On the show today we have one of our favorite Seattle real estate couples, and the best local lease option and note investing teams in the game, Larry Gill & Marishka Pilch of Evergreen Success!
Listen on: iTunes | Stitcher | Google Play
Show Links:
Notes from the show
The Vantastic Life is…
– in St Augustine Florida
The AWESOME Larry Gill & Marishka Pilch of Evergreen Advisors at evergreensuccess.com!
Lease options are very relevant right now.
The tree is up!
They had a stop in Bozeman on the way back from Kauai.
Julie
Might go to Whitefish MT to go skiing on the train from Seattle.
Welcoming Larry and Marishka!
You guys hold a special lane of lease options and note investing!
Larry
Married up to Marishka for her brains, money, etc! And will let Marishka do most of the talking today.
Marishka
Grew up in a builder family, but didn’t start investing until 2007. Grew up in Puyallup WA, and Larry in Harlem MT.
My day job was…
Originating mortgages and a company that devoloped mortgage and loan software. And kind of bounced between that and health care.
Larry had a very successful commercial photography business with a lot of high end clients, but does very little at this point.
Now he’s too busy with real estate, and travel.
Julie
I see all your crazy biking adventures. Do you rent bikes in Kauai?
Marishka
We are actually a little apprehensive about riding bikes in Kauai because of the crazy drivers.
Julie
I tried to rent bikes in Maui, but they don’t rent bikes to kids under 12.
Marishka
Kauai is actually our satellite office.
Julie
What do you guys focus on in your business?
Marishka
We focus on cash flow, but the source will change from time to time. It could be through lease option or holding a note.
Julie
I’ve never head someone answer the way you have.
You focus on cash flow… that’s your business model. That’s awesome!
You have to wear a bunch of different lenses to make that happen.
Marishka
After the crash we focused on lease options and that was a great strategy, but because the market has been strong we’ve been focusing on notes. And that’s just a cash flow play.
We’Ve done private notes with doctors against their practices.
Julie
Have you ever flipped?
Marishka
Nope. We don’t kind of a BURR, but never completely flipped.
Julie
I get it, I use a partner for that. When I got started I tried that, and realized that flippers might not be making all the money.
Marishka
I talk to my CPA and she says that she has to talk with flippers and tell them that after taxes they didn’t really make any money.
Julie
Do you like doing lease options better than notes, or you don’t care?
Marishka
If it serves the goal of cash flow, we don’t care.
Certainly with the lease option we have a lot more face to face, but not everyone is going to be a good fit. The paperwork for notes can be a little tedious…
Julie
I like being a broker, but some people don’t like it.
Is the lease option or note paperwork more tedious?
Marishka
Well, if you have an attorney that you work with… the notes can be pretty straight forward if you’re creating it, but if you’re buying the note there is a lot of due diligence that comes with that.
She told a story about her friend investing in the stock market, and talking about how it’s a trade off.
Julie
Doing business with who you know makes it so much easier.
I see all of these deals being marketed through social media, which is trouble in itself. My theme for 2019 is relationships rule!
“I love relationships”. That’s my focus going forward.
We launched a major update with the Seattle Investors Club. We are going to 4 meetings a year, and local weekly coaching.
I’m excited to do that rather than being a big room and not getting to know everyone.
Marishka
I was sad to hear that, but started to think about how cool that will be.
If you’re doing business with someone that’s getting to know how someone tics.
Julie
I would think that notes and lease options is even more relationship building than the average…
Did I get the answer about which you like better?
Marishka
I like being a deal architect and figure out what’s the best way to put a deal together.
Julie
Which is more work?
Marishka
I think they are about the same.
It’s all about problem solving, and that’s very gratifying.
Remember the house in Federal Way?
Julie
Yeah!
Marishka
That guy did a great rehab, and then the market shifted. So he put a renter in there, and the renters paid each month until they didn’t…
The house was trashed at that point, and had no equity, but we were able to solve that problem.
They found a buyer that wanted to fix it up himself. We did a sandwich lease option.
The guy did a great job on the rehab, he pays on the first every month.
We actually just bought the home, and will let him stay renting there for as long as he wants.
Julie
That’s very interesting…
You’ve found such a good tenant that it make sense to convert that to a traditional rental.
Lease options are a test drive to BURR.
Marishka
What you have to be ok with is selling it if the renter decides to buy the house. And that’s really ok.
Julie
I’ve heard the word… which lense do you have on?
You could have the lease option lense on, but never have the BURR lense on and not be aware of a scenario presenting itself.
Marishka
And I think that’s really true. I think when we started off we didn’t really look at the whole picture until we stared seeing the paychecks at the end of the lease options.
Julie
If you’re doing cash flow and BURR investing… you should have your eyes open to lease options.
How long is your typical term on the option?
Marishka
If I’m doing a sandwich the average term is 3 years, and we try to get 5 years
This is good because you usually get more equity when it sells.
We don’t go beyond 5 years because it becomes an installment sale.
If it gets to 5 years, and the tenant doesn’t want to buy it… we restructure.
I try to keep the option fee to a minimum, but my understanding is that the option fee is not counted as income until the option is either exersized or expires.
I don’t not own the property, but I have interest in the property.
Julie
Holy smokes!
We need to do another podcast about this!
We need a lease option CPA on the show! We will be following up on this.
The seller can’t go longer than a 5 year term or it creates an installment sale for them…
Marishka
What I have had some up is… after 5 years there are a number of different exit options.
Larry
We get a lot of enjoyment of solving people problems. We have a really cool story about something we’re working on right now.
Julie
Do lease options and note investing collide in the same deal ever?
Let’s say your tenant buyer wants to close but they don’t qualify at the moment… can they bring on another buyer that’s not on the loan can this happen?
Marishka
It’s a case by case bases.
Julie
Typically if it’s just a person that exercises their option to purchase the home, but they can’t qualify for the option price…
Is that a scenario that doesn’t come up often?
Marishka
True.
Chance favors that prepared mind!
If you’re only focused on one area you might miss other opportunities.
Another example of a note…
We’re offering a property on a lease options and we want 15k to exercise the option, but they only have 8k
We look at their debt to income rations… we might create a note for the 7k difference for them to add to their monthly payment. Only if they can really afford it.
There are many people who make a very good income, but throw away their money.
Julie
Have you ever had a property that doesn’t appraise?
Marishka
We haven’t had that happen. But do prepare for it.
Julie
Telling a story about a lease option for her listing.
Marishka
The best amenity that you can offer is financing!
Julie/Marishka
A lease option is much safer, always!
Julie
If you want to talk with me on this… come sit down with me on Tuesday or Thursday!
Contact me anytime at julie@seattleinvestorsclub.com
What’s an example of a lease option vs lease purchase?
Marishka
They are similar but have little difference in paperwork. Listen for exact explanation.
Julie
You always want to create a win/win/win for everyone!
Make sure you make a schedule in advance to know who’s paying the gap.
Run us through a standard lease option?
Marishka
A cooperative lease option…
You must keep you day job to keep your buying power with banks.
We work in cooperation with the seller to sell it to the buyer. Basically we’re just collecting a fee from the buyer.
We aren’t a broker because we have interest in the property.
Julie
Are you able to get 50/50 with the seller?
Marishka
We usually get 100%, but will take 50/50 from time to time.
Julie
The buyer is paying for the option fees, but are you structuring that so that the buyers isn’t paying too much.
If you don’t want to deal with contractors… lease options would be a fun way of going!
We are going super long, but this is just so much fun for me!
For all of you guys that have huge tax bills… just telling you what I’ve done before… arbitrage… I’ve had my CPA tell me what my penalty would be… 6% and then I went and loaned out that money at 12% and made 6% on my tax money!
Marishka
Speaking of cash flow…
Maybe you convert to IRA to self directed. Maybe you create a note or property and put it into that for cash flow.
Julie
We are coming up with so many great ideas that we need to do another podcast!
We are going long here…
What’s a sandwich lease option…?
Marishka
You ride between two lease options, in the middle. Listen for more details.
You can create arbitrage at each one of those steps and create more cash flow.
Julie
This is so fun!
What are the legalities?
Marishka
We always have the sellers and buyers go above and beyond to understand, and we always try to do the right thing!
Just always do the right thing!
We’ve had to turn people down because they wrote a bad check to the pizza guy.
Julie
Do you check their credit?
Marishka
Yes we do.
Always check with your attorney.
Some people think that a lease option is seller financing, but that’s some crazy stuff.
There is a lot of gray area still on the lease option subject.
Be careful with crediting the rent towards the purchase.
Julie
Do you have an attorney you recommend?
Marishka
We use different attorneys for different things.
We use Anderson Business Advisors for different things but not lease options.
Josh Burley in Gig Harbor.
Julie
We are about relationships!
Joe
Add your attorney in the show notes at https://seattleinvestorsclub.com/58.
Julie
What is an Rmlo
Marishka
We recommend that all buyers hook up with a mortgage broker to see what they need to do to buy.
Most of the time they’ll need a plan for several reasons.
Julie
Do you hook up with a mortgage servicer?
Marishka
Buildium for property Managment
We tell people that we are going to pay the mortgages ourselves, so we are responsible and make sure the mortgages are paid.
We get an authorization from the seller to speak to mortgage lender or HOA, or anything like that.
Julie
What about insurance?
Marishka
The seller charges from a home owners to a landlord policy and the renter must carry renters insurance, and we have an umbrella policy.
Julie
Anything else?
Marishka
I do the full meal deal to scream the buyers as well.
Full credit and background as well.
Julie
What about premiums?
Marishka
It’s really just market based, and we might just test the waters. If we don’t get a response within a week… we know it’s not priced right.
You can add a premium for the luxury of having the lease option.
Julie
How do you get your deals?
Marishka
We get referrals and look for people who are wanting to sell and look for tired landlords.
Julie
Are you marketing for tenant buyers?
Marishka
We used to. And we have a website for people to sign up on.
When we have new deals it’s loads up our buyers list.
Julie
Home Partners…
Larry
What kind of rum do you like Julie?
Julie
What ever you’re bringing!
Is there an ideal price point?
Marishka
In my view the best risk reward is under the FHA maximum because most of the time… if I’m responsible on a sandwich lease option and I have 5 bills a month, and the tenant can’t pay it’s hard to stomach that.
If the deals are high priced we’ll do a wholesale lease option instead of a sandwich lease option.
Julie
Shout out to Thach Nguyen!
Can you see the deals in front of you? Even if you were doing lease options already.
If you learned something new… make sure to give us a shout out!
Leave a Reply