March 19, 2023

JF3118: 1,500 Doors in One Year with Creative Financing ft. Pace Morby



Pace Morby is a creative finance specialist and the founder of, where he teaches about subject to and seller financing strategies. He recently made the jump to multifamily investing, using creative finance to secure 1,500 units in 2022. In this episode, Pace discusses why he advises restructuring deals now, the beauty of subject to financing, and exactly what his strategy is for approaching multifamily deals. 

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Pace Morby | Real Estate Background

  • Owner of SubTo, professional real estate investor, and business entrepreneur
  • Portfolio:
    • 1,500 multifamily doors
    • 300 single-family doors
  • Based in: Arizona
  • Say hi to him at:
  • Best Ever Book: My Side of the Mountain by Jean Craighead George
  • Greatest Lesson: I should have started earlier and surrounded myself with people who had portfolios and lives that I wanted.


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Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Pace Morby. Pace is joining us from Phoenix, Arizona. He is a creative finance specialist and the founder of, where he teaches subject to and seller financing strategies to his students. He recently made the jump to multifamily, using creative finance to secure 1,500 multifamily units in 2022. Pace's portfolio consists of 300 single family doors, and 1,500 multifamily doors. Pace, thank you for joining us, and how are you today?

Pace Morby: Awesome. Killing it. Thank you so much, I appreciate that.

Ash Patel: Glad you're here. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?

Pace Morby: Absolutely. My background started in the construction world, because my parents were also in the construction world... So that's what you kind of naturally do, is you follow the environment and the people around you, ultimately, into the vocation... And I did that through my 20s, became the largest contractor for Opendoor, Offerpad, Zillow, until finally somebody grabbed me by the shoulder and said "Pace, you're doing all this construction work for all these real estate investors. Why are you not investing in yourself?" I transitioned into real estate because of that magical human being helping me out, and now today I have a little over a dozen businesses, 700 employees, roughly 1,850 doors in my portfolio, and a big community, and a TV show on A&E. We just got renewed for three more seasons, and it's pretty cool to be on a TV show where I have weekly meetings with Disney, who owns A&E. Never thought that was going to be a thing, but... Just building brand, building community and acquiring more and more assets along the way is really what I'm focusing on.

Ash Patel: So they told you to get into real estate and then you did all that?

Pace Morby: And then I did all that. [laughs]

Ash Patel: Nice. Hey subject to, but I want to dive in... Why are you getting into multifamily now, when other people are getting out?

Pace Morby: I've been in multifamily for a little bit... If you want to consider mobile home parks multifamily. I have mobile home parks I've had for four years, 85 doors; collectively, in my portfolio, our multifamily mobile home parks, if you want to call it that way. Some people have an argument one way or the other.

But the reason I am getting more and more into multifamily is because I don't do what most people are doing in multifamily. I do the exact opposite. You guys - not you, Ash, but most people getting into multifamily are going to brokers and securing funding, or their equity structure comes from debt companies that say, "Here's your interest rate, 7%, 8%, 9%", whatever it is currently. And I'm acquiring a lot of small and medium-sized multifamily properties all through seller finance at under 3% interest is my average, and 50-year terms. So my strategy doesn't really follow what everybody else is following. I got so good at Creative finance that my portfolio allowed me to start having conversations with multifamily brokers and multifamily sellers where I had the credibility to take down big projects, where they say, "Well, how do I know you're not going to default on this 50-unit that I'm gonna sell to you on seller finance?" and then I show them my credibility from my single-family portfolio, and they go "Okay, got it. We got it." So my ability to secure debt under 3%, or an average of 3% has allowed me to excel in multifamily while other people are running away from it.

Ash Patel: Pace, can you share with the Best Ever listeners what is subject to?

Pace Morby: Subject to is the process of acquiring somebody else's debt on their house. So think about it from the standpoint of - I always ask people have you ever been to a grocery store? Well, of course you've been to a grocery store. Have you ever gone to the grocery store and paid for your groceries with a credit card? Well, of course you have. Well, I always ask people - who owns those groceries? If you bought those groceries with a credit card, who owns those groceries? Because you used somebody else's money to buy those groceries. Well of course, the answer, your audience is going to be thinking "Well, yeah, I own the groceries." Well, are you sure? Because you used somebody else's money; you used a credit card from Wells Fargo, Chase, whoever the credit institution is; you used somebody else's money.

Well, the answer of course is that you own the groceries, because you have not only the credit card, but you have also received a receipt. And the receipt of real estate is the deed. So whoever holds the deed is the owner of the property, just like whoever owns the receipt of the groceries is the owner of those groceries. So we can agree that the debt, the mortgage or the credit card, and the ownership, are two completely different things. I can use my dad's credit card, for example, go down to the grocery store, use his credit card, swipe, walk away, and I can be the owner of those groceries, even though I use my father's credit card. That's essentially buying my groceries subject to my father's credit card. So in real estate, I can go to people - this is a big, big, big deal right now, but I've been doing it for nearly nine years... It is a huge deal right now where sellers have a lack of equity, but they have really, really good interest rates from 2015, all the way through 2021. So what we do is we say, "Hey, look, you have a lack of equity; maybe you did a cash-out refinance, maybe you just bought your property in 2021... Instead of you writing a check to get rid of your property, why don't you just let me take over your payments?" So what we do is they go, "You'll take over the payments?" I go "Yep, absolutely. I'll take over the payments." What we do is we transfer the deed through a title company, the deed comes into our name, and we just simply start making payments to the bank on the seller's original debt.

Our average debt that we're taking over right now is, again, under 3%. So what we do is we take these properties, subject to, the existing mortgage, take over the payments, and we turn these properties into cash-flowing mechanisms. It could be mid-term rentals, short-term rentals, we do a lot of sober living, assisted living, behavior health homes, all sorts of things that bring in way more revenue than what that payment is that we just took over.

So I tell people all the time, "I don't buy houses, I buy interest rates." So that's all I'm doing, is I'm going to homeowners and I'm saying "Hey, it looks like you're having a hard time selling your property. Maybe you bought your house in 2021, top of the market, the market dipped a little bit... Why don't you just let me take over your payments? I'll pay your agents commission, and I'll take over your payments, you walk away, and we're good." We buy an average of two, maybe three houses a week this way. This year my goal is to buy four houses a week with this exact strategy.

Ash Patel: Pace, if somebody has equity in their property, is it still appealing to you? Or do you walk away?

Pace Morby: No, if somebody has equity - I buy those deals all the time. We call those a hybrid deal. So it's part subject to, taking over the original debt, and part seller finance. So we create a second note and deed of trust for that seller, in that seller's name, and we have now two payments, depending on how I structure the second payment. So for example, if you go on my YouTube channel, you'll see how I bought my own house. I bought a $3 million house, 11,000 square-foot house, nine-bed six-bath, massive home. And I bought that with that exact situation. Seller sold it to me for $3 million, and he had a $1.2 million debt that he owed to Zions Bank. Well, that payment is $5,500 a month on that $1.2 million loan; the interest rate is 2.8%. So we can both agree that seller has $1.8 million in equity. So how did I structure that deal? Well, I gave the seller a second lien position for $1.8 million, and I make a payment to the $1.8 million, and I make a payment to the $1.2 million.

So the seller will get their full $3 million, it's just every deal and every seller and every circumstance needs to be structured independently. There's no perfect "Here's exactly how to do it on every single house", just like any real estate transaction. We've done thousands and thousands of deals; I don't think any transaction I've ever done was exactly the same as any other previous one I've done.

Ash Patel: A lot of people can say "This sounds easy, but you can't do that on a grand scale." You just did it with 1,500 multifamily units. Can you dive into that?

Pace Morby: Anytime I hear somebody say something's not possible, it reminds me of all the times I was told that I need credit, I need cash, and I need credentials to buy a house, and now I laugh. My experience and my confidence in what I do... If you go on my YouTube channel, I give away probably 50% of the addresses of the houses I buy. I show HUDs and settlement statements; most of the YouTube videos I do about my houses, I'm standing at the house and I go "Hey guys, welcome to 123 Main Street, where I bought this house subject to. Go look it up on public record. Here's the note. Here's the deed of trust. Here's the closing documents." I stopped listening to the naysayers a long time ago, because typically when people say that's not possible, I immediately envision that their bank account is empty. There's no way that you're making money in real estate and crushing it if you ever say something's not possible.

When you're a real estate investor, and an experienced one at that, you'll realize that everything's possible. It's just how you set up the paperwork, and whether you have a good title, escrow, or closing attorney, depending on the state you're in. So yes, we do it at scale. I'm a very, very open book. Speaking of books, I've got my Bigger Pockets book coming out I think in a couple of months, where I bring all this stuff up, and I have a video companion guide to the book that literally goes through my last 50 deals and addresses and settlement statements. So yes, you do it at scale. And here's the cooler part - the limitative mindset of people that say something's not possible, I can immediately go, "Oh, you don't have an office, you don't have a team, you don't have an actual company; you're probably somebody who has a nine to five job that's working real estate as a part-time job, and you have a part-time mentality, which keeps you from actually learning what's really, truly possible." So get around bigger people, get around bigger rooms, that are doing bigger things, and you'll realize that it is not just possible, it is commonly done. You just aren't around the right people.

Ash Patel: And they have time to knock other people.

Pace Morby: Yeah, you have time to criticize somebody else, but you don't have time to actually go watch a video that gives the address, and then click on that address, go copy and paste it over to like Maricopa County Assessor's Office, find out that I actually own the property, then go to the tax records and see exactly the documents I used... It's all public record. That's the crazy thing for me, is that when people say something's not possible, I'm like, "Go look up the public record that was recorded by the county. I didn't record this, it's not my website. That's the public record. And it's insured by a title company. Documents are reviewed by an attorney. And you still say it's not possible."

Ash Patel: Pace, a lot of our audience is from the multifamily world, and a fair number of them now are in higher interest rates, and variable rate loans. Is there any way to get creative with people wanting out? I've talked to a couple people that are upside down on deals, they're doing cash calls...

Pace Morby: It's gonna be way worse, too.

Ash Patel: Yeah. So people that are in that situation - what creative strategies can they use to help themselves out of it?

Pace Morby: Okay, cool, I can go into that in a second... But this question alone - I see all these big, big, big names in multifamily that are really great marketers. I won't bring up their names... But I see them say "Everybody should skip single family and go to multifamily." And I argue that. I actually argue that I think most people should stick to single family for a short duration. And the number one reason why is because the debt structure in single family is by and large way better than the debt structures of multifamily. Multifamily, people are going out and syndicating - we syndicated last year as well; we raised $40 million for one of our deals. I raise capital, more capital than most people do, it's just not my brand to talk about those types of things. But I look at the debt structures and how multifamily investors are going out and securing these properties, and I'm like "You guys are setting up these traps for yourself that if the market doesn't continue to trend upward, you're basically going to get these mousetraps snapping down on top of you, and you're going to be in these situations." I'm getting people coming to me right now and they're saying "Pace, I'm in a bad situation. Can you take over this property?" I've got a property right now in Houston, 500 plus units, 100 million dollar value on this multifamily deal", and it's a bad situation. They're going back to their investors and they're doing cash calls, they're doing all sorts of things. Here's the reality. The beautiful thing about creative finance - I don't care about the purchase prices, I don't care about the length of time the seller is willing to give me. What I care about - I always care about the interest rate and the quality of the debt. Multifamily primarily has really crappy debt structures. So what you're really doing is your interest rate in multifamily is a ticking time bomb. So I stay away from a lot of the debt structures in multifamily. This is why when I do multifamily, I hyper-focus on seller finance and subject to, which - there's going to be at least one person on here... That's another thing about multifamily investors, they think there's so much smarter than everybody else. Like, they're these commercial brokers, and so they try and keep all the small people out of the business. There's at least one person that's going to be really arrogant, and they're going to be listening to me going, "Oh, this guy doesn't know what he's talking about." Great. Let's compare our portfolios. I'd love to compare my portfolio; shoot me a text message, my phone number is 480-239-1066. We'll do a YouTube video together and we'll compare portfolios. But my argument is I primarily stay away from multifamily from the traditional route, because what you can do with that loan is cash call. You can't do a lot with a ticking time bomb. Right? You can buy down your rate, but that debt is not a favorable debt. It is a ticking time bomb. I want to have nothing to do with it.

Ash Patel: I come from the mindset that there's always a solution, and he had a million dollar cash call that him and the GPs were going to put in on an $18 million deal... And that's just the start of it, because it's a variable rate.

Pace Morby: Yeah, it's going to get worse.

Ash Patel: Interest only. It's going to get worse. And I try to brainstorm, what can I do to help him? And I came up with nothing. There's just nothing there.

Pace Morby: There's a strategy I call the Morby method. I just saved somebody on a multifamily deal, similar situation... What we did is I told them "Stop your distributions to your investors right now. Immediately stop your distributions", because they're sitting there trying to make their investors happy. I'm like, "Here's what's gonna happen. You don't want to tell your investors what's really going on. Stop your distributions right now. Tell them that you're going to buy down the cap, you're going to make sure that everything's taken care of. What I would do is I would refinance into long-term debt, and even if it means that you're not going to cash flow anymore, if you're going to break even on the multifamily, what I would do is what I call the Morby method." Okay? The Morby method is where I go to, let's say, a $20 million deal, and I need to wipe out my financing. What I do is I pause my distribution on the $10 million of equity I have, in my equity investors, and what I do is I go get a new loan at $10 million. And I have that loan. Even if the interest rate's higher, I make sure that it's a permanent debt structure. I refinance, and then I go to my investors, my equity portion, I say, "Guys, we're not gonna be able to make payments for a while on these distributions, or else we're gonna lose this deal." The problem is, these people set up these deals hoping [00:16:00.23] I was watching it happen three years ago, just like you were three years ago, four years ago, I'm like, "You guys are buying deals and you are crossing your fingers and hoping that in 36 months when your debt comes due, or when the interest rate starts kicking in, or whatever ends up happening with the Fed, you're just hoping that the property is gonna go up in value. You're not actually using any fundamentals, and you're overpaying just to get a deal. And then not only are you overpaying, but you're bringing in equity partners into the deal irresponsibly. Something bad's gonna happen." But because it was the "Everybody's doing it" mentality... I think a lot of people justified what was going on in 2019, all the way through now going into 2023...

But I would tell people use the Morby method. I have a bunch of stuff on my YouTube channel; it's how I bought the last three deals, where I've refinanced out their old debt, and then I restructured the equity portion. You just need to restructure it creatively. You need to go back and wipe out the old debt, get something fixed, and go back to your investors and be honest with them and say, "We need to restructure this whole deal, and re-underwrite it, and pause distribution for 24 months until we can refinance into a lower interest rate."

Ash Patel: Yeah, great idea. But the challenge is when they have negative equity. The property is already worth way less than what they bought it for. In that case, have you ever approached a lender and done a short sale, where you do a subject to, but the lender agrees to take less money?

Pace Morby: Yeah. Well, I'm not doing it for one of my own deals right now, but I'm consulting for two multifamily groups right now that are having me walk them through that process right now. But yes, the answer is yes. These lenders don't want the properties back. So what I did - we just did this two weeks ago. Let's just use $20 million, okay? It's not $20 million, it's a random number that mathematically is just hard to compute. But let's say 20 million bucks. They owe 20 million, their asset is now worth $19 million. They owe 20. They thought they were gonna go off and sell this thing for 35 million bucks, and obviously, interest rates goes up, things start coming down. So what we did is we said, "We can afford to make this payment on the loan, and we need to basically do a loan modification where we have two loans; we have a portion of the loan that we'll make a payment on", so it's $11 million that we're going to make payments on, and the other portion of the $9 million dollars, we're going to pause payments on that until five years later. So you can restructure it 100 different ways."

What I would do is, obviously, have a conversation with your lender... I got flown out to Birmingham, Alabama about four months ago to have a similar conversation and sit down with somebody's lender, whiteboard out a structure that would work for everybody, and the lender's like "Last thing I would do is take this property over. It's not what I do." Your lenders don't want to take these properties over. It's not what they do; it's gonna get really, really bad, and the syndicators or the investors that are creative and will go sit down with their lenders and say, "Hey, this is what I can afford to pay. How do we restructure this, so I can at least break even, if not at least pay my bills and make some money? That way I'm incentivized to keep this thing going for the next five to seven years." But I think in the next 18 months, 24 months, it's gonna get so much worse than what people are even imagining, just with interest rates going up... If you don't start restructuring your stuff now, the lenders are gonna get overwhelmed with everybody running to the bank.

So if you're one of these investors that are out there right now saying, "Oh, my gosh, I'm worried about this", I would go restructure right now. Pause a portion of the payments on part of the loan and restructure the frontend of the loan, if that makes sense.

Ash Patel: I agree with you 100%. And already a lot of pref payments have stopped... And it's only real estate people and finance people that think the arrow goes up into the right all the time. You look at any other industry, they're more realistic. It's us people that are clouded.

Pace Morby: Yeah, we're crazy. I'm guilty of it, too. I bought a handful of deals three years ago; I was aggressive on them. I still own them. It had nothing to do with interest rates, because on single family I'm acquiring a lot of properties... 99% of my properties are fixed-rates, 30 years, I have no problems whatsoever. I'm buying them subject to or seller finance. Ton of stuff on my YouTube channel; I can't go deeper in the weeds. Go on my YouTube channel, I've got a ton of stuff over there. I think we have 1,500 videos, we get 4 million views a month... We're the number one creative finance channel. The closest one's not even 1/10 my size, so we do a ton over there. If you guys want to get into the weeds and hear stories, go do all that stuff.
But in the multifamily world, what I did is in 2020, when I really started amplifying and saying "I'm gonna go after multifamily", I made a very specific decision; I said, "I don't think this parade is going to keep going. I'm only going to buy deals on sub to or seller finance." And for the commercial brokers out there that go "Sub to is not possible for multifamily", well, go on my YouTube channel. I give away the addresses. I show you guys that it's not only possible, but I own multifamily subject to. Most of my multifamily I have acquired on seller finance. So I have gone after 50 to 150-unit complexes owned directly by the seller, I go directly to the seller. Again, multifamily brokers are going to hate me; so sorry. I just bypass the broker, go directly to the seller, make sure they get the top dollar, but I structure it in a way that I don't have to worry about this stuff.

Last summer I structured a deal, 43 units, San Angelo, Texas; I've talked about this deal a lot of times. $0 down. $0 down. $3 million purchase price. 4% interest, and the seller gave me 50-year terms with no balloon. That's now my standard thing that I pitch on multifamily seller finance. I say 3% interest or lower, $0 down, with a 50-year note. No balloon. And with that exact strategy, we acquired probably 600 units out of our 1,500 units last year just by that strategy.

Break: [00:21:48.07]

Ash Patel: What's the biggest pushback you get when you ask for that?

Pace Morby: Credibility. Here's the reality, what I find. The bigger the portfolio, the more savvy the investor is. And savvy is not just intelligent, savvy is business acumen, meaning they have teams, they have property management... But when you go to like the smaller multifamily, 50 to 150, these people, these landlords really have not put systems and processes in place. So they don't have a COO, they don't have an asset manager, they don't have a property manager... They're literally doing all this stuff themselves. So 50 to 150 units is the sweet spot. And guess what - they don't want to manage these properties. They want to get rid of them. So if you want to go get a deal today - I'm doing this actually with Bigger Pockets right now; they go "Show us you can do a deal in a day, multifamily. A 30 to a 50-unit deal in one day." I go "Easy." That is actually incredibly easy.

I go on, I pull a list of people who have owned the properties for over 15 years. If they haven't owned the property for 15 years, I don't call them. Then I want to find the people who have equity. This is the beautiful thing about 2023 and 2024, is that we have technology that we didn't have 10 years ago. I can see what debt structures they have, I can see how much equity they have on the property... And we call people who have owned the property for over 50 years, under 150 units, over 50 units, in markets I want to buy in, and I call the landlords and I say "Hey, I'm looking to acquire some multifamily. I saw your property, and I was wondering if you would be open to letting me pay top dollar and you giving me terms." The beautiful thing about multifamily is in a lot of ways it's actually easier to do creative finance with multifamily than it is single family, because I'm not educating the seller on creative finance. Most multifamily investors are like "Yeah, I know what seller financing is. It's how I bought my property. Or it's how I financed a portion of my purchase." Multifamily uses seller finance so commonly; it's always used. Even the big brokers, they know about seller finance.

I get a lot more pushback on single family because the homeowners don't know anything about real estate investing, because it's their primary residence. But in multifamily, the biggest pushback I get is, "Well, how do I know you're not going to stop making payments? Because this sounds like a great deal to me. I don't have to manage the property, I get to become the bank, I don't have to pay all these taxes in one fell swoop when I sell the property, I don't have to go through a broker, we don't have to go through a survey, you don't have any loan contingencies, you're not going to beat me up on inspections and all that kind of stuff... This sounds like a dream come true. But how do I know you're going to make the payments?" So my answer to that is, "Well, look at my track history." And for a newbie, that's really tough. This is why I always tell people, go find a mentor that has credibility, and will let you borrow their credibility to go have conversations with sellers. Go find somebody who's doing active deals, so you can leverage the credibility from those active deals to go do your first deal, your 10th deal, your 20th deal.

I didn't have that person, unfortunately, so I had to build all that credibility in my single family world, and now when I go to a multifamily seller and I say, "Hey, here's my schedule of real estate owned. I've got 300 single family, and I've got this much in multifamily. This is how you know I'm not gonna fail to make my payments. Here's my P&L. If you want to talk to my CFO, here you go." The challenge is - guess what, I didn't have that when I first started. Now, it's easy. I click my fingers and overcome that objection in two minutes. In fact, they go, "Wow, how does this young guy that's 20 years younger than me - how does he have all this and I didn't?" Well, it goes back to the mom and pop mentality. Multifamily investors between 50 units and 150 units are the mom and pop mentality, and they always looked at that property as "That's my mail ticket for retirement, and I'm going to live off that property." So what they do is they buy these properties, typically for tax advantages or whatever reason, they buy the properties, not ever intending to becoming a landlord, they become a landlord, and then 20-30 years later, instead of repairing and renovating the property and raising the rents and continually turning over good quality tenants, what they typically do is they keep the tenants in there long-term, they think they're doing them a favor, and they go, "I'm not going to raise the rents, because these people have been with me, and I'm going to be really loyal. I'm not going to turn over the property, because then I've gotta reinvest the cash flow I was going to go take my wife on a cruise with, and I've got to put it back into the units that are becoming vacant." And 30 years later, all of a sudden they're like, "I have a property that's in disarray. Bad tenants. Haven't raised my rents in a longtime; can't raise my rents, because I've got 1970s cabinets in this property, and it's 2020." So that's my sweet spot.

You want to go get 150 units today? Go pull that list I told you, go have that conversation, you'll have a seller that his only objection is that he'll say, "This sounds too good to be true. How do I know you're not going to bail on me?" And that was a mindset shift for me where I was "How do I get these deals? How do I go do these deals? Why would a seller agree to do this?" When somebody asked me the question of "Why would a seller agree to sell to me on seller finance with $0 down, 3% interest, 50-year terms?" and they say "Why would a seller do that?", they have automatically told me that that person asking the question has never spoken to a seller who is in a painful situation.

Ash Patel: When you do this, you get the deed upon execution, which means you get the depreciation.

Pace Morby: Yeah, I get the depreciation. Cost segregation is such an amazing thing.

Ash Patel: Educating single family owners, if you're new, don't have credibility... Is there an easy way? Is there a shortcut to say "What I'm doing is not crazy"? "Here's the information."

Pace Morby: Yeah, so on my YouTube channel I have a couple of videos that I made specifically for sellers. If you go on my YouTube channel, you'll even see in the last week, I take testimonials from sellers that I buy deals from, and now I have a requirement when I do a deal with the seller, I say, "If we're going to do this deal, I require you to give me a testimonial, or else I'm not gonna buy the house."
That's the funniest thing, is that people think I'm pulling these people's arms to do these sub to deals. I'm not. They're so much easier than a cash transaction... Think about a sub to deal. There's no bank involved, there's no loan payoff request, I don't have to do an appraisal, there's no home inspection unless I decide to do so, nobody has to qualify me... There's literally seven less people involved in a sub to transaction than there isn't a cash transaction, where a family is getting a loan to buy a property. It's really, really easy. So the sellers love it. I do tell the sellers, "I will not buy your property unless I get a testimonial", and I get a testimonial that I can put on my YouTube channel, or send out to my community and let them use it... But I would tell you if you're brand new and you don't know how to explain this to a seller, take a video off of my YouTube channel where I have seller testimonials and I explain the process, and then let your seller watch a testimonial I created. All you have to do is say "This is a guy that is doing this actively in the business. Here's how he explains it. He's got a whiteboard out, and there's a seller testimonial attached to it." I've got 30 or 40 of those videos on my YouTube channel, and people DM me on Instagram all the time and go, "Man because of this I got five deals. Thank you so much. This is all the credibility I needed etc This helped the sellers understand the exact process." So I'm trying to just give people the cheat code for free on my YouTube channel.

Ash Patel: Brilliant. When lenders get involved, are they familiar with subject to?

Pace Morby: Lenders. Why would a lender get involved?

Ash Patel: If you're taking over low interest debt.

Pace Morby: Why would the lender get involved?

Ash Patel: That's a good question.

Pace Morby: We never have the lender get involved. I don't call the lender and say, "Hey, lender, I'm going to take over this." It's the same thing like I go to my dad when I'm younger and go "Dad, can I use a debit card or your credit card tonight to go buy this from my friends, or go do whatever?" I don't call the bank and say, "Hey, my name is Pace. I'm gonna use my dad's credit card to go take my friends out for hamburgers." It just doesn't make sense that I would do that.

So it's the same thing with doing this with the houses; I'm taking over the payments. The way I do that is I have a third party servicing company that is licensed to extract money from my bank account, and then make that payment directly to their bank. So I'm not even directly making the payment to the bank; a servicing company is pulling my money out, putting the money into that bank. There is no involvement from me with that bank at all. I don't call them, I don't apply, they don't know I'm buying the house... And then the title company, actually the escrow officer transfers the deed to me, and then I go get title insurance to make sure that the paperwork was done properly.

Ash Patel: And the bank doesn't get notified about transfer of deed?

Pace Morby: What department would that be in a bank?

Ash Patel: I would assume the same department that knows when your insurance lapses.

Pace Morby: No. You know what department knows when your insurance laps? The insurance company, when you stop making the payment, the insurance company sends a message to the bank and says "This person has stopped making their payments."

Ash Patel: Interesting. I love it.

Pace Morby: There's no department... There's a loss mitigation department at every bank. Now, if you guys go to my wife's YouTube channel, my wife stops foreclosures a lot of time, live, and she's kind of infamous for this. So we did this deal, it was a sub to deal five years ago, and I knew I was going to refinance the deal within 12 months. So I bought the deal, and I called the bank every single month live on YouTube, and I was like "Hey, just so you know, I bought this subject to. I bought this subject to. I bought this subject to." Nobody at the bank even knows what subject to is. Even though it's in most real estate contracts, it's an all real estate legislation, in every single state in the country is legal, and it is in the state legislation that you can take people's houses over subject to. It's just that there's a simple due on sale clause, which we could talk about that as well. I talked about due on sale clause 1,000 times on my YouTube channel as well. But I called this bank every single month, and I did this on YouTube. "I took this house over subject to." A year goes by, nobody ever cared from that bank, and I was able to refinance that out and get rid of that debt the way I originally planned. And people think that there's somebody at any one of these banks that has some register, or they're following anything, that they know what's going on... Are you kidding me?

Do you remember back in 2008, when the whole world crashed, and then the world comes back in 2012 and there's people who are like, "I don't even know who my servicer is anymore"? Do you remember all that?

Ash Patel: Yeah.

Pace Morby: These banks are so disorganized, and they have outsourced the majority of their labor overseas, that when you're talking to somebody in customer service, it's somebody in the Philippines; they don't have a real estate education. So what department is tracking whether a deed has been transferred or not? They're only tracking whether the payment is being made or not.

Ash Patel: So due on sale... I know that's an obscure one, that people fear, that often [unintelligible 00:33:21.02]

Pace Morby: Yeah, the Boogeyman. We've done -- I don't know, I wish I had tracked every deal I've ever done, but... Done thousands of sub to deals, owned title companies in multiple states.... By the end of probably 2028 I will have a title company in every single state. We do transactions in every single state; I own a transaction coordination company. It's called Top Tier Transactions. So we do transactions for everybody - cash transactions, sub to, seller finance, novation agreements, wraps, lease options; whatever you need, we do it all. So I get a handful of things; people go "Sub to is illegal in California." I'm like, "Really? Because I own property subject to in California, and it went through this title company, and they gave me title insurance. And by the way, here's the legislation and where it shows up in the California State purchase contract that I can take the property over subject to." And these are brokers that have been the business 20 years, and they just stop replying, because they feel and look so stupid. But they have a valid concern with due on sale. The valid concern with due on sale is that if I take over somebody's payment, the deed comes into my name, I have technically violated the due on sale clause. I haven't violated anything. I've triggered the due on sale clause. And what the due on sale clause means is that the bank, let's say Wells Fargo, for example - if Wells Fargo is owed a debt, and the deed transfers into my name, but we kept the sellers name on the mortgage, Wells Fargo has the right to send me a letter and take me through foreclosure.

Now, people think the due on sale clause is they click their finger and they take the house. That's not how it works. That's just an uneducated assumption. They take sometimes 6 to 12 months to go through the process to take the property back from you through the due on sale clause. It's not a six-day thing, or a 60-day thing; it's six to 12 months.

So you get a letter - and this has happened to me; I've had five due on sale clauses happen to me personally, okay? I've never lost a house once. And by the way, I've never learned or heard of somebody actually losing a house because of the due on sale clause; meaning investor buys a house subject to from a homeowner. The homeowners debt is still in the homeowners name. The investor now owns that property through a deed transfer, and the bank finds out that that transaction happened. Bank says "That can't happen", sends out a letter to the investor, and the investor says "Okay, cool. No problem." I now have four choices as the investor. What are my choices? One, I can sell the property. I can go "Alright, I'll just sell the property, no problem." Sell the property, take my profits. The seller is out of the picture a long time ago. Seller is out of the picture; seller is no longer legally owed anything on the tax incentives, the cashflow... The seller is not even involved whatsoever. They're not even the ones that get the due on sale clause letter.

So that's option one, I can sell the property. Option number two, if I really am a Dave Ramsey fanatic, I can pay the property off with cash if I really wanted to. That's a knucklehead move. Option three, I can refinance; just go down to a DSCR lender and go "Hey, can you refinance out this loan?" Or four, which is my strategy, and anytime I teach somebody, I go... It's pretty simple. This will break people's brains, okay? Because real estate professionals don't even know this exists. A lot of them do, but the real estate agents and the brokers - I'm so sorry, real estate agents and brokers; you guys stopped learning so long ago. Your brokers are not teaching you anything other than how to do open houses. It's a travesty in this industry. Most real estate agents don't even know how to comp a property when they leave school. In fact, they don't even teach them. They don't even teach the important stuff in school.

So in real estate school, which I've been through real estate school, they teach something called executory contracts, which no one that is a licensed real estate agent remembers this. It is a land contract, contract for deed, bond for deed, agreement for sale. These terms are legal real estate terms that every state has. And what are they? Here's what they are. It means I can sell my property to somebody, but that person that buys the property does not have to record the deed; they can put that deed in a safety deposit box, or at a servicing company, and then that way, there's a legal transaction that has happened, the person who has bought the property can take the executory contract recorded against the house and say "I am in control of this asset, but the deed has not transferred yet. I am holding it in a safety deposit box." This is called an executory contract. It's legal in all 49 states except for Texas. Why is it not legal in Texas? That's a great Google wormhole that you should go down. They're currently under-turning the whole legislation that did it.

A lease option is an executory contract. If you know what a lease option is, then you know that a lease option is perfectly legal; a real estate agent should know it's an illegal transaction. Guess what - you can't do lease options in Texas. It's an executory contract. [unintelligible 00:38:20.04] sale clause. It means that there's a portion of the transaction that has not been executed yet, and that it's sitting in limbo until the two parties decide to execute that portion of the contract, which is why it's called an executory contract.

So when a due on sale clause comes to me, I simply deed the property back to the homeowner, which gets rid of the due on sale clause issue, and I repurchase the property on an executory contract, and that deed gets resigned by the seller, and the seller puts it in a safety deposit box upon the day that I decide I'm going to refinance, I'm going to sell, and I'm going to pay the property off. So an executory contract.

The challenge with an executory contract - and why don't I just buy everything with an executory contract is because you don't get the tax benefits of buying that property unless the deed has been recorded in your name. Does that make sense?

Ash Patel: It does. Pace, what is your biggest regret in real estate besides "Wish I started earlier, wish I bought more"?

Pace Morby: Listening to real estate agents and real estate brokers about what they think I should be doing. If you listen to somebody who doesn't have the size of a portfolio that you want, you will also have the same regret. I spent all my time thinking real estate agents knew what they were talking about. Now, there is a 1% or 5% of agents that are unbelievable, and a 1% or 5% of brokers that are unbelievable. Those are not who I'm talking about. But I would meet real estate agents at meetups when I was brand new, and I didn't ask the question of "How big is your portfolio? What are you doing as an investor?" I would just assume because they're licensed, they knew what they were talking about. And I wasted years of my life taking advice from people that were at a level that I never wanted to stop that. And so I wish I would have just taken advice from people that were living the life that I wanted, and had teams the size of teams that I wanted, because that's another sign of success, is how many mouths do you feed on a daily basis from your company, other than yourself? And big regret, huge regret. I just gave too much credence to people that really didn't know what they were talking about.

Ash Patel: Pace, I know you've gotta roll soon. ..Let's wrap this up. Are you ready for the Best Ever lightning round?

Pace Morby: Yes.

Ash Patel: Alright, Pace, what's the Best Ever book you've recently read?

Pace Morby: Best ever book I;ve recently read... I reread a book called "My side of the mountain." It is not a real estate book, it's a survival book. It's about a kid that decides "I don't like the environment I'm in, and I'm gonna go and survive on my own." Now, I suggest people go read this, because what I find is a lot of people read this book and -- this is a true story of a 14-year-old kid that leaves his house, goes and creates a world on his own, because he wanted to go out and become self-sufficient. And I find nowadays things have become so easy for us as human beings - technology, the information overload that is in front of us all the time, connecting with human beings via Zoom, or whatever it may be... Even airlines; think about the technology and the convenience we have. But yet, there's still people that can't figure it out. They can't figure out how to get to that next level, and the book "My side of the mountain" teaches you how to be more self-sufficient and self-reliant.

Ash Patel: Pace, what's the Best Ever way you like to give back?

Pace Morby: Oh, man, what I learned is that people are monkey-see/monkey-do type of people. A podcast can do a lot, a book can do a lot, a seminar can do a lot. But what really matters is when you get boots on the ground, and meet people in person, and go on their appointments with them. So last 30 days I was on the road 24 of the last 30 days. I've spent probably $100,000 in travel, hotels, bringing my wife and kids, and I met over 6,000 people in person, talked to them about their real estate journey. Not seminars; literally going out in the field and going on people's appointments and helping people buy houses and doing all these things, and charging no money for it. Just saying "How can I help you? How can I show you? Get in my car. Let's go and look at a property."

I went to New Orleans, [unintelligible 00:42:23.20] Baton Rouge, Houston, Corpus Christi, San Antonio, Austin, San Angelo, Dallas, on one trip. Came home for two days. Then I went to Sarasota, Charlotte, Miami, Puerto Rico, I bought two hotels in Puerto Rico on seller finance, came back to Miami, went up to Tampa, and then I came home and I got home yesterday. So I do that and just help people in-person, because I feel like people are like, "I need to see what this looks like. A book is just not cutting it for me." So that's my favorite way of giving back, because that's the way I learned. So I just assume people want to see these things in-person.

Ash Patel: Pace, how can the Best Ever listeners reach out to you?

Pace Morby: I would say if you want to learn anything, I teach -- creative finance is such a diverse topic that probably 10% of what I teach is on my YouTube channel for free. So go to my YouTube channel. You can also get my book, it's a Bigger Pockets book; it's called "Wealth without cash", it comes out soon. It has tons of amazing goodies. I did like a video companion guide with the book, so if you want a whole course on creative finance, that course comes with the $24.99 book, which is crazy. And then DM me on Instagram, I answer every single DM myself. I get 300 400 of them a day, and answer them all myself throughout the day in between my meetings, and I just give people one-minute voice memos of like, "Hey, that's a great question. Here's the answer. Hey, that's a great question, here's the video that will answer that question." So if you need help with something, DM me on Instagram, I'm happy to help.

Ash Patel: Pace, you are an absolute rockstar. We could talk all day. Thank you for your time today. Blowing people's minds, so thanks.

Pace Morby: Ash, you're the best, bro. Thank you.

Ash Patel: Listen, I'm grateful you're here. Again, thank you for your time. I know you've got to run. Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five star review, share this episode with someone you think and benefit from it. Also, follow, subscribe and have a Best Ever day.

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