Subject-To Real Estate Investing Explained: Buy Houses Without a New Loan

Roger Paschal (00:00)
All right. Well, first all, subject two is acquiring a property without having to acquire a new loan. So you’re you’re essentially paying the other person’s mortgage. The property deed goes into your name or your entity name or land trust. We we do all the all the above. So you control the property, you own the property, the deed the mortgage stays in in the original person’s name or the original owner’s name, and you’re picking it up at an incredible interest rate.

Joseph Crooms (01:57)
Hey everyone. Welcome to Investor Fuel Real Estate Pros Podcast. And today I am your host, Joseph Crooms. Today I’m joined by someone I’ve been looking forward to chatting with. His name is Roger Paschal who’s out there killing it in the business of subject to real estate spaces. I’m gonna let him explain that a little more in depth, but before that, hey Roger, glad to have you here. Say hello to everyone.

Roger Paschal (02:25)
Great to be here. I’m excited to be here. I’m excited for everybody that’s listening in and learning more about your business.

Joseph Crooms (02:31)
Good. I think our list is really going to take away something from how you’re approaching that subject two. I hope I’m pronouncing it correct. So what? Help me out. Let’s dive in. Let’s talk about that.

Roger Paschal (02:42)
All right. Well, first all, subject two is acquiring a property without having to acquire a new loan. So you’re you’re essentially paying the other person’s mortgage. The property deed goes into your name or your entity name or land trust. We we do all the all the above. So you control the property, you own the property, the deed the mortgage stays in in the original person’s name or the original owner’s name, and you’re picking it up at an incredible interest rate.

And you’re not having to put a down payment in. You still have some closing costs. It’s not getting a house for free, but it is getting a house much less as an investment for for what you would normally get if you bought it from the bank. But number one is you’re getting a great interest rate and you’re creating cash flow for long term long term held houses.

Joseph Crooms (03:26)
So how did you get into this business, Roger?

Roger Paschal (03:29)
Well, I I started my life out. My brother and I started the import export business out of my brother was nineteen, I was sixteen. And I moved in with my brother. We started a business of import export of auto parts. And then we grew up from there. We wound up with five locations in four states. We were one of the top exporters in the Dallas Fort Worth area. And I got to the point after about nineteen years of that of not wanting to do that any longer because I was dealing with issues. I was dealing with banking issues and accounting issues and personnel issues and vendor issues and whatever. So I like sales. I like to do that. So I sold the company and I looked around to see what I was going to do. My wife was a realtor and I did not want to be a realtor because I didn’t want to have to find a new client every time I I sold a house. But I got into investment. So I got my real estate license. I no longer hold a real estate active license.

But I did get my real estate license and I and I worked with investors for years and I watched how they did their business. We were also buying houses for our own and we were using those as rent houses for for additional income. But we were buying traditionally and having to bring twenty percent down to to buy these houses from the bank, traditional closing cost, not knowing how to find them. So when I became a realtor, I got into that and and made that happen for us.

And then I started seeing the opportunity with sub two. I learned more about it. I immersed myself in that business and learned from everybody I could possibly learn from. Took every course I could take. And then eventually started my own teaching on that, my own lessons and and wrote a book on it too.

Joseph Crooms (05:53)
Roger, when you started the real estate, how what what is your current book of business and and what when were you did you realize, okay, I’m ready to transition?

Roger Paschal (06:04)
Yeah, so I started real estate. I immediately started working with investors. I watched my wife, like I said, I didn’t I didn’t want to do what she did and and working with the with a normal home buyer, I guess is the best way to put that. And the brokerage she was at had a had a huge department where they specialized in HUD homes, HUD foreclosures. So I got immersed in that little part of that community of that brokerage that they had, and I learned all the everything I could about foreclosures and I started building my customer base from there.

And that that company was very gracious to us as realtors of allowing us to promote to actually have a sign out front with our with our name and number on it. So I was acquired I was able to acquire a lot of investor customers that I still have today, even though I’m not a realtor, that I still work with today. We we do a lot of trading back and forth. We find a property, I find a property that doesn’t work for me, mainly because of location, and I will pass it on and I’ll wholesale it out to another investor that I’ve worked with in the past.

But but in subprime days I discovered there’s a lot of really, really good people in bad positions. The banks weren’t very cooperative, and I realized I needed to do something to try to find some of these people before they got into a bad situation with the bank. And that’s where I started really working sub twos. And I had others come to me and say, Hey, how do you do this? I started training them and then I started doing live trainings from there about fifteen years ago.

Joseph Crooms (07:23)
On the sub two, how long have you been doing this in years and what is your book of business like now?

Roger Paschal (07:29)
So I started doing sub twos in about twenty years ago. And then for myself. I was just buying buying for myself. And then once again about about fifteen years ago I did my first live all day training and put that together and I’ve been doing live trainings ever since and and now I have a pretty good size web presence on sub twos. And so

about fifteen prob probably about seventeen years I’ve been doing almost exclusive sub twos. And I did start out as a realtor working with investors. I’m no longer an active realtor because I just I just don’t do that business anymore. I’m very very busy with my sub two business.

Joseph Crooms (08:09)
So you found your niche and so your niche I mean and when I asked how many what is your profo your portfolio about on on in your niche?

Roger Paschal (08:20)
Okay, so I own properties. I I have sub twos that I’ve had for I think the longest ones I’ve had is about sixteen years that are still sub twos and are still in in the the mortgage is in somebody else’s name, but the deed is in my name. They’ve been as rent houses. My my standard answer I give to everybody on how many properties I own, I say more than six.

I like to use land trust. I don’t want people to know what my business is, other than my CPA and my wife. But but I I work subject twos every day. I try to pick up several a year. Some some years are better than others. The niche in the sub twos right now is mortgages taken out from 2017 to 2023 because of the interest rates.

We’re at the all time lows at that point. And the people owning those houses don’t have a lot of equity. So they may not be able to list with a realtor and come out without bringing money to the table. So my portfolio, my my business plan or I’ve been doing for years, is I pick up these houses on sub twos, I will rent them out and then I’ll work very hard with that tenant to owner finance them with a wrap. And a wrap is taking a second mortgage, putting it a wrap it around the first mortgage and making

making the profit in between, but I like to have history with that tenant before I owner finance it. I wanna make sure that they’re gonna be good tenants for at least twelve to twenty four months before I I do a wrap on that property. I don’t do a rent to own. I just rent and I’m gonna watch you what you do. And if you’re responsible with the property and take care of the property and you’re responsible and I’m not asking them to, to update the property or anything. Sometimes they do.

But I I want to make sure that they take care of the property, that they’re mowing the lawn, that they are calling me with any any issues going on with that property. And and they’re paying their rent on time. And if they don’t pay the rent on time, they’re not gonna make their house payments on time. I don’t wanna owner finance them. I don’t wanna acquire that property three years after I owner finance it in bad condition. And so that’s my but I will offer to the to the buyer, I’ll pay all their closing costs.

I will not pay their down payment. They have to bring a down payment down. My standard is just ten percent. And it works out very well. They’re getting a they’re getting a great house that they lived in for a while and they know what what if it there’s any issues and we repair those. I make it easy for them to get in and they they now start building their their own wealth and their own life instead of renting forever.

Joseph Crooms (11:21)
Seems like you’re helping three groups of people really. You’re helping the distressed prior owner, you’re giving people knowledge, Roger, and and you’re helping people become homeowners. Kudos to you. I know that’s not easy in this climate. What’s been the key to keeping your business running smoothly?

Roger Paschal (11:39)
I love people. I love working with people. I love learning about people. What what’s their background, where they’re from. What have they done in their life and and who they are. And and and I have built more friendships out of this industry than than I could ever have dreamed on. And when we go to Cancun once a year

we we sell it out. We sell it out very, very quickly and and we just have a lot of fun. I’ve been all over the world with friends that I’ve made in this industry. I’m very active in charities, I’m very active in Rotary International and and I love our our projects that we do and and I’ve been to some third world countries and and helping those people out that can never give back. That can never I I’m not getting anything out of it other than helping them out, so

but that’s that’s been the biggest reward in this business is working with others, learning about them. I just had a student three weeks ago, we go to a closing and I excuse me. So I go to a closing and they I let them know at that point they had no idea, but I let them know that at that point they had over a million dollars worth of real estate in their portfolio. And that’s very, very rewarding young couple

and they were just ecstatic. They had not even thought of it that way. That’s that’s one of my big rewards when I work with students and they they they pick up their first million dollars worth of real estate.

Joseph Crooms (12:57)
What are some of the other markets that you’re are you in in are you in any other markets besides Texas or or ’cause you didn’t mention you can pretty much go anywhere, but but how do you know?

Roger Paschal (13:07)
Yeah, so my personal portfolio is in Texas, but I work with a lot of people. So I had a student this morning that I was on the phone with for a while that’s out of Birmingham, Alabama. I have students around the country. I also own a secondary company that we we help resolve due on sale problems. That’s always a big case on subject twos, is every mortgage out there that I’ve ever read, and I’m sure every mortgage out there that’s been made has a due on sale clause.

Banks don’t want these properties back, but sometimes somebody doesn’t do the do the do the transaction the right way and they they wind up getting a notice from the bank that the bank’s gonna call that note. And my job in that company and I’ve done that in over forty states, is to keep those properties from going into foreclosure. And we’ve so far been successful on one hundred percent of the properties that we take on. We don’t take on all properties. If if they’re

two years behind on payments, there’s nothing we can do on that. But if they didn’t do their insurance right, if they didn’t if they didn’t close it right, if they didn’t if they didn’t communicate to the seller correctly on this, that’s where I come in and I help them resolve that so they can go forward.

Joseph Crooms (14:53)
Thank you for that. Now every operator I know Roger has a moment when things just don’t go right or you know, to get real. Maybe a deal that went sideways or time that they had to pivot. You mind sharing one of those moments with us?

Roger Paschal (15:06)
I’ve got a great one that that was that was fun and I I got the letter. Actually the bank sent me the letter. So it was a couple that sold a subject two to one of my students and they were getting a divorce and the the wife decided she was going to be vindictive towards the husband. So after the after the subject two went through in a couple of months, she reached out to the bank to say, I don’t know what’s going on, but my husband sold her a house.

The loan’s still in our name and somebody else is living in our house. I don’t like this. And she wrote a letter on that. And and I got a copy of that letter, but but we were able to resolve that. We were able to to solve that issue with the bank. And and like I said, banks don’t want foreclosures. There’s no due on sale police out there. There’s no so if you if you work for a bank and and I say this all the time, you work for a bank and the the the junior employee comes to their manager and says, I’m gonna

foreclose on these performing notes, you’re probably not gonna work at the bank very long. You’re gonna be in another career asking somebody if they want fries with that order because they’re gonna kick you out of the banking industry. So, but that was an interesting that that was one of the many interesting stories that we get. And that was just due to part of it is lack of communication to the to the ex-wife, and the other part was just lack of

not knowing what to do. So I called the bank, said how can we solve this? The bank told me exactly what they wanted. We got a letter from the husband and we got the copy of the divorce decree and sent that to the bank. Never heard another word since.

Joseph Crooms (16:33)
Thank you for sharing that Roger. Roger, let me ask you this. What do you focus on solving or scaling next? What’s your next real goal?

Roger Paschal (16:42)

You cut out on me right when you said that. What is my action?

Joseph Crooms (16:44)
Yeah, what what do you focus on scaling or solving next? What’s your next real goal?

Roger Paschal (16:49)
My my next little goal is to get it get as many people out there knowledgeable of the of the right way to do subject two. There’s a lot of videos out there. There’s a lot of people out there doing doing some training. And most everybody is training correctly. Very very seldom do I hear somebody doing things wrong, but they’re may not be giving enough information and and having access to that information. So for instance on my training website, I have a whole series of one minute videos, of one and two minute videos.

Where somebody can jump in real quick and get a real quick answer. What what do I do if the title company asks me this? What do I do if the insurance company we’re having a problem with the insurance company? What do I do if I’m having problem with the seller or whatever it may be? Or what’s the difference in doing a sub two on a FHA loan and a VA loan and a conventional loan? Or an owner finance. How do how do we handle that? So like I said last night we had a

we had a guy come in to our our meeting that we had here in East Texas and he talked about picking up his twenty plus RV parks by subject two in creative financing. And and how he did that and how he got started in that only about three years ago. So and and he he had never been in this industry before, but he he learned about it. He’s he’s been one of my friends for a while and and he’s local here. And but but my number one goal is to make sure people are doing this right.

To where it doesn’t mess it up for the rest of us and where they’re not creating a problem and and, once again, a while ago you said I’m I’m doing, I’m doing multiple things for multiple people. One of the things I’m doing this for is also for the seller, for the person that originally had that mortgage, is we don’t want any problems for them. We want this to be as smooth as we can, and for them to get on with their life and go forward and and not have a issue out there with somebody that buys their property and they don’t do that

do it right. They get a lot of pressure from the bank and everybody buries their head in the sand hoping it goes away and it won’t go away. They they’ve got it you’ve got to make sure you’re doing this right every single time. And it’s easy it’s very simple. It’s a very simple process, but you’ve got about ten steps in there you’ve got to do and if you don’t do those correctly you could have a you could have a a challenge.

Joseph Crooms (18:56)
So I can see now how your business shapes and and what you’re doing to progress it going forward. Now I know a lot of people listening are either early in their journey, Roger, or looking to level up. I think they’ll benefit from hearing this. When it comes to building relationships and growing a network, what’s made the biggest difference for you?

Roger Paschal (19:15)
When I’m uncomfortable doing something, I figure out a way to get comfortable with it. Okay. Public speaking was a big issue for me. So I joined Toastmasters and I got great advice from a lot of people. Being on stage was uncomfortable for me. So I joined a improv group and I went to the they have a little Improv University and I did that every Sunday or almost every Sunday for two years.

Is learning how to do improv, learning how to answer questions when being asked, learning how to listen and and and understand how people perceive me. So whenever I get into something that’s uncomfortable, I’m like, how can I solve this? What can I do? If I, you know, is there somebody out there I can mentor with like I said with Toastmasters or or in in our area, it’s Four Day Weekend University

Four Day Weekend’s an improv group. But every every major city is gonna have an improv group. I encourage everybody to kinda you you’re not you’re not doing improv shows other than you’re just going there to practice and learn how to learn how to answer questions very quickly and and not think too much about it. Don’t don’t overthink it. Where sure a lot of us do.

Joseph Crooms (20:27)
Thank you, Roger. I wish we had more time for the podcast, but you can’t fake what you just talked about. Relationships is everything in this space. All right, before we wrap up, if someone wanted to reach out, Roger, connect with you, maybe collaborate or learn more about what you’re doing, what’s the best way to reach you?

Roger Paschal (20:46)
My website is subject2institute.com. So it’s subject with the number two institute dot com. That’s my website. It’ll tell you a little bit about more about me. It’ll tell you a little bit more about what we do. We have a couple of testimonials on there of some of our students. It’s very inexpensive to join my my coaching. My main coaching is all my documents and all my videos with over a hundred videos.

For life and one year of one on one coaching as demand. So my students call me for a year on any and all properties they do just to make just to have that confirmation they’re doing it right. A lot of times I’ll say okay here here’s how you do it. If you want more information, you’re gonna go to this chapter, you’re gonna go to this video, and you can listen to it as many times as you want. I’m going a little bit more in depth on the on the internet

or on the website than I may be on their phone call. But but I want to make sure people are doing this right, people are having a good good experience with it all the way around. Not not only are we helping the people that are selling the house, as you said, but we’re helping their neighbors. Nobody wants a foreclosure next door to them or next door to your rent house. We we want, we we want to make sure the neighborhoods are taken care of, that the people that are selling have the opportunity

to go on with their life and buy other houses in the future. And we teach how to do that and how to explain that to the to the to the seller how they can go out and get a get another loan and what loans they can get. We we just want and what title companies to work with, I train title companies all over the country on on this. Because not all title title companies understand creative financing or subject twos. And that’s something else that I do. I I’ve got a ton of students that are realtors that expand their business greatly because

now the houses they were turning down that they couldn’t list or listing and couldn’t sell, they’re able to find a client for them or buy them themselves.

Joseph Crooms (22:35)
Thank you for sharing that. But give it to Just give you a website one more time for somebody that may be fumbling, looking for a pen, or just got entranced by what you just said.

Roger Paschal (22:43)
Absolutely. So it’s subject2institute.com. subject2institute.com.

Joseph Crooms (22:50)
Perfect. Well, I appreciate your time, Roger. Your niche. Thank you for educating me and our listening audience. Your perspective. We need more people in this space that are doing it the right way. Thanks again for being here, Roger.

Well Roger, thank you so much. I know you got value from Roger. Make sure you subscribe. We got more conversations coming from operators, just like Roger Paschal, who out there building real business, but more important, helping communities and helping people. That’s the real deal. So we’ll see you on the next episode of what? Investor Fuel Real Estate Pros Podcast. And we got Roger Paschal. Hey Roger, say tell everybody to talk to him soon.

Roger Paschal (23:29)
Thank you so much. I appreciate everybody. Just reach out to me if you’ve got any questions. I’ll be glad to an answer any questions you may have on on subject two or career financing. But thank you, Joseph. You’ve done a great job.

Joseph Crooms (23:39)
Thank you.