Having a great future in real estate investing lies greatly in having the proper education in this business. As the world continues to progress, the Millennials continue to be the drivers of the industry. That is why it is important to equip this generation with the right tools. Chris Prefontaine of Smart Real Estate Coach has exactly what they need. As a co-author of the book, The New Rules of Real Estate Investing, Chris puts forward the importance of having a smart real estate coach and shares his insights about the changes happening in the industry. In this episode, learn more about how you can get started in real estate investing with lease options, how to find flexible sellers, and how to overcome the gap between what you learned in seminars and actually doing deals.
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Smart Real Estate Investing: Getting Equipped For The Changes In Real Estate with Chris Prefontaine
My new book is out already. Please check that out on Amazon, Real Estate Without Renters. I have a great guest for you. He came out with a new book along with his son and son-in-law in and it’s called The New Rules of Real Estate Investing. That is Chris Prefontaine. He has been a long-time veteran in the real estate industry but also specializing in lease purchases, owner financing, subject to type of transactions, which is absolutely fantastic because that is the direction the real estate is going. Chris, welcome to the show.
Thanks. I appreciate it. Congrats on your book.
Thank you. Mine combines real estate with the creative side of things as well. I absolutely think that’s the future and that’s how people have to be educated properly in this business. Let me start off by asking you this. I read a study and for the life of me, I can’t find it again. I found it on my phone and by the time I got back, I couldn’t find it. Bankrate comes out with an article every year about where would people put money if you had either $10,000 or $20,000 to invest if you didn’t need it for the next ten years. Real estate has grown past the stock market in this survey and driven by Millennials, which is interesting to me. Obviously, your son and son-in-law fall in that category of Millennials. They must have seen how friends lost money in real estate. There were a lot of people who got through the crash that got hurt by that. It’s smart. It comes out through in your book that they are big believers in getting proper coaching and mentoring through that. How important is that for you to be able to share that with your family but by extension everybody who was at your Smart Real Estate Coach?
A couple of things you said are important. I’m glad they recognized it, but the stock market can go to zero. I don’t care what happens with the market. If you’re doing the right deals, they can’t go to zero in real estate, number one. Number two, you talked about $10,000. I was in Arizona with one of our students and she said, “I just had on BiggerPockets.” I said, “You need $5,000. Cut that in half and put the half aside for reserves. You need $2,500 and go out and tie up twelve deals.” That’s what I gave her for advice because you need $100 a deal. We use ten, but I said, “Let’s use $100 deal and you still have a buffer leftover. You can create an hour or you can create twelve deals with that and you have a cashflow that’s going to go one, three, four, five years out.”
It’s important for people to know and please share with us some techniques or such, but the creative aspect of real estate, it’s essentially as long as the two parties are doing something legal and they have a meeting of the minds. You can tie up deals with as little as $10 is considered legal consideration. Although a federal judge said years ago that even your offer is alone to meet that definition of legal consideration. It doesn’t take a lot of money to get started in this, especially when you’re using the creative training and techniques that you utilize.
To your point with the consideration, I’ve even heard emails because email is such a big deal now. That’s like intent and consideration. Most of our lease-purchase agreements are $10. People say, “How about when you do owner financing?” When we do owner financing, we target free and clear property. When we do that, most of the time, like 9.9 out of ten getting these properties with no money down. You can’t expect to sell or transfer that and pay their own transfer tax and have no money down. That’s why I said as a new person or Millennial, whoever’s looking at this, start with some of these purchase deals first because you don’t need a lot of money. Later on, you can delve into owner financing because you might need a teeny bit for the transfer tax and whatnot. I can go deeper into any one of those if you want.It doesn't take a lot of money to get started in real estate, especially when you're using the creative training and techniques. Click To Tweet
You think lease options moving forward, why is that such a good technique for somebody who’s new?
It’s pretty simple because there are no deed transfers. It’s simple because you don’t need a lot of money. We have prewritten all agreements for $10. It’s simple because your inherent risk is way down. When I first started doing terms deals, granted I had been at it, fourteen, fifteen, sixteen years before that. I started doing terms deals, I would do leases like my first thirteen deals or so. I started to say, “There are actually ways to stay in the middle of this thing, i.e. sandwich leases or there are ways to buy these things, i.e. owner financing.” We create three paydays when we do that. That’s well worth staying in the middle, three paydays per deal and they range now for us $75,000 per deal. That’s why I said, “When you string together twelve deals or so, you don’t need many with those to have a bang up year financially.”
Just so we’re clear with everybody, you’re targeting specifically properties that are free and clear. There’s a higher percentage than most people to realize that homes in the US that are owned free and clear, but you’re targeting those specifically. There’s a list or a product or something that you have or can tap into for those. Of that, you’re working in agreement to rent that house with the option to buy. Once you, your investors, your son or son-in-law lock up that deal, they can then re-lease it, sublease it to somebody else or turn around, sell it and change the agreement.
You banged a couple of high points. There are two quick distinctions. On the owner financing, yes, we tag it free and clear. You’re right, by the way, I used to say a third of the properties and I had some student call me. We do strategy calls and she said, “No, I’m in Florida.” She was in Naples. She owned a mortgage company and a brokerage. She said it’s 53%. I was shocked. I’ve been using a third. There are plenty of people out there, but when we tie up the lease purchase properties, they don’t have to be free and clear. In fact, most of them are not. Most of them have an underlying debt and we’re paying those directly to the mortgage company. On the exit on all our deals, it’s rent-to-own. People that are buyers, they just need more time.
In fact, in my book that’s coming out as I was mentioning, one of the techniques I have in there is a lease purchase note. I like the aspect of leasing that property for at least twelve months. Get over the twelve months or you’re into long-term capital gains. You already have prearrangement for seller financing as your exit strategy for that. You’re doing something similar along the line probably without the time frame.
On our sandwich leases now, we don’t like to go less than 36 months. There are exceptions to everything but less than 36 months. It’s a couple of reasons. One, it’s palatable for sellers. Two, a lot of those people leaving and once they get past that 36 months on their main residence, they get a capital gains problem. It’s not that most of them know it or understand it, but morally and ethically, we like to say that to them if they’re in that situation. They’re not all but some of them. The owner financing terms, we’d like to push out four or five and more years, which is nice. The office building that we bought for twenty-year on financing terms. No banks, no signing personally. This is stuff that keeps you up at night. You don’t have to do it.
It’s the best way to go into the business. Lease purchasing and I’m loving selling with the seller financing. You’re also buying with seller financing obviously on that. How hard are you finding those deals to come across? Are you finding flexible sellers still now? Does it take a little more effort to find those versus lease options?
On both of those, if you talk to word terms in general, this market has pockets right now that are still hot. Those become less important to us and we go more towards the expired. That expired pool, they’re not selling for a reason. We’ll find plenty of motivated. Also back to that free and clear list, there’s plenty of those that obviously they don’t need the money or they would have taken it out. They’re usually financially, I wouldn’t say well-off, but they’re educated. They are usually open to terms. It’s like the gentleman that sold us this building. He said, “I don’t want the cash now. I don’t need it or want it.” You have to fish in different ponds when the market starts to pull back, which it has in DC where some of our students are. We’re getting different vibes, but certainly, the operand is slowing down. It’s right for a lease purchase and owner financing.
You mentioned DC because I know you’re up in New England. Are you finding that you’re diversifying in your investment as far as states, you’re going to different places or you try to stay local with the real estate?
The three of us go to Rhode Island, Massachusetts, Connecticut and maybe a little delving around it. We have associates, essentially partners, all around the country. We’ve got about 25 or so with different states, 60 or so with different partners. We call them again associates. They’re doing deals, but we’re doing them with them. There’s a big difference in the market. People go take a core. They go to a seminar and they flounder, too many of them. I call it the gap before getting a deal. We lock arms and do deals with them. Our guy in DC is cranking more of the higher end, a couple of people in Pennsylvania more the lower end. I’ve got a good sense for all the different markets. It’s pretty neat.
Is that a result of masterminds and coaching and such? Is that where that grassroots grow that’s led you to other markets?
As we started coaching and consulting, we all noticed that big gap where people are coming to us every week going, “I took this course or I went to the seminar. I spent tens of thousands, two people, six figures. They said, “I haven’t done a deal yet.” They’re always saying, “How are you guys different?” We started tweaking it. Now we’ve got in the trenches and do the deals. We’re calling the sales with them. We’re calling their buyers because that implementation stage is where the people stumble. It’s hard. You go to the seminars, it all sounds fluffy, rosy and good. They get out in the real world and they go, “I didn’t know how all these happened.” We bridge that gap for them. We take the gap away for some of them.
It’s going from the learning to the direct applications always that speed bump as I like to call. It’s not quite a hurdle in my opinion, but your right because I’ve done classes here locally in the Orlando area where I live. You get them in a room and say, “Now you told me what deals you’re looking for and what price ranges. Here’s a list, you dig down and tell me if these are good deals or not.” All of a sudden the reality hits them where they’re like, “Let’s see how do I do this again?” You’ve got to get them to that point because it is challenging for people to take that next step in the business there.
Picture that thing you said, Kevin. That’s a good example. Instead of them freezing when they get the list in front of them, if they’re one of our associates, they send the information sheet, property information, lead sheet or whatever you guys want to call it. We go over it with them and then we decide who’s going to call next. It’s more hands-on.There's a risk in every deal if you don't do it properly. Click To Tweet
I was reading in your book about calling and making three calls a day. His book is also motivational, getting the proper mindset for real estate as well as doing the techniques. He has about 23 other contributors in there as well. Getting on the phone and talking through the business, there’s something about the language of the industry and there’s no shortcut to that. You have to make those calls and when you do it, you start getting better and better at doing it. All of a sudden, that opens up opportunities that other people didn’t see before.
I did it. You can study. You can even role-play, which is a harder and better practice, but until you get your feet wet, you have nothing to adjust, tweak or better. We do a few things with that. We encourage people to study the scripts we have, but if they’re in a single-party state where they can record, we have them record calls and we critique them. You’ve got the headset on, you tweak it as you listen and you send it back. The very next call they do is already better. It shortens the learning curve dramatically.
I’m sure you’ve seen it before too, where people get so used to a script, they sound like they’re a robot almost like, “Why are you selling the property?” It’s like, “No.” You’ve got to make it conversational. The way I teach things, it’s always about, you want the numbers, but the story is so important as well. The numbers and the story on everything because that’s how you can figure out, “Here’s where the problem is, what’s the solution,” and then be able to sell that solution to them and put together a win-win deal.
You hit it on the head. You can throw away all the scripts. You can throw away trying to give people a seminar on the phone. You throw all that away as long as you know why they’re doing or trying to do what they’re trying to do. You find that solution. You feather out by questioning them where their headache is and you sell them an aspirin. You’re fixing things. People say, “I’ve got to be a salesperson.” No. If you’re a salesperson, you’re going to sell these people into it and they’re going to want to back out. Give them solutions.
You’re a problem solver is what it is. If you can solve the problems, you’ve helped them out and it truly becomes the win-win that we’re looking for. I’ve got a question coming up for you on going through some of the lessons that you learned and how your business has changed. Chris, being in the business as long as you have for many years, like me, you’ve seen the ups and downs. That chapter resonated with me in your book where it’s like, “Anybody who was active in the business got hit. It’s a matter of how hard, but it’s also how you recovered from that and the way you took your lumps and went forward.” Some people threw up their arms and left. There are folks like you and I that said, “Lesson learned. It’s duly noted. Let’s not make that mistake again.” How has your approach to real estate changed since that time, drastic change, five years, ten years? Did you make a big change?
It’s a couple of things. I would say back in 2013 beginning, we totally re-engineered how we buy and that led to what you and I have been talking about only buying on terms so that there’s not a time to sign a personal loan. There’s not a time to assume a note. There’s not a time to put a ton of cash unless you get in some big backend. That’s what caused it all. If it weren’t for that, I probably wouldn’t pick my head up because the real estate time machine was going. Everyone thought it was going to keep going. It took me from February of ’08 to February of ’12 to wind out of that stuff. Meaning get some stuff sold, get short sales done, foreclosure and it was a mess. It was a full-time job for four years. I’m trying to break out of that chamber and work on new stuff so I could be productive. If I can do that so much, it would drive you crazy.
Back then, money was easy to get. The creative aspect of the business, you didn’t need. Being in Florida, I used to joke years ago, I said, “It’s almost a requirement now that when you move to Florida, you have to get a real estate license,” because everybody had a real estate license because it was so hot. Nobody knew the business that well because it was also too easy. Back then you buy, you make a mistake and you turn around and sell that thing for ten times what it’s worth. That’s an exaggeration, but you get my point. You turn around for so much more that you could afford to make a mistake. When things tightened, you can’t do that. The smart investors like your Smart Real Estate Coach, you’ve got to think in terms of risk first on all of these transactions. A lot of times if you do think of that way, you protect yourself in the yield. You’re still going to make a yield because you’re doing a risk-based investment. It’s along the same line of how you look at every deal?
A couple of things to what you said too though and I’ll go back to that. It was so stupidly easy. We would do a condo conversion, let’s say it’s three units. You wouldn’t even get the paint slapped on and you’ve got a condo out of the door at $50,000, $60,000, $80,000 to $100,000 a pop extra. As far as moving forward, what was your question on that?
How the industry has changed from it that forced you to get a little smart on doing deals? The way I look at everything is I look at risk first, now I do notes and real estate, but on notes especially, I tell people you don’t make your offer on a note based upon the yield that it is first. You look at the risk and a lot of times you’ve looked at the risk first. The yield will work itself. It will be a good enough yield. I’ve always looked at real estate investments the same way on the bricks and sticks. What is my risk first on this deal especially after the crash? I took a hit on that as well and then I start to think in terms of structuring a deal with the reward in mind.
It’s the same with us because even though we are buying on terms, even though we have all kinds of safeguards, there are going to be downsides if you mess up or skip a step. If you get in too cocky, too fast and things are going too easy, i.e. in our case, you don’t screen the buyer properly. You’ve got a glorified tenant. You’re asking for a headache i.e., you don’t inspect the house, you have a headache later on. You end up with a problem. All these little things we’ve made into a checklist now, but it is to your point of the whole risk assessment.
I’ve seen that happen too, where I don’t know anybody who’s gotten cocky in this business, the industry always seems to have a way to come back and kick in the keys and go, “I didn’t see that one coming.” What do you see moving forward? You can find whatever you want on the internet. There are a lot of experts talking about we’re already in a bubble. There are a lot of other ones saying, “No property values are going to start to mellow out.” What’s your read and all of that? Do you see an adjustment coming up in the future as to how you approach real estate?
Yeah, on a couple of things. First of all the people that predict, that cracks me up because there is no one market. There are different markets all over the country. There always will be. Within our student pool, there’s a hot market, the dead market, a pulling back and all the different markets. If you and I knew that, we would be on the beach somewhere and never have to work. I wish I had that answer. As far as what we’re doing on our end, little longer-term deals, more ownership meetings, subject to, existing financing or owner financing versus lease purchase. It doesn’t mean we go away from it. It means that’s what we prefer because we’ve got so much stuff going on in the country with our own personal deals in these three states with super picky on terms and condition. If you put a term out there for ten years, for example, do you care what some ups and downs? Ten years in most cases, you’re going to be fine so longer-term deals for sure.Until you get your feet wet, you have nothing to adjust or tweak. Click To Tweet
I’m going back to that article I read that Millennials are looking to get their feet wet in this industry and a lot of them have no experience in this industry. I know you’ve got even in your family business that people got into doing what you’re doing without that experience. It comes more from the drive because all this is learnable. What would your advice be for somebody who’s new in the business? How would they approach this wisely without getting hurt?
Two things, one is you’re right. You and I can teach skill sets to people until we’re blue in the face. That’s not the issue, the stuff works. It becomes a drive that you said in the space right here, which is drive space between their ears. That’s number one. Number two, I say this about any business to your question, find a niche that you like. My book has all different niches. I’m not saying, “You’ve got to do what we do.” There are all kinds of cool things in real estate. Find the one that you like, whether it’s Kevin, myself or someone else and latch onto that person for three years.
Here’s the kicker. Three years straight, 36 months, no looking left, right and back. You’ll have a great experience if you do that and you listen. Don’t disappear on them. That’s a fact. It drives me crazy when someone says, “I’m going to try it for six months. I’m going to try it.” Try what? You’re either doing this business long-term or you’re not. You’re going to have a miserable experience if you want to try it. If you are so, don’t even bother. It doesn’t mean they can’t do it part-time. I don’t want to throw people off. Most of our students and our associates doing deals with the exception of two, maybe three now are part-time and they love it because it’s a nice income at $75,000 a pop. They have a plan and a date at which time they say, “I can make that switch.” One just did. It’s two years and he went full-time. Don’t think you can’t do it. Kevin and I say, “One foot in, one foot out and that commitment level, not that what you got planned.”
I look at now versus trying to learn this several years ago. There was only a couple of books out. We probably read some of the same books early on about getting started in real estate and listening to the same people and getting going. Now, with the podcasts that are available and everything else, there’s so much good free information out there. If somebody knew to get engaged into this before they invest a dime, it’s a lot easier. You’ve got a podcast as well, Smart Real Estate Coach Podcast.
To your point, everyone has free information out there on YouTube. Our YouTube channel alone has a Deal Structure Sunday, a Q&A Thursday, a Motivational Monday. It’s free. Just go camp out. If you don’t like us because we’re from New England or whatever else, find someone else, it doesn’t matter. It’s my community, that’s what we call it.
There is so much opportunity here and you’re right. My advice to people too is always, think about what you want to accomplish first. Even within the niche I’m in, mostly real estate notes, there are so many different directions and many exit strategies that you can do. Don’t try to do everything all at once. You have to educate yourself widely in the beginning but you also have to reel it back in and say, “Let me focus on getting this one thing done and you can start to expand.” I’ve seen people spin their wheels. They feel like they’re in the business. They feel like they’re making that commitment, but they’re not doing anything and I advise people on that.
That’s where the mentor comes in. Not pointing to you or me, point it to wherever niche they want. This is if you open a restaurant, the same thing goes. It’s knowing what I call MPAs, Money Producing Activities. In our case, you say to me, “Here’s my personal overhead and here’s my goal for business income. What does that mean in deals?” “Okay, I know that.” “To get that many deals, how many you would have to talk to and how long will it take?” I say to them, “Does that work? Do you have that much time we allocated to your goal or do we need to change that goal?” As long as you have some that have been there and can redirect you, it’s fine. It’s that when they go out and they don’t know which way to go, they spin the wheels. It’s like the shiny object syndrome, “The notes sound good. The terms sound good. I’ve got to go over here and do tax liens.” They’re all separate businesses. You will have enough money if you do one of them for three years. Do whatever you want.
There are more advanced people in real estate looking to grow their businesses or possibly explore newer niches to adjust to their overall market. One of the things that I’ve lost out on that I know you’re a big proponent of. I was traveling so much, going out and doing so many training per year that it prevented me from doing one of the quickest things you can do and one of the smartest things that you can do in a business is relationship-building. Because I was gone so much, you would think, “You’re meeting all these other speakers and professionals and such,” but it’s so hard to follow up. Now, that I’ve pulled back on that. It re-awoken me to setting up joint ventures with other people and what you can do. Has that been a huge part of what you’ve been doing?
Doing shows like this is phenomenal because you don’t have to get on a plane to do it. The relationships in general, my wife always says I’ll need someone like you, Kevin and it will lead to X, Y, Z and that leads to this. I love tracing it because it is 100% what you said. It’s all about relationships. We have some cool ones and we bring the people we think our group, our community can benefit from. We bring them in. It’s always helping them too.
Any other last words or anything you want to tell us or words of wisdom from you?
The biggest thing in real estate I think you agree is, “I see this niche or this shiny object out here, but can it work for me?” It worked for all those people. I get the skill, but can it work for me?” I’m wanting to say, “If you do what you and I discussed getting a mentor and staying with it for three years, it will work for you. You’ve got to bob and weave through it.” If it was super easy, everybody and their brother would be doing it. It’s not super easy. It’s simple. It’s not going to be easy. It’s going to be simple for you to figure it out. You’ve got to stay with it long enough. You mentioned my book a couple of times, Kevin. If you want, I’d love to give them a link. All they’ve got to do is say they were on your show and they’ll get it for free. I don’t mean get it for free. Put your credit account and get whacked for shipping. We ship it to them too.
What’s the best way to do that?
Go to NewRulesForFree.com.
I appreciate that for my audience. If they want to learn more about you, I know you have a couple of different websites there, so I’ll let you tell them.
They can go to SmartRealEstateCoach.com and they can do the contact button. They can sign up for a free webinar if they don’t mind listening to me for another 50 minutes. It’s all free content. I want people to go free and decide which way they want to go to. That’s why it’s there. I’d love them to go to that. You mentioned the podcast, SmartRealEstateCoachPodcast.com.
Thank you so much for being on. I appreciate you taking the time.
Thanks for having me. It’s a pleasure. I love chatting with veterans. It’s always fun.
Thanks for reading. Once again, thank you, Chris, for being on. I look forward to talking to you next time.
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About Chris Prefontaine
Chris Prefontaine is the best-selling author of 2017’s Real Estate On Your Terms and this year’s The New Rules of Real Estate Investing. A real estate investor with over 27 years experience in the field, Chris is the founder of Smart Real Estate Coach and host of the Smart Real Estate Coach Podcast. He lives in Newport, Rhode Island with his wife, Kim, and their family. Chris operates the family business with his son, Nick, his daughter, Kayla, his son-in-law, Zach, and an amazing team.
Chris has been a big advocate of constant education. He and his family mentor, coach, consult, and actually partner with students around the country, teaching them to do exactly what their company does. Between their existing Associates nationwide and their own deals, Chris and his family are still acquiring 5-10 properties every month and control between $20 to $30 million dollars worth of real estate deals — all done on TERMS without using their own cash, credit, or signing for loans.
Chris and his family believe strongly in giving back to the community. They currently support Franciscan Children’s Hospital in Brighton, MA, 3 Angels Foundation in Newport, RI, and the Wounded Warrior Project by giving a percentage of all deals to those causes.