EP 679 – Powerful Ways To Create A Recession-Proof REI Business With Chris Prefontaine

NCS 679 | Recession Proof REI Business

NCS 679 | Recession Proof REI Business

 

How do you create a recession-proof REI business? In this episode, host Scott Carson’s guest is Chris Prefontaine, the founder & CEO of Smart Real Estate Coach. Chris shares with Scott about his past and present real estate investments. One strategy he used to screw-up-proof his business was to stop signing personal loans with banks. Unless it’s for a personal residence and you can justify a low loan to value. Do you want to know more strategies for safeguarding your business against market fluctuations? You wouldn’t want to miss this episode. Tune in!

Listen to the podcast here:

Powerful Ways To Create A Recession-Proof REI Business With Chris Prefontaine

This is Chris Prefontaine with Smart Real Estate Coach. Scott and I had an amazing discussion here on this show about outsourcing, how to create three pay days, and more importantly, how to go out and grab deals here wherever else is running the other way.

I’m extremely jacked up to have somebody who is a legend out there in the real estate investing community, who’s been around for years, been through an up and down market, reinvented himself once or twice along the way and somebody who’s done a great job to screw up-proof his business, depending on what’s going on like 9/11, COVID or whatever else the world might throw at us. I’m honored to have a guy who’s a three-time bestselling author. He’s the host of the Smart Real Estate Coach Podcast and an amazing guy out of Rhode Island, Mr. Chris Prefontaine. What’s going on, Chris? How are you doing?

I’m doing great out of the lodge state of Rhode Island.

You’re working with a variety of investors all across the country, just not there in Rhode Island. What I love about you is that you’ve got investors from all sorts of markets, dealing with a variety of issues. We all know the market and real estate are hot out there. What are some of your favorite types of deals that you are famous for? I know the answer to this, but what are your strategies that you’re telling people that need to focus on?

I have a couple of different answers, if that’s okay. The lease purchase is when someone says, “If I’m new, what do I do? My guy, Brian, in Illinois did ten deals on all this purchase because he didn’t want to put any money out.” That’s fine for a new person. My focus is I want the ownership, the owner financing with the sub-to. To clarify, we niched down the owner financing. We looked for free and clear primarily. I searched a whole bunch of things but mostly principal only payments and cool things like that because they are free and clear. Those are my two favorite short answers.

Let’s take it back a little bit to a Great Recession at the time. You were doing a lot of things. You had your own realty executive office and everything like that.

I sold that in 2000. That was a positive experience before the crash. Leading up to the crash, I had all the conventional stuff. We were doing six-unit projects and converting those to condos, selling like hotcakes before the crash. Three are doing the same thing. We were doing some raise on roof projects and ranches, all conventional construction type of projects and then some commercial. The banks flipped the switch, which I said in my book. I remember clearly like, “Switch over. Done.”

The music didn’t delay. It stopped on a dime. Bank stopped financing and a lot of stuff. I was a banker prior to all that stuff happening back. I talked to my friends at Chase Bank. They didn’t issue one commercial loan for two years here in Central Texas. They’ve been doing construction loans. You’ve learned a lot from that. How has that applied to what you’re focused on for the most part?

NCS 679 | Recession Proof REI Business

Recession Proof REI Business: A more advanced base strategy is to put a tenant-buyer that needs the rent and their pathway to get to the end.

 

I built everything. To give us some context, yes. I almost said I’m not going back into business. “If I do, what’s going to happen?” What’s going to happen is I’m not signing personally with banks anymore, unless it’s for a personal residence and I can justify a very low loan-to-value. Secondly, little to no cash up front. I didn’t have any then, now I have it. I want to protect it and not using your credit, which goes along with personal signing. Those are big things. I’ll have students call me go, “I can get 1, 2, 3 and 4 more loans in this bank.” I said, “Stop. Do not do it. Even in this hot market, you can do plenty of terms deals.” They’re still doing deals. It’s not a big deal.

I’m glad you brought that up because a lot of people when we see them in the note space were like, “You got a market. There are still deals being done.” Everybody gets so used to low-hanging fruit in a lot of cases. Many people are buying HUD foreclosures in the markets. I’m like, “Foreclosures aren’t going to happen to the market in the next months because banks are going to sell the paper off or you’re going to have to go buy something and put it on terms or find somebody who’s motivated.”

With the free and clear properties on pricing, there’s about depending on your market. A third of the properties in United States are free and clear. We’ll go talk to a bunch of you. You don’t need many of that free and clear deals. I’ll give you that metric. They are 6-figure deals every time, if you do 3 metrics. If you find a house that’s free and clear and my office building was the same way, you structure at least a four-year deal. That’s easy. You structure at least $900 a month of principal payment. If your house is somewhere around $100,000 or more, you have 6-figures the way we do 3 metrics. You don’t need 40 of those deals a year. You need a couple in your marketplace or whatever you need.

The point is most people don’t realize that. I’m sure you deal with this coaching like I do where people may be like, “You can get something on terms or 0% financing working all that out there.” You’re a big fan of that.

It would be rare for us to do interests. I set off this billing, so that begs an explanation. We did interest because the guy was in his 70s, very big land owner in the area, not new to investing, had a free and clear billing and live on an island. Most people say, “You can’t find that yet.” No, he was advertising on a financing. He didn’t want to be cashed out. People don’t, for a lot of reasons, tax the state. I said to him, “We only do principal.”

He said, “I wouldn’t do that. I want 5.5% if you want.” This was back in ‘18. I said, “I’ll tell you what. I’ll do principal only, down payment monthly, all against the rules when I do residential. I’ll do that for about 9 months and then I’ll take 5.2% of the balance and amortize it.” He was tickled pink. I got a hammer down principal for nine months. I’ve been at the deal for years. There are ways to do both.

We do the same thing, especially working with our borrowers who are in default. They’re like, “Come back to the table and you pay for a year on time, then we’ll re-amortize. We’ll give you 100% principal if you bring X to the table.” We bought the house at a huge discount to help them out with some things. That’s the thing. People are like, “They’re not going to accept zero.” You probably get a little bit of pushback like your guy did there but when you are negotiating, you’re dealing with a motivated seller. They’re happy to offload the property in a lot of cases.

I should give context to your point, Scott. With that guy, the reason I did it was I was inheriting an Allstate franchise tenant that’s been there long than he owned the building. They weren’t going anywhere. They need the frontage, signage and traffic. I knew I was cashflow. I was the only upside down $500 out my company was going in. I was getting that deal no matter what. I was trying to get the best deal.

On the residential side though, we don’t. I can’t think of an exception. We do principal. Why would they do it? That’s in their head. Similar to the sky, I can get up to that price. A lot of times, an ego gets in and goes, “I want my price. I can give a premium if they give me enough term.” That’s why they do it, also state reasons, tax planning and cashflow.

A lot of times, people don’t realize that you can often pay more versus somebody who’s going in with hard money or using other people’s funds. They’ve got to pay that interest back amongst other things. You can come and offer above market, at market or higher than the sellers because you do hit their ego but also that sales point. It hits their number and then you negotiate the length of the deal to make it happen.

This truly is a healthy win-win. Down the road, you can even discount. You did a lot of this with your notes, I’m sure. If you come up into some other deals, do you want to pay that down or discount it? That’s another payday.

Are you taking those properties and then turning them into rentals, owner financing them or lease options? What’s your strategy once you’re taking these properties and putting a tenant in place?

A base strategy and then more advanced base strategy is, we’re going to put a tenant buyer in there that needs the rent their own pathway to get to the end. I’ll say this because you know all too well. There’s a lot of people out there that teach that and say, “It doesn’t matter if they qualified or have to default, do it again.” They say it publicly. That may be okay with their agreements legally but morally and ethically, it stinks. We have a very stringent upfront policy with the buyers. My son handles the buyers that says they’re going to be mortgage ready.

NCS 679 | Recession Proof REI Business

Recession Proof REI Business: Go on YouTube and find a niche you can get by.

 

Do they still screw up some of them? About 5% screw up because life happens and that’s going to continue that way. Rent-to-own package, cash out anywhere between 2 and 5 years. Next level, on our sub-tos or a longer term on financing deals, we will put them in there and add the table after they’ve been qualified. They think they have to go to a bank in 3, 4 or 5 years. We say, “If you can get to deposit the 20%, that goes into our pocket over time, no hurry and you can stay on time for the entire time. We’ll go ahead and you don’t have to go to the bank again.” They love it. Someone will start crying because it’s a whole new thing. They didn’t have to do that. It’s crazy.

Are you adding a little bit more each month on top of the rent or just deducted part towards that down payment? How are you getting to that number with a down payment at 20%?

On the regular standard rent-to-own, they’re paying a lease in the meantime on there. The monthly thing is they’re not getting credit for it. We’re not going to want to finance them. It depends on the underlying deal. Every deal is so different.

Are there people out there looking for this or they’re once in a blue moon?

Buyer side is more than ever. It’s easy. You probably knew that answer but you put a deal out on terms. I don’t care if you’re doing rent-to-own, owner financing or what you’re doing for terms. You are not going to be without buys. You will build a massive ILS fast. People say, “Do I do the buyers first like some niches do?” No, get a good property and you will be flooded with buyers if you bought that right.

Always start with the property in a lot of cases. Get a good property, build your list relatively easy and be ready to rock and roll for deal 2, 3, 4 and going from there. Plus, the bigger list you have with some qualities, you’re going to get more serious people who are willing to proof up that they got the deposit versus a lot of the tire kickers.

In other words, a true buyer versus a rent is a big distinction. My son was so tired of it. He put voicemails and automation in place saying, “If you’re renting, no offense but it’s not for you.” You got to be a buyer. There are some very legitimate buyers that need time, job change, divorce, COVID, back on fee. That’s who we deal with.

Are those the same type of people that you’re also dealing with who have struggled with their mortgage payments to find sub-to deals as well in this market on the seller side or no?

It’s a lot of that going on. It’s going to be a lot more later, as you probably know. We’re looking for a little equity on these deals. They’ll do sub-to but behind, not too much in trouble yet but want to save it, have two houses hanging on and need to let go. The sub-tos usually come from distress, whereas the owner financing debt-free comes from, “I’m great. Let’s talk a deal.”

What are some of the best sources or marketing tools are you using to find these sub-to deals to take down?

I’ll give you some sub niches that we do but all our deals are coming from my +plus leads where they give you the ex-buyers and this goes in the rent-to-own owners. This market’s so hot and you talk to more people. We’ll go to lists. I bought it 2 to 5 years, little and no equity, free and clear, always have made that list. Every market still does it. Those are the two coolest. We have white labeled it.

If you had a gas, you might have numbers for this but you’re dropping a lot of postcards, yellow letters and voice Alan. What was your favorite tactic?

We have virtual assistants that go into my +plus account and they dial. With the hot market, we’re doing a little bit of mailing but we’re a bit different. We don’t drop a ton. I’m talking 100 pieces a week. We’ll do those by postcards. We never did market heavy because I don’t think it’s as predictable and it’s not great for the new person to try to come in and do that. Whatever your metrics might be, we use the VA’s and do light mailings to the niche list.

Many people get used that you got to dropping 1,000 plus postcards and we all know that’s a low hit rate, especially if you’re brand new and many investors don’t have a lot of extra money for marketing on the front-end side.

They’re frustrated. You’re not setting them up for these little wins, whereas if they can afford a VA for $100 to $200 a week that’s trained that also train to do terms deals, then they see these little wins and then get an edge into it a little bit better.

We’ve all seen people go through workshops and things like that. I’m a big proponent in, “Find something. Focus on 1 or 2 things and stick to it. You’ve got to give time for your marketing.” What you’ve learned to germinate, then you’ll see some results.

Here’s the simple formula because I’m not so naive to take our niche. You and I both have in great niches and we both love them. Find a niche you can get by and do that for free. The second is to find someone in that niche, group or community that you can relate to. I’m talking about personal, business and everything. If I’m going to pick a mentor, it has to be a mentor that has what I want as a full circle, not just doing the deal.

Third, follow them up to 36 months in that niche before you get the shiny object syndrome. If you do those three steps, you’ll have success. The hard part is the three years and finding someone getting rid of all distractions that’s been around for a long time that wants to show you how to do it. One of the podcasts called it new money. Since the crash, if somebody in the business and had this little success, they’ve never dealt with any of these headaches. That’s the new money and they need to be careful of that.

We’ve seen such an increase in property values and recovery a lot of times. We’re overdue for a correction in a lot of places. Put in a word the things that are going to be in 2022. Are we going to see a reduction in property values, do you think?

If you and I knew we’d be on the beach somewhere, we wouldn’t be doing real estate. It was high tide to say because before the COVID ramp back up, I was saying it’s going to be at least flat, if not soften. Some of our markets, the associates are coming on our weekly call saying, “I’m getting more sellers and buyers calling me back.” It’s softening in some areas, but I would think at some point if I knew, I wouldn’t be on the show. The way we built a niche because it came out of the crash, I sincerely built it for up, down or sideways. It’s a matter of what pond you fish in and then how many people you have got to talk to. That’s all it is. It’s being okay with knowing that.

NCS 679 | Recession Proof REI Business

Recession Proof REI Business: We have a mission on the coaching side to get to 500 transactions for the students.

 

I’m so glad you brought that up, knowing your niche and working to prepare. We have all seen those that drive on the appreciation. They don’t worry about cashflow or they worry about cashflow but don’t worry about other things. You got to understand where you’re at. You’re doing a variety of markets outside of Rhode Island. Are you pretty much sticking to where you’re at? You’ve got associates across the country but for you personally, what are you doing?

We do around Massachusetts and Connecticut only because we revenue share and we’re partners on all those other deals. We are in them. We’re just not the majority partner.

You’re able to help guide them and still make a piece of the deal for helping them walk.

Interactive coaching, as Brian Tracy called it when he was on my show, is the best coaching because you’re going to hit curve balls. It’s not like we can show you how to avoid every curve ball.

Are you targeting more things, especially with the eviction moratorium? Have you been looking at markets, looking at lists around some of the evictions and foreclosures that are going to start up in those different states or either?

We haven’t. Honestly, it comes to us through those other avenues. We are hitting tired landlords. Someone would be like, “I’m done. With this new wave, forget it.” We are hitting that list. It’s a list called Tired Landlords.

What’s your long-term goal? You said about recreating it yourself and restructuring your business. You’re a goal-oriented guy. What’s been your long-term goal? What’s that light at the end of the tunnel that you’re working for?

We’ve got a mission on the coaching side of things to get to 500 transactions for the students by the end of 2021. We’ll rewrite it then for another five years but it’s multigenerational for me because the kids are with me, my son Nick and my son-in-law Zach. On the buying side, I love doing deals. On our property side, we’ll continue that. We’ve got several entities that do that with the three of us in a great team, not to discredit them. If I did a deal every now and then, I’d be happy to claim too. Down the road, if I slowed down, that’ll be the path.

What’s been one of the coolest deals besides your office there that you’re excited about?

This woman’s a realtor in Boston. She’s not doing real estate. She owns a home on the water looking over the ocean on Bluff, 4,000 or 5,000 square feet, a little under $1 million. She owned it outright, so that’s perfect for us. We did an owner financing deal with her for a $2,500 a month principal payment. We usually put no money down. We broke the mold here. It’s a $1 million home. We put $8,000 down, plus we had to pay a transfer tax. $13,000, let’s call it. It’s not bad for a $945,000 home.

Here’s the weird problem. She’s a realtor. That’s the number one weird. Why doesn’t she dump it and sell it? We found out that her mom was ill and she wanted to stay in the home. She said, “I’ll rent it back from you. You don’t have to pay me any payments on the $2,500 but each month, I stay here. I’ll credit the $2,500 principle off of your note. I’ll pay the taxes up in insurance and make the property like I own it.” Mentally, she wants to be out.

Two and a half years in, we went to sell it before COVID. She called us and said, “I moved to South Carolina. I couldn’t get a home yet until I lose this note here. Can I come back and rent it?” We fixed it all up and the block up. We said, “Sure.” She’s a great tenant. She’s back in the home. We put on the market because the principal pay down over the ensuing years. The house, of course, appreciated in COVID, we’re looking at $300,000 or $400,000. We’re still trying to figure out if we want to sell it and leave her in there. Still to be told but that’s a weird deal. In the meantime, it’s all principal.

Where do you see the most amount of success with your students? Is there a niche, background or common avatar where the students at your scenes with success of people, tired landlords, tire fix and flippers or people with no money?

If you look back, two things come to mind. One probably sparked by COVID-19 was people that are spent from corporate, especially with COVID thinking, “I lost my job. I’m done and could be done soon.” It’s within that high earning corporate people that are tired of doing that. They get on a plane. The last few was Brian in Illinois. An elevator guy and a higher earner get on a plane every other week, if not more and was done.

He came in as a part-time with a two-year goal. In seven months, he left his job. In seventeen months, he had his first ten leases on what he purchased and put three paydays together of $760,000. It’s a high-end corporate spend up. Medical salespeople, high pace and money, done. There’s other side and you would agree on this so I’d like your opinion on it. Super hungry for whatever reason. I was super hungry after the crash. I got a burning why. I got somewhere with all to get it done and teach me. I’m a sponge, those two things. I wrote up something like that all day long. I don’t know about you.

I’ve often found that people that don’t have money are better at what they do in going out, raising, and marketing more because they’re hungry to do it. They don’t have the money in their accounts to fall back. We’re using a lot of cash to take these deals down on other people’s money. Marketing is one of the biggest things that it comes down to. It seems a lot of people are scared to market. I’m like, “If you’re going to be in any business, you got to market.” Who was one of your biggest mentors as you were getting into real estate and evolving? What are 1 or 2 names that you look for inspiration or someone who’s helped guide you along the way?

Like everyone else, I hung out with Ron LeGrand. That led to relationships with Scott Elmer, who has his own business and is on his own. We talk regularly. It went from mentor to mastermind type of people. When I started crafting the three payday thing, it wasn’t like those don’t exist. They have the monthly spread in the backend. We wrap the system around it. It was a little bit of everything out there. This stuff’s been done since 1800s. It’s not new. Here’s the system. More importantly, here’s a support system to get this.

Has somebody has been a big inspiration to you non-real estate wise?

Every year, sometimes half years, each one of us hires coaches in the team. I did some work with Jairek Robbins in 2020 during COVID. That was a great experience. We haven’t been tied to Elite Entrepreneurs since December of 2017. I owe everything in our scaling of our businesses to them. They teach small businesses how to go from 7 to 8-figures. They are a bunch of guys and girls that built Infusionsoft and then spun this division off. They are amazing. That’s on the business side. On the mental space, Brian Tracy was on my show. We networked a little bit. A lot like you in the podcast gets some great relationships, then they become mentors and partners.

You talked about getting VA’s and outsourcing. How important is that to learn to outsource and delegate things versus trying to be a jack of all trades and do it all yourself?

For years, it was me doing that solopreneur stuff. I say this to people not to water this down but to get from $0 to $1 million. You can have some more follow up, emails, everything. That’s my opinion. To go to the next level, it’s critical that you learn how to outsource and build a team around you. That’s where we have our people do.

Some take and run. Some get stuck in the solo corner mode. It’s critical. People said to me, “What would you do if I plopped you in Brian’s market, John’s market or someone’s market?” I said, “Hire an executive assistant who’s a part-time and a VA.” Those are the two things you need. You shouldn’t be doing that stuff. I don’t care if you’re broke. Find a way to get through the next 90 to 180 days.

What’s been a big surprise from having the podcast, Chris? You’ve had it for a while, been rocking and rolling there.

The big surprise would be the relationships that we alluded to. I was on Mitch Stevens’ show years ago and he said, “Do you have podcast?” I said, “No.” He said, “You need to have a podcast.” He hooked me up with this guy that does podcast. We’ve become great friends. If you told me with all our relationships, many of them would be built from relationships like you and I have right here. I would never would have guessed that in one million years. A major portion of our business growth has been through relationships like this. That is the biggest and positive surprise.

NCS 679 | Recession Proof REI Business

Recession Proof REI Business: Our coaches teach small businesses how to go from seven to eight figures.

 

Is there a big goal that you’re looking to push out before the year 2021 is out?

Both divisions. On the property front, we’re doubling down again, bringing on another tape. We call it the acquisitions team. On the coaching side, our stretch goal is we do trimesters. This last trimester is we’re going to do almost what we did in the last two. We’re on talking to do it, so it’s a bit of a push. It’s going to be fun wrap up.

It’s an opportunity for those that are pushing and doubling down. It is the time to do it because we’re going to see even more stuff hit the market.

Do you know why else they should double down? It’s because everybody else is running and going like Joe Kennedy. In the depression of 1933 or early 1900s, everyone’s running the opposite way. It was a lot of $6 million in those days, and he turned it into $60 million or something. It’s billions if you equivalent that nowadays. Be Joe Kennedy during this time and sprint when others are going in the other direction.

Warren Buffett said, “When there’s blood in the water, run the opposite way that everybody else is running for. Run towards it.” Chris, this has been a wonderful episode. What’s the best way for folks out there in note nation to find out more about what you’re doing and connect with you?

In YouTube, punch in Smart Real Estate Coach. The website is SmartRealEstateCoach.com. I will do two things. I’ll give them two of our hardcover books, not digital. I’ll ship them our cost if they email Support@SmartRealEstateCoach.com and put Scott Carson Free Books. I’m going to check those. I can put a credit card up. If they want information on our event coming up, I’m willing to offer a huge discount on that. Put that in the email.

Thanks, as always, for coming to the show. Keep rocking and rolling. I look forward to catching up in the near future. Chris dropped some nuggets there like the importance of delegation, outsourcing and all that bullcrap that ties up our day in the delegation. Do some deals. There are plenty of deals, motivated sellers and buyers out there. You make a lot of money by putting people together if you put yourself in the pedal. Go out and take smashing, everybody. We’ll see you all the top.

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About Chris Prefontaine

NCS 679 | Recession Proof REI BusinessChris Prefontaine is a 3-time best-selling author of Real Estate on Your Terms, The New Rules of Real Estate Investing, and Moneeka Sawyer’s Real Estate Investing for Women. He’s also the Founder and CEO of SmartRealEstateCoach.com and host of the Smart Real Estate Coach Podcast.

Chris has been in real estate for 30+ years. His experience ranges from constructing new homes in the ‘90s and owning a Realty Executive Franchise to running his own investments (commercial & residential) and coaching clients throughout North America. After experiencing the crash of 2008, he totally reengineered his business to weather all economic cycles and all storms (911, COVID).

Today, Chris runs his own buying and selling businesses with his family team, which purchases 2-5 properties monthly, so they’re in the trenches every single week. They also help their Associates and students do the exact same thing all across North America, working together on another 25-30 properties every month.

Having been through several real estate cycles, Chris understands the challenges of this business and helps students navigate the constantly changing real estate waters.

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