How to pay off a mortgage early
Hi everybody! Today we've got a special guest whose name is Daniel Kwak. He is based in Chicago, Illinois. Daniel is a real estate investor, real estate educator, and serial entrepreneur. He is somebody that owns multiple businesses. We're going to take a trip through his journey of how he went from 0 to 75 units in one year. We will also talk about how he helps clients pay off their mortgages more quickly. And we will touch a bit on the real estate market as well.
Who is Daniel Kwak, and how did you come across the real estate investment world?
I am an immigrant who migrated from South Korea when I was 5 years old to the United States. We moved to America because my dad was and still is a preacher. Therefore, he was asked to take over a church organization in Chicago.
When I was in Korea, I was a huge basketball fan. I had an older cousin who played for his high school team and was pretty good. So we would always watch him play. I also enjoyed watching the Korean basketball league, the KBL, thinking that these guys were the best players in the world. However, this was not the case.
When we immigrated, there was a 14-hour plane ride, and the entire time, I was only thinking of how I would miss my friends and basketball. In my opinion, I don't believe that there could be basketball in the United States.
When I got off the plane, I saw the big box TV in the corner of the O'Hare airport. There was a guy playing basketball, and I was like, "Oh, they've got basketball here too!" The guy wore a jersey that said "No. 23." and had his back to the basket. Oh, and he jumped super high and hit this fadeaway jumper. Wow, I have never seen any Korean players do that.
His skin was a little darker than the Korean player said to me; I think that's my favorite player now. Since there is basketball here, maybe this place is not so bad, and he is the first basketball player I saw. Well, you know, in the late nineties, it's obvious that this was Michael Jordan. So I was a diehard Chicago Bulls fan since I was a little kid.
When I was 17 years old, I read an article by Forbes saying that out of the top 1% of individuals, 76% of those individuals made their money by investing in real estate. And where this whole story with the Chicago Bulls comes in is I looked up who the owner was, its this guy named Jerry Reinsdorf, who bought the team in 1984 before Jordan got drafted. He bought the team. I dont know how much, but the guy invested in Chicago real estate.
Around the same age, I read an article about real estate, and I found out that the owner of my favorite team got his money by investing in real estate. And I was like; I will get to the real estate game. So that's how I got to real estate.
My brother started a DJ company at that time, and that's how I got started with entrepreneurship.
Daniel's first deal
When I first started real estate, I was 18 years old. By that time, I had $187.65 in my bank account. By the way, in my family, we grew up poor. And when I say poor, I mean poor. When we first came to America, we lived in a studio apartment. We lived next to what's a gentlemen's entertainment center. My mom and dad shared a twin-sized bed in a room that doubled as their bedroom and doubled as our dining, living room, and kitchen.
We had to sleep in our car many nights because we couldn't afford to pay our heating bills. I liked going to school; it meant I was going to eat. So when you grow up poor, a lot of times you learn poorly.
So I am 18, and my bank account is reading negative. I had a couple of maxed-out credit cards and just felt like a loser. However, I knew that I wanted to get into investing and learn. This was not for my own sake but for the sake of helping other people out. I aim to create a ripple effect and inspire other individuals. I saw myself as a failure at that age since I wanted to accomplish all these things, but I couldn't even take care of myself.
My inspiration leads to my pursuit of information. And I think that this is what a lot of people need to have. The inspiration should be the pursuit of their information. I would wake at 6 or 7 am and sleep at midnight. The entire time I would just study real estate. I would not do that in terms of getting a loan of like 20%. Who would give a 21, 19, 18 kid with no real income and a negative bank account balance in their right minds?
I, therefore, learned about this thing called "seller finance." For those who don't know this, it's when a seller carries the notes instead of the bank. I learned how to do this and perfected it by being very creative. Thus I got people who wanted it instead of pushing for it. I then raised capital, recruited some investors, and got 87 doors in one year.
You have other options if you're having problems qualifying for a standard mortgage loan. One option that worked best for me is to finance a loan through the home's seller, in which case you can work out a deal to pay the money that would otherwise go to the bank.
Purchase-money mortgages and owner-financing are two terms used to describe the process of seller financing. However, it refers to a real estate lending transaction in its most basic form. A property owner also acts as a mortgage lender, obviating the need for a financial institution to manage financing arrangements.
What is seller financing?
Seller finance can be defined as a loan given by a seller to a buyer. Seller financing is sometimes known as "owner financing" or "bond-for-title" in real estate. In such circumstances, the buyer and seller sign a mortgage agreement, and the seller oversees the process. This method eliminates the requirement for a financial institution to facilitate the transaction.
How does seller financing work?
A seller financing agreement usually entails the potential buyer of a property or business paying the seller a down payment. Like other types of financing, Seller financing entails the buyer making monthly payments or installments to the seller at an agreed-upon interest rate (the time duration may vary depending on the agreements). The buyer will continue to make payments to the seller until the loan is fully paid off.
In seller financing arrangements, the seller essentially provides the buyer with a non-bank financing option. The seller benefits from such an agreement because it can be considered an investment with assured returns. However, this depends on the buyer's creditworthiness and motivations to guarantee that they make the payments.
The buyer benefits because they may not have secured a loan but can now acquire their desired home through a contract with the seller. Additionally, if the buyer defaults on payments, the seller has the right to foreclosure or reclaim the asset. Typically, the assets being purchased serve as collateral for the loan.
Benefits of seller financing to seller
Seller financing may be a viable choice for those looking to lend money. The following are some of the benefits of supplying it:
- Having the ability to save money on closing costs
- A faster time when it comes to sales and the option to sell your property as-is without the requirement for modifications. Therefore resulting in considerable capital gains tax and savings over time.
- Property taxes, homeowners insurance, and other maintenance costs are no longer an issue.
- Selling the promissory note to an investor is one option.
Benefits of seller financing to the buyer
If buyers choose to engage in seller financing programs, they may be able to take advantage of many advantages, including:
- Access to more financing options, particularly for low-income purchasers
- Closing costs are reduced, resulting in lower expenditure costs.
- Potential for no PMI premiums due to more flexible agreement parameters
- Accessible to people with bad credit.
How do you find seller-financed homes?
Finding seller-financed properties might be difficult. Few property sellers are willing to finance their own homes. As a result, investors must be resourceful in searching for these properties to improve their prospects. The following are some helpful hints for locating owner-financed properties for sale.
Real estate website listings
Some real estate listing websites have owner-financed homes listed in their database. Checking Mashvisor's postings is a great place to start. The investment property sale description will be noted if the seller offers seller financing.
It's not a decent real estate bargain just because a seller offers owner financing. You'll also need to do some math and realize properties are sometimes overpriced and do not provide a satisfactory return on investment. Mashvisor is a tool for analyzing real estate transactions. With our real estate investing tools, you can uncover investment properties for sale with a high return on investment potential in a couple of minutes.
Hire a real estate agent
You could engage a real estate agent or broker if you're looking for owner-financed homes in your neighborhood. Unpublicized owner-financed deals in your area may be known to an experienced real estate agent with comprehensive knowledge of the local housing market. They might know someone who wants to sell and is ready to offer seller financing. Apart from finding seller-financed properties, they can also assist you in closing the sale by negotiating better interest rates and terms with the seller.
Public MLS websites
Real estate agents typically have access to the majority of MLS websites. However, some counties provide public access to the MLS. Check the comments thread of the property for sale to see if it is seller-financed.
Another good way to find seller-financed homes is to drive around your preferred neighborhood and look for "For Sale By Owner" signs. If you're interested in the property, reach out to the owner to see if seller financing is available. If you ask enough homeowners, you'll discover a few who are willing to help finance the transaction. In a buyer's market, if the seller is having trouble selling their house and has been on the market for some time, this can be more effective.
Find "For Rent Signs"
Finding "For Rent" ads and signs, as well as unoccupied houses, is another great strategy to find owner-financed homes. You can then locate the owner and contact them to see if they are willing to sell the property and finance the transaction. When a landlord's property is unoccupied, it's a good idea to contact them. You'd be shocked how many landlords are burned up and want to leave the business. They may be fed up with lousy renters or other parts of landlording, but they still desire a steady stream of passive income. As a result, owner financing could be a win-win situation for both of you.
Reaching out to people who have been annoyed by renters and therefore have to go through the costly eviction process is another fantastic method to locate potentially burnt-out landlords who may be open to seller financing. Public eviction records can be found at your local court clerk's office. The owners can then be contacted to see whether they are interested in selling.
Finding seller-financed homes for sale can also be accomplished through networking. Attend investor forums and other industry events in your area. It's possible that you'll encounter local investors who are eager to sell their homes. Inquire with them about the possibility of obtaining owner financing.
In my case, I built relationships with property managers that were 50 and above. There is a terminology that is known as good old boys network. A Lot of people use it as an excuse as a barrier to why they are not successful. However, there was no difference in what you were doing. It's human nature to start networking with people you know first. Thus, they will also do business with people that they have known for 20 to 30 years.
Additionally, inform your relatives, friends, and coworkers that you are looking for residences that are seller-financed. Word-of-mouth marketing is always practical and never goes out of style.
I used many of these approaches, and it corked out. I started calling signs at the multifamily units, and my focus was on the older generations since they were the ones who were advertising more. Therefore, I spent 3 or 4 hours driving around and calling those signs every Saturday. Another way was newspaper ads. I spent another couple of hours calling newspaper ads.
How to Reverse Engineer your real estate success
Whether you're new to the field or looking to advance your sales career, getting from where you currently are now to where you'd like to be might take some planning.
This method is especially crucial for newcomers to the field, but it may also be beneficial for agents who might be on the right path and have demonstrated successes but are struggling to move up a gear.
So, what kind of strategy are we discussing? It's a technique I like to refer to as reverse engineering, and it works like this:
Know your ideal destination and work on it backwards
Reverse engineering is all about establishing an end goal and then simplifying it back to a single KPI – appraisals per month – whether your objective is to write a $500,000 GCI in your first year or break through a current plateau to become that much-talked-about million-dollar agent.
To put it another way, figure out how many appraisals you'll need to meet your sales goal.
For example, if you want to write a $500,000 GCI, you'll need to sell 33 houses at an average sales commission of $15,000 each sale. Because life occurs and sales fall through, you may need to market 35 homes to sell 33.
It's possible that you'll need five appraisals to list a home. As a result, if you want to sell 33 houses every year, you'll need to undertake 175 assessments per year or around 15 per month. So now we know what the essential statistic is: 175 appraisals for $500,000 GCI. However, we'll have to perform some more reverse engineering to ensure that we're called in and get feet on the ground to analyze a property.
Reverse engineering your target actions
After determining how many actions we must do each year, the next important measure to consider is how many people we must speak with to get called in.
We must also investigate the most successful prospecting methods and ensure that we know the most reliable lead sources in our respective markets.
Examine what you already know is working for you. To put it another way, existing agents should be aware of their numbers to determine which behaviors are most likely to result in you being called in to evaluate a property.
Where do you get property owners? Could it be on social media, buyer follow-up, withdrawn listings, cold calling, referral partners, letterbox drops, emails, or texts to property owners on a street where you recently completed a successful sale?
It's likely a combination of a couple of those as mentioned above, or you've just discovered some additional lead sources to pursue. In any case, this is the area where you should put in particular effort to boost your appraisal output.
Look at the lead sources that other agents in your team or office use if you're new to the industry. Find out which action activities are the most profitable and double down on them to meet your minimum monthly appraisal requirement.
Is this really a number game
Although analytics might assist you comprehend the figures you have to attain to accomplish your objective, don't let volume overshadow the fundamentals of your organization.
Make sure you have a world-class follow-up procedure in place for every appraisal you conduct. Ensuring you have a client-care program in place for every successful sale you are a part of, and for every buyer or potential seller who contacts you, ensure you have the personnel or processes in place to call them back (promptly).
I've said it before, and I'll repeat it: the real estate sector, nine times out of ten, especially in this market, does not face a lead-generating difficulty. It has a follow-up challenge instead. And this is an arena where merely checking the boxes of the service essentials can yield significant results.
Can you get it and forget about it?
Well, now you know what you want to achieve and what your key assessment number is. Superb. Don't overlook the one-to-one selling principle.
Essentially, this means that you must have another property in the pipeline immediately behind it every time you list a property.
Your recent sales are the key to this.
According to research, 60% of sellers are affected in their agent decision by the most recent success of a transaction in their neighborhood.
What's the takeaway? Based on your recent sales, develop an efficient marketing and prospecting strategy.
The real estate sector provides amazing chances for you to practically write your own paycheque with no limit to your earnings. That makes the sector appealing; however, as any top agent would teach you, success requires effort, and effort requires strategy.
Then why not use reverse engineering to help you achieve your goals? My reverse engineering led to the action steps that I took, which were made possible with the help of my Key Performance Indicators (KPIs). In my case, I programmed my task to A Must Do per day, per week, and monthly to make sure that the ball was moving forward.
How many units do I need to stay in the real estate business
The answer is that it is debatable.
This is because rental units shouldn't be the only factor to consider. You must also consider what we refer to as "management intensity."
In other circumstances, the level of management might be so high that 500 hours can be achieved with only a few rental units.
How to find a real estate investment mentor
All real estate investors do the same things at the start of their careers.
They study the market, learn how to use various financial criteria to identify rental properties with high potential, and devise a system to maintain the deal pipeline stocked. Ultimately, only a few investors soar above the rest over a short period, leaving the remainder behind.
Some rental property investors are more successful than others for a variety of reasons. But they all have one thing in common: a real estate mentor.
A real estate advisor can assist you in resolving the pitfalls of real estate investing while also helping you achieve long-term prosperity and a significant investment empire.
What is a real estate mentor?
A mentor in real estate is an instructor, advisor, and friend. They are someone who can help you grow by pushing your boundaries. Mentorship, on the other hand, is not just a one-way street. A mentor in real estate investing is someone who will learn from you. It's a win-win situation when you have a fantastic mentor-mentee relationship.
When choosing a real estate mentor, look for someone with years of field experience. You wouldn't want to be mentored by someone going through the same process as you!
A real estate investing mentor should be willing to explain and competent at straightforwardly explaining complex concepts. They should like sharing what they know and impart practical knowledge that you may use on your tasks.
Since so much property investment relies on networking, your real estate mentor should be a well-connected individual. They should guide you and connect you with their network, including everything from other investors to the top general contractors.
Finally, your real estate mentor should be concerned about your success. They always desire to see you succeed and improve. Even though they may allow you to make mistakes to learn, they will ultimately assist you in rapidly expanding your real estate investment knowledge.
Why would you need a real estate mentor?
To answer this question, I would always ask myself this questions:
There is no correct or incorrect response to this question. However, make sure you know why you're investing the way you do so that you can find a mentor who can help you. Maybe you want to invest in flipping or long-distance rental property or any other property investment of your choice.
What level of success do you expect your mentor to have
Success is a concept that has diverse meanings for different individuals.
That said, you must be content with your mentor's level of success because they'll be a person you'll look up to and who will set the tone for your growth in the future.
If you're not completely persuaded that your mentor would help you achieve what you want, you'd be better off seeking someone else rather than spending your and their time.
What kind of risk would you handle in your business
Almost all investment entails some level of risk, and investing in rental property is no exception. Finding techniques to limit risk while maximizing gain is the key to effective investing.
Many buy-and-hold investors, for example, concentrate on income-producing properties that generate regular, predictable cash flow over time. Of course, there's always the possibility that a tenant would leave abruptly or that rent growth will be flat in the short term, but the longer holding time mitigates these risks.
A mentor will have the same personality risk profile as you.
Should your mentor be addicted to the high of renovating and flipping houses while you prefer to establish a portfolio of rental properties that provide passive income, you'll most likely lose respect for each other because you don't share the same investment plan.
How can you find a mentor?
Finding a local real estate mentor can be difficult, but it's also a good way to expand your property investment network. Attend local property investment networking organizations and make as many connections as possible.
You might ask other real estate investors how to locate a mentor and if they have any recommendations at real estate investor meetups and when interacting with other property investors. You'll begin to tap into new resources and make new relationships, which could lead to future property investment mentors.
You may also use social media to find local real estate investors and join group meetings. Make an effort to communicate with them. You don't have to wait for someone you think would be a good mentor to offer guidance; simply ask them for it and prepare your questions. This is how many mentor-mentee relationships develop naturally.
Although it may be tempting to assume that formal mentorship is required, you do not need to formally ask a mentor to advise you. Continue to ask questions and be open to learning — mentors enjoy working with people who are eager to learn. You can take someone's counsel and let the mentorship expand once you find someone who is open, experienced, and willing to help.
How to pay off a mortgage early
Some homeowners are interested in paying off their mortgage early for several reasons, including reducing interest payments and removing the psychological burden of debt. Paying off a home loan early can help retirees enhance their cash flow. This is particularly useful when switching to a fixed income.
Paying off your mortgage early minimizes the amount of interest you'll pay on a loan, regardless of your purpose. This can save you a lot of money.
My brother and I had a strategy back in 2014, about 7 years ago. This strategy was passed down to us by a friend from Australia. The strategy was prevalent in Australia, where many people don't know how much money they lose just by having a traditional 30-year mortgage.
Suppose you do the math by breaking down my mortgage calculator to give you an idea. Suppose you have a median sales price of $375,000 around that ballpark. Thus the property value will be $375,000. Let's put a down payment of 20% with an interest rate of 3.5%. This is a very great interest rate for a 30-year mortgage.
Your payment is $1,347.13 a month. Meaning for the entire year, if the start date of your loan is 1st January 2022, in the first year, you pay $5,757.38 in principle. In interest, you pay $10,408. This means that you are paying twice the amount of interest almost as you are in principle the first year. This is what is known as an amortization schedule.
Keep in mind that if you don't refinance or move at the end of those 30 years, you will end up paying $185,000 just on interest. Statistics show that if you move or refinance, that number skyrockets from $185,000 to something much bigger.
Think about how many Americans refinance or move. A statistic states that an average American will move somewhere along with like 7 or 8 times in their lives. Therefore the banks are making much more on interest. The reason why middle-class Americans have a hard time growing today is that banking products are disadvantaged.
For this reason, we created a software product and a strategy that helps people combat all this. Thus we have clients who are saving tens of thousands of dollars in their interests and taking back their dreams of channeling that money to something else. We also have team members to help clients walk through the strategy. And most importantly, we help people to get educated.
If you want to learn about this, we have a YouTube video out there for it. However, if you can't work on these strategies, you can use these early payoff tactics to assist you in achieving your goal.
Refinance your mortgage
If interest rates drop, you could be able to lower your interest payments by refinancing your mortgage. You might also choose to shorten the period of your loan dramatically.
Make extra mortgage payments
Making extra mortgage payments is another option to save money on interest while shortening the length of your loan. Consider the following early mortgage payoff alternatives if your lender does not impose a penalty for paying off your mortgage early.
Just make sure to tell your lender that your excess payments should go toward the principal rather than the interest. Otherwise, your lender may add the funds to future planned monthly payments, resulting in no savings.
Additionally, strive to pay off the debt early on when the greatest interest rate is. You may not know it, but for the first few years, the majority of your monthly payment goes toward interest rather than principal. And interest is compounded, which means that the total amount outstanding determines the amount of interest charged each month (principal plus interest).
Round up your mortgage payment
Rounding up is another strategy to shorten the term of your mortgage dramatically. Round up to the next largest $100 figure when budgeting for your mortgage payment. Instead of $743, pay $800. Alternatively, instead of $860, you might pay $900.
Make lump-sum payments to your principal
Making lump-sum payments to your principal if you obtain a financial windfall or unexpected influx of cash is an alternative to recasting. A reward at work, a tax return, an inheritance, or money acquired from selling items could all be examples.
VA and FHA loans, on the other hand, cannot be recast. As a result, lump-sum payments could become the next smartest idea for customers with any of these types of loans, and you'll avoid the recasting cost charged by the lender.
Recast your mortgage
Recasting a mortgage differs from refinancing. You keep your current loan, pay a lump sum toward the principal, and your lender alters your amortization plan to reflect the new balance. Your monthly payment will be cheaper as a result, but your loan term and interest rate will remain the same.
The fees associated with recasting are much lower than those associated with refinancing. The cost of recasting a mortgage is usually between $200 and $300. (contact your lender to request the service and confirm the costs). Plus, if your interest rate is low, you get to keep it. On the other hand, refinancing may be a better option if you have a high-interest rate.
The benefits of paying off your mortgage early
Most people are struggling with whether to pay off their mortgage or save, but the benefits of being debt-free in the long term outweigh the disadvantages. For starters, paying off one loan implies you'll be capable of handling any short-term debts. You will also save money if you pay off the mortgage sooner rather than later, as you will avoid paying additional interest. Cutting out these future payments improves your financial stability, as does your ability to better withstand volatile property market situations.