Posted on: October 19, 2020


If you need a masterclass on sub-to and creative financing, you’ll be in for a treat! In this episode, we have someone who knows the topic inside, and out and he generously shared all you need to know!

Pace Morby is referred to as the subject-to legend and with good reason. After working as a general contractor for a decade, Pace transitioned into wholesaling properties, seller finance, assisted living, and property flipping.

To date, he generates over $150k in wholesale fees monthly, owns seven assisted living facilities and 15 subject-to properties! Taking into consideration all that he has accomplished so far, it’s easy to see Pace has truly mastered the art of subject-tos and wholesaling.

In this episode, you’ll learn all the basics of sub-to. However, that’s not all. You’ll also learn about the likely objections and how you can effectively address them, how to get sellers to take terms, and how you can build your portfolio in less than two years.

You’ll have plenty of powerful gold nuggets and insights to take note of, so you better have a pen and paper handy!

Subject-To Masterclass! – The Secret Strategy to Quick Riches in this Little Known Real Estate Niche With Pace Morby

Episode Transcription

We have Pace Morby. He is a subject to legend and creative finance expert. I’m super excited to have you.

What’s funny is I started in wholesaling years ago and I was a HomeVestors Franchise Owner. Do you know any HomeVestors franchises like the We Buy Ugly Houses people? Looking back on it, it’s so funny because I felt like I had all the answers because I was part of a franchise. They teach you the opposite of virtual wholesaling. It’s like, “Go on every appointment. You are the center of your business.” There’s this massive bottleneck where you can only do so many deals. When I look back on that business model, in the back of my mind, I’m like, “You are not buying deals as deep as I am so I’m better than you.” I’m full virtual and I’m like, “What did I do? I wasted two years of my freaking life.”

I cringe when educators are like, “Get belly to belly, neck to neck with the seller.” I’m like, “What are you doing with the seller? Why are you in the seller’s house that is so creepy? I’m a female. That is dangerous for me.” I used to put my life on the line in this job when I used to go on seller appointments.

Some sellers are like, “I have no internet.” I had this one seller years ago whose name is Charles. We bought his house in Phoenix but he lived in Northern Colorado in the middle of nowhere on this massive 200-acre ranch. He says, “I have been trying to sell my house for two years. Nobody is man enough to come to meet me belly to belly.” We were like, “Challenge accepted.”

I jumped in my Prius, drove all night, went up there, signed the contract, came back and we closed the deal a week later. That was the other thing, too. People were like, “Why didn’t you just send a mobile notary or somebody to go get the contract signed?” I’m like, “This guy tried to sell his house for two years. He was a good old boy and he said, ‘I want to shake hands and look the man in the eye who’s going to buy this house.’” That is the only time I have ever run into a need for a meeting with a seller.

That’s what I always say, “There’s always an exception to the rule of that one guy that insisted on meeting the man that’s going to buy the home.” For the most part, the amount of time that you spend getting in your car, driving to the seller meeting, sitting there, piddling around with the seller in their house, petting your cat, building rapport, driving back home, you are tired and cranky because you sat in traffic all day. By the time you have done that, you have made one offer that day where you could have made 10 offers on the phone to 10 other motivated sellers and probably locked up three contracts that day.

Here’s the thing. I asked myself, “Why do people still do it that way?” This is a strong statement so I apologize for anybody that is offended easily. I call it mental masturbation. You are convincing yourself that you are staying busy by being in your car and driving to an appointment. It’s a total mental game. You are playing with yourself and convincing yourself you are working hard.

My point is there are so many people in this business that stay busy to convince themselves that they are doing something when the reality is money-producing activities are what you need to be doing all day long like making more offers and talking to sellers. Especially where you are at, I know you don’t invest in Southern California but if you did invest in Southern California, the average drive time is probably an hour.

When I was flipping homes here, it’s easy. That’s why I was virtual before virtual was even a word because I was like, “I’m sorry. I’m not getting on the 405 at 3:00. Instead, I’m going to tell you what I’m going to offer over the phone. You tell me that you are going to accept it, and then I’m going to build enough rapport where you will feel bad if you don’t accept it when we meet in person.”

People believe that sellers want you to build rapport with them. When you are educating on a topic, you become the master of that topic because you talk about it so frequently. I can’t pretend to be a master of virtual wholesaling at all but you will completely attest to this, people think that sellers want you to build rapport with them. Sellers don’t want you to build rapport with them. They want to do business with somebody who’s credible. What I do is I tell my students about sub-to and I also tell my acquisition team, “Build rapport through building credibility. Don’t build rapport by talking about cats, their favorite color, and what’s their favorite flavor of pie. It’s a waste of time.”

Sellers know it’s a waste of time that they are being polite to you and listening to you trying to scramble for things to talk about to build rapport. Build rapport through building credibility. Get to the root of the problem and jump on it. You get way more done. Your life is way easier. You get it. You are the master of all this stuff. It was a treat to get to know you when you came to Phoenix. I’m sitting there looking at your business. You are in Southern California, living a wonderful life and investing in Oklahoma City.

Oklahoma City and Tulsa are right next to each other.

What made you decide on those markets?

Build rapport by building credibility.

My first virtual market was in Nashville, Tennessee. I was in Nashville for a few years. I started with building houses in Nashville so my first virtual thing was ground-up construction because I started as a house flipper. I was a house flipper to start here in California, and then the deals were drying up so I needed something to work on because I needed to diversify. I didn’t want all my eggs in one basket being my California territory. I bought some lots in Nashville and started building homes there. From there, it spun into, “Why don’t I start wholesaling these lots to other developers?”

Did you know it was wholesaling lots at the time or not?

I knew what wholesaling was because I had done some wholesaling as it was. I had done a little bit in California. I would wholesale the ones that I didn’t want to do. I would wholesale those houses that I didn’t want to flip myself, the ones that seemed a little risky. It started with lots, and then it was like, “There are a lot of hedge fund activity. Why don’t I go after homes, regular houses and sell to the hedge funds and the other landlord-type buyers? Let’s look for landlords.”

What happened was Nashville was going through this crazy development boom and it became very saturated with local investors. It was cutthroat. A seller could walk out of their door and there was a construction site on every street. They could take my offer, then go and bid it against all the builders in the neighborhood. I was getting constantly out of the bid. My course is all about the struggles that I had. I came up with rules and then it’s like, “Don’t make the mistakes I made.”

One of the mistakes was I picked this booming market. It was the number one real estate market at the time. I don’t recommend going virtual in a development-type market like that. Another market similar would be Austin, Texas. It might be difficult. The house price is also started getting higher so I wanted something that was more a lower price point home, more of a landlord market. I realized that the deals I wanted to be doing were the landlord deals, which were the easiest ones to do virtually because they are based on rent versus ARV minus repairs. I didn’t have to think as much about the construction of the home.

The first virtual was picking a cool place that sounded cool like Nashville. It’s like, “I have built homes. This is fun. Let’s do this. No thought.” After my experience with Nashville, I started putting some thought into it and I was looking for the 1% rule type price-to-rent ratio markets where the rent is 1% of the purchase price around there. I’ve got a spreadsheet out. At the time, I wanted a population of one million because I didn’t want to run out of marketing lists. I wanted my marketing lists to be big. I didn’t want to keep running out and have listings ideas every month.

I wanted a bigger Metro but I wanted the price point to be lower. I’ve got a spreadsheet out, picked some markets that looked interesting, then started deep diving. I happened to know someone in Oklahoma City at the time so that was a little bit of a connection. “When we go there, I know so and so. They could help me out.” That’s how it came about. In my coaching program, I have other parameters that I list and things. I have changed my opinion on some stuff but that’s how I ended up there.

One of the things I love about that is the whole thought process of no thought process when you first chose Nashville. It is honestly one of the biggest indicators of a successful person. You go, “I’m going to go for it.” It might not be the perfect market but you took action and jumped with both feet in. You made some mistakes, learned some lessons, and then ultimately found your niche, which is ultimately what you are doing in Oklahoma City and Tulsa.

I put no thought into it and that’s how I do most things. I have one speed, full speed. “I’m going to do this,” then I do it but my problem is I don’t quit fast enough. I will drag something on and on, and not quit. I’m very stubborn about quitting.

That’s legitimately a challenging thing for a lot of real estate investors, not just the market. Think about one of your students that get a lead that comes through. How do they know when to quit on that lead and push harder? Those are the things that are challenging that only a couple of years in the business, you could determine those filters. It’s a topic a lot of new investors are challenged with like, “When do I stop, pivot and do all that stuff?” I imagine you teach a lot of that stuff based on your experiences from your Nashville days, then in Oklahoma City and Tulsa.

It’s so funny. In some of my coaching calls, I do a topic in front of them and one of my topics was, “When do you quit?” I realized that there were no rules. I never had an educator put clear rules of when you are allowed to quit on things. I picked the top three things that I noticed people either quit too fast or they are not sure, “When should I quit on this?” I remember one was when you put a market.

I noticed that students try a market out when they go virtual for maybe two months. If they don’t close a deal yet, they get frustrated and think, “This market must not be a good virtual market. I’m going to quit and go to another virtual market.” They try that market for two months and then they quit and go to another one. They say, “Virtual doesn’t work.” I say, “It takes six months to figure out a market. You can’t quit after 60 days.” From when a seller lead comes into when we get paid on that deal, our average is 97 days. They already quit before my average person who has done this for eight years.

We jumped into Orlando and we are collecting good data based on our ad spend. My bookkeeper comes back and tells me, “If you spend $1, you get $10 back. If you are spending $1 in marketing in Orlando, your revenue is 10X.” I’m like, “We are never quitting this market. Let’s double down on our marketing.” It took us four months to even figure out that KPI. You can’t just spend $1,000 in your first month and have any real good data. It does take a minimum of six months. That’s 100% right.

WI 539 | Subject-To

Subject-To : There are so many people in this business that stay busy to convince themselves they’re doing something. In reality, money-producing activities are what you need to be doing all day long.


You are interested in all things virtual but I want to talk about all subject to things I have always wondered. I don’t have a lot of creative finance experience, I will be honest. I have made creative finance offers to sellers and I can’t seem to convince a seller to take terms. I don’t know what to say. I don’t know how you say it to make it appealing to them.

They have these obvious rebuttals or objections. I don’t know how to overcome the objections. Part of why I can do wholesaling like what I do virtually is because I’m good at overcoming objections over the phone. I can do it well enough that I can do it over the phone and they don’t need to be belly to belly with me. That’s how I can do it.

With sub-to, I can’t even do that in person. I’m curious how we do sub-to virtually because I would love to do that. How do you convince a seller to take terms? I love getting micro on topics with whoever I’m speaking with is an expert on and this particularly interests me. If there was one thing I want to focus on, it’s how the heck do you get a seller to say, “I will let you take my mortgage on.”

I’m going to answer that question with a question and then I will jump into answering it long-winded. This is what’s so funny. Most of the time, wholesalers are the ones that ask me the question, “How are you doing this?” I go, “You are a wholesaler. You are convincing the seller to sell their property at sometimes $0.50 and $0.60 on the dollar. Let me ask you a question, ‘How in the hell are you convincing a seller to sell at $0.50, $0.60 on the dollar?’”

As a creative finance investor, sometimes I’m buying sub-to $0.50, $0.60 on the dollar but sometimes I’m coming up $0.90 and $0.95 on the dollar in creative finance situations. Number one, I’m dominating the price point. I’m giving the seller way more money than you ever can do as a single wholesaler. Right out of the gate, I’m coming in and pointing that out.

One of the things I love doing is I probably average ten hours a week that I personally call my student sellers. The reason being is because I feel like it’s somewhat of a Blue Ocean in the sense of wholesale in general has been around for a long time. There are a lot of people with seller calls and stuff on YouTube that you can hear the way the conversation goes. I have never heard somebody on YouTube or otherwise calling sellers with creative finance. Sub-to, seller finance, novation agreements, we can jump into all three of those. I love recording on Zoom. Anytime a seller is like, “I’m having these objections with the seller,” I go, “Let’s set up a call in two days.”

Forty of my students will fill in a Google Sheet fifteen-minute calls back-to-back and I will hammer those out for 4 or 5 hours. I will do that once a week, and then I will do it a couple of times incrementally throughout the week as well. That’s all I do. I get on the phone and record these via Zoom. What I will do for you and your audience and maybe some of your students are like, “I love Lauren and her program but I do run into people with low equity or simply want too much money for their house.” I will give you two hours of me recorded. You will see my face, my mannerisms and how I overcome their objections. I will jump into the top five objections you get with the seller and what to say. First and foremost, the way I’m doing it is I’m paying way more than you are.

How many times have you talked to a seller that owes $150,000 and you are like, “My best cash price is $130,000. If I paid $150,000, I would lose money. Either on a fix and flip or even a wholesale, I can’t come up to that number?” “Sorry, that’s what I owe.” Unfortunately for that seller, dozens and dozens of other wholesalers or real estate investors have tried to buy that house at $130,000 as well. When I come along and say, “If I come up to $150,000, would you be willing to give me terms?” The seller has no idea what that means. My students know my F-150 story back and forth. Do you know my F-150 story, Lauren?

I know the truck story because I have heard it before. It’s something about selling a truck on terms.

When a seller says, “What’s terms?” I always throw out an ambiguous word, not too big. I’m not going to pull out creative finance, subject to or seller finance. If I say terms, it’s a small word that’s not too intrusive and the seller always says, “What does that mean?” I always tell them in a story form. I tell my sellers this exact story and it is a true story. I used to be a contractor and I had this F-150. It’s a Ford truck that I loved. I used it for work. My company made plenty of money by utilizing that truck but there came a point where we had 300,000 miles on that truck. It was time to sell it.

I go on Kelley Blue Book and I find out that the truck is only worth $5,000. What does that mean? If I go on Craigslist and I post it for $5,000, am I selling that for $5,000? No, I’m going to sell it for $4,200 because people are going to work me down. What I did is I was belligerent like most of our sellers. They were like, “I know what Zillow says and what people say the house is worth. I will only sell it for this.” They get emotionally attached to a number. I said, “Screw it. I’m going to put it on Craigslist for $10,000.” Do you think I’ve got a call at all? No.

By the way, Lauren, I’m telling the story word for word the way I tell this story to sellers. I’m telling a seller this exact story. What I do is I tell the seller, “Let me tell you what terms are,” then I jump into the story. After three months, I didn’t get an offer on that $10,000. It’s not what the truck is worth. My wife comes to me and she’s like, “I love you but you’ve got to get that truck out of our freaking driveway.” I’m like, “It’s worth way more to me and my company than the $5,000 that I could sell it for.” She’s like, “Why don’t you take payments on it?” I’m like, “That’s so genius.”

I go back to Craigslist. My wife steps in. She’s the smart one. I changed one thing. I went back to the ad and said, “Ford F-150 will take payments.” Did I sell that truck for $10,000? No. I sold that truck for $12,500 because I was willing to take payments on it and give somebody else the value of getting into it so that they could take that truck and go produce money for their family.

The thought process of a successful person is to just go for it. It might not be the perfect market but just jump with both feet in.

I ended up selling it to a gentleman who owned a painting company and he said, “For me, it’s not about the payment. It’s about the fact that I can take this truck and go make $6,000 or $7,000 a month for my family.” Ultimately, I gave them payment options and collected interest. Throughout 2.5, 3 years, I ended up selling that truck for about $15,000 when you add the interest in. It’s three times what the house is worth.

“Mr. Seller, what terms mean is that essentially, if you are willing to finance the home to me, I would be willing to make payments to you so that we can work out a price that fits what your goal is. That’s all terms are.” They were like, “That’s it?” I go, “That’s it. You name your price. I name my terms. We move forward and enter into a contract.” I went to coaching, paid all sorts of people, and traveled the country trying to learn creative finance because I was a HomeVestors Franchise Owner. Our cost per lead towards the end of my stint as a HomeVestors Franchise Owner was about $1,400 per call. Not per lead, not per quality lead, not per contract.

I would give HomeVestors $20,000 of my money every month. I didn’t start with $20,000. I started at $5,000 and then I worked my way up. Ultimately towards the end, I was at $20,000 and for $20,000, I would get 12 to 13 phone calls for the month for $20,000 in advertising. That’s no joke. When you divide how many phone calls I received into the $20,000 ad spend, my cost of a lead was $1,400. This is why I was forced to get creative. I had these leads coming in and these leads were like, “I want $200,000 for a house that is worth $200,000.” I’m like, “I can’t do that.” “I will sell it through a real estate agent.”

Finally, I met a few people, paid for some coaching, traveled the country, and met with a bunch of people doing this. I spent a lot of time and energy perfecting this craft. What I started doing is I started buying those houses that people were like, “If we can’t get $200,000, we are going to sell it on the open market.” I would say, “You own the house free and clear. Why don’t you just be the bank for me?” They were like, “We don’t need the money. We care more about the price.”

The other thing is if a seller sells their house for $200,000 and it’s worth $200,000, I can go in and get 2% interest. A lot of times, I get 0% interest. I closed on a deal in Yuma, 0% interest home. We are getting free houses all over the place. The reason being is because the seller is married to one goal, which is getting a purchase price reached. Am I paying over retail? No, but sometimes I’m paying $0.80, $0.90, $0.95 on the dollar.

I’m getting terms where I’m putting sometimes no money down, sometimes little money down and a good amount of money down. What I’m doing is I’m turning around and finding a family to move into the property that gives me the money down so I get into the ownership. Ultimately, I’ve got to a point with HomeVestors that I was buying about 15 to 17 rentals a month. I was buying subject to and seller finance all utilizing these leads.

I was spending more money on ad spend, and then I started running into issues with HomeVestors corporate. They were saying, “We are a fix and flip and wholesale operation.” Why did they care? They care because they make a royalty on my money. If I’m buying rentals, there’s no monetization right out of the gate and I’m building this massive cashflow, they can’t monetize.

After months of doing that, I decided I’m going to sell my franchise. I sold my franchise and went out on my own. We have bought hundreds of homes subject to. We have bought hundreds of homes seller finance. Some of the time, we are wholesaling those. Fifty percent of the houses I get subject to and seller finance, I’m simply wholesaling those. A lot of people say, “I don’t want to get into sub-to because I want to learn wholesale.” I’m like, “I wholesale more than most wholesalers do but I wholesale a lot of creative finance stuff.”

Do you wholesale it to another landlord that then will take on those payments, that payment plan and all that?

I wholesale it to a wide variety of people. Let’s talk about the statistics pre-COVID. This is an interesting statistic. If 100 people go down to Bank of America, Chase or Wells Fargo and say, “I want to get a mortgage for my home. I want to go buy this home,” how many of those people have gotten approval for a mortgage?

Pre-COVID, 60% of people would get approved for a mortgage. During COVID, all these lenders have tightened guidelines and it’s more like 45% to 47% of people getting approved. More people get declined for a mortgage than getting approved so think about that. In my market, 9,000 homes are purchased traditionally every single month. What do you think the demand is for non-traditional buyers who are like, “I’ve got $20,000, $30,000 in cash but I’ve got declined because I only have one-year job history or I’m self-employed?” That’s why me, all my partners and everybody I know all own our houses subject to.

You explained how to have that conversation with a seller in a way that I feel like I can regurgitate better. I have taken training in seller financing years ago and I could never articulate it to a seller in a way that the seller understands it. It is harder probably in the higher price markets.

I’ve got a deal in Vallejo, California. I have a buyer bringing $150,000 as a down payment on the house and my down payment to the seller is $90,000. We are collecting $60,000 as a fee in a high price market. The home is a $950,000 house. Here’s the thing. The high price market only makes it easier because think about it, who is that? It’s doctors, lawyers, business owners, people like you and me who are making good money but can’t go out and get approved.

WI 539 | Subject-To

Subject-To: If someone is willing to finance the home for you, that person should be willing to make payments to you so that both of you can work out a price that fits your goal.


My ultimate goal in life is to make $20 million a year and have the IRS think I’m making zero. If you are going to do that, try and write everything off and keep your money to yourself as much as humanly possible, you are not going to get approved for a mortgage. You’ve got doctors, lawyers, and all these people that are trying to be smart with their taxes that are writing everything off but they’ve got tons of cash. In the highest price point markets, typically my buyers, the people I dispo to, those people are coming in with significant deposits.

I’m talking about how do you convince a California seller who’s got this house that they have a mortgage of $750,000 and the house is maybe worth $850,000? You are like, “I will give you $850,000 but I need to take over your $750,000 mortgage.” They are looking at me going, “I want to buy another home someday, and is my name going to be tied to this mortgage still?” What is that scenario?

When you go to get another mortgage, wouldn’t you rather have an existing performing mortgage on your credit when you go get another one rather than have none?

Doesn’t that make it difficult for them to get another home?

No. Let me tell you a story about my personal house. I get a referral because everybody in Phoenix knows me as the creative finance guy. I get this real estate agent that calls me five months deep into our listing. She’s like, “I took on a listing. I feel like I overpromised a little bit. You are the creative guy. I have seen the emails. I have seen you on Instagram. What can you do to help me?”

I said, “Here’s the unfortunate thing. If I buy the property from you, I’ve got to pay you a 3% commission on a house that you can’t even sell. I’m not interested in working with you unless you are willing to work on my fee and I will give you a flat fee, a finder’s fee of $2,500.” It was a $400,000 house. “I’m not going to pay you $12,000 on a house you are about to lose the listing on because your listing agreement ends in 30 days.”

She was a little bit upset. We get off the phone and two weeks later, she calls me, “I’m ready to work with you.” I go, “What I want you to do is I will pay you $2,500 but I want direct access to your seller. I don’t want to have anything to do with you.” She’s like, “That’s impossible.” I go, “I will call your seller after your listing agreement ends and I will work with them directly but I am not working with a real estate agent as my mouthpiece. Unfortunately, you screw up every possible deal. It’s almost like day one in real estate school. You learn how to blow up every single deal. I’m not interested in working through you but I’m interested in working for you and I can get this deal done so let me talk to your seller.”

She relents and says, “As long as you pay me $2,500, I will give you access to the seller.” I go, “Great and I don’t want you involved at all. I don’t want you trying to coordinate or do anything. You will destroy my deal. Here’s what I will do. I will tell you how I did it and what I did after I close escrow so that you don’t start saying stuff like, ‘I don’t know what that means.’” She completely removed herself. This is where I’m going to answer your question about the DTI or Debt-To-Income ratio, somebody can go get another mortgage when they already have an existing mortgage.

I’ve got on the phone with Dave. I explained to him subject to and said, “I’ve got your agent out of the way and here’s why. This is what I do for a living. I’m known as this guy.” He goes, “I love it but that causes a major problem for me. I can’t go buy another house if I don’t sell this one.” I go, “Dave, that’s so far from true. It’s painful to hear that.” He goes, “No, I know this. Pace, I’m currently in the process of buying a brand-new home.”

Before I talked to him, he had been driving home in his brand-new home community. He drives in there and they sucker him into putting a $20,000 non-refundable deposit on this brand-new piece of dirt. He goes home and tells his wife, “We’ve got to sell our house. I’ve got a brand-new house. We are going to start building.” His wife was like, “This is amazing. Let me call my cousin,” who ended up being a real estate agent.

The lender for the brand-new home approved him with the contingency that he sold his existing home. Not rented out, not do anything with it. The lender flat out told him, “I can approve you but you need to remove the other home from your credit because your debt-to-income ratio is off.” Here we are five and a half months later, they were biting their fingernails because the house is almost done being built and the lender is telling them, “If that house is not sold and off your hands in 30 days, you lose your $20,000 deposit and the rights to this house.”

I removed the real estate agent. I’ve got on the phone with Dave. Dave and I worked out a deal. I said, “Here’s what I will do, Dave. I will give you a non-refundable deposit of $5,000. If I can’t get you approved for your other mortgage, I will let you have that $5,000. We will subitize and you can keep my $5,000.” He’s like, “You are that confident?” I go, “I have been doing it for years. I’m that confident.”

I’ve simply got on the phone and worked out a deal where I simply took over his mortgage. I didn’t give Dave any money and took over his house. My wife at the time was my transaction coordinator so she ran over and signed the documents with Dave. They were having an issue with their internet. She falls in love with the house. My wife was like, “I want to buy this house for ourselves.” That’s why I ended up buying it for ourselves and moving into it.

Wholesale more than most wholesalers do, but wholesale a lot of creative finance things.

This is what I did. We opened escrow. During escrow, I called the lender and said, “My name is Pace. I buy houses subject to constantly and I’m currently buying Dave’s house subject to, which means I’m going to be taking over the payments but we are going to keep the mortgage in his name. I utilize a third-party servicing company to handle those payments so that you can track that those payments are not being paid for by Dave. They are not coming out of his income.”

She goes, “That’s not a problem. If that’s the case, for the first twelve months that somebody else is making the payments, we take 75% of the payment off of his DTI. After a twelve-month stint or documented payments, we will take 100% of that off of his DTI.” That is the process. The new lender, nationwide, not that lender, not my lenders, not people I know, every single lender will remove 75% of the payment immediately by showing that those payments are not responsible by Dave.

Is this common with lenders that they will take off 75%? I have never heard of this before. Is that a thing?

Yes. Think about people that have a portfolio where they go out and use their own personal name to go out and get loans on rental properties. They are not doing that because they have massive amounts of income. They are doing it because they are documenting with their lender that their renter is making the payment, not them. It’s highly common. Every single buy and hold investor that is buying and utilizing their name for their first fifteen purchases, all they are doing is going to the bank and saying, “Here’s proof that this is a seasoned rental property. I’m getting seasoning in it and they remove the payment from the DTI.”

That’s what I always thought. It has to be a seasoned tenant. I had a tenant tell me, “How do we season for two years?” I was like, “Two years?”

Here’s the technicality behind it. It’s for two months. All I did is I made two months upfront for Dave’s payments. I set it up with Weststar Servicing, which is who my servicing company is. I make two payments ahead of time. I was going to make those payments anyway. We have Weststar send the information over to his underwriter for his loan company or mortgage company and they get the deal done.

This is something that is done daily, weekly, and monthly with my students. They run into sellers in the same exact situation. I have taken Dave’s testimonial where he was like, “I thought this guy, Pace, was full of crap, then he puts his money where his mouth is, walks me through the process, calls my lender on my behalf and gets the deal done. This guy is the truth and is amazing.”

When I have students that are like, “My seller doesn’t believe this is that easy.” I go, “Have them call Dave.” My seller, Dave, has gotten on the phone with a lot of my student sellers saying, “This is real. I’m living in my brand-new built home. I couldn’t have qualified without what Pace did. This was the best thing that ever happened to us.” The guy sends me a text at 1:00 AM and he’s like, “We are lying in bed in our brand-new house and I can’t thank you guys enough.” I go, “Isn’t it amazing what creative financing can do?” His reply back simply, “Sub-to,” with the peace sign and I go, “That’s my new logo.”

I have taken all sorts of courses including sub-to. For years, I feel like I have done it all as far as education goes. You have your niche. I have got my niche. I can tell you did take your time to deep dive into the niche of sub-to and how to explain it to a seller. You have perfected your script because you took that time of intense research perfecting and honing your craft. I have had other educators explain this entire process that you explained but they leave out huge holes. Can I say what the hole was here? It’s what I was asking you. I was like, “What about the DTI?” The educator leaves that out.

It’s because they are not practitioners of what they teach. I paid one guy here in Phoenix $50,000. When I was asking those questions to him years ago, he’s skirting the questions and pushed them under the rug. I couldn’t get the answer. I ended up hiring real estate attorneys that were proficient in subject to all over the country. We have five of them that I employ. These guys were like, “This is how it’s done. This is how some of my other clients do it.” I had to piece it together by paying attorneys to tell me how it’s done behind the scenes.

There are a lot of educators that are not practitioners, and then the same with what I teach and everything. That’s what I’ve got my hands on and why I’m asking you. I don’t mean to sound skeptical but you can see that I have done courses and I’m like, “What about that?” I tried it, and then the seller says this and then I don’t know what to say. I go back to the course and the course is empty with a big hole. You can tell you are the real deal. You do this so you have overcome those objections.

There are so many more objections. I would love to get into them, too. This is what I tell sellers, “Build rapport by building credibility.” When I go through my pitch on sub-to, seller finance or innovation agreements, I will say, “Can I tell you the questions you are not asking? Can I tell you the other questions that other sellers have asked me that you need to understand?” They were like, “Of course.” I go, “Timmy, the seller, let me ask you a question. ‘What happens if I buy your property subject to and then I get abducted by aliens, I can’t make the payment because I’m not even on this planet anymore?’”

What I write in all of my agreements is a performance deed that requires me to perform in what I promised. If I don’t perform, my performance deed can be executed by a servicing company, which means the servicing company handles the transaction, which means I don’t make the payments to the mortgage company. I make my payment to a servicing company that I set up. The servicing company then makes the payment to the mortgage company. If I ever fall behind 30 days, the seller simply calls the servicing company and says, “I want my house back.” It gets deeded back to the seller within a five-minute phone call.

WI 539 | Subject-To

Subject-To: If a seller sells their house today for $200,000 and it’s worth $200,000, you can go in and get 2% interest. Because the seller is married to one goal, which is getting a purchase price reached.


That right there should overcome a lot of objections because they don’t have to go through the foreclosure process. That was always the thing sellers would say, “I don’t want to have to go and foreclose on you. That’s a big, long process.” I didn’t know that you can make that decision to do it.

Nobody taught me how to do that. That came from one of my attorneys. He’s like, “You can draft a document to overcome any objection.” We drafted a document and named it a performance deed. There are certain states that performance deeds are not legal so what you can do is you can pre-sign a deed in lieu of foreclosure.

I can pre-sign a deed in lieu of foreclosure that states, “Instead of you foreclosing on me, I’m already signing my rights to this property away if I don’t perform.” Essentially, I’m still drafting a performance deed but it’s called a deed in lieu of foreclosure. Florida is a state where you can’t do a performance deed but you can pre-sign a deed in lieu of foreclosure.

Where can you find an attorney that is skilled in sub-to for anybody who’s reading and say they need an attorney in their state?

My main attorney is Sean St. Clair. He’s in Arizona but he’s also licensed in Atlanta. He’s a closing attorney in Atlanta. I have a handful of other attorneys that are document drafters, a couple of them in Texas. I also have a specialized attorney in Texas that specializes in lease options because people think that lease options are not allowed in Texas, which is incorrect. I have those five attorneys. With the attorney stuff, I have realized and I wish I realized this in my twenties, attorneys are regular-ass people, too. I was so afraid of attorneys but these attorneys became my friends. When I need something, I call them up and go, “I need a new document, this and that.”

I feel like this was gold. You gave off some serious gold so thank you.

If you are in Lauren’s program, you are going to take what she’s teaching you and you can probably double your conversion rate with your existing lead flow by picking out the sellers that want too much money or simply have no equity in their property.

Do you ever look for that type of seller specifically? When you are pulling a marketing list, instead of pulling an owner occupant list that has a lot of equity, do you ever do an owner occupant list that does not have any equity and market to those people? Do you specifically market to these types of people where this would work or not?

Honestly, no. I’m a wholesaler at heart in the sense that we love wholesale. I wholesale sub-to and regular cash transactions. Ultimately, I don’t market for wholesale, sub-to, creative finance or fix and flip. I simply market to motivated sellers. Whatever that seller needs, I put them in the bucket that I can solve their problems. If somebody says, “I only want to buy sub-tos and creative finance,” there are very specific lists you can go after that sub-to is involved in.

Number one is foreclosure. If you want to get a rental portfolio and within six months never have to work another day in your life, that’s the easiest way to do it. Number two is an expired listing. People who already have existing pain, why did they fail their listing, either they don’t have equity or have so much equity but they were like, “I’m hell-bent on getting a specific number?” Here I am talking about sub-to. Lauren, I buy a lot of seller finance deals at 0% finance, too. It’s no joke. It’s one of my biggest acquisition strategies. I get sellers that are like, “I’m a tired landlord. I’m done with this property and I want $150,000.” I’m like, “I will pay you $160,000 if you give me 0% financing.”

I tell them, “I’m upgrading you from being a landlord to being a lender. You are now the bank.” That is the magic line that gets them, their hearts melt and they were like, “Are you kidding me? I would love to be the lender. I’m sick of being the landlord.” We take over the property. I closed 0% seller finance with a seller who was getting offers from wholesalers at $80,000, $90,000. She wanted $120,000 and I said, “I will give you $120,000 if you are willing to give me 0% financing.” She says, “Why would I give you 0% financing? I will give you 8% financing with a $20,000 deposit.” I go, “How about I pay you $140,000 with a $2,500 deposit at 0% financing and essentially build in all your interest upfront?”

She’s like, “I like that.” I go, “Why wouldn’t you? At the end of the day, what happens if I sell the property in 2 or 3 years and you were the lender getting an 8% return for 2 or 3 years but then I sell the property and you don’t get a return anymore? If I pre-build all your interest into the deal, and then you give me 0% finance if I go sell the property in 2 or 3 years, you have already made all your money.” She’s like, “I love this.”

The reality is I saved myself probably a good $150,000 on interest because I didn’t give her 8% worth of interest built into the price. I gave her two years of interest into the price and she’s going to carry that term for me for twenty years until it’s paid off. Think about it. We go buy a house. If I go down and buy a house for my family for $300,000 at 3% interest, over 30 years, I’m probably paying $750,000 for that house.

Write in all your agreements a performance deed that requires you to perform in what you promised. This builds credibility.

What I did is I paid this lady $20,000 over retail but I bought it for 0% finance. When I receive my payment of $1,200 from my renter, and then I turn around and give her a payment of $500, I cashflow $700 but my mortgage to her pays down $500 every single freaking month. There’s no interest. These are the things that I’m like, “If everybody knew this, you could build your portfolio in less than two years and get to a point where you could turn your entire business off.”

I’m not at that point in the sense that I cashflow, support the living, and all that stuff but it’s not motivating for me enough. I want to get to a point where I’m $400,000 a month in cashflow. I’m nowhere near that. Remember, I was a contractor for 10 years so I had 160 employees, and then I was a wholesaler for the last 3 years of me being a contractor. I was doing both at the same time. I left that and have been doing this full-time. It’s not that long but within that timeframe, the cashflow on these properties is $400. You don’t need that many of them to completely quit doing whatever else you are doing.

I was talking to Tom Krol at one point and he brought up, “If there’s one person who’s the best at explaining sub-to, it’s Pace Morby.” He was giving examples of coaches that are good at teaching something complicated. I’m like, “I know what he’s talking about.” You are amazing at explaining it. You know every objection. You have honed the craft and know everything that sellers say.

It’s almost like you have written every objection down and then you are like, “If they say this, I will say that.” I would probably pay $25,000 for that all in a Word document. I will write a check on a Word document because I know all the other nuts and bolts, and a couple of things like the deed in lieu. I’m like, “I wouldn’t have thought about that but cool.” It’s those rebuttals that are gold, that’s what the coach like you is for. There are a lot of money I would pay for those rebuttals.

Here’s the reality. The world is headed to a virtual world. This whole COVID thing couldn’t have been better for people that are learning from you. I’m looking for the silver lining in the worst pandemic of 100 years. The silver lining is if you are running your business virtually, you are doing just fine. It’s the people like the HomeVestors franchises and the people who are doing belly-to-belly that are struggling.

I wouldn’t say that virtual fixing and flipping is a target but with virtual wholesaling and virtual building your portfolio, the laptop lifestyle is 100% and you are living it. It is so cool. Your office is in Newport. You’ve got this dope-ass location and you’ve got a team investing in Oklahoma City. That is living the dream. I have been gone and haven’t been home for a month. Have you ever been away from your house for a month?

I never have. I’ve got two kids and I don’t have an Airstream. I will see virtual sub-to. My tagline is, “Live anywhere. Invest where you want.” For the vagabonds of the world, you can go virtual in my business. My disposition strategy is wholesaling but you can do virtual house flipping, develop houses virtually, do Airbnb, and build a rental portfolio utilizing creative financing. That was a strategy that I want to get more into because I’m seeing that it is harder to get loans due to COVID. I spoke to lenders. I sent you a text saying, “I screwed the bank. It is very difficult to get rental loans. They are not giving them out.”

They are asking for 35% and 40% down and you are like, “Really?”

A lot of these are portfolio loans, which are commercial products. Wall Street is not betting on rentals. What do you do when someone like us wants to build a rental portfolio? I was like, “We will have to screw the bank and go creative.” You were the first person, I was like, “I’m going to send a text here to Pace because I want to learn more and get better at this.”

For me, it’s a seller conversation. The other stuff and nuts and bolts, figure it out as you go. It’s the conversations that I’m like, “What do you say to the seller? How do you answer that in a way that makes sense to them and you don’t talk them out of the deal by the way you answered it?” It’s easy to do that with creative finances. Talk the seller out of doing it.

WI 539 | Subject-To

Subject-To: People are not going out and using their own names to get loans on rental properties because they’re rich. They’re documenting with their lender that their renter is making the payment, not them.


I call it the machine gun effect versus the sniper. I would rather be a sniper because if I’m going to go to war and I only have a certain amount of bullets, I only want to use one bullet at a time as necessary. What creative financing can do is you can go, “There’s this performance deed, this and that.” The seller was like, “What?” This is funny. I will call my student sellers because they go, “I’m having a hard time with the seller.”

There are only three reasons why a seller wouldn’t sell to you on creative finance. Number one, they are confused. You gave them too much information too fast and you tried to explain it to them like you were a scientist. Number two, they need cash now. There’s no if, ands or buts about it, which is then you do a wholesale. The third reason is that they have no pain but that’s the same reason with wholesale and other stuff. If my sellers have a little bit of pain, I can extract that pain super easily, figure that out, and then solve it way faster utilizing creative finance.

One of my students calls me up and says, “I know they have the pain and they want to move forward but they are hands down not interested in creative finance.” I go, “You confused the seller. That’s all there is to it. Let me get on the phone with your seller.” I’ve got on the phone with the seller. I closed the deal in twelve minutes but we were on the phone for another 30 minutes beyond that because the seller was convinced he wanted to work for me. He’s like, “That’s what you are doing? This is amazing.”

My student in the first three minutes of talking to the seller brings up the word deed in lieu of foreclosure. I’m like, “I have bought hundreds of homes subject to and seller finance and I have never brought the word up unless I need to.” I’m a sniper. I use the bullet when I need to. I’m not a machine gunnist and blasting my bullets everywhere I possibly can. The seller conversations are highly beneficial and I love doing them.

I would love to listen and get some recordings from you. That would be fascinating. Pace, this was fun. You need to get back to the lake. I appreciate having you on this. Hopefully, when COVID lifts and everything goes back to normal, we can do our coastal collaboration in Newport Beach with us. That would be so fun. I was so bummed that we had to cancel it.

I love everybody on Wholesaling Inc. It’s amazing. Tom Krol, is there a better human being on this planet? He’s unbelievable. Brent Daniels has been one of the most helpful and beneficial people in my life. I met you and I’m like, “This girl is so amazing.” It’s fun to hang out with other practitioners of this business and people who aren’t just teaching but people who are practicing what they preach. It has been an absolute joy getting to know you.

Thank you. You have given so much value. Getting to know you, you have taught me a lot and I’m so glad that we connected. You are flying to California and we are doing it. We had this whole fun thing planned. You are my pace, Pace. You work at my pace. We were having a conversation and then we were like, “We should throw a party together.” If you are interested in virtual real estate investing, virtual wholesaling, I’ve got a course with Wholesaling Inc. I coach with them. It’s Pace, where are you on the socials? How could people find you?

I’m like the Gary Vee of wholesale. I am annoyingly consistent on Instagram that if you are following me, you have either muted me at this point or you truly do like what I put out there. Follow me on Instagram, @PaceMorby. Thank you so much.


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About Lauren Hardy

Lauren Hardy is a Virtual Investing expert and Real Estate influencer who owns multiple companies in the real estate industry including real estate investment, coaching, and software companies. She is also a Wholesaling Inc coach and co-host of the Wholesaling Inc Podcast.

Her experience in the last decade has been focused on real estate investing and creating products and services to serve the real estate investing community. If you are interested in investing in real estate virtually, house flipping, or virtual landlording, Lauren’s your girl.

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