The Cash Offer Trap: How Creative Financing Helps Investors Pay Sellers More

Lou Brown (00:00)
When everybody, real estate investors, real estate agents, mortgage brokers, everybody’s chasing the 20% of the market that has good enough credit, good enough down payment payment. We’re not only chasing that market, we’re chasing the other 80% as well that want to be homeowners, but they can’t do it right now. And that’s our sweet spot. Because we get down payment money when the people move in, we get monthly income while they’re living there, we get paid again when they get good enough credit and good enough down payment, or we become the bank for them for the next forty years.

Scott Bursey (02:12)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. And today we’re sitting down with Lou Brown. And pros, if you’re a rookie looking for your first win or a seasoned pro trying to sharpen your edge, this conversation is for you. Lou is the founding president of the National Real Estate Investors Association and the visionary behind Certified Affordable Housing Providers. He spent years helping thousands of people build wealth through creative financing and sharp deal-making tactics. We are going to get into his playbook today. So get ready to take notes, pros. Lou, welcome to the show.

Lou Brown (02:50)
Yeah, baby. I am so glad to be here, Scott.

Scott Bursey (02:56)
Is awesome having you here, Lou. And for those of our listeners that may not be familiar with your journey, please give us the front row seat on how your career ignited and where you’re pouring your fuel now.

Lou Brown (03:09)
You know, it’s a funny thing how my career started. It really didn’t start with a true thought towards real estate. However, when I was eight years old, I was raised by my mother. Now my mother was a single mother immigrant to this country. She came over as a war bride on the Queen Mary way back then. And the United States government actually funded the Queen Mary and— and brought all these war brides over. Well, she got here and found out her husband was an alcoholic and an abuser. So she left him. She was here by herself. And then she met my father, her second mistake. So it ended up just being the two of us. And I’m talking about no money, ground zero when it comes to money. And she didn’t understand money. My mother thought money was something to be spent. And if you didn’t have it, you spent it anyway. So she got tied in with loan sharks and everything. And eight years old, I’m sitting in a friend of hers house. I called her Aunt Mabel. And she says, “Hey, we bought the duplex that we live in.” And she said the people on the other side are paying enough money in rent to cover the mortgage. And that meant they were living for free. And here my mother and I were hiding out from the rent man, and here she was living for free. And that really triggered my eight-year-old brain. And I started watching her. And the next year they bought the duplex next door. And the next year they bought the next duplex on the other side. And pretty soon they had five duplexes on the same street. Talk about target marketing, right? And what do you know? They were able to parlay great wealth, buy a brand new house and a brand new subdivision, all brick home on a corner lot. And I said, “Aunt Mabel, how did you do this?” And she said two words that changed my life. She said, “Accumulate property.” So I began at 18 years old buying my first property, taking over the existing financing on the property. I never looked back. I never went to a bank. I never qualified for a loan on a single family or small multifamily property. Now over a thousand transactions, and it’s been amazing— the ride that we’ve had and a lot of people that we brought along with us along the way.

Scott Bursey (06:17)
Lou, thank you for sharing that journey with us. And you know, what really caught my attention about you was the way you’ve been able to scale your unique creative financing model to help thousands of people succeed in this business. And on that note, curious to know when looking at your specific deal-making tactics, what do you consider the biggest competitive advantage for someone just starting out today?

Lou Brown (06:31)
Yes. Well, the biggest competitive advantage really is the need for what we have. So I’m a big believer in providing affordable housing. And that means what the customer can afford. So sometimes people hear affordable housing, they think I’m talking about junky houses in bad neighborhoods. I’m not. I’m talking about four and five hundred thousand dollar affordable housings. It really depends on who your customer is. So one of the unique things we do is we find the buyer when— first before we go buy the real estate. And now we can literally custom buy the property. We can buy it right, we can buy it cheap, and we can buy it creatively and give ourselves the opportunity to have an amazing income stream from that particular deal because of how we acquired the customer first.

Scott Bursey (07:33)
And following up on that, how do you keep that edge long term as the market evolves?

Lou Brown (07:40)
Well, you know, there’s something that never disappears: the need for housing. You know, it’s one of the unique things in life is that everybody needs what we’ve got. They need a house. Now, some people specialize in people that have fantastic credit and down payments. We actually go the opposite way. We open up to the 80% or so that cannot qualify for a traditional loan yet. They have down payment money and they have income. So we focus to find those people first, and then we focus on finding a property for them.

Scott Bursey (08:15)
Great point. I appreciate you clarifying how to sustain that advantage. And let’s turn our attention to the creative side of the business. What’s one common pitfall that even experienced pros often fall into?

Lou Brown (08:30)
Well, it’s the cash trap. You know, thinking that when you go sit down with a seller, what you’re supposed to do is offer them a cash offer. We do that. We do that automatically in our first meeting with the seller. However, if they don’t like that number, then we use our methodology to go back on what we call our Cost to Sell Worksheet and actually go back and show them how we can add money to the bottom line if they will allow us to take over their existing financing. And I’m talking about very significant tens, tens of thousands of dollars we’re able to add to the bottom line simply because they allowed us to take over their existing financing. Well, that’s an aha moment for most investors. They never thought of approaching it that way. And usually, the people are just hitting people over the head with some kind of cash price offer that’s significantly discounted. We actually start there and then show them how we can pay them a lot more.

Scott Bursey (09:30)
Thank you for shedding light on that. And Lou, it’s fascinating how the market is shifting. What is the biggest opportunity you see for creative financing in this current cycle?

Lou Brown (09:42)
Well, you know, creative financing is not new. The idea of it is really to give the seller something that they probably weren’t thinking when you got there. So patience is one of the most important things. For example, when we go visit with a seller, we are setting the stage. We are setting the stage for them being comfortable with us being able to do business with them and taking over their financing. Frankly, that’s my goal when I’m walking in the door, but I don’t say that. I’ve not said that in our prior conversations. But when I come there, that’s exactly my goal. Now, how do I go prepared? Well, I’m a Certified Affordable Housing Provider. So I go with our logo wear, I go completely ready for business, and I gift them my book, Doing Good While Doing Well, how real estate investors provide a service and make a difference. And I tell them that we’re part of a nationwide network of affordable housing providers from all over the country that seek to help deserving families end up with homeownership. “Mr. Seller, we work with houses— we work with sellers like you and houses like this in our program to help deserving families. How does that sound?”

Scott Bursey (11:31)
It sounds wonderful, and curious to know, where should they look first to capture that growth?

Lou Brown (11:37)
Well, I mean, it’s everywhere. It’s everywhere. See, here’s the thing. When everybody, real estate investors, real estate agents, mortgage brokers, everybody’s chasing the 20% of the market that has good enough credit, good enough down payment payment. We’re not only chasing that market, we’re chasing the other 80% as well that want to be homeowners, but they can’t do it right now. And that’s our sweet spot. Because we get down payment money when the people move in, we get monthly income while they’re living there, we get paid again when they get good enough credit and good enough down payment, or we become the bank for them for the next forty years.

Scott Bursey (12:17)
That’s exactly the kind of advice our listeners need. Thank you for highlighting that, Lou. And Lou, with everything moving fast, what is the one threat to affordable housing providers that investors need to be ready for right now?

Lou Brown (12:34)
Well, I— I think it’s really that people have it wrong and looking at their business. Risk is always going to be here. And if you don’t understand, you can simply look at history. You can see that markets are created. They don’t just suddenly occur. They are created, and it is created as a disruption. Wall Street and others already know months, and even a year ahead of time, what they’re going to do, and then they do it, and everybody’s caught short-sighted because they didn’t really realize that that is baked into the equation— that they’re always going to disrupt markets. So I said— and this was back in 2008— I said, “What is it that’s always been the most difficult thing in my business?” Now over 40 years in the business. What’s been the most difficult thing? It was always the selling. It wasn’t the buying, it was the selling. So I said, “That’s been the disruption.” I didn’t know how long it would take. I didn’t know how much it was going to cost. I’m paying property taxes. I’m paying any insurance. People are ripping off the house. I said, “I got to change this model.” That’s exactly what I did. 2009, I came out with my House Monster program. And that is a marketing system to find buyers before you even buy. So I converted the existing customers I had. Back then we had the eight thousand dollar housing assistance down payment credit that you could get on your— your taxes. And I said, “This is fantastic. All right, now what we need to do is keep that going.” So after that program expired, I said, “Wait a minute, there’s other programs out there. There’s down payment assistance, there’s repair assistance, there’s unique housing markets that we can go after. There’s nonprofit organizations. There’s so many ways we can tap into down payment money and customers that need it.” So that’s exactly what we focused on in my House Monster. You know, I started out with House Monster 1.0. Now we’ve just introduced House Monster 5.0. So we adjust with the market. We adjust with the marketing that’s necessary in order to find those buyers, and we provide that to our licensees.

Scott Bursey (14:56)
Thank you for giving our pros the heads up on that one, Lou. Yeah, baby. Digging a bit deeper into your work with the National REIA. What is the biggest challenge you faced as a leader in the industry?

Lou Brown (15:53)
Well, I think— I think everybody really needs a place to go vet and vent and find resources. And when I created National REIA, prior to that, it was the Real Estate Leadership Association of America. I was the vice president, president of that. I transformed that into the National Real Estate Investors Association. And it was to provide that platform for local real estate investors to have local guidance and support from their local REIA, and their local REIA being part of a nationwide network so that we could all interchange, interconnect, and share what’s working and what’s not working and where we need some help.

Scott Bursey (16:37)
That’s a lesson on resilience right there. Looking at the landscape, what does your professional network look like right now?

Lou Brown (16:45)
Well, really, we’re focused on our Certified Affordable Housing Providers. So we have a closed network actually of CAHPs and— and that we have all across the country. We have CAHPs in all 50 states and, in fact, in foreign countries as well. And it’s a fun thing when we’re all working towards the same mission. Our mission is to transform lives through affordable housing, to empower families and individuals to enjoy the American dream of homeownership. So with that mission, it’s a broad-based mission, and our licensees adopt that mission. And, you know, it really adds in a heart aspect of making money. You know, some people actually get a little gooey and not so comfortable in their stomach when it’s just talking about making money. There’s a lot of people that want to make a difference in addition to making money for themselves. And so that’s where we tapped into real estate of investors providing a service and making a difference, and really creating that book that I shared with you and going to the community with a different message. So now twice a month, I’m actually on a call with the public and I talk about our Path to Home Ownership program. And I talk about what we do and how we do it and how it’s provided by local Certified Affordable Housing Providers that are going to help them to find a home. So it’s quite wonderful. They join our membership, and then we provide them guidance on ending up with a home. And we get to sell the property at retail and retail plus, and all the typical expenses of selling real estate disappear in our— and so that now becomes profit for us. So our properties and our deals are much more highly profitable as a result of what we do and how we do it.

Scott Bursey (18:40)
That’s powerful.

Lou Brown (18:42)
It’s a beautiful thing.

Scott Bursey (18:44)
It’s a magnificent thing. And we appreciate you giving us the insight on how you keep those connections strong, Lou. And my friend, from where you sit, what is the most effective rule of thumb you use for structuring a deal that feels like a win for everyone involved?

Lou Brown (19:04)
Well, really, it’s lifting the burden off of a typical seller. So our seller really has a problem. Now they might be listing a property, they might carry that property, and days on market have gone up. So they might carry that property and have a contract fall through and they’re carrying it longer and longer. We eliminate that. When we go visit with a seller, we’re looking to actually get a contract that day. And now they’ve— they’ve lifted the burden of even repairing the property because we’ll take the property as is. We even— we tell them, “You can leave all your stuff. You can take your toothbrush and we’ll take care of everything else.” My gosh, that is such an amazing game changer for so many sellers. They’re excited about the fact that they can just be done with it and move on. And yeah, they’re going to pay a price for that, but they’re going to pay a price for that anyway. And what I mean by that is carrying costs and the pain and suffering. The real estate agent is going to want them to paint the place, fix the place, because they want to sell it for the highest price so they can make the most commission. And we explain that. In fact, we go through an education process with our sellers. So we have a full, full blown presentation process that we do with our sellers. So we tell them who we are, what we do, how we operate, how we can help, how we’re different from everybody else. So we’re telling a story when we go visit with those sellers and we’re educating them so they can fully know that by the time we get to our Cost to Sell Worksheet, they’re gonna know that we’re giving them the straight scoop on things. And then we work together literally transparently with our sellers to show them exactly how we arrive at our offer price. And they actually participate by filling in the form. So now they are seeing and agreeing with the numbers as we’re arriving at them. And then we get to the final bottom line, and it’s like, “Yeah, that’s exactly what it is.” And it’s surprising— sometimes sellers pay us to buy their house. So we— we got a win-win for sure. But because we’ve taken that burden off the seller. Now, the other win is the buyer, the potential buyer of that property. We’ve got kind of a closed network sweet spot of people that are in our membership that we’re now going to show that property to. If they like the property, we’re going to buy the property. If they don’t like the property, we don’t have to buy the property. Now we’ve got the best of all worlds because we’re not at risk. We’re not buying the wrong house in the wrong neighborhood with the wrong things wrong with it. We’re— we’re literally buying the right house for the right buyer.

Scott Bursey (21:50)
Lou, thank you for sharing that wisdom with our pros. And you have shared so much wisdom up to this point. Is there any other words that you can leave with our pros? You know, you have 40 plus years of experience in the industry. What additional words of wisdom can you leave with our listeners here today?

Lou Brown (22:10)
Well, you know, I think— I think people approach this business in a very disjointed way. I think we take an idea from here and a concept from there and a form from another place and we try to cobble that together into a business. That’s a mistake, in my opinion. I think one of the best models out there for the average person to just be able to step into a business is a franchise. So having been a franchisee of Holiday Inn, having seen what they do and how they do it, I went, “Aha.” Now, I didn’t know ding about dong about the hotel business. We built a hotel from the ground up. We used private money to do that. And then I said, “You know what? There’s a brand. I can purchase the right to use that brand. I can purchase their methodology, their processes, their procedures.” I call it tools, training, technology, and team. That’s what we’ve done for our licensees. And I’ve taken the franchise model and made it into a license to use. So we provide everything necessary to have a very successful business. And we work with folks, we take them by the hand, we meet with us weekly. So our licensees meet with us every week, and we’re supporting them in building their businesses. So any glitch, any problem they have along the way, they are supported. And we also have private one-on-one consultations and— and coaching as well to be able to support them if they want to accelerate their business.

Scott Bursey (23:47)
Love it. Love it. And Lou, for our listeners that want to keep this conversation moving, stay in your lane or collaborate with you, what’s the best way for them to reach you?

Lou Brown (23:58)
Well, we do have a website. It’s streetsmartreia.com, streetsmartreia.com. And you can also get my book. It’s called Buy, Hold, Sell. And that is an international Amazon bestseller. And in fact, I’ll give you a coupon code: streetsmartinvestor.com/BHS book. And that gives you a discount on getting the book because that really is my business model. And people say it reads like a movie because it takes you from start to finish on what we do and how we do it. And it’s a lot of fun. And also get doinggoodbook.com. People can get their own copy of— of my book, Doing Good While Doing Well, How Real Estate Investors Provide a Service and Make a Difference. So there’s a lot of ways people can get with me. And of course, our website is streetsmartinvestor.com, streetsmartinvestor.com.

Scott Bursey (25:00)
Lou, you have really brought the fuel today. Thank you so much for being on the Real Estate Pros podcast.

Lou Brown (25:06)
Yeah, baby. Thank you so much, Scott. Looking forward to seeing you again soon.

Scott Bursey (25:10)
And to our listeners, we appreciate you. If you received value from today’s episode, please subscribe. We’ll be fueling your tanks with the lineup of elite guests, just like Lou, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode, everyone.