Note: Please be aware that each state has certain laws regarding Creative Financing, Always seek counsel on such matters.
One way to strategize or to be profitable in any business is to innovate. William Morales, CEO and Founder of OneWill Properties, LLC and host of Peer 2 Peer Real Estate Show, talks about creative financing in real estate with the goal to promote home ownership by leasing with an option for buying. He talks about his interest in blockchain while learning and looking into opportunities he can fit together as part of innovation in the real estate business. William shares how someone can become a homeowner without worrying about getting a loan from a bank.
Buying Real Estate On Terms with William Morales
How Can Blockchain Help Me Build My Business?
I’m here with William Morales. William, thank you so much for joining us.
Thank you for having me, Monika. It’s a pleasure.
We met at a couple of real estates, blockchain meetups and conferences. We have a few different people that we’ve overlapped with over the last few months. I saw what you were up to. I knew I wanted to interview you. You’re doing some creative stuff at the real estate space. I know you’re interested in blockchain. You’re not sure if you have a blockchain play yet, but you’re looking at how these things fit together. Is that the overview of what you’re up to?
What I’ve tried to do, especially here in the New York City area is to bring creative financing into play. In other words, I’m talking to a bunch of for sale by owners and see if they were willing to let me lease the property from them. In turn, I sublease it to a future tenant-buyer. That’s the play and the goal of doing it here in New York City, especially in The Bronx, Queens, Brooklyn area and Staten Island.
That’s a complicated thing to put together. I remember when I was getting my real estate license. I read something about the average number of laws you must memorize. Right off the top of your head, in almost every jurisdiction in the US, it’s about 30 to 40 laws, fair lending, fair housing, don’t-be-a-jerk basic stuff. It’s written in the law. I remember seeing the average number of laws you have to memorize for New York state and New York City, it’s 1,160. There are many laws. You’re like, “I want to do this thing, I don’t know if it’s legal here.” It’s legal everywhere else because it’s not that complicated, but New York, it’s confusing up here.
You have to say, “No, we can work together on certain things.” The goal here was, “Can I do creative financing here in New York City? Can I buy on a leased purchase or a subject-to?” At the same time, find myself a tenant-buyer who might not qualify for a mortgage because their credit got dinged. Maybe 2008 hit them and it still carried over several years later. The goal is to promote home ownership. At the same time, make a living but also help the owner out of a situation, where he might not be able to sell the property and find a tenant-buyer who’s willing to pay us monthly. Maybe you would in a few years or sooner cash out and everybody’s in a win-win situation.
I know that the people that own real estate that want to get out of it, the last thing they want to do is hang onto it, deal with it, repossess it and put the roof on. It’s like, “Please, somebody come to take this from me.” It can be tough. I’ve been in that position myself on every side. Not as a tenant-buyer myself yet, but I carried notes for people and let them purchase over time with me. I’ve purchased places and been dying to get out of it. “When is my unicorn going to show up, please? I want to find my unicorn and get out of this deal.”
Finding those people like you that want to put deals together, help the person who wants to get out of that property, and for someone to get into it in, sometimes it takes something creative. A lot of what everybody thinks to get into a house, they need to accrue debt. That’s the only way to do it. With blockchain, we’re looking at a lot of new models that help other people get into places by not accruing debt, but by paying off on over time. Maybe getting a long lease, paying towards the equity over a period of time and my platform facilitates that. Not to promote me on this, but it was interesting to find you and go, “We’re going to talk about your company, OneWill Properties.”
It depends on who you talk to and some realtors, unfortunately, don’t work with investors say, “This is illegal. It can’t be done.” Some lawyers don’t understand the platform or the process. It’s all about explaining it and it’s like leasing with an option to buy. When you lease a car for a few years and you have the option to buy it or get another car. It’s the same thing in a house but the goal is to promote home ownership and eventually buy my house that way. I’m renting, but eventually, I want to buy a house. If I could do it that way, especially if banks are being restrictive in certain criteria for lending. You must give a bank 100 pieces of paper before they finally decide, “You might be worthy.”
It’s tough especially with younger buyers, people that are in the Millennial age bracket. They’re going, “How am I going to ever get out from underneath all this student loan debt?” Having student loan debt makes it so I don’t have the right debt to income ratio to even qualify for a mortgage. What I realized when I was probably sixteen years old, I put myself through high school. I was working full-time in high school, staying in school, all that stuff. I listened to the special afterschool state of school kids. I was like, “Exhausting but I will.” I was working with people that had college degrees.
I remember one day I got mad because I found my co-worker made $0.25 more an hour than I did. This was in 1992. I was like, “They make more money than me. That’s not fair. I’m trying to get by too,” then I found out about their student loans. All my friends were twenty-something, out of college, and working at a coffee shop. I was sixteen. I didn’t even have a diploma. It doesn’t matter if I make $0.25 less than an hour because I’m younger. After they pay their student loan payment off at the end of the month, I had more discretionary income. There was not much money there, but I was doing better. I was like, “How’d that happen?”
When I saw that, I was like, “Student loan debt is the problem. I am going to go to the most rinky-dink, pay nothing, in the state, cheap as cheap can be education. What if I want to buy a house?” You can get a mortgage as long as you don’t have a lot of debt. You can still qualify for student loans, but once you have student loans, you don’t qualify for a mortgage. I was like, “I’m not going to do this whole mortgage. I’m going to do mortgage first, student loan second no matter what.” Along the way, I have friends that have gone to fancy schools and I was envious of them. I was like, “You’ve got a real education, you’ve got such a good education,” but I got a mortgage. They were paying that off. How did you get into real estate? Was it like you took some classes? Did you always were into it? Were your parents into it?
I remember when I was working at a different hospital and a sales rep came to me and said, “You should get into real estate.” I was like, “Yeah, right.” Anyway, I bought a book which is called, The Beginner’s Guide to Real Estate Investing. That’s the first real estate book I ever bought. I started reading it and going to seminars in 2007 and 2008. I was such a seminar junkie. I would go to every one of them, but then I started noticing that each of these seminars had an upsell. You have a three-day weekend bootcamp and from there they have the upsell to $30,000 to $40,000 classes.
They’re not in the real estate market. They’re in the education pay-me-to-find-out-my-thoughts market.
It took a few years because the problem is with those education programs, they give you everything. They give you wholesaling, fix and flip, tax liens, tax deeds, whatever. You’re also overwhelmed. You don’t know where to start. I was that way. I was all over the place. It wasn’t until late 2016, several years later, I said, “I’m going to concentrate on owner financing. This is what I want to do.” In June or July of 2017, I bought my first property in Pennsylvania and Pittsburgh. I saw that on RealEstate.com. I called the realtor and made an offer. The property was for sale for $25,000 and I’ve got to tell you something to compare New York to Pittsburgh, it was in a decent area. I did my research. I made an offer in cash for $8,000.
They turned it down. A couple of weeks later, they called me back and said, “Is your offer still available?” I said, “Sure.” I wired the money. The realtor was nice enough to work with me. He found me a tenant-buyer or a buyer. We’ve been in contact for a couple of years. They’re paying me monthly. I got a loan servicing company to collect the payments. I learned little by little about outsourcing some of the work. I never went to see it. I said to myself, “I don’t want to do this anymore.” I took a chance and it worked, but now what I want to do is bring that creative financing and hitch it to the outer boroughs. That was it. I didn’t do much in 2018. I was trying to come up with different scenarios on how I could invest in real estate. I was looking at other states, but it wasn’t until early 2019 where I decided that I wanted to work in the New York area. When we met, we started talking about real estate, the blockchain, and how this could be incorporated. That’s why I’m here. Thank you.
We met and you invited me onto your podcast. It’s called Peer2PeerRealEstate.com. You’ve been at this a while. How many podcast episodes have you got?
I’m coming up to 84. When I started in early 2013, it was more of a hobby. I would do one interview every couple of weeks, every couple of months. It wasn’t until late 2018 that I started doing this show and I post it up on iTunes, the website and everything. When I met Monika, I figured that she was the headline speaker for this Opportunity Zone that we were in. I was a moderator for the second panel on Opportunity Zone and Monika was the head speaker. She knew so much that I was enthralled. My friend, she goes, “We’ve got to talk to her.” I was like, “Don’t worry. I’m already ahead of you. We’ve got her business card.” That’s what it was. You were our featured speaker at that event. I never moderated before, but I remember when I first got on, I was a little nervous and I said, “Let me think of this as a podcast,” and I was calmed the last half hour.
If you think of it as a podcast, you’re like, “I’m talking to people. It’s okay. I might as well be in my living room with a mic in front of me.” This is the New Trust Economy. We talk a lot about different verticals. This happens to be right up my alley because I love real estate and I’m in real estate. You’re in real estate. We talk a lot about the blockchain plays that people may or may not have and that they want to explore in their own business. Whether it’s in media or they’re saying, “Do I want a utility coin? Do I want to try to tokenize something? Do I want to give people some value system?” It’s a system of incentivizing them to come and return, come back, to spread or share it, if it’s immediate or if it’s in manufacturing, people are like, “How do I potentially use blockchain to do tracking supply chain or the manufacturing process?” In real estate, people are going, “How can I use a token model? How can I use blockchain to make some of these pieces?” You talked about finding a loan servicer to get the money. That’s one digital platform away from being obsolete. There are many of these tiny little intermediaries that it took you several years to really mull through it all and figure out how you were going to fit in that complicated ecosystem.
Creative Financing: When you get into real estate, you must get a lawyer, a bookkeeper, a CPA, and loan servicing. Through blockchain, everything can be kept under one umbrella.
With blockchain, what we’re seeing is there are many complicated ecosystems. Whether it’s incentivizing people to return and engage your content, people to post and share your content, people to like your content or even gauge it. People to track supply chain or where things are coming from, where they went to, and if they’re authentic and authenticatable. We’ve got people that are trying to figure out, “How do I put all these financial pieces together to make that person happy, to get out of this deal, and that person happy to get into it?” These are all complicated systems with a lot of intermediaries. I love hearing about how people have already taken an analog approach and gotten into their industry. They’re doing something cool. They’re making new solutions for people. They’re bringing value. They also saw, “I can make it even simpler if I bring blockchain into this.” It’s interesting to see what you’ve already done, but also how much easier it can become still.
That’s the thing when you get into real estate and you know you have to get a lawyer, a bookkeeper, a CPA and a loan servicing. Suddenly you got yourself eight, nine members on your team that you didn’t know you had or that you needed. As I’m learning through you and through blockchain, I learned it there, everything can be kept under one umbrella, it’s a no-brainer. It makes it simpler. That’s what I’m saying, “I’m learning.” When I was at that event with you, I was like, “Everything seems simple. I need to learn more about it.” Always with education, you got to learn more about it. That’s why I’m here and I appreciate it because I’m learning more about blockchain.
I know there are people out there that want to know what are people doing that could be including blockchain in their own businesses. How does this relate to my business? I see a lot of new innovators. We reached out to people that are investing in new technology and we’ve reached out to people that are innovating. They’re making new things and they want to see if blockchain is going to help them accelerate that. It’s like a rising tide that lifts all ships. Finding people that are already doing such and putting out a lot of legwork in your particular field of real estate. There’s a lot of room for us to help each other. That’s what we’re trying to shine a light on that because everybody has an opportunity to see how blockchain is going to affect their lives and their businesses in the future.
Unfortunately, the way the banking system is, I’m not downgrading banks or degrading them, but if somebody is trying to qualify for a mortgage, the paperwork they must go through, your credit might be dinged because of what happened in 2008, 2009 and 2010. It doesn’t mean that you can’t qualify because you might have the money. People lose their jobs, unfortunately. By trying to provide a service for a tenant-buyer, that’s the key in trying to help. The owner maybe they can’t sell because the price might be too high or they’re looking for something different. If I could help them out and I can help out the tenant in buying and I could stay in the middle, then everybody has a win-win situation. That’s what I want to provide. That’s what I want to do for future homeowners. Home ownership is a great thing. Some people believe it’s still an asset.
It’s a huge asset. It’s one of the most stable things you can get, and it can be hard to get into the game. There are many good opportunities out there, but if you don’t already have the creditworthiness or the money or you don’t come from enough money, you can’t get into it. Did you see any overlap for yourself at the Opportunity Zone specifically? For a little background, Opportunity Zones are places in the US and Puerto Rico that have been deemed that need more investments. These are the places where the average resident income is lower than a certain threshold that’s in the surrounding areas. It says that the people that live here are struggling and not making as much money. If you invest in real estate, you can get all kinds of tax benefits as an investor.
It’s an interesting model. It was approved within the last several months. There’s been a lot of interest by people that otherwise have short-term capital gains that they wanted to fray. They don’t want to have to pay those capital gains. If they take that money that they’d otherwise be paying taxes on and put it into an Opportunity Zone, they invested real estate in these special places, they can defer their tax burden. If they leave it in there long enough, they can defer it to a greater amount. There are some people with bigger money being incentivized to put it into these places. The places that exactly where people with little money are. It’s an interesting beginning of an ecosystem. Have you looked at Opportunity Zones specifically? Do you see any overlap for what you’re doing and opportunities on the deployment of funds?Becoming a homeowner is still the American dream.CLICK TO TWEET
Once I finished that event that we were both in, I started thinking about it. There are certain areas in New York City that qualify for an Opportunity Zone fund and investment. I definitely saw an overlap and I’ve been doing some research. I’m trying to target certain areas. What I want to do, maybe be a part of an investment group that we could buy a small building and turn it into a great rental, an affordable rental, but also provide some amenities that otherwise they might not get. I’ve talked to one or two of my friends and they’re interested. This is all at the beginning stage, but this is something that I saw an overlap.
This is one of my plans for my company, Rise Housing, we intend to buy a building somewhere in one of the Opportunity Zones here in Manhattan, probably the East Village or Lower East Side. Oddly enough, if you can imagine the Opportunity Zones in Manhattan, that’s crazy. To get that money deployed there and tokenize it, basically fractionalize it, make it formal so that people that are tenants in there can start purchasing shares in it and become part of the ownership of it. Until it’s all been transferred from the original owners, is a small group of investors like you and your friends, to the people who’ve been paying rent and buying the equity. That gives the original investors a chance to diversify, slowly move away, divest from that one property, and be able to go and leverage towards the next ones. It lets the tenants start to own more of their buildings. It makes it a slow-motion ecosystem where the people that need to buy can buy without having to get any lending and stay tenants get remained their tenants’ rights.
They still have all the protection. In the end, if somebody has debt and they fall on hard times, they lose everything they put in. They are out in the cold, they’re evicted, they’re foreclosed on and their credit is ruined. If you’re renting, you’re also purchasing some of your equity and you fall on hard times, you might get evicted but there’s no law in the world that says you’re going to have to give up the shares that you bought in this building. Those are yours. You could maybe sell your shares back and be able to make rent. You’re not all-in and losing everything. The bank takes no risk there. It’s always the individual taking 100% of the risks. If you miss those payments, you lose everything, whereas the bank takes everything back. It’s a lot fairer and lets you, as individual investors, get in, purchase your building and get out on your own terms. It’s the same with those tenants.
You’re providing the tenant with a chance to become owners or they definitely have some skin in the game. That’s a great idea.
I love that you’re doing some interesting financing models and you’re doing the same thing from different sides. You’re going, “How do I mess up the debt? How do I disrupt this debt idea?” I’m going, “How do I disrupt the equity idea?”
Giving someone a chance to become a homeowner, I think it’s the American dream compared to what it was. Home ownership is down to 3% or 4%, maybe more than it was in 2008 and 2009 because people lost jobs. You’ve got these banks that are restrictive.
Creative Financing: Providing the tenant a chance to become owners is a great idea.
They’re not even taking all the risk. It’s like, “If we mess up, you’re taking all our money anyway.” They’re buying properties at 80% of the total price because they’re making enough money to begin with. I’m glad you had the time to meet with me. It’s been great talking with you, seeing that you have a potential blockchain play. I love seeing innovators noodle on blockchain and go, “That’s going to work for me.”
This is a new opportunity for us and for anybody else that wants to learn about blockchain. There are tons and tons of articles. There are YouTube videos, there’s Monika’s show, look at RiseHousing.io. Definitely go there.
If you’re interested in any of the things we talked about, blockchain, real estate, Peer 2 Peer Real Estate, but also check out Opportunity Zones. If you ever have any more questions, if any of you would like to learn more about Opportunity Zones, what blockchain is doing to streamline investment into them, we’re working on it. I’m working with a few groups that are doing Opportunity Zone funds that aggregate people’s money to deploy it into these places where you get the tax benefits. There are many opportunities. It’s a matter of drinking from a fire hose and being able to digest it all. Thank you so much, William. It’s been a pleasure having you on the show.
It’s been my pleasure.
Check him out at P2PRE.com. It’s been a pleasure talking with you. Thank you so much for being on the show.
Thank you, Monika, for having me on. It’s been a real pleasure.
Have a wonderful day. I’ll catch you next time on the New Trust Economy.
- William Morales
- OneWill Properties
- The Beginner’s Guide to Real Estate Investing
- Rise Housing
About William Morales
I’m the host of Peer 2 Peer Real Estate Podcast heard weekly. The purpose of the show is to interview people in the real estate industry. Whether you are new or a seasoned professional, you have a story to tell.
The people I interview on the show impart knowledge of their journey to where they are currently. They give us the ups & downs of the business they’re in.
I’ve been involved in Real Estate over the last 7 years. Besides investing in properties, some of my other interests are REITs (real estate investment trusts) & Crowdfunding.
Keep the momentum going, good things will happen.Love the show? Subscribe, rate, review, and share!
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