slight hearing deficiency in one of my ears. That’s morphed me into this. I have a crazy good, and I’ve trained this, game eye. If we’re in nature and you’re walking with me, I’ll be like, “There’s a deer. There’s this and that.” I like to hunt and I do all that and stuff. Other hunters notice that and they’re like, “How do you see this?” I’m like, “I don’t know.” I attribute it probably because I use my eyes more than my ears because I have that slight hearing deficiency. That’s my superpower.
That is a great story. That’s what I was trying to uncover. Z, what’s your superpower? I know you want to share it.
I don’t care about superpowers. I did want to say that hunting is such a smart hobby for a financial independence person because now you can feed yourself. Cut that part of the budget out. It’s great. Look at you being in the threat game.
You have grass-fed organic.
Have you got an elk in your freezer right now?
I got an elk already. We stay off the grid. Craig knows this. We don’t go to the grocery store for any of our meat. I go for chicken every once in a while but we’re pretty self-sustained on venison, elk, antelope, mule deer, and things like that. We try to do that.
Where can people find out more about you?
I’m not the most active on social media. My tag on Instagram is @Dr_Nate_Realestate. I’m on Facebook as well. We got a couple of websites, ProsperPads.com is the management company. I’m working on a new one for Clearwater Capital, a new company I started but check me on Instagram. I try to post some stuff there. Hopefully, you can find it useful.
Check Nate out. Thanks so much for coming on the show. You’ve enlightened a lot of us in a lot of different ways, whether it be seller financing, your hunting skills, or creative things. You’re crushing it and I always love to hear from you.
Thanks for having me, guys. It’s always great talking to you.
That was Nate Smith. Z, what do you think of Nate?
I was happy that first, I brought some depth. We talked about mindset and then I got to ask a bunch of questions about creative finance. That was totally selfish. I want to learn more about that myself. I do think it’d be good for the audience, but sometimes, it’s about me.
That’s the best part about this show is that you can ask people questions, record them, and then everyone else who has your questions can read about them too. Maybe we’re providing value or something, but we’re all doing this for a selfish reason. I love Nate. He’s a smart dude. Reach out to him. He would answer almost anybody that would reach out because he is in that phase.
He’s still building his following and all that and he is not quite at that 2,000, 3,000, 5,000, or 6,000 where he’s got people reaching out every day. Not to give him more work but he might yell at me for telling you this, but that’s good hacking. Not just with Nate but anybody that was in the show that only has a few hundred followers. Those are the people that you want to reach out to because those are your future mentors. Z, anything else you want to add about Nate in the episode?
No. I don’t know if I have anything, but that’s okay.
I wanted some more depth, but it’s okay.
You tricked me. You caught me off guard. I will say that it’s important for people to be comfortable in the uncomfortable. That’s something that he models well. He’s not getting too comfortable. He’s not saying, “I’m going to do my ten doors and chill.” I don’t think there’s anything wrong with that but what I like to say is that I’m scared of a lot of things, but I do them anyway. Getting out there, riding that edge, and doing things that challenge you every day, that’s how you’re growing. I can bring it back, Craig.
You can bring it back. Speaking of bringing it back, if you guys wouldn’t mind, please, leave us a rating and review on iTunes or Spotify or wherever the heck you can leave a rating and review. We totally appreciate it. That’s how the show gets out to all the people that it gets out to and we’re trying to help everybody achieve financial independence in real estate investing. We need your help to make that happen. Leave us a rating and review and let us know when you do. Send us a message on Instagram. I’m @TheFiGuy. Zeona is?
We’ll see you all next time.
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