December 25, 2018

JF1575: Buying Seller Financed Debt & Avoiding Prohibited Transactions With Your IRA | Merry Christmas! | with Terry White

Terry has a very extensive background in both real estate and general investments. Along with his own real estate investing, he helps other people invest in real estate and other investments through their Self Directed IRA’s. Hear a different investing strategy and learn what you can and can’t do with your Self Directed IRA. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Terry White Real Estate Background:

  • President and CEO of Sunwest Trust
  • Over 35 years of experience in the real estate and investment world
  • Based in Albuquerque, NM
  • Say hi to him at
  • Best Ever Book: Invest In Debt


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Terry White. How are you doing, Terry?

Terry White: I’m doing great. How are you doing, Joe?

Joe Fairless: I’m doing great, and nice to have you on the show. A little bit about Terry – he is the president and CEO of Sunwest Trust. He’s got over 35 years of experience in the real estate investment world. Based in Albuquerque, New Mexico. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Terry White: Well, I’ll tell you what – I’m an old guy, so it’s a long background, but I’ll just cut it down. I was first exposed to the real estate business when I was a kid and my dad was a builder; most of my life I worked for a title company, and I own some properties, have bought and sold some properties, but the majority of my real estate exposure is in buying and selling debt on real estate. I’m not sure if your listeners are really familiar with that, but that’s what I’ve done.

Sunwest Trust is a custodian for self-directed IRAs. We enable people to buy real estate or real estate debt, those kinds of things, inside their self-directed IRA.

Joe Fairless: We’ll talk about both – buying and selling debt, and also being a custodian for self-directed IRAs. Why the focus on buying and selling debt?

Terry White: Well, because I was in the title business in New Mexico – and that may be different in other states; I think it is… But in New Mexico you use a title company that issues title insurance when you buy and sell property, and I was actually the controller for that company. One day my assistant came in, and her parents had sold their house a few years earlier, and in New Mexico we have a thing called a  real estate contract… And they had carried back the financing on this property, and originally they thought it would be a great idea to get — I don’t remember what it was, but let’s say $300/month… But then a few years later they decided they needed a big chunk of money for something and they didn’t want that $300/month anymore.

I had heard that you could buy and sell those kinds of things, so I said “I’ll buy your parents’ right to receive that $300/month for the next five years (or whatever it happened to be)”, and that’s how I got in that business.

Over the years then I would buy those cashflows, and either keep them myself, I would sometimes broker those to other individuals, or there are lots of different things you can do with those once you own them, so I learned a lot about that and did a lot of different things… And I actually lost some money in some of those transactions, but that kind of goes along with the learning process, I think.

Joe Fairless: Yeah, help me understand that a little bit. A couple had $300/month cashflow from a property that they owned, and then you bought the rights to that cashflow?

Terry White: Yeah, so let’s make it an easy example – let’s say I have a house that will sell for $100,000, and just to make it easy, I own that house free and clear. My options are I can go find someone who has $100,000 or can borrow $100,000 and they would give me my cash and I walk away; that’s the way it’s done a lot of times. But let’s say I was willing to act as the bank, so I find someone who has $10,000 to give me a down payment, and I carry the $90,000 at some interest rate for some period of time, so I get monthly payments; I’m basically acting as the bank. We call that owner financing, and in New Mexico specifically you use a thing called a real  estate contract. For everyone else out there, we could use a note and mortgage, where I have a promissory note where they’re paying me a certain amount of money every month, and I’m earning an interest rate that we agree upon.

Joe Fairless: Okay, I’m with you.

Terry White: Are you with me so far?

Joe Fairless: Yeah, of course. Seller financing.  Someone’s got a house, free and clear, 100k, and they need the money – they can either sell it, or they can do seller financing, and the person who’s buying it can do 10k down, and then 90k for a certain period of time.

Terry White: Yeah. When those deals originally are created, the seller of the property and the one that’s gonna get those monthly payments might like the idea of getting a monthly payment, and they may just keep that for the whole time and just skip the monthly payment and a good return.

Joe Fairless: Right.

Terry White: Many times something happens and they decide “I need a chunk of money. This $500 or $700/month (whatever it happens to be) is great, but I need a larger chunk of money”, so then they would go out and look for someone who’s willing to buy that, and that’s what I did.

You might be owed $90,000 in $700/month payments, and you would come to me and I’d say “Okay Joe, I’ll give you $70,000 for the right to receive those monthly payments, now for the rest of the time.” You would walk away with your $70,000 and I would start getting the $700/month.

Joe Fairless: Clearly there must be a decent-sized market for this, so I’ll ask that question, but let me just talk through my thought process… Seller financing is challenging to find, and then once you do find it – great; but then after someone does get seller financing, then that person must need the money instead of their monthly payments… They must need a large chunk of money and look to liquidate that, or to exchange that for the chunk of money… It just seems like there wouldn’t be a lot of people in that situation, because it’s just like a subset of a subset.

Terry White: Well, it is a small market. I think maybe the reason why there’s not more seller financing out there is because buyers aren’t asking for it, number one. You deal with a lot of properties; how often do you make an offer based on asking the seller to carry the financing? We just always assume that you’re gonna go get a mortgage somewhere, or find someplace else to get the money and pay the seller cash, but that doesn’t have to be the case.

Joe Fairless: Correct. So what you’ve just mentioned is something that would help people get more seller financing, but with your model they’ve already gotten it… How many of these deals have you done? I find it really interesting, where you found someone who had a seller financing agreement in place, but then they needed the money, not the monthly income, so you then bought the debt from them.

Terry White: I did my first deal, the one I just told you about – I did that in 1985, so I’ve been doing it ever since… So I would venture I’ve done several hundred, if not a thousand of those kinds of transactions over the years.

Joe Fairless: Wow. How do you find people?

Terry White: That’s interesting… So the first person that I found was my assistant that worked for me at the title company. Then when I decided this might be a way to make some extra money, this was back in the day when they had these things called landlines, and you had a newspaper… So I still worked at the title company, and I put an ad in the newspaper that said “If you have a real estate contract or owner financing and you want a lump sum of cash now, give me a call.” I had an answering machine at my house, so people would call during the day while I was at work at the title company… And I’d go home at night and listen to whatever messages I happened to get, and called those people back and negotiated to buy their contract.

I’d go look at the properties either after five o’clock during the day, or on the weekend or something, and then negotiate to buy these contracts. And because I worked at the title company, I knew how the paperwork in the transaction had to work, so I did all that myself, too.

Joe Fairless: How did you lose money on some transactions?

Terry White: I eventually decided that the best way to find those transactions was to own an escrow company… So back in 1987 I started an escrow company. You introduced me as the president and CEO of Sunwest Trust, but I also own a company called Sunwest Escrow. As an escrow company, we’re basically a mortgage servicer for owner financing, so we service all of those loans.

As the servicer of those loans, I have access to the people that are getting those monthly payments… And then just over the years, because I’ve done this for so long, people will refer people to me to buy their contracts or their mortgages. So that’s how we got into that.

Over the years it’s never been a business where we could make a lot of money; it’s always been like an additional income, because like you said, there’s not a lot of that owner financing out there.

But then to answer your question about how we lose money – if I buy a contract on a piece of property, and that buyer does not pay, then depending on what kind of instrument I’m being paid on, whether it’s a note and mortgage, you have to go through judicial foreclosure, and that costs money, and then there’s always the chance that you get the property back and you can’t sell it for what you have in it, or it’s damaged and you have to put so much money in it to repair it that once you get through the transaction it ends up costing you more than you thought and you could lose money on it. That doesn’t happen very often, but it has happened over the years.

Joe Fairless: When you’re running the numbers, what type of numbers do you want going into the transaction, to try to mitigate the risk?

Terry White: Well, I wouldn’t wanna be in a note on a property for than maybe — and I’m just kind of guessing at these, because it’s gonna vary with everything, but more than maybe 60% of the value, so that if I have to foreclose, I’ve got that 40% spread between what I think the property is worth and what I’ve got invested in it, to pay for foreclosure, to pay for repairs… The numbers probably aren’t a lot different than somebody who’s in the house flipping business, it’s just that I hope I never have to take the house back… But there’s always that potential.

Joe Fairless: What’s the average size monthly payment that you receive once you do one of these transactions?

Terry White: You know, there’s no average. Let me make sure everybody understands – what we’re talking about here is completely outside of Sunwest Trust; my business is an IRA custodian, and this is kind of a side hustle, if you will, that I’ve done over the years… But I’ve just completed a transaction on a twelveplex where we bought the contract on it, and by the time it was all done it was about a $400,000 transaction; the payments were, I think, $8,000/month, or something… And I’m working on one now that’s about $11,000/month; that’s a million dollar real estate contract. Those are extraordinary. The majority of them you’re dealing with less than $100,000 and maybe payments of less than $1,000/month.

Joe Fairless: Okay. I figured there were probably some outliers like the first few you mentioned, but what sounds like typical is more the $100,000 range, so I was wondering – after all the work that you do to get the property and do the negotiations and get the paperwork in order, if it is worth that $1,000/month that you’re receiving, or if it’s not…

Terry White: Well, basically, it depends on what the market interest rates are… But when I buy a contract, I typically try to buy it where the yield to me is maybe dependent upon the property really, but I would say I don’t buy something that the yield to me is less than 12% to 15%. So it’s not like flipping  a house, where you’re gonna make 20k or 30k, or 100k, or something… It’s more of something that I do as a way to invest money and get a good, consistent, higher than average return.

Bringing that back around to my self-directed IRA custodial business, that’s something that someone can do with their IRA money. If you could find and buy a note with your IRA money that would return you 10%, 12%, 13%, that might be a pretty good investment for someone.

Joe Fairless: It’s interesting… Your side hustle thing where you’re investing in owner financing debt was something I’d never heard of before, and anytime I talk to someone on the show who tells me something I’ve never heard of before after I’ve interviewed 1,700 people or so, I always wanna dig in a little bit…

Terry White: Well, let me tell you real quick — I’m trying to think when it was… This year, there was an association of people that do this kind of thing all over the country, and I attended a thing called The Paper Symposium in Las Vegas… So if you wanna google that, anybody who’s interested in learning more about this, that would be a great place to go, because there’s several hundred people there that do this; some of them do it for a living, their whole business is buying debt and cashflows.

Joe Fairless: Now let’s talk about Sunwest Trust, and your focus with being a custodian for self-directed IRAs… I’ve interviewed a bunch of custodians on this show, so I think the listeners have an idea of what a self-directed IRA is, and what a custodian is, so we won’t get into the basics… What do you all do to make the process as painless as possible on the investor? Because it can be a very painful process with all the paperwork and going back and forth, and stuff like that.

Terry White: Yeah, I agree. In some instances you just have to resolve yourself to know that buying a piece of real estate in your IRA is just gonna be a little more difficult, because we have to document everything, in addition to all the documentation you would normally have when you’re buying a piece of property.

The other thing that people could do – and I hesitate a little bit to talk about this, but are you familiar with checkbook control IRA, that concept?

Joe Fairless: I am familiar with it, but please elaborate.

Terry White: Well, basically what that is is you form an LLC, and your IRA purchases all the membership units of that LLC, and then you can be the manager of the LLC, or you can have someone else be the manager… But what that does is it removes the actual transaction from having to be done with the custodian, to the buyer. Normally, the buyer of a piece of property with your IRA would be Sunwest Trust as custodian for Joe Fairless IRA. But if you do the LLC thing, then you would create this LLC – let’s just call it XYZ LLC. You have the Joe Fairless IRA purchase all the membership units of the LLC, with you, Joe, being the manager… Not the member, but the manager of that LLC.

Now when you go to buy a piece of property, the buyer of taht property is the LLC, which is owned by the IRA. And that’s a legitimate strategy; the problem where people get in trouble is they don’t fully understand disqualified parties and prohibited transactions for an IRA, and the same disqualified parties and prohibited transactions that the IRA itself has, now that LLC has those same things.

So just because the fact that you can’t do business with your IRA transfers to the LLC. So the LLC can’t buy a piece of property from you, Joe, or from someone who’s a disqualified party. And that’s where a lot of custodians – and frankly, the IRS – have some concern over these single-member LLCs or checkbook control IRAs, is that the individual hasn’t educated themselves enough to know how to avoid doing prohibited transactions.

Joe Fairless: What’s a common mistake that you see people make as it relates to doing those prohibited transactions?

Terry White: Let’s talk about it in the realm of real estate – you form the LLC and you use the LLC to buy a piece of real estate, and then the piece of real estate needs a new roof put on it, for some reason. So your LLC doesn’t have the money in it to put the new roof on, so you just pay for the roof out of your own pocket. That is a prohibited transaction, because you are a disqualified party to the LLC and to the IRA.

The other thing that could happen is maybe not something that big, but we see a lot where people have a single-member LLC owned by the IRA, and they decide they wanna take distributions from their IRA, so they just write a check to themselves out of the LLC. Well, that doesn’t work, because that doesn’t get reported to the IRS as a distribution. The money has to go from the LLC back into the IRA, and then the IRA distributes it too, so that it gets reported correctly. Those are just a couple of the things that could happen if the IRA account holder and/or manager of the LLC doesn’t understand the prohibited transaction rules and the disqualified parties to the IRA, and run afoul of those.

Joe Fairless: Based on your experience with decades in the industry, what is your best advice ever for real estate investors?

Terry White: Man, that’s a broad question, Joe…

Joe Fairless: I  know…

Terry White: For me personally, my best advice for real estate is to look at it for the long-term, not necessarily — you know, you see these shows on TV where people buy things and fix them, and turnaround and sell them, and make large amounts of money… That happens, and you and I have both done that, I’m sure, but real estate to me is  a long-term play, something that you look at that may take a few years to actually begin to pay off…

And I think the biggest thing in any kind of investment is just to get started. So many of us research and look into things and we get analysis paralysis, where you just keep looking at it and you never actually do it… So get started somewhere – whether it’s buying real estate or investing in any way; the younger you are, the sooner you get started, the more opportunity you’re gonna have to grow a valuable retirement account and live the kind of lifestyle you want to when you decide to retire.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Terry White: Sure.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:20:08].22] to [00:21:23].21]

Joe Fairless: Okay, Terry, a best ever book you’ve recently read?

Terry White: I’ve done a lot of podcasts and a lot of that asked this question… I’m really good at starting books, I’m not really good at finishing them… But I think the best ever book I’ve read for what I have done – my side hustle that we’ve talked about – is a book called “Invest in Debt” by a guy named Jimmy Napier. I don’t even know if that book is still in print. You might try to find it on Amazon, or something, but it’s a great, simple read… You said you’d never heard of this before – that would be a great place for you to go to learn a lot about it, and it would take you maybe a couple hours to read the book, not even that much probably.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Terry White: Not doing enough research, not making sure when you’re doing — any kind of transaction, but when you’re buying the debt, you need to make sure you would wanna own the property; hopefully you never will, but as soon as you buy something that you don’t wanna own, that’s when you’re gonna get it back, it seems like.

Joe Fairless: What’s the best ever deal you’ve done?

Terry White: Gosh, that’s a tough question… I own a couple of commercial buildings that I have my businesses in, and I think long-term those are gonna be the best deals because I’m paying myself back, and eventually I’ll own those free and clear, and then one of these days they’ll start paying me.

Joe Fairless: Best ever way you like to give back?

Terry White: I am very big on giving back because I have been super-blessed over the last 35 years I’ve been in business. My number one way is I give to my church, because I think that’s important to me, but also, in Sunwest Trust and Sunwest Escrow several years ago we committed to giving a portion of our profit to charity, so we contribute to a lot of charities. My interest is in giving back to military, who have given to us, and then giving to people who can’t help themselves – children, and those kinds of things.

Joe Fairless: Best way the Best Ever listeners can get in touch with you and learn more about what you’ve got going on?

Terry White: They can go to, and there just go to Contact Us and send an e-mail through that, and then mention this podcast and it’ll be sure to get directly to me, and I’d love to talk to them.

Joe Fairless: Terry, thank you so much for being on the show, talking about investing in debt, and how you do that as more of a side thing, as well as how we can do it, what to look for, the 60% being in it, no more than 60% of the value of the property, as well as making sure we wanna own the property, even though we don’t wanna structure it that way and we don’t want the property… But making sure worst-case-scenario it’s something that would still make sense if we do get the property back… As well as talking about Sunwest Trust and your company’s role as a custodian for self-directed IRAs and the checkbook IRAs.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Terry White: Thank you, Joe. I appreciate it, and I’ve enjoyed it.

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