On the show today we talk about how to… Note Investing with Marishka Pilch!
– Richard Symmes on episode #72 (bankruptcy & foreclosure)
Show notes for Note Investing with Marishka Pilch
The Vantastic Life is…
– is in Riomaggiore Cinque Terre Italy
Joe Bauer: Welcome to the Nuts and Bolts of Real Estate Investing Podcast. My name is Joe Bauer, and I’m here with my co-host Julie Clark. Julie, how are you doing today?
Julie Clark: Joe, I am feeling really good today. I am feeling the Christmas spirit, the holiday Christmas spirit. Yes. As of last night, I officially jumped into holiday season, took me a minute because I’m so busy, but got our tree last night, and actually for the first time in years, I feel terrible about this, but I’m so happy we actually have a big bunch of Christmas lights up at the house outside. I don’t know why, I always get so busy and I wait too long to do it every year, and then I don’t really have … Buddy is kind of the man of the house a little bit.
Julie Clark: He’s weak on the Christmas lighting decoration skillset, but this year we finally got them up. I’m like super feeling holiday spirit. How about you?
Joe Bauer: I love it. Yeah. I mean, I’m in Florida so I don’t know how everyone else feels about this, but I have a hard time getting the holiday spirit when it’s 70 degrees outside.
Julie Clark: Right on. Right on. Where are you guys in Florida? What part of Florida?
Joe Bauer: We’re at this place called St. Augustine Florida that I haven’t heard about but is actually the oldest city in the US we’re told and there’s some cool bunkers and beaches and it’s quite a little touristy area.
Julie Clark: Nice. Well, knowing Florida it might be the oldest city in the US and the oldest people in the US might live there.
Joe Bauer: That’s true.
Julie Clark: [crosstalk 00:02:00] Florida, right? Is there a national park out there or what?
Joe Bauer: No. I was just kind of on our way to Orlando to fly out tomorrow to come and see you guys.
Julie Clark: To party. I hope whoever’s listening out there tomorrow night, we’re throwing a VIP and bachelor party, as well as inviting, of course, some of our beloved Seattle Investors Club members so if you guys made it to the party, what up? I apologize for anything I did because you’re hearing this after the fact. I’ll just say that in advance here or I guess after the fact makes more sense, but looking forward to see you tomorrow night, brother.
Julie Clark: I’m definitely excited for this party and safe travels on your way. That’s for sure.
Joe Bauer: Yeah. Yeah.
Julie Clark: Yeah. Yeah. Yeah. Well, speaking of travelers, right? How’s that?
Joe Bauer: [crosstalk 00:02:53]
Julie Clark: Speaking of travelers, we have some of the most jet-setting investors on the line with us today. That’s our friend Marishka Pilch and Larry Gill of Evergreen Advisors who just got back what? Where are you guys, Kauai, just rolled in?
Marishka Pilch: Well, technically Montana, but just before that Kauai. Yeah.
Julie Clark: Drop off in Montana on the way back or what?
Marishka Pilch: Yeah. Our pilot got confused I think and we ended up landing in Bozeman. I don’t know. It was weird.
Larry Gill: We needed to go to Montana to cool off our sunburns or to [inaudible 00:03:30]
Marishka Pilch: Yeah. Rolled around on the snow a bit.
Julie Clark: Rub it in. What were you guys doing in Montana?
Marishka Pilch: Oh, just taking care of some family stuff but-
Julie Clark: Right on.
Marishka Pilch: … it’s all good.
Larry Gill: Yeah.
Julie Clark: I was just talking to all my friends because I don’t know why I have this bug. Joe, I think you went last year like to Whitefish, right?
Joe Bauer: Yeah.
Julie Clark: They have this train, the Empire Builder that you can jump on like an overnight train, drops you off in Whitefish.
Marishka Pilch: Oh, cool.
Julie Clark: Right? You go to Whitefish Lodge and do some skiing, right, Joe?
Joe Bauer: It is awesome there, the skiing, fantastic. There’s not many crowds. It’s a huge mountain, highly recommend it.
Julie Clark: Totally going to do that.
Marishka Pilch: Larry went to college in Montana because he’s actually a Montana boy, and I think he skipped a lot of class-
Larry Gill: To go skiing.
Marishka Pilch: … to go skiing.
Julie Clark: Yeah.
Joe Bauer: Nice.
Julie Clark: Good stuff. Yes. I am super stoked for ski season this year. Ski and snowboard with my two little knuckle draggers. I guess I’ll call them. Well, one is a knuckle-dragger and the others on the sticks, but awesome, guys. Well, welcome back to the Pacific Northwest, and we’re going to jump into this podcast today. We love it. We’re going to talk about what you guys are up to.
Julie Clark: You guys are a special lane, always hold a special place in my heart for your creative real estate investing in your specialty and lease options and note investing, which is what we’re going to be talking about today, guys.
Marishka Pilch: Cool. [crosstalk 00:05:01]
Julie Clark: Yeah.
Marishka Pilch: Thanks so much for having us on too. We really appreciate it. You guys are awesome.
Julie Clark: No problem. We’ve only been begging you guys for the last what, month? We must be calling you on Aloha time. Finally got you guys dialed in here so let’s get to it and Joe is going to kick us off. Joe, the floor is yours.
Joe Bauer: Heck, yes. The first question guys is always about getting to know you more. We’d love to hear about how you grew up? How you guys got into investing and how that takes you all the way to where you are today?
Larry Gill: Well, I’m going to go ahead and just break in here for one second, and then I’m going to let Marishka do the talking because I really marry it up and I married Marishka for her money and her brains and everything else, and her beauty and so on, but anyway, as many of you that know us know that she basically is a wonderful talker and everything else. I was going to say my hat’s off to my beautiful wife here, and she’s going to … I’m going to let her explain everything.
Marishka Pilch: Well, I say that Larry-
Julie Clark: [crosstalk 00:06:12] Larry, we love you. Just if she says anything wrong just kick her under the table and we’ll see what goes-
Larry Gill: I’ll still be here on the side occasionally. Yeah.
Marishka Pilch: I’ll be watching my Ps and Qs. Yeah. Well, Larry sometimes jokes that I drug him kicking and screaming to his first real estate investor meeting, which was … Oh, I don’t know, probably 15 years ago. Anyway, yeah, I grew up in a builder family so I guess I was always interested in real estate investing, but we didn’t really pull the trigger probably until about 2007. That was a great time.
Julie Clark: Are you from Washington, Marishka?
Marishka Pilch: I’m originally from Puyallup, Washington, born and raised. I’ve actually lived here all my life. I’ve had some different jobs that have taken me around the country, but this has always been my home base and Larry, he grew up in Montana in a little town called Harlem and moved to Seattle probably about 30 years ago.
Julie Clark: Nice. What was your day job back in the day prior to jumping into the real estate game?
Marishka Pilch: Well, I always balance between two different things. One of them was I actually did originate mortgages for a while back in the 90s. Then, that led me to eventually to a company that developed mortgage loan origination and loan servicing software. That was career path A. Then, there was career path B where I worked in healthcare primarily administration, business development that sort of thing.
Marishka Pilch: I bounced back and forth between those two things, and it was during the most recent healthcare administration iteration that we got our first rental property and launched into doing, started doing lease options, and eventually, decided that it was time for me to quit my job and do this full-time.
Julie Clark: Nice. Now, what was Larry, Larry’s background? Was he like in photography or was that just a hobby?
Marishka Pilch: No. Actually, Larry had a very successful commercial photography business for about 30 years. He built it from scratch, had a lot of big-name clients in the Pacific Northwest. He does very, very little of that now. There’s a couple of clients that he just has a lot of loyalty to, and so he still does the odd job for them here and there but quite-
Julie Clark: I got an odd job for Larry. Larry, Larry, bring your camera to the [crosstalk 00:08:46]-
Marishka Pilch: No. No. He doesn’t do events photography at all.
Julie Clark: Come on.
Marishka Pilch: Yeah. His sister a lot of times, she’s like, “Oh, why don’t you come to our house and we’re going to have this party or whatever … Oh, and bring your camera.” Like, “Oh, gee. Do you want to hire somebody or do you want family there?”
Julie Clark: Right on. Right on. Well, I have a feeling we’ll twist his arm somehow.
Marishka Pilch: No doubt. No doubt. But anyway, yeah. He’s just too busy now that we are full-time if you will as the real estate, and I guess keeps us busy, and then, in between, we’re traveling and riding our tandem bike and having a good time.
Julie Clark: That’s right. You guys are bike riders. That’s right. I see all your crazy adventures there on social media where you guys always seem to have a bike with you somewhere. What do you do, you rent bikes in Kauai since you seem to be there all the time?
Marishka Pilch: Actually, that’s a really good question. We have looked enviously at bikes, bicyclists in Kauai, but we’re a little apprehensive because you have to watch out for both the tourists who they’re gawking at everything, and so you’re worried they’re going to crash into you, and then the locals who drive like crazy people so we’re a little apprehensive about riding there. Although we did rent bikes once in Kauai and there’s a nice little trail on the east side going through Kapa’a. It’s about … I think it’s like what, 70-mile trail now or something like that, and goes right along the ocean and really lovely but there are rental bikes, and so they were what they were.
Julie Clark: I just tried not too long ago to rent bikes in Maui for the girls and myself when we were in Maui and they don’t rent bikes to kids like under 12.
Marishka Pilch: Oh, really?
Julie Clark: Some weird rule there. Yeah. Liability or whatever but … All right. Well, let’s get on to the good stuff here, although that was probably the better stuff, let’s just say, but-
Marishka Pilch: Well, we do. That is our second office. We like to consider Kauai our satellite office so we try to get there as often as possible to [crosstalk 00:11:01]-
Julie Clark: Oh, I’ve noticed. Yes. Larry’s always wearing a Hawaiian shirt too.
Marishka Pilch: Yes. Yes. Near and dear to his heart.
Julie Clark: That’s right. Right on. Okay. Well, when you’re not vacationing and riding bikes tell us, tell the listeners today, what do you guys focus on in your business? Is it lease options and notes or one more than the other or … tell us, give us the update there.
Marishka Pilch: Yeah. No. That’s an interesting question because the strategy might change a little bit from time to time, but one thing remains constant and that is cash flow because cash flow can give you mailbox money every month whether you’re working or not, so whether we achieve cash flow through a lease option or we achieve cash flow through holding a note or creating a note, that’s really our focus. If cash flow isn’t part of the equation we’re probably not going to be interested in-
Julie Clark: You know what’s awesome about what you just said? I’ve actually never … I don’t think I’ve ever heard anybody answer the question in the way that you did. When I say, “What do you focus on in your business?” People might say, “Oh, I focus on flipping or I focus on BRRR or I focus on this or that.” You pretty much just said, “Oh, our business is we just focus on cash flow and whatever investment tool that is that works to bring us that cash flow, that’s our business model. Our business model is to make cash flow.” [crosstalk 00:12:36]
Marishka Pilch: Yeah. Yeah.
Julie Clark: That’s awesome, right? You need to wear a bunch of different lenses in order to maybe make that happen, right? There is no one way to make that happen.
Marishka Pilch: Exactly. Exactly. After the crash is when we first got into lease options, and that was just a really, really wonderful strategy for a number of years. I mean, we made some great money and we solved a lot of people’s problems, and we got a lot of would-be home buyers into homes, and they eventually bought. It was a really great strategy, but the last couple of years the market has just been really strong and lease options haven’t been a major … They’ve still been a factor, but they haven’t been the major focus of our business because the market just didn’t dictate it. We shifted gears and primarily we’re focusing on notes and seller financing and that, again, is a cash flow play.
Marishka Pilch: It just works well, and the thing is it’s not even all about real estate necessarily. We’ve done private notes for physicians and secured the note against their medical equipment. It’s all cash flow.
Julie Clark: Nice. Awesome. Awesome. Have you guys ever flipped or did you ever-
Marishka Pilch: Never. We have never flipped. We’ve done some light rehab on a property, but I think that most we’ve probably ever put into any house is what, 7500?
Larry Gill: 10.
Marishka Pilch: 10,000 maybe, but that was not on a property that we plan to flip necessarily, it was just we recognize that, “Hey, if we put some money into a property, we’re going to command a higher monthly payment for it and ultimately a higher sales price if we end up selling it.” It’s kind of a BRRRR if you will, but we’ve never gone into the flipping thing because, for us, that just … That’s a lot of work.
Julie Clark: It is. Yeah. It is. It is. I flip with a partner now because I have other interests as well, and I’ve always just felt like it’s so much work that I’m good at finding the deals and excellent at brokering the deals. I-
Marishka Pilch: Absolutely.
Julie Clark: … [crosstalk 00:15:02] buy hold multifamily game really well as well, so in the flip world, I’ve always just … while I, when I first got started I started flipping, then I realized, “God, I don’t know if the flippers are the ones actually making all the money.” I change-
Marishka Pilch: Well, it’s interesting that you say that because I was having a conversation recently with our CPA, and she said, “Yeah. I have a lot of clients who are flippers, and I have to explain to them that after taxes and everything, they really didn’t make any money.”
Julie Clark: Yeah. The tax stuff when it comes to just the ordinary income associated with just brokerage and flipping … I like though using it as a tool like being opportunistic to just pile up money to then invest in-
Marishka Pilch: Absolutely.
Julie Clark: … passive and cash flow properties. It’s basically and ends, means to an end.
Marishka Pilch: It’s a cash influx so that you-
Julie Clark: Yeah. You need cash to invest so you got to keep your cash machine running so you can then invest in better properties that are more, maybe you’d been passive investing, of course, and then better tax scenarios for yourself. Let me ask you getting back to you, guys. Do you like lease options better than notes investing or you don’t care?
Marishka Pilch: I think we’re probably, I’d say we’re asset and strategy agnostic. If it serves the goal of creating cash flow, we’re interested.
Julie Clark: But I mean as far as like enjoying the process, right? Like some people like in my world, they’re like, “Uh, god. I don’t want to be a broker.” I love it. I love brokerage. I like the people part of it. I don’t like the paperwork part of it, but I just like the people part of it.
Marishka Pilch: Right. Right. I think anytime we can … you mentioned the people part, and I think certainly with the lease options, you’re having a lot more face-to-face discussion with probably a seller of a property and/or a tenant buyer, prospective buyer of the property who’s going to rent it for a while and solving their problems and everything. But not everybody’s going to be a good fit, and so there’s that and the paperwork sometimes can be a little tedious when you’re doing a note, buying a note, creating a note, but you have to do paperwork and you have to have good paperwork for a lease option too.
Julie Clark: Is the lease option paperwork versus the note paperwork is one more tedious than the other? I almost think that the note stuff would be easier.
Marishka Pilch: Well, it depends. If you’re creating your own note, you know what you have, right? That’s very clean. You might have an attorney who you work with who helped you create your paperwork, maybe the first time, and then you just kind of recycled it going forward, and you can do the same thing with the lease option, but if you buy … say I’m buying a note from someone, there’s a lot of due diligence that has to occur.
Marishka Pilch: There’s due diligence when you buy a house too, but it’s a little different with the note paperwork. You need to kind of dive in if you’re buying a note that’s already existing. You’ve got to make sure that there’s a good chain of title, you want to look at the note itself.
Julie Clark: We have to do due diligence on the owner, whoever’s paying the note, right?
Marishka Pilch: Yeah.
Julie Clark: Which you don’t know what you do on other types of investments. You’re having to research that person.
Marishka Pilch: Yeah. There’s a lot of due diligence that goes along with that, but I mean that’s true really of almost any investment or there should be true of any investment. We have a friend who I was chatting with her, she’s like, “Wow. You really have to be on your game to be doing what you’re doing.” I asked her, I said, “So, what do you do?” She says, “Well, we invest in the stock market and our broker handles all of that.”
Marishka Pilch: I was like, “Well, okay, so your broker, they probably get paid whether you make money or not, right?” “Well, yeah.” “How much due diligence have you done on your broker and how much due diligence have you done on the underlying assets that you’re buying?” It’s just all a tradeoff, right?
Julie Clark: Right. I think I just did a video, it’s the same in wholesaling and in flipping. I was trying to tell people, whether you’re the wholesaler selling or you’re the investor buying, doing business with who you know is such a crucial … I mean, part of the process for success, and to get away from problems. I like I said I see all these posts and deals being sold or I guess, I’ll say marketed through Facebook threads, in social media, which in itself by itself is a problem because if not done correctly and legally.
Marishka Pilch: Exactly.
Julie Clark: On the second hand, buying a property of somebody, selling a property as a wholesaler to somebody that you don’t even know is asking for trouble, and buying a property from somebody you don’t know is oftentimes asking for trouble. My theme for 2019 is relationships rule.
Marishka Pilch: Yeah.
Julie Clark: Right? Everybody needs to … I’m not talking about networking, okay?
Marishka Pilch: Right.
Julie Clark: I’m talking about relationships.
Marishka Pilch: Knowing.
Julie Clark: I’m going to create my own t-shirt with a saying I love relationships or something like that because that’s my focus here going forward. I think you guys all know this, but we’ve just announced a major format change with Seattle Investors Club. We are still going to be having 12 meetings a year, but they’re going to be condensed into quarterly meetings, maybe with three sessions, but kind of a bigger event day instead of doing monthly meetings.
Julie Clark: Then, we’re going back to the old school relationship building and we’re adding some awesome, awesome new stuff on for the Seattle Investors Club members, which is free local coaching, roundtables, smaller group, twice a week, north location and south location. I’m so excited to just get back to really being able to get to know people rather than being in a room with 50 or 100 people. I can do that because there’s so many meetups now, I can go do that somewhere else.
Marishka Pilch: Yeah. That is so true and I was … On the one hand, when I saw that announcement, I was like, “Oh, that’s kind of sad.” But on the other hand, I was like, “You know what? That really makes so much sense because-”
Julie Clark: Well, still, everybody is still willing to come and talk, and it really … There isn’t like something got taken away [crosstalk 00:22:14]-
Marishka Pilch: Right. Right.
Julie Clark: … a massive … I mean, who gives free coaching?
Marishka Pilch: Right. Right. The thing is just like you say having a relationship with someone, whether it’s a business partner or … Let’s face it, when you’re doing real estate deals, whether they’re wholesaling or flipping or lease options or a note, that’s a business relationship as well. Getting to know that person really well and understanding kind of what makes them tick and how they’re going to react to a certain set of stimuli and can you count on them? That’s a big deal, and that is part of due diligence.
Julie Clark: Yeah. I would say it seems like with lease options and note investing, both, either one of those is that, that is … even requires more almost relationship building. You really got to dig into people’s wants, needs, and situations more so than maybe buy enough a wholesaler, whatever, like we said so which investment strategy between the two … We talked about which one you like better, I don’t know if I got the answer just from the pure joy standpoint because I piped in and we got sidetracked there for a minute. What do you like? Which one do you like better? You got to pick one.
Marishka Pilch: Oh, gosh. How about I pick a third and just say a deal architect. I like being able to architect a deal and figure out what’s going to be the best way to put this deal together and solve everybody’s problems.
Julie Clark: That’s a good work. I like [crosstalk 00:23:54]-
Marishka Pilch: Sometimes it’s going to be a combination, Julie. You know what-
Julie Clark: A deal architect is a good word. That’s a good word. I love it.
Marishka Pilch: Well, I stole it. [crosstalk 00:24:02] I didn’t come up with it myself, I don’t think but-
Julie Clark: Right on. Well, which between lease options and note investing is more work? Is there one that’s more work than the other?
Marishka Pilch: I don’t think so. I’ll flip this. I’ll say, “If you’re buying a performing note there’s some due diligence that occurs up front. Then, you place it with your servicer ideally, and then you just collect monthly checks, and that’s it, you’re done. Once a year you give your 1099 to your CPA and that’s about the extent of it. With a performing note, that’s how that works.
Marishka Pilch: With a non-performing note, I mean we had a gal who … she’d run into some hard times and we’re carrying the note on her property and she hadn’t been making payments for a while and I decided to reach out to her, and I ended up … This was while we were in Kauai. I had an hour-long conversation with her, this gal who had not paid her mortgage in almost a year and she had some health issues and divorce and just a number of things had happened and she thanked me probably five times during our conversation.
Marishka Pilch: Thank you so much for reaching out. Thank you so much for talking with me. Thank you for being a real person. I was apprehensive when I picked up the phone because I didn’t know if she was going to, “Oh, screw you.” Hang up on me or whatever. But I just wanted to find out, “Hey, what’s going on?” I told her, I said, “Look, we’re just real people. Yeah. We hold the mortgage on your house, but we’re real people, and I just wanted to reach out to you and see if we can solve this problem.”
Marishka Pilch: That was very gratifying. On the other hand, we’ve had folks who had a problem house that they just haven’t been able to unload and for various reasons, and when we found a solution for them … In fact, you remember one of them, Julie. You came and looked at it. Remember that house in Federal Way?
Julie Clark: Yeah. I remember that.
Marishka Pilch: Yeah. Well, that house the guy had bought it in 2007 or ’08 something like that, had done a beautiful rehab on it, and then the market crashed and he was scrambling to try to salvage his investment, and so he put a tenant in there, as per usual, he didn’t do much … he didn’t do any screening, I don’t think, and the folks lived there for a number of years and paid rent, on the first, every month, in cash, until they didn’t.
Marishka Pilch: They called him one day, and said, “We’re out of here. Keys are on the table.” You looked at it, that place was a dump, and there was no equity. I remember you said and I checked with a couple of other people too who I trust, and they’re like, “Yeah, the numbers just don’t work here.” It had just been trashed and we ended up solving the problem.
Marishka Pilch: We found a guy who actually was a … he wasn’t a flipper, but he was a remodeler, a rehabber for consumers. He actually had the skills, had never owned his own home and had lived in that same neighborhood for 17 years as a renter and he wanted to keep his kids in the same school district.
Julie Clark: Good story. Yeah.
Marishka Pilch: Yeah, and he’s like, “I can fix this house up.” We’re like, “Okay.” We didn’t make a lot of money on that at first, but we solved the problem. We ended up taking that over as us doing a sandwich lease option on it. Originally, we didn’t start out that way. We just put the deal together for the seller, and then, he said, “I really want you to just take it over.”
Marishka Pilch: After a number of years, I mean, this guy proved himself as far as being a timely payer. He did a beautiful job on the rehab, by the way. The house looks great and the market appreciation hasn’t hurt either, but he pays on the first, every month, and we recently just bought the home because his option is expired and we’re like, “You know what? He’s going to be a great renter for as long as he wants.” He doesn’t ever have to move as far as we’re concerned.
Julie Clark: You guys were in a sandwich situation at that point?
Marishka Pilch: At that point, we were in a sandwich situation. Then, we ended up buying the house and, yeah, with a ton of equity built it. Now, if this guy ever gets it together and wants to buy, we’ll sell it to him. But I just don’t know that he will.
Julie Clark: That’s because your option price-
Marishka Pilch: Was better.
Julie Clark: … was a good price and was better, and that’s actually very interesting, guys. You have found such a good tenant that it makes sense for you to just convert it to a traditional rental.
Marishka Pilch: Yeah. Exactly.
Julie Clark: Awesome.
Marishka Pilch: Yeah.
Julie Clark: What a great way if you’re listening to add to your arsenal as a way to test … It’s almost like a test drive BRRR.
Marishka Pilch: Oh, my goodness. Yes.
Julie Clark: Holy smokes, guys. That is sweet. Did you guys hear what we just said? Lease options are like a test drive to BRRR. If that makes any sense and maybe I need to think about it further but it-
Marishka Pilch: Well, the thing you have to be prepared for is if they have the capacity to buy … If you’re actually doing a lease option, and they have the capacity and the desire to buy, you do have to be okay with selling it.
Julie Clark: Right.
Marishka Pilch: That’s the caveat there. You’re not going to keep it as a long-term rental if they decide they’re going to buy and we’ve had a number of people who have decided that they’re going to buy. But, you know what? That’s okay because we make a nice little profit at the end because of how we’ve structured the deal upfront.
Julie Clark: Well, it’s just a matter of putting it on the radar.
Marishka Pilch: Yeah.
Julie Clark: Right? I’ve heard other investors use the word lens, which lens do you have on? Our friend, [Thatch 00:30:11], I heard him recently say that, using that term lens, and that’s a perfect word because you could be wearing the lens of a lease option investor, okay, and never put the lens on as a BRRR, buy-and-hold or it’s not even BRRR. It’s a conversion to a traditional rental.
Julie Clark: You might never have that lens on because you’re so focused on this is a lease option-
Marishka Pilch: Right.
Julie Clark: … not being aware of the scenario presenting itself, but it might be a good time to convert and just buy it.
Marishka Pilch: Right. That’s really true and I think when we first got started doing lease options, we didn’t really recognize how powerful they were. We were very happy collecting an option consideration and we were very happy collecting a rent spread, but as these options started to mature, we started seeing big windfalls coming in, either from people buying or we could just sell or we could keep the property as a rental. It gives you a lot of flexibility.
Julie Clark: I don’t know why I never thought about converting a … until we just said this, converting a lease option to my own rental later if I was going to-
Marishka Pilch: Because you don’t hang out with me enough.
Julie Clark: Well, we’re always drinking too much when we’re hanging out. That’s the thing, right? That’s the thing. Goddang it. I got to sober up here. That’s fantastic, Marishka. I love it. That’s really cool. That’s very interesting way. You could literally, people who are interested in casual and burn investing, I mean, guys, listen to this. This is putting another lens on that you might not be realizing is available to you because if it doesn’t work at first for you to buy it on the BRRR, you could structure … If it’s possible to get in there as a lease option and wait it out. Who knows, right?
Julie Clark: Cash flow. Let me ask you, how long is your typical … do you try and always go for a certain term on the option?
Marishka Pilch: Well, if I’m doing a sandwich lease option, I try to get as long a term as I can. Typically [crosstalk 00:32:39]-
Julie Clark: What’s the longest term you’ve ever gotten or what’s the average term that you guys usually get?
Marishka Pilch: I would say the average term is probably about three years.
Julie Clark: Huge.
Marishka Pilch: We like to go five if we can. Sometimes [crosstalk 00:32:53]-
Julie Clark: Just backing up because I’m so excited now. I mean, the longer the better, right?
Marishka Pilch: Right.
Julie Clark: Because now you’ve got yourself set up to a potential conversion to a rental the longer you go probably better that scenario plays out because you’re going to get to walk in the equity, right?
Marishka Pilch: Yeah. Now, you have to be … I guess as the sandwichee, the person in the middle, you may not need to care as much, but we typically don’t go beyond five years because from the sellers end as far as the IRS is concerned, if you go beyond five years, then it’s considered an installment sale, and we just don’t want to put them in that position, but we’ll go to five years, but we just don’t go beyond that.
Marishka Pilch: When we get to that five-year point, if we still have the property, we ask them, “Hey, what do you want to do?” Well, if the house still hasn’t sold and they’ve been okay with it being a lease option for 5 years, 9 times out of 10 they’re going to say, “You know what? I don’t want to have anything more to do with it. You just keep taking care of it.” Then, we say, “Well, you know, we might need to figure out a different way to structure this, and then we go from there.”
Julie Clark: Awesome. Let me ask you, when the seller collects the option fee, what’s the taxable thing on that? How does that work for them?
Marishka Pilch: I try to keep the option fee to our seller to a minimum. We have paid as much as 5000 but that’s unusual. We usually have it be considerably less, but the option, my understanding, now, I’m not an accountant, but my understanding is how the option fee works is it is not counted as income until the option is either exercised or expires.
Julie Clark: We’ll follow up on that with our friend, Mark Anton.
Marishka Pilch: Yeah. According to my CPA, that’s how it works.
Julie Clark: The option fee that is paid to the seller or you’re collecting an option fee-
Marishka Pilch: I’m collecting an option fee too.
Julie Clark: It’s different, you don’t own the property so-
Marishka Pilch: I don’t even own the property.
Julie Clark: It’s straight-up ordinary income for you?
Marishka Pilch: No. It is not.
Julie Clark: What is it?
Marishka Pilch: I have an investment in the property. It is not ordinary income until the house is … until the option is exercised or expires, it’s the same treatment.
Julie Clark: What?
Marishka Pilch: I know.
Julie Clark: Holy smokes. We need to have … we’re going to have another podcast on this, and then we need to talk about that more because it’s probably above my head. We don’t want to give anybody any advice here. We need a CPA [crosstalk 00:35:38]-
Marishka Pilch: I do not want to give anybody an advice.
Julie Clark: Who should we get on there? Is that your buddy, [John Hier 00:35:43], or-
Marishka Pilch: Oh, golly.
Julie Clark: … is that somebody else locally that we would, could have on? We’ll talk about that offline but-
Marishka Pilch: Yeah. Yeah. We could talk about that.
Julie Clark: Somebody that’s a lease option familiar CPA, we’re going to be hooking you guys up with, mic drop. Boom. Hit it with my pen. I don’t know if that worked but … Dang, guys. There’s some interesting stuff here that we’ll be following up with you guys on tax handling of option fees and how that all works. I’m going to keep cruising here today because I don’t want to … like I say-
Marishka Pilch: Look out in the weeds on something that none of us wants to do.
Julie Clark: Yeah. Well, no. Believe me, I don’t want to, but I don’t want to say something wrong and-
Marishka Pilch: Exactly.
Julie Clark: … all that sort of thing. One thing significant that you did say was that the seller can’t go longer than a five-year term or it creates an installment sale situation for them.
Marishka Pilch: Correct.
Julie Clark: Now, what happens though, Marishka, if they do two years or … Let’s say they do three years on the option, and then they extend for another three years, is that crossing the line?
Marishka Pilch: That would still be doing the same thing as far as I know. I’ve never had that exact situation come up, but I’ll tell you what I have had come up is we’ve come to the end of five years, and then we’ve converted it to a subject two or we’ve done a wrap or we’ve bought the property or we’ve put it into a trust. There’s a number of different exits that you can do at that point.
Julie Clark: Oh, my god, so exciting. I love it. That is awesome stuff right there.
Larry Gill: The bottom line is it really comes down to just solving people’s problems too, and like Marishka was saying earlier, it’s like … and you were saying too. It’s about relationships, and so we get a lot of enjoyment out of … to solves these problems, and actually, we’re working a deal right now which should be closing soon where basically, a house that we’re selling.
Larry Gill: We started out as a lease option, long story short, they want to buy the house, they qualify to buy the house, but not quite the full amount so we are selling the house to them on a reduced price, and then we’re going to be taking a second from the other half who’s the non-married [inaudible 00:37:55] that just-
Marishka Pilch: The other buyer but he’s not on the loan, so and they’re not married.
Julie Clark: That’s a great question. Actually, that just transitions well into my next question. Do lease options and note investing collide on the same deal? How-
Marishka Pilch: Oh, yeah.
Julie Clark: That’s what you just described and want to-
Marishka Pilch: Yeah.
Julie Clark: … before I forget about it, I want to say something significant. Let’s say you’re a buyer, let’s say you’re in a lease option and your tenant buyer is going to close, and they’re going to exercise and close, right?
Marishka Pilch: Yeah.
Julie Clark: Like you said maybe they don’t qualify fully yet, but they come close. Maybe they’re short by 50 grand or something like that. If it was one buyer or a couple or whatever on the loan together, would that first lien lender allow you to take a second or does that have like, you have it set up where on this particular one you just mentioned, one buyer was on the loan, and then your second is with the second buyer not on the loan.
Larry Gill: Correct.
Marishka Pilch: Yeah.
Julie Clark: Would a first lien lender allow that second or no?
Marishka Pilch: In the way we did it, on this one we’re working on right now, that is allowed because the buyer or the borrower for the second is not on the loan for the first. Now, if they were married that could be problematic. They, of course, wouldn’t allow the first borrower if they’re only qualified to pay X amount, they’re not going to allow them to have a second. It’s going to be on a case-by-case basis.
Marishka Pilch: This particular situation worked out because this couple is not married. They both wanted to be on the deed, but she was the only one who could qualify it on the first. Now, he has income and he’s contributing to the household, but it just worked out that way that we were able to structure it this way on this deal [crosstalk 00:39:51]-
Julie Clark: Right. Typically, guys, what we’re saying is that, if it was just a single person or a couple that exercise their option to purchase the home, and they … let’s say they were buying it for 600 and they only qualified on the loan at that point for 550, but deal is a deal. They have a contract, they’re supposed to exercise at 600. Let me ask you, I don’t know if … Do you think that some people, I don’t know, I like to play by the rules so I’m not suggesting anybody do this but I’m just talking here.
Julie Clark: I’m a rule follower, but just bringing it up it made me say, “Huh. Can you take back that second, and then just not record it unless you had to for some reason?”
Marishka Pilch: Yeah. I suppose theoretically you could. There’s always a risk if you don’t record, something else could slide in there in front of you. Obviously-
Julie Clark: Well, if they start not paying you then-
Marishka Pilch: Right. Right.
Julie Clark: … I guess you could report it but then-
Marishka Pilch: Right. But in the meantime, let’s think about it. If you’re talking about what’s recorded on title. You’ve got your first mortgage-
Julie Clark: Right. Something could slip in there [crosstalk 00:40:57]
Marishka Pilch: … and then you’ve got this unrecorded second. Well, there’s nothing on the paperwork that says it’s a second. There’s nothing that allows it to be except as second, expect [crosstalk 00:41:05]-
Julie Clark: Right.
Marishka Pilch: … date of recordation, so if something else comes in, let’s say they decided to take out a HELOC. Oh, well, guess who’s in third now?
Julie Clark: Yeah. You don’t want to do that. I think I got too excited there for-
Marishka Pilch: Yeah.
Julie Clark: Is that a scenario that doesn’t come up often then in regards to [crosstalk 00:41:27]-
Marishka Pilch: … it probably doesn’t come up often. I think it would be on a real case-by-case basis, but, you know-
Julie Clark: Something to be aware of though, right?
Marishka Pilch: Yeah. If it’s not on your radar, you’re not going to see it. One of my favorite quotes is from Louis Pasteur, and it says, “Chance favors the prepared mind.”
Julie Clark: There you go.
Marishka Pilch: Now, think about that. If you’re prepared, if you’re thinking about it, suddenly you see opportunity everywhere, whereas if you’re only focused on one little channel, you’re going to miss all kinds of opportunity.
Julie Clark: Right. Right. We’re coming back to having multiple lenses that you can see through. Lease options and note investing can collide in special, in circumstances that present themselves under the right lens, but otherwise maybe not so much?
Marishka Pilch: Yeah. Another example of a note, which we talk about sometimes is let’s just say we’re offering a property on a lease option. We want a $15,000 option consideration. Let’s say that the prospective buyer who’s going to rent the house for a period of time, we call them a tenant buyer. Technically, there’s no such thing, but let’s just call them that for these purposes.
Marishka Pilch: Let’s just say they only have $8000. Okay. We want 15. We look at their income, we look at their debt to income ratios, and if it appears that they have sufficient income to support an additional monthly payment, we might create a note for the $7000 difference-
Julie Clark: Interesting.
Marishka Pilch: … you could still get them in at 15,000 but they’re paying 8000 up front. Now, I’ve got an additional stream of cash flow.
Julie Clark: Right.
Marishka Pilch: Now, I have people-
Julie Clark: Like it.
Marishka Pilch: There are people who get all wigged out. I don’t know, I think it’s wonderful. I love it too. But we have people who say, “Oh, but that’s not secured.” Well, who cares? You just created money out of [crosstalk 00:43:30]-
Julie Clark: You weren’t going to get it anyways, otherwise, you’re not going to get it, right?
Marishka Pilch: Yeah.
Julie Clark: I guess to me, because I’m a little maybe like to be nicey-nice so much that … I don’t know that … I guess I don’t want to hurt that tenant/buyer either, right?
Marishka Pilch: No.
Julie Clark: But there’s a difference between somebody being able, I guess if you think about it to afford something, and then [crosstalk 00:43:53]-
Marishka Pilch: Yeah. I’m not going to put somebody-
Julie Clark: … cash they have in their pocket just because they don’t have the extra $7000 cash, at this time, it doesn’t mean that they can’t afford it because they [crosstalk 00:44:03]-
Marishka Pilch: Yes. There are many people who make a very good income and they fritter it away on Starbucks and fancy cars and Seahawks tickets and all those [crosstalk 00:44:15]-
Julie Clark: Wait a minute.
Marishka Pilch: … there’s nothing wrong with that, but if they’d rather own a home, then we have that conversation with them, and we say, “Look, I don’t want to take money out of your grocery budget, but if you … but it looks like you can swing this, so you tell me, can you swing this? Do you want the house? Are you willing to do what it takes?”
Julie Clark: Nice. Interesting. It’s all good stuff, right?
Marishka Pilch: Yeah.
Julie Clark: You, guys, can all roll, however, you want, but, again, these are just like giving you some things to think about, some opportunities that you might not be aware of where there’s little cash flow hits that you can grab, right? This is all good stuff.
Julie Clark: Let me ask you, what happens when you go to … have you ever had a situation when you go to have that lease option exercised because they don’t … a lease option can be whatever term it is, right?
Marishka Pilch: Yeah.
Julie Clark: I’ll tell you guys in a minute about something I got going on, but have you ever had a situation arise where the property, when they go to exercise the lease option and put their more traditional loan on that it doesn’t appraise?
Marishka Pilch: We’ve never actually encountered that, however, we have had people inquire about that because, for example, we did a lease option on a house here a year or two ago, the guy came from Ohio and after the market … Ohio got hit. They got decimated by the housing crisis, and his house lost 50% of its value.
Marishka Pilch: Now, obviously, that didn’t happen in Seattle, and we said, “Well, we don’t anticipate that happening, but I recognize your concern.” We came up with a solution and we basically said, “Look, if you … we will continue to honor the terms of the lease option.” I wrote it right into the paperwork that we would honor the terms of the lease option until such time as the market corrected and the house could appraise.
Julie Clark: Nice.
Marishka Pilch: They could just continue renting. They wouldn’t be earning anymore … I mean, they wouldn’t be-
Julie Clark: Well, I mean, let’s talk about it for a second though because we just came out here in the Seattle market, we just came out of a situation where stuff wasn’t appraising all the time and buyers were having to pay the difference in cash, right?
Marishka Pilch: Yes. Yes.
Julie Clark: This is interesting what’s going on right now, for me. I’ve got a listing, it’s in Northeast Seattle. My seller, not super motivated it owns this stuff free and clear, you know what I mean?
Marishka Pilch: Yeah.
Julie Clark: No burdens, no big needs, wants his price, great house, mid-century modern house, and I got him an offer. Offer came in at 25 grand less than the list price, okay?
Larry Gill: Yeah.
Julie Clark: The list price is 675, got an offer at 650. No. He’s not going to take it. Me, I’m like, “Goddang it. This is ridiculous.” Because the market is definitely 650, so what you’re telling me, guy, is that you want over the market price in a market right now that is adjusting down by, at least, probably 10%. “So, huh, what am I going to do,” I’m thinking to myself. What am I going to do? I hate having this thing out here with my name on it days on market [crosstalk 00:47:38]-
Marishka Pilch: I know.
Julie Clark: … the house is great, and I’m getting continuous traffic. Still, people slamming in there. Well, I was able to work this type of scenario. I have a buyer, a homeowner in the neighborhood that loves the house, it’s a mid-century house and wants it really bad. He owns another house nearby, and what I was been able to tee up is essentially a lease option for my listing, okay?
Marishka Pilch: Yes.
Julie Clark: What I have going on is that this guy wants to buy, the buyer wants it so bad, but it’s not a great time just to sell his house because we’re in the middle of winter.
Marishka Pilch: Right.
Julie Clark: What I did is I structured a lease option, okay? At 675, and the rent starts January 1st. Now, whatever rent my … and it’s a six-month minimum lease term. That’s six months of rent. I’ll say 2300 or so that they’re going to charge in the rent, that adds to the purchase price, so he’s getting his purchase price of 675 because the guy is planning to make it as a long-term house, and he realizes paying a premium, he’s cool with that, because he wants it really bad and he wants to stay in the neighborhood.
Julie Clark: On top of that now, not only is my seller getting their list price, which is 25 grand higher than market, they’re adding to that by collecting rent for 6 months. Now, we’re up to whatever, right?
Marishka Pilch: Yeah.
Julie Clark: I got him a 5% lease option fee. If the guy peters out, the buyer, right? It puts my seller in the same position as if they were having to sell it at the lower market value currently.
Marishka Pilch: That’s awesome.
Julie Clark: They’re not going to be hurt at all and the seller is allowing the buyer to start making improvements to the house with his approval on [crosstalk 00:49:32]. I mean, it’s like [crosstalk 00:49:34] and the lease option term is only 12 months. Not only that, so now I’m getting them way over the list price in a market that’s declining in value.
Marishka Pilch: Declining. Right. Right.
Julie Clark: I’m going to collect, and I’m basically dual agent, everybody knows it. Because that I’m able to, not only that, I’m giving back the seller part of the buyer’s commission. Now, add that on top for the seller. This guy loves me now and owns a bunch property, but on top of that now I get another listing because I’m going to be selling the buyers house in February.
Marishka Pilch: There you go. Well, I mean-
Julie Clark: Boom.
Marishka Pilch: Exactly. As a realtor you’d know that the value of a home depends on the amenities that it offers, right?
Julie Clark: No. I’ll see the key though-
Marishka Pilch: But the best amenity you can offer is financing.
Julie Clark: Right. But what’s interesting is is he’s not really offering … it’s almost like a different spin on a contingent offer. Contingent home sale. It’s much safer if for my seller.
Marishka Pilch: It’s much safer. Yeah.
Julie Clark: It’s much safer for my seller.
Marishka Pilch: An option is going to be safer always.
Julie Clark: Right. Then, with a contingent home sale, you’re just getting the list price maybe, maybe you can charge more, but in this situation, we’re getting a kick-ass huge premium, right?
Marishka Pilch: If the house doesn’t sell on a contingent offer, who’s left holding the bag?
Julie Clark: Right. My seller is loving me. There’s some motivation, the clincher is though that there’s some motivation of this buyer who wants this house. But in any neighborhood that could be possible. You just have to know how to talk. If you [crosstalk 00:51:22] me, the listing agent, you got to know how to talk to the buyers and offer up these types of scenarios, right? Home run.
Julie Clark: Home run for the buyer. Home run for the seller. Home run for me as the agent. Yes, I’m not collecting passive income and all that other stuff, right?
Marishka Pilch: But you’re getting an extra kicker.
Julie Clark: I just got myself … First of all, I got a listing sold that maybe I might not have otherwise been able to sell. Then, I’m getting dual agent fees on it, and then I’m getting another house to sell. It’s not passive, but it adds to my stockpile of cash, so I can go do some passive investing. It’s just badass.
Marishka Pilch: There you go.
Julie Clark: It’s all because of the lease option strategy, just for you brokers out there listening, if you want to talk more about it, come meet me on a Tuesday or a Thursday between 12:00 and 2:00 at our new format, which is opportunity to sit down with me twice a week. I’m here open book for you guys. I’ll just say it again, that’s going to be … we’re about to send out an email on the exact locations, but the Tuesday location will be down by South Center and the Thursday location will be out by North Gate.
Julie Clark: Look for that email, everybody, if you’re listening, but if you’re out of state and you’re listening, because we do obviously love, hey, all you guys that are out of state listening to us, not only in Oregon, but even out in the Midwest. We have some listeners and that’s super awesome. You, guys, contact me anytime. [email protected] I got your back. Let’s keep on trucking here. Can you give us an example of just maybe a traditional lease option? What’s the difference between a lease option and a lease purchase?
Marishka Pilch: Okay. Those terms are used often very interchangeably, and many people use the term lease option, lease purchase, rent-to-own and they all mean the same thing. Now, technically, there are some technical differences, but it all comes down with the paperwork. With a lease option, the seller is obligated to sell if the buyer exercises their option, but the buyer has the option but not the obligation to buy the home, right?
Julie Clark: The lease option. Yes.
Marishka Pilch: For that, they pay an option consideration that is non-refundable. It’s just like a stock option. With the lease purchase, if we’re talking the technical term, a lease purchase basically means, I am guaranteeing that I’m going to purchase this home, but in the meantime, I’m going to lease it.
Julie Clark: There are no option fee then?
Marishka Pilch: There could be an option fee there as well. There’s so many different ways to structure those that it all just really depends, but the difference really comes down to the lease purchase is technically … I mean, if you’re using it explicitly with the way it’s done, and I think the way it … I don’t know, I’m not a realtor so I don’t know what the Northwest MLS forms exactly say, but a lot of the brokers that I talk to say, “Oh, well, the buyer has to buy in a lease purchase.”
Julie Clark: Well, I guess that would mean legally, I’m not a lawyer, disclaimer, but from a broker standpoint then that would mean … because you can still collect an option fee and option fees on lease options are non-refundable, right?
Marishka Pilch: Correct.
Julie Clark: Most of the time. I think what it comes down to is the default. What happens if there’s a default, and that’s where the difference comes in.
Marishka Pilch: Right. If you’re not collecting an option fee or some sort of a fee to put that deal together, and then it does fall apart, there’s really no recourse, right?
Julie Clark: Yeah.
Marishka Pilch: It’d be like earnest money.
Julie Clark: Right. You know what I just thought of though, guys, as we continue to talk on? We didn’t talk about what happens if it doesn’t appraise. I want to just go back to that for one second, guys. [crosstalk 00:55:25]
Marishka Pilch: Yeah. You got a few options then, right?
Julie Clark: Well, I’ll tell you what we just did because I’m in a scenario where I just did that deal, where I’m doing that deal, right? I pretty much know it’s not going to appraise as the broker. I’m pretty sure it won’t, unless, by the time April rolls around the market ticks back up, which could happen or let’s say by … whenever they exercise, it might, but if it doesn’t, what I’ve done you, guys, who are listening is I’ve created basically a forecast, an appraisal forecast scheduled, and because I don’t want the buyer to be hurt.
Julie Clark: Now, the seller is winning huge, but we don’t want the buyer to be hurt if it doesn’t appraise, because we’re all in a win, win, win, win for everybody. We’ve created as part of the contract, in the beginning, an appraisal forecast schedule where the buyer and seller has agreed if it appraises for this, this happens. If it appraises for this, this happens, a schedule.
Julie Clark: In advance, who’s paying what? The seller will give some concessions, just like if on a regular sale it didn’t appraise, who’s paying the gap, right?
Marishka Pilch: Sure.
Julie Clark: We’ve created that right now on the lease option in an effort not to hurt the buyer, who’s losing their option fee if they don’t exercise and paying all this rent while they still own their other house, right?
Marishka Pilch: Right.
Julie Clark: That’s how just backing up a little bit, guys, sorry to put a bow and period on the end of that one. That’s how I’m handling it and it seems to be going over very well.
Marishka Pilch: That’s exactly right. That’s similar to what we had done with the deal we were talking about is you just … You say, “Okay, what could happen and if that happens, what do we want to see happen?” Then, you just come up with a win-win solution, and if that means creating a schedule, yeah. We’ve had acceleration clauses and various things just depending on the situation and the buyers and the seller’s needs. Yeah.
Julie Clark: Excellent. Well, let’s go back to our question. Are you able to just run us through a standard lease option, and then how that difference from like a standard sandwich lease option just for the [crosstalk 00:57:41]. Just go with the-
Marishka Pilch: No, when you say a standard lease option, that’s something that we might call either a cooperative lease option or a wholesale lease option, what we’re just in and out, right?
Julie Clark: Sure. Yes.
Marishka Pilch: Okay. Let’s just say, Julie, you have a house and for whatever reason, you’re not selling it right now. It’s a $300,000 house that you’re not just really thinking about, maybe you have financing on it at 300,000, and so you can’t afford to pay a … because you’re not a realtor, okay? You can’t afford to pay a realtor or maybe you just don’t like-
Julie Clark: Or maybe on a landlord and [inaudible 00:58:20]
Marishka Pilch: Yeah. Or maybe you just want to have cash flow for a while or maybe your tax situation is such that you don’t want to sell it this year, you’d like to sell it next year. But, in the meantime, you don’t want to have to have a tenant in there, and then have the turnover, and then have to fix it up and get it ready to sell.
Julie Clark: Tired of being a landlord.
Marishka Pilch: You’re tired of being a landlord. We might structure a lease option. We find somebody who wants to buy a home, who has the capacity to buy a home, but they’re just not qualified right now, and that could be a number of different reasons. It could be that they need to improve their credit score, maybe they have some credit issues from the past or they don’t have enough credit. It could be that they haven’t been on the job long enough.
Marishka Pilch: I mean, we’ve done lease options with folks who have 750 FICO scores so they should be able to qualify, but they just haven’t been on the job long enough.
Julie Clark: Calling entrepreneur, guys, all you tech guys and software developer chicks and dudes out there that are quitting your day job, before you do that remember when you go into real estate as your full-time gig, you all of a sudden just took away your ability to qualify for a loan.
Marishka Pilch: Oh, my gosh. Let me just digress for just a quick moment and tell you a quick story about that. We had a guy who … Let’s just say he was essentially in tech and he lease option the house from us, and he paid a pretty hefty option consideration. He paid about 30,000 for his option consideration, and he looked pretty good. He had really solid income, super solid income. His debt to income ratio was fine, his credit wasn’t bad. He had a couple of small collections from way back when that he just needed to pay off. I said, “You know you need to pay these off, right?”
Marishka Pilch: He goes, “Yeah. I know.” I said, “Okay. Great.” A year comes up and I go reach out to him, and I say, “Hey, let’s get you in with a mortgage lender. Let’s get the ball rolling so that we can get your loan going.” He’s like, “Yeah. Great. I’m really excited. I just love the house and I really want to buy it.”
Marishka Pilch: He goes, “Oh, I have great news. I quit my job. I started my own company.” I said, “You what?” He goes, “Yeah.” I said, “You’re still working at your old company, right?” He goes, “No. I quit to start the new one.” I was like, “Oh, uh, you can’t buy now, right?”
Marishka Pilch: He goes, “What do you mean?” I said, “No bank is going to loan to you, not for two years.” We extended the term on that one and change the terms and everything but-
Julie Clark: Geez. Right? Yeah. I think that’s like I said a hot topic for me is like to talk about people understanding from the start there which borrowing lane they’re in. If you’re on a team, you, guys, one of you needs to keep your day job so you guys can continue to borrow money until you’ve established yourself as a proven real estate investor-
Marishka Pilch: You have a track record.
Julie Clark: … and you can transition over your borrowing power. Very, very, very, very, if you don’t take anything away from this other than that today, that’s a major nugget for you, guys.
Marishka Pilch: Yeah.
Julie Clark: Okay. We’re back to-
Marishka Pilch: Getting back, yeah. Most of the time these are good people who just have fallen through the traditional mortgage lending cracks, and they just need a little time, and sometimes it’s even people who maybe are just new to the area and they’re just not certain that they want to buy, but if they do they don’t want to have to move again.
Marishka Pilch: In general, good people who are almost there, right? We’ll put the deal together, collect the option consideration or maybe in some situations, we might share it, like you’re doing with the homeowner, the seller, and then, basically, we work in cooperation with the seller so we can … We’ll lease option the property, and then we can either just sell that contract to the end-user, the buyer, the prospective buyer or we can structure it where we create the paperwork with the buyer, and then we assign that back to the seller.
Marishka Pilch: There’s a couple of different ways we can do that, but basically, we’re just collecting a fee, and then the seller takes over and collects the rent from the prospective buyer/renter, and then eventually-
Julie Clark: How do you avoid being called a broker?
Marishka Pilch: Because I have an interest in the property, I have paper on it, and so I have a contract with the seller, and then we have a contract with the buyer.
Julie Clark: Okay. Clear enough. Right on.
Marishka Pilch: Yeah. The difference on that is we’re just making a fee up front and that’s it. In a sandwich lease option we’re [crosstalk 01:03:12]-
Julie Clark: Are you able to get 50/50 splits with the seller on that situation or how are you able to …
Marishka Pilch: Usually, we take 100%, but in some situations, we’ll do 50/50.
Julie Clark: When you take 100% of the option fees, right?
Marishka Pilch: Yeah.
Julie Clark: Then, that’s the question. The option fees can be either applied to the purchase price or applied to the down payment or how do you-
Marishka Pilch: Or not applied at all.
Julie Clark: It’s just a poof. I mean, to the buyer they’re paying that, so it adds to their purchase price essentially, right?
Marishka Pilch: Right.
Julie Clark: When you’re doing that, do you basically … Let’s say it’s not going to apply at all, then you structure the purchase price where you know that that person is not overpaying some insane amount or it doesn’t really matter on lease options because you can charge a premium?
Marishka Pilch: Yes and yes. I don’t worry about it as much. We’ll have that conversation with the … A lot of it is going to depend on the seller, right? As well the buyer.
Julie Clark: I mean, the buyer is going to know, right? Because they’re paying us money, and then, poof, goes to nothing.
Marishka Pilch: Yeah. We want to be very upfront with them about what’s happening. Many times they’re happy to just have … Because let’s face it, there aren’t a lot-
Julie Clark: The opportunity.
Marishka Pilch: The opportunity. There aren’t a lot of lease options around, and so they’re happy to pay that and they’re happy to pay that premium. Now, we usually like them to feel like they’re getting something for it. Let’s just say the option fee is $10,000, and you were happy, Julie, with $300,000. We might price it at 310, and that 10,000 applies toward the purchase. You see how that works?
Julie Clark: Yes. Right.
Marishka Pilch: Yeah. That’s it. We’re in and out in that situation, and that’s either depending on what part of the country you’re in, you might call that a cooperative lease option because you’re cooperating with the seller or you might call it a wholesale lease option because you’re just in and out.
Marishka Pilch: A sandwich lease is different-
Julie Clark: Can I ask how do you determine what the option fee is for people who are listening? I think the answer I might know, but tell everybody how you … Do you have like a starting point you try to go for, and then you back it up from there depending on their-
Marishka Pilch: Yes. Do you remember the Magic 8-Ball?
Julie Clark: I love the Magic 8-Ball.
Marishka Pilch: Yeah. That’s what I use.
Julie Clark: In fact, I think I’m going to get one for the party because that sounds like a fun thing. Thank you. I’m going to write a note down for that. Yeah, 8-Ball. For some of you old 1980s, 1990s people, an 8-Ball is also like … didn’t they used to call that a old English 800? The malt liquor, might grab one of those too [crosstalk 01:06:08]
Marishka Pilch: Right. Right.
Julie Clark: I digress. Okay. Option fee.
Marishka Pilch: I wasn’t sure why you were going with that one.
Julie Clark: On what you start off, do you try to collect like 2 or 3%, and then back it up from there or what?
Marishka Pilch: Yeah. It’s a finesse thing where I look at market conditions, I look at what the price of the home is. If you’re talking a mid-range home, not Seattle mid-range, it’s hard to get 5% on an $800,000 house. It’s possible but it’s hard. It’s very easy on a 2 or $300,000 house.
Julie Clark: I’m getting 5% on a $675,000 house, right? Because you figure if we’re applying it towards the down payment, you were going to put 20% down …
Marishka Pilch: Yeah. Somebody who’s planning to do 20% down, yeah, that shouldn’t be an issue.
Julie Clark: Yeah.
Marishka Pilch: Yeah. There’s so many factors that come into it. How long do I want to sit on this? How quickly do we need to turn it over? I’m happy making a quick 7, 8000 bucks, but obviously, 15, 25 or more is better. It really just depends on what my situation is. There’s no hard and fast rule about it.
Julie Clark: Now, I’ll let you explain what a sandwich lease option is the difference, but then let us know how you would … I would imagine most of the time you would prefer to go for a sandwich because there’s bigger payoff for you-
Marishka Pilch: Yeah.
Julie Clark: … but in what scenarios … is that true what I just said or how do you decide, does it just present itself as either one way or another? That’s kind of crystal balls out onto, it pushes you one way or another or do you always go for sandwich and …
Marishka Pilch: Yeah. No, that’s a really good question. I think the opportunity, if the opportunity is there to do a sandwich lease option, we’re going to do it. What I mean by opportunity is this, first of all, the seller has to agree. Typically, they’re going to agree. But I also I’m going to be looking at opportunities to arbitrage. Now, I’ve just injected a new word here. You, Julie, I’m sure you know what arbitrage is, but just, in case, I’ll explain it for everyone else.
Marishka Pilch: That’s basically making a spread between one payment and another. Let’s just say you’re earning 4%, which is crazy, from the bank, and you’re loaning it out at 10. You’re making a 6% arbitrage, right? If there’s an opportunity to arbitrage a home in terms of the lease options spread, the monthly rent spread and/or the ultimate sales price spread. Then, we’re going to go for a sandwich lease option if we can.
Marishka Pilch: If there isn’t that opportunity or if it’s just, “You know what? I just don’t want to deal with this house or I don’t want to deal with these people.” I’ll probably just unload it.
Julie Clark: Right. Each situation is different. What I find interesting, which I think some people, personality types, just love it. It’s like a crossword puzzle on every single one. I realize that flipping homes is a little bit crossword puzzle like because you get to go in and rearrange a floor plan, and that kind of thing, but if you don’t want to deal with contractors, guys, lease options is a fun way to get into that flow of crossword puzzle stuff, I guess I’ll say.
Julie Clark: I would say I like having a flip partner, and I would be … I love the deal structure. Like you said, the deal architect stuff as well so that’s why I’m high up on … I’m just so excited so we’re going super along today because it’s so fascinating to me.
Marishka Pilch: Cool.
Julie Clark: Speaking of arbitrage, I want to throw in a little arbitrage in there for all you, people, that have huge tax bills, like I certainly have had freaking enormous hundreds of thousands of dollars of tax bills in my lifetime. I’m talking about in one year. I’m not saying, I’m just telling you what I’ve done before. You, guys, can talk to your CPA and you’re attorney and whoever, your mama, whoever else that you want to talk to about this.
Julie Clark: But arbitrage, I have taken my … when I was going to have like $150,000 tax bill that I had to pay, I have my CPA calculate what the progressive … I believe it was a progressive penalty would be, and that let’s say it was going to total 6%. Then, I went and loan that money out at 12%, and made 6% and paid my penalty, but made an arbitrage of 6%-
Marishka Pilch: Nice.
Julie Clark: … on that. Yeah.
Marishka Pilch: Nice.
Julie Clark: A little fun stuff for you, guys, there.
Marishka Pilch: Well, and that’s another that reminds me of something. One thing that you can do like if you have a bunch of notes, and maybe they’re just small notes, maybe they’re 20, 50, $80,000 notes or more, you can earmark that cash flow to pay off certain things. Let’s just say you have a car loan or let’s just say you’re at a student loan or let’s just say you have a utility bill or a mortgage of your own or something, you can earmark those notes to pay off those things, which is kind of cool.
Julie Clark: Yeah. Totally.
Marishka Pilch: Another thing too, speaking of cash flow, and I’m sure you probably do this, but a lot of people like to invest it with … maybe they convert their self-directed IRA … convert their IRA to a self-directed IRA, and then you can buy a note or create a note or put a property into that and create cash flow off of that as well.
Julie Clark: I just have a new idea for a podcast that we’re going to do round two. It’s going to be creative cash flow investing other than investing in apartments, right? You’re making me think of all these crazy ideas that we need to like spell it out. We’re kind of all over the place today because I’m so excited and top up on the holiday juice here.
Marishka Pilch: [crosstalk 01:12:29] and that’s what I mean. I mean-
Julie Clark: It’s so exciting.
Marishka Pilch: … we’re asset agnostic.
Julie Clark: Yeah. I like that. That could be your t-shirt. Asset agnostic.
Marishka Pilch: I love it.
Julie Clark: There’s all these people out there like Thatch has his fuck how or grind in a line. Yours could be asset agnostic. I can’t even say it. It’s a good one. Right on. That’d be a good party thing as everybody come up with their … Anyways. I digress again.
Julie Clark: Well, we’re going along here. I’m so excited. I can’t remember, did we tell everybody what a sandwich lease option is or did we [crosstalk 01:13:09]-
Marishka Pilch: We haven’t got to that part yet.
Julie Clark: Okay. Do it.
Marishka Pilch: Yeah. A sandwich lease option is where you just ride in the middle between two nice little lease options and you’re the tasty insides of the sandwich. What I mean is this, you lease option a property from a seller, and so you agree on the price, in terms of the sales price, the monthly payment, and you pay them an option consideration.
Marishka Pilch: Then, and so you are now the optionee in this agreement. Now, you go out and you have an interest in this property so you can now market it and you are looking for a new optionee. They are going to option the property from you. You collect an option consideration, you collect the monthly rent, and you list a sales price.
Marishka Pilch: Now, in a perfect world … Well, this is how I would do it, is I would be making arbitrage on each one of those points. I might also throw a note in there just to create additional cash flow. Let’s just say your price is 350,000, but you’re going to sell it to an end buyer for 425. Your monthly payment is $1400 a month, but your tenant is going to pay you $1700 a month.
Marishka Pilch: You might have given the seller, from whom your lease optioning $1000, but you’re collecting 10 or 15 from your tenant buyer.
Julie Clark: On the option fee?
Marishka Pilch: On the option fee. In each case, you’re creating spread, you’re creating arbitrage, and you’re responsible to the seller for those payments, but you’re collecting them from the tenant as well and making a spread.
Julie Clark: Spectacularly fun. Let me ask you real quick. What is the legal stuff that needs to be done on lease options? Like you have to do a credit check on the tenant buyer, do you need to like qualify them on a mortgage and see how much they’re short, and then put them with a credit specialist? Do you have to do any of that stuff?
Marishka Pilch: Yeah. We’ve always done that just because we think it’s the right thing to do. There’s a lot of debate right now in this post-Dodd-Frank era of what has, what you need to do, and what you have to do. My understanding is that lease options are not particularly spelled out in any of the Dodd-Frank legislation, however, it could fall under that purview. I think it’s just good business sense, and also just doing the right thing of-
Julie Clark: That’s the moral of it, guys. Do the right thing.
Marishka Pilch: Do the right thing.
Julie Clark: We are going to do the right, play by the rules type of group. There are no cowboys that hang in my crowd.
Marishka Pilch: It’s not even playing by the rules, it’s just doing the right thing. I mean, do you want somebody … We’ve turned people down because they seemed like really nice people, but they had hundreds of thousands of dollars in debt, and they’ve recently written a bad check to the pizza guy. I mean, it showed up as a collection on their credit report.
Marishka Pilch: Well, if somebody’s writing a bad check to the pizza guy a couple of weeks ago, do you think they’re going to be paying their monthly payment? No. Are they ever going to get a loan? No.
Julie Clark: You run their credit, right?
Marishka Pilch: I do.
Julie Clark: When do you get them pre-qualified for the loan, later or … What’s this RMLO? Is that who runs the credit?
Marishka Pilch: An RMLO is required if you’re doing seller financing. I personally-
Julie Clark: But not with a lease option?
Marishka Pilch: A lease option, my understanding, again, talk with your attorney because every attorney is going to have a different take on this.
Julie Clark: This is where the gray area comes in on this option.
Marishka Pilch: This is where the gray area comes in, right? Some people say, “Oh, a lease option is seller financing.” I don’t think it is, but I’m not an attorney and I’ve never been sued. Partly because we do the right thing. We treat people-
Julie Clark: I don’t see … how could it be considered seller financing-
Marishka Pilch: I don’t know but some wacko judge and depending on how your paperwork is structured-
Julie Clark: Well, that goes down to the question of are you crediting part of the rent towards the purchase price? Is that something you try to avoid?
Marishka Pilch: I do try to avoid that now. We didn’t use to but-
Julie Clark: Because of the gray area?
Marishka Pilch: Because of the gray area. There’s still ways that you could-
Julie Clark: Are you guys catching that?
Marishka Pilch: There’s still ways you can do it, you just don’t want to call them rent credits. You want to call them seller concessions when it’s time to sell the property and put together the … I mean, you can-
Julie Clark: You guys need to reverse back in this podcast and go listen to what she just said. That’s like very meaty right there, right? Be careful with crediting part of the rent towards the purchase price, instead, use different language or call Marishka, better yet, call an attorney. Call Marishka first, you want to get the ideas but-
Marishka Pilch: Not every attorney is going to be up to speed on lease options. I mean, not every attorney is up to speed on seller financing, let’s face it, so you really need to be careful about who are you talking to.
Julie Clark: Speaking of, do you have a local attorney that you like that is in the knowledge that you can tell everybody to … that you can share with the crew? Again, the amount of people that are probably going to [inaudible 01:18:48] and do this is minimal, even though we hope you guys all [crosstalk 01:18:52]
Marishka Pilch: Yeah. We use different attorneys for different things. Again, we first started doing our lease options back in, way before Barney Frank and Chris Dodd decided to change the face of-
Julie Clark: You guys are dialed on it. Clint Conns, does he know about this sort of stuff?
Marishka Pilch: I believe so. They didn’t necessarily advise us. We do use Anderson Business Advisors and Clint Coons for various things. They didn’t necessarily advise us on how to structure our lease options, but I believe they are familiar with them and would give good advice. There’s a few other attorneys … I have not worked with him directly, but actually, Clint referred me to a guy in Gig Harbor. His name is John Burleigh. Let’s see. We’ve done some-
Julie Clark: Hey, guys, whoever is listening out there, if you play around with lease options or you know of any attorneys, hook us up down at the bottom of the show notes. Joe, what do they do to do that? Make a comment, how do they do it? [crosstalk 01:19:56]. We’re sharing. Everybody should share.
Joe Bauer: Just make a comment at seattleinvestorsclub.com/58 down at the bottom.
Marishka Pilch: Cool.
Julie Clark: There you go. Awesome, guys. Let’s all help each other. That’s what we’re all about, remember, relationships.
Marishka Pilch: That’s right.
Julie Clark: Relationships.
Marishka Pilch: That’s right.
Julie Clark: Okay. You got to be careful with that. You check their credit. But, again-
Marishka Pilch: Yeah, and you want to check their debt to income and make sure that they can afford the place. I’ll run financial calculator. Again, I used to be a mortgage broker so I can do that just to-
Julie Clark: What does the RMLO do? Is that somebody that you pay a fixed fee to?
Marishka Pilch: Again, with a lease option, it’s a little bit different than seller financing. I always recommend and highly encourage prospective tenant buyers to hook up with a mortgage broker, and I will refer them to somebody if they need it, but they can really go to anybody and say find out what you’re going to need to do in order to buy.
Marishka Pilch: Now, let’s face it. If they can qualify today, they’re not going to get pre-qualified because if they could qualify today, they would buy today, and sometimes that happens. I’ll look at somebody’s credit and I’ll say, “You know what? You should go talk to a mortgage broker because you can probably buy this house right now.” But most of the time they’re going to need a plan so they want to hook up with a mortgage broker to get a plan in place, to pay off debt, to reduce their debt to income ratio, to pay off collections, to save for a down payment if that’s what they need to do, to improve their credit score if that’s what they need to do.
Julie Clark: Then, you also hook up with a mortgage servicer.
Marishka Pilch: Well, with a lease option, I actually have a … we actually service those ourselves. We use a platform called Buildium, which is for property management. That’s what we use for our lease options. Now, with our notes when we do seller financing, a little bit different rules apply. You can service them yourself, you just need to be very up to speed on all the rules, and it’s just more than we like to do.
Marishka Pilch: They’re so cheap to pay for a professional servicer so we set those up with a loan servicing company.
Julie Clark: When you’re in a sandwich lease option, in particular, you’re going to want to make sure, of course, that that seller-
Marishka Pilch: Underlying.
Julie Clark: … the original underlying seller pays their damn mortgage.
Marishka Pilch: Absolutely. Yeah.
Julie Clark: How do you do that? How do you [crosstalk 01:22:27]
Marishka Pilch: Yeah. Well, ideally, our favorite way to do it is to say, “Look, we’re just going to pay the mortgage ourselves. We’ll just pay it directly for you and that way you don’t have to hassle with this.” That’s our favorite way to do it.
Julie Clark: What does that mean? What does that look like? [crosstalk 01:22:41]
Marishka Pilch: That means that they gave me their bank information, a statement of … say from Wells Fargo, and it has their account information, and I set it up on my automatic bill pay, and every month I pay their mortgage.
Julie Clark: Okay. It doesn’t matter that it comes from you, of course? [crosstalk 01:22:59]
Marishka Pilch: No. The bank doesn’t care.
Julie Clark: You don’t notify the bank, you don’t tell them anything?
Marishka Pilch: Usually, what I’ll do is I also will have an authorization from the seller to speak to their mortgage company, to speak with their insurance company, all the things that we might need to … If we have [inaudible 01:23:19] might need to talk to their HOA or the utility, is there anything like that. We have authorization so that we can do all that, and that we’ll be notified of any changes or missed payments or anything like that.
Julie Clark: You just brought up an interesting point.
Marishka Pilch: What’s that?
Julie Clark: The insurance.
Marishka Pilch: Yeah.
Julie Clark: How does that work with a sandwich?
Marishka Pilch: Yeah. The seller will retain insurance because they still own the home. They’re going to be changing it if they were living in the home before from a homeowner’s policy to a landlord policy, so there’s insurance on that end. Then, we require that … You don’t have to, but I highly recommend it. We require that our tenants have renter’s insurance, and then we carry an umbrella policy.
Julie Clark: Okay. Got it. Good stuff. This is so awesome, guys. I could go on forever. Any [inaudible 01:24:18] out on the legal, kind of the legally like insurance or checking this and that or as far as your checklist goes when you get a new sandwich lease option or lease option deal, you’re going to get their credit check to make sure that the seller is paying their bills, set up your auto payments with [crosstalk 01:24:39], insurance stuff, anything else?
Marishka Pilch: Yeah. I did the full meal deal as far as screening my buyers as well. We’ll read a title report, do a prelim to make sure that, what liens are on the property and all of that. If I’m not directly paying the mortgage, then I will require that we … You can set it up with a servicer, by the way. I mean, that is an option as well if you don’t want to deal with it. But we will require that they periodically send us a statement so that we can just look at it and see how things are going.
Marishka Pilch: Then, with the buyers, we will also just do their full credit and background check. I want to see their background as well. I want to see, have they been evicted and all that other stuff. We do the employment checks, employment verification, and all of that.
Julie Clark: Wow. Good stuff. How about premiums, do you charge like … I know that lease option rents and lease option sale prices, you can charge premiums for. Do you [crosstalk 01:25:52] like, okay, we’re going to … How do you determine what the premium is?
Marishka Pilch: It really is just market-based. We do comps like everybody else. We look and see what houses are selling for. We look and see what houses are renting for. Then, we might just kind of test the waters. I mean, if we’re not getting a good response on a lease option property within a week, we know that it’s not priced properly.
Julie Clark: But, I mean, if your lease option is a three-year term, they might … they could exercise at any time during that [crosstalk 01:26:26]
Marishka Pilch: Correct. Correct.
Julie Clark: I mean, obviously, the closer you are, the shorter your term, the closer you are to current market value for their option price, right?
Marishka Pilch: Correct.
Julie Clark: You can sort of justify-
Marishka Pilch: [crosstalk 01:26:41] premium for the luxury of having this lease option. You can also account for local market appreciation to some extent. Ultimately, we want it to be a win for everybody.
Julie Clark: Have you ever done a structure where if you exercise in year one is this price, if you exercise in year two, it’s this price?
Marishka Pilch: Yeah. Yeah. Absolutely.
Julie Clark: That’s the way I would do it.
Marishka Pilch: Yeah. Absolutely.
Julie Clark: Right. Then, for appraisal forecast schedule that if didn’t appraise you could have an agreed-upon … who covers the spread thing. That’s probably the way I would want to do it there.
Marishka Pilch: Yeah. Absolutely. That makes a lot of sense. When we were first doing them, again, back in 2008, ’09, ’10, the market was pretty flat, and so we were typically doing two, sometimes maybe three-year terms for the buyer. As the market got hotter and hotter, we started limiting our terms to one year just so that they wouldn’t get out of control, and if somebody needed more time then we’d certainly do that structured strike pricing mentioned.
Julie Clark: How do you guys get your deals currently?
Marishka Pilch: Same way we’ve always done. Certainly, we’re known a little bit more now, and so we do get more deals from referrals, but we just look for people who are looking to buy or who are tired of … I mean, looking for people who are wanting to sell and maybe they just can’t go the traditional route or they don’t want to go to the traditional route. We also look for people who are tired landlords. Now, those are our two biggest selling groups.
Julie Clark: So freaking awesome, guys. [crosstalk 01:28:24]. Are you, guys, constantly marketing for tenant buyers? How do you do that?
Marishka Pilch: We used to, but the reality … and so we’ve got a large list of folks who sign up on our buyer’s list, right? We have a website evergreenleaseoption.com where people can sign up for … to be on our buyer’s list and be notified when we have new properties available. But most of the time when we have a house and we advertise it, we’re going to get a new crop of people coming in but-
Julie Clark: I got you. You’re deals, deals that you have when you market it, it just comes in probably droves to add [crosstalk 01:29:01]-
Marishka Pilch: Yeah. Absolutely. Now, it still does happen and this has happened on a number of occasions where somebody who signed up on our buyer’s list two, three years ago and they’re still on our buyer’s list. They might come around now and maybe it just didn’t work out for them back then, maybe they needed to work on their credit a little bit or whatever, and then two, three years later we have a house, they get notified and they say, “Oh, that’s the house I want. I’m ready to go.”
Julie Clark: Right.
Marishka Pilch: That’s happened.
Julie Clark: I always feel like I want to give you crap, Marishka, about getting your license so you can take advantage of the home partner stuff. You, guys, know what home partners is? Home partners is a website that basically is a lease option. They have MLS listed properties that are within the areas that are willing to buy and take down properties, which are tied to good high school, school districts I believe is how they determine, but it’s literally like an MLS for lease option potentials.
Julie Clark: I always want to talk Marishka, man, you should have all these lease option buyers that you should get your damn license or you should work with and partner with, yours truly, we’re just always so busy and drinking every time we see each other, we never get through all your conversations and we should find a way to work with each other on that sort of thing or anybody who’s listening, let’s talk if you guys follow my flow on that [crosstalk 01:30:35] I have some really good strategy ideas between investors and brokers like myself on that kind of thing.
Larry Gill: What kind of rum do you like, Julie?
Julie Clark: What kind of rum?
Larry Gill: Yeah.
Julie Clark: Whatever you’re bringing will work for me, Larry. Whatever you want-
Marishka Pilch: Now, people are going to think that’s all we do is drink, and that’s just not true but-
Julie Clark: Last question, do you guys do lease optioning out of state or is there better … is there an ideal price point that you find? It seems like it could really work at any price point but …
Marishka Pilch: It can really work with any price point, but in my view, the best risk/reward price point is probably under the FHA maximum, wherever that may be. That varies from county to county, from state to state.
Julie Clark: Why is that?
Marishka Pilch: Because most of the time especially if you’re talking sandwich lease option, if I’m responsible, if I’m doing a sandwich lease option, and I have an underlying payment of let’s say five bills a month, that’s great as long as I’ve got a tenant buyer in place, but if that tenant buyer can’t exercise and something happens in their life, and they need to move on, I’m still responsible to that seller to pay those five bills a month.
Marishka Pilch: I’m talking thousands of dollars, right? But if I’m only having to pay 2000 or less, it’s a lot easier for me to stomach that. It’s like, “Okay. I can have the house vacant-”
Julie Clark: Right. You’re limiting your liabilities to make it vacant?
Marishka Pilch: I’m limiting [crosstalk 01:32:21]. Yeah. Because it-
Julie Clark: Plus you want your market rents to match up, right?
Marishka Pilch: Exactly. Yeah. Ideally, you want your market rents to match up. When you start getting into these million dollar houses, it’s just harder for it to make sense. Now, have we done million-dollar-plus properties? Sure. We have.
Julie Clark: Well, how about doing just the wholesale lease option [crosstalk 01:32:45]-
Marishka Pilch: Yeah, and that typically what we’ll do in that scenario is we’ll just do a wholesale, and we’ve done that a few times. But it just makes more sense. Which would you rather have, five $200 bills every month or $1000 bill every month? Well, guess what [crosstalk 01:33:10]-
Julie Clark: You know what’s interesting is I heard somebody recently do … I think it was Thatch, did a survey on, okay, guys, if you could do less deals and make 200,000 per deal or you could do 10 deals to make that 200,000, which one would you choose? Crazy enough people chose I’ll do 10 because I don’t think I can find deals where I make the one spread at 200.
Marishka Pilch: Yeah. Well, they’re harder to find.
Julie Clark: As Thatch said … Shout out to Thatch [Wynn 01:33:44] if you guys all know who Thatch is locally here and some nationally. I’m sure some of you might even know, but he says it comes down to your mindset. Well, how many lenses do you actually … Do you even own the lens that you can look through to see what’s in front of you with the potential deals and the structures? That’s just a big take away today, guys, is that hopefully today you guys have added to your collection of lenses that you can wear on these deals, even if you were doing lease options already.
Julie Clark: There’s some good stuff. I’m going to re-listen to this thing [crosstalk 01:34:22] I’m going to be re-listening to this thing over and over. If you, guys, like this podcast today and you feel that you learn something new or even one nugget that might be able to add to your cash flow game, because that’s what we’re talking about here, make sure to give us a shout out and, of course, we’d love a five star review from all our friends, but we’ve gone way long today.
Julie Clark: I don’t know how many pushups and situps Joe has done over the course of this podcast today. But I think we’re going to have to wrap it up here mainly because I got to go pee so [crosstalk 01:35:01] about that. But I love you, guys. I can’t wait to see you guys-
Marishka Pilch: We love you too.
Julie Clark: … tomorrow night.
Marishka Pilch: Yeah. Looking forward to it.
Larry Gill: Thank you.
Julie Clark: If you, guys, missed out on the party it’s because you’re not opening the emails that Joe is sending you. You never know when there’s going to be something exciting in one of those emails so you should start opening those. Thank you for those that do, but we love you, guys. Relationships are number one for 2019 and beyond. I can’t wait to get to know all you, guys, a little bit more.
Julie Clark: For my friends, Larry and Marishka, we’ll keep on keeping on and see you, guys, soon. Joe … Actually, Marishka, where can people reach you if they want to talk to you about a deal they have? I’m sure you’re open to helping and partnering [crosstalk 01:35:59] some instances with people on deals, where can they reach you, guys, or how … what’s the details on that?
Marishka Pilch: Yeah. Also, evergreensuccess.com is our main website, and from that, you can … there’s a Contact Us page that’s got all of our contact information. You can just shoot us a question just from that site, but you can also kind of drop down to other sites about notes and about lease options and other things. Evergreensuccess.com is probably the best way to find us.
Julie Clark: Are you, guys, still doing your meetup? You, guys, were doing a meet-up for a while?
Marishka Pilch: Yeah.
Julie Clark: Or you guys retired that? Or you travel too much, my God.
Marishka Pilch: We took a hiatus for a while, but we are thinking of starting up again after the first of the year. But, again, with a little bit different format. We think that there’s folks who maybe are a little bit further either down the investing trail or who … maybe are their business … they’re basically not wanting to learn, we’ve got a lot of folks who wanted to learn fix and flip, which is not what we do, but they would show up on our meetups. Which is fine.
Marishka Pilch: We welcome everybody but we wanted to kind of get into a little more meaty discussions, and so just looking for just a different type of folks who maybe are looking to diversify or maybe they’re not even in real estate, but they recognize that real estate is a good opportunity and just have a kind of a conversation about different opportunities for people to invest more possibly and create cash flow in their lives.
Julie Clark: I see where you’re going. Well, how about this, guys, we are going to have Larry and Marishka, I’m sure I will be able to twist their arm to join us at one of our weekly either Tuesday or Thursday roundtables-
Marishka Pilch: That’d be awesome.
Julie Clark: … that are going to be from 12:00 to 2:00 every week like I said Northgate area and South Center location, we will give you, guys, a shout out when we know that they are going to be there, so if you have some lease option questions, we can get together and … Maybe it’ll be a small group, maybe it’ll be bigger than I think. I don’t know. I don’t know that I care. I just want to hang out with you, guys, but we’ll give you a shout out. When I know I have some special guests attending.
Julie Clark: We’ll have Joe shout it out to you, guys, as well, but you’ll have to open those emails. You know what I’m saying? Or we’ll do some videos. We like videos but thank you.
Larry Gill: Speaking of emails, the best email is actually [email protected] That’ll come to both Marishka and I.
Julie Clark: Excellent. All right, guys. Joe, all these details are going to be in the show notes and all the goodness, where can they find all this stuff?
Joe Bauer: So many good details on this one today, guys. The show notes are at seattleinvestorsclub.com/58. That’s seattleinvestorsclub.com/58, and like Julie said we love reviews and if you give us a review, let us know, because there might be some interesting thing that we will give back to you.
Julie Clark: Yeah. Boom. All right, guys. Happy holidays. I don’t know when this one drops. Happy New Year is probably more appropriate, at this point, so look forward to getting to know you, guys, more in 2019 and over and out. Thank you.
Marishka Pilch: Thanks so much.
Larry Gill: Thank you.
Marishka Pilch: Take care.
Joe Bauer: See you, guys.
Marishka Pilch: Bye.