Brook Reutter

Brook Reutter is a Managing Member at Stonebrook Investment Group, a real estate investment/holding company. He is also the Supervisor of Corporate Billings and Collections at Verizon. With over 25 years of experience as a residential real estate investor, Brook focuses on owner financing by offering his tenants ownership through a contract for deed.

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Here’s a glimpse of what you’ll learn:

  • Brook Reutter shares how he entered the investment financing space
  • The difference between a rental contract and a contract for deed
  • Advice for evaluating and acquiring real estate liquidity
  • Brook explains the terms and conditions of a contract for deed
  • How does a due on sale clause affect a contract for deed?
  • The importance of building relationships with bankers
  • Brook’s real estate investment tips for millennials

In this episode…

In the real estate investment space, traditional rental contracts are often demanding, with landlords holding too much power over their tenants. A contract for deed is a profitable option for investors as it streamlines the transaction process and gives tenants the freedom to own. As an investor, what should you know about this financing option, and how can you capitalize on it?

Contracts for deeds allow buyers to make monthly payments on a property upon which they receive the title after completing the payments. During the process, the buyer must pay the investor principal, interest, taxes, and insurance. Brook Reutter advises consulting a third party, such as an accountant, to mediate the transactions. This allows the buyer to withdraw from the contract at will and the investor to resell the property based on current interest rates.

In this episode of The Same Day Podcast, Mat Zalk hosts Brook Reutter, Managing Member at Stonebrooke Investment Group, to discuss the specifications of a contract for deed. Brook explains the difference between a rental contract and a contract for deed, how a due on sale clause impacts a contract for deed, and the importance of building relationships with bankers.

Resources mentioned in this episode:

Sponsor for this episode…

This episode is brought to you by Keyrenter Property Management.

Keyrenter Property Management is a full-service property management company who helps their clients buy, renovate, and operate real estate assets.

They help clients build wealth while taking the headache out of property management.

That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.

To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].

Episode Transcript

Intro 0:05

Welcome to The Same Day Podcast where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship now to the show at hand.

Mat Zalk 0:16

Mat Zalk here on the host of The Same Day Podcast where I connect with top business experts and real estate leaders, a couple of past guests, I always love to mention, Mike Basch Atento Capital Chip Gaberino from Topeka Coffee, Lee Easton on from AeroVision a while back talking about entrepreneurships and some of the grit that is required to make a business work, pivot and think through different options once you’ve already started your business, but maybe some things don’t work. And you’ve got to get to make a little change. Today’s episode is brought to you by Keyrenter Property Management and Keyrenter Property Management. We’re a full service property management company helping our clients buy, renovate and operate real estate assets. We help our clients build wealth while taking the headache out of property management. Listen, Brook, you know, you’re actually an existing client of ours and we love you for that. But you know, a lot of the stuff we do is like taking properties from the tax auction doing a full renovation. I recently bought one at the tax auction on Woodrow and I walked it the next day with Seth, our general contractor. He’s now been in three weeks renovation we’re doing new plumbing, new electrical new, he like new roof and new interior taking down some walls, putting up some other stuff to make it awesome. And that’s what we do for our clients as well. I am like the hair guy. I’m not just the owner. I’m also a client I love myself. Now I don’t do it myself anymore. We’ve got Seth Ross on our team who’s such an awesome general contractor that we do. That’s why it doesn’t matter what type of rental you have single family homes, condos, townhomes, apartments, we have the management solutions, you need to go to keyrenterpmc.com or [email protected] Brook I was originally introduced to you through Keyrenter, actually, Lisa Goins put us in touch some time ago, we’ve had a chance to chat extensively. But let me introduce you quickly. You are. As I said, not only client investor, you’re the husband of a beautiful Italian named Amy. international flair, father of three brilliantly gifted young people Jordan, who is married to Addy carrier who’s married to Eli and Emily, it also longtime residential real estate investor that’s seen it all you’ve been in this for like 30 years. Is that right? Yeah,

Brook Reutter 2:26

I mean, really, it’s 25 I stopped counting. So somewhere above that,

Mat Zalk 2:31

since your two cents. That’s right. That was do. Brook focuses on owner financing by offering his tenants ownership through a contract for deed, we’re gonna get out of contract for deed, we’re gonna get into some lease to own Brooks day job is in corporate finance, but he’s got a strong passion for hard assets. And a specific focus on real estate though he likes gold and some other fun stuff that we can that we can dig into. There are a bunch of ways to do owner finance deals. And there’s certainly a dark side where investors are hoping that their tenants don’t pay off the note and an investor to take back the property. So it again, Brooks not one of those guys, he’s he’s going to talk about some of the success stories that that he’s had over the last, you know, 25 plus years in investing. And certainly some of the failures or some of the mistakes that he’s made. We’ve all had them, it’s good to highlight them so that other people don’t do it. And today, we’re also going to talk about you know, some of these the mistakes and the victories but also his passion for mentoring and teaching, which is a big deal to Brook, Brook, welcome. So happy to have ya.

Brook Reutter 3:29

Thanks for having me. Mat. Love it.

Mat Zalk 3:31

Tell me kind of broadly how did this all start? How did you get started so long ago doing doing contract for deed work? Yeah,

Brook Reutter 3:38

yeah, yeah. Well, I and I come from a family teachers my dad, Astor retired. So you know, I grew up in a wonderful family, but I there was no business mind. So all I knew growing up was, you know, teacher policemen, firemen. Like that’s it. I was mid 90s. I’m married to have my first kid and I gotta restart. So I actually went to the University of Tulsa and did an MBA and which are for a guitar player guy like me, right? So I mean, I was kind of a little older and thought wow, this is fascinating. So I did the old you know, five year plan and really learning how the world works economically. I wanted diverse opinions I wanted to be challenged so while I was working on the NBA in the late 90s I did my classic read Napoleon Hill Think and Grow RichRich Dad Poor Dad, the richest man in Babylon reading that’s how we learn. And I wow, now I drive around I see houses real estate, I’m learning you know, hedge funds, private money retirement accounts, where do they go? How do they invest? What how does this work? So because I really had no mentors in my life along these lines, I felt like I had to really break some eggs you know, to make an offer So I, I launched out on my own to while finishing at the NBA bought a four Plex. And it you bought a duplex 99. So I started out having no clue what to do and just in strict rentals, but with the bandwidth. See, that was the tech bust. 2000 There was a lot there Worldcom Enron tech bust. 911 There was a lot there. So

Mat Zalk 5:28

you know, it was period. So you went from the four Plex? And did that. First of all, I have to say that area by to you has that’s grown so much. It’s gotten so much nicer. Do you still own that property? Or no?

Brook Reutter 5:41

I do not. I sold it. Yeah, right. 2006 or seven?

Mat Zalk 5:45

And so how did you transition from just the standard rental management game into a into the contract for deed game? Sure.

Brook Reutter 5:53

Probably pain is our biggest educator. So I moved really fast into being a broker for myself my own office probably too quick, which that will be a mistake we talked about. But so when 2008 came along, I was buying the heck out of houses in Tulsa. And I had a really solid rental portfolio for someone that started from scratch with no money. And the banking crisis caused an equity squeeze pretty aggressively. So really, what I struggled with is liquidity. And I did not bankrupt I did not go out of business. I looked very closely at how to make this work. But I had to get into a day job to make up the difference. Right? What I did is I took the long play, and got into corporate finance. But I took all of these assets. And I was experimenting in the community that I’m in, especially in East Tulsa. And it’s fair to say that there’s a big Hispanic community over there. What I discovered was people kept asking me, you know, do you sell your houses? Or I you know, can you do owner financing. So there was really Mat like years of experimenting. So I heard someone teaching me a lease option in probably 2008 and nine when I was in kind of a desperate place. Here’s three grand and you know, and a 900 ollar on the David and it’s a lease option. And I thought, well, that’s interesting. So I started doing some of the person down payments. The truth is, I went pretty hardcore, because I like to hang out with accountants and lawyers and title attorneys and, and really learn get into the details. So I’ve paid a lot to learn some technical aspects of this, I transition after a few years into a straight contract for deed. And so I would imagine some of your clients and the reason we’re talking is the difference between lease option. In California, they might call it a land contract, or a true contract for deed. And the reason I did this whole thing is it It solidified my cash flow. So I no longer had the midnight famous, you know, toilet exploding call during Christmas. And that’s what I needed at that time because I was struggling with liquidity. So I took these assets and I slowly transition them into selling them and then solidifying the cash flow much like a REIT if you know what I’m saying. So I became interest income focused rather than rental income.

Mat Zalk 8:32

Interesting. So let’s talk about the difference between lease to own or a rental contract and a contract for deed. What you’re saying is you solidified your cash flow, which means you are now dependent on interest payments, like a bank instead of around on on rent payments, where you and the and the solidifying the cash flow portion is where you don’t have to come out for a new HVAC system or you don’t have to come out for a new toilet plumber that’s plumbing lines. So explain the difference then between or why you in one scenario do have to pay for things in another scenario, you don’t have to pay for things and the benefits and drawbacks of both for deed on one hand and a lease to owner another.

Brook Reutter 9:10

Sure I discovered in the market, especially in the Hispanic community, there’s a lot of abuse with the idea of rent own and there is never a more vague phrase than rent to own because if the specified so to get technical and option in the finance world is you know, I’m buying the rights to do something, you know, I’m buying a machine to buy a stock at this price in the future or to sell it at this price. So you know ahead if you will. So in real estate, someone could buy the option to buy a piece of real estate or a house in the future at a certain price. So if you’re doing a lease option, it’s not mortgage law. It’s just a rental. I mean, legally speaking, and I’ve experienced this by being in front of judges. Teacher, right well, for sure. Judge and I tried to evict somebody in a contract for deed situation,

Mat Zalk 10:05

Mr. You’re in the wrong court?

Brook Reutter 10:06

No, you go down the street and do you know you’re foreclosed? Yeah, for lease options situation, let’s I’ll just give a scenario, they’re gonna, they’re gonna rent this house for 1000 a month, and then they’re gonna pay 3000 down and it’s an option fee, and it’s it’s gone, it doesn’t get returned back to them they bought the right to buy this house at a price and in the future. So that’s the quick answer,

Mat Zalk 10:33

but it’s still a lease, in essence,

Brook Reutter 10:36

it is still lease, the forcible entry and detainer got it have to follow the landlord tenant, you know, act right at all state law jurisdictions and all of that. So it’s a strict lease.

Mat Zalk 10:47

Whereas a contract for deed is actually a fireable mortgage, people can do title insurance, they can they can, they can run, you know, a title search, and then they actually own the property, the deed has changed or has not changed, actually, I guess.

Brook Reutter 11:02

So that’s a great nuance. And we really need to go into all of that. And what I discovered is so many people were abused by the lease option thing, that the lease option thing protects the landlord. Okay, really give them any power. And I realized because I wanted to move in integrity, right? That’s a problem. Sometimes integrity doesn’t make you a lot of money, right? Or did build a good name over years, right? So I went contract for deed because it gives some power to the occupants of the house. So I can’t run off, ruin my business and just sell the house out from under them. So the way that I do it is just through years and years of mistakes, errors, clarification and then saying, Your Honor, I hear you, I will never do that again, I will, I will honor that. And then I’ll make that happen. So I’ve hired some attorneys over the years to write up a contract for deed, document got the way that we do it, I’ll tell the end game and then we can go into the nuances you as you see fit. It does require some organization. So because I’m an MBA, I do get into the details of a amortization schedule. So when they make a payment to me, it is actually p i ti its principal interest, taxes and insurance. So I give them an actual letter of intent contract that they signed, that outlines their interest rate agreement, how taxes and insurance work, okay. And so when they make a payment, I keep the taxes and insurance portion, which is huge. And it stays in an escrow. Yeah. My job with the company is I make the annual tax payment for them, and the and the insurance, insurance payments, okay. And then I worked with our accounting firm to send off to the IRS the interest that they paid on this house, they get to write it off on their taxes. So it’s when you send

Mat Zalk 13:07

them a 1099 ind, right?

Brook Reutter 13:10

I do. I do. Now, technically, it is it is an electronic document that is sent to the IRS. Sure. Because a lot of my clients don’t don’t have like a tax return, they’ll file a return with their green card and they want to write off the taxes one of my business contacts and he’s Tulsa is a tax business. So my clients have flowed through a Hispanic tax business. So in a sense, all of the taxes are done by them. So that’s the

Mat Zalk 13:46

factor that you want to talk I’d love to know who that person is for anybody that may or may not have a social security number right now, but when you buy a house, they’re able to actually or do or do work like many of our vendors, they establish an ITN, they establish an LLC, they pay their their taxes through that LLC, and they also pay for their general liability insurance to that LLC, but you need a CPA or bookkeeper or somebody that knows the ins and outs of doing that to actually establish that that entity for you as a as somebody that might be on a green card. Right? Who does that work?

Brook Reutter 14:17

So Anna Marino at EMA tax service is really my, my my key relationship in this business. And that does formalize feel good for our

Mat Zalk 14:30

clients? Yeah, awesome. So just concretely, the contract for deed is you no longer own the property, you are escrowing insurance and you’re escrowing property taxes but you are in essence collecting principal and interest, there’s principal reduction and there’s interest that you’re being paid, that’s your primary income source on that. You are not responsible for additional for maintenance, you’re not bound by the landlord tenant act. And if you want to, if somebody stops making a payment, you either need to do a deed in lieu of foreclosure closure or you actually foreclose on the property in Foreclosure court Not, not not in landlord tenant where

Brook Reutter 15:03

to clarify, I do need to clarify something that I know the detailer engine interested in this will really want to know. So the thing is you they have the right to file the contract for deed if they want to. Okay, so that would be clouding the title. Okay? True title doesn’t change got it in a simplistic way of thinking it’s like a used car lots, okay, you know car financing habits, you pay your loan, you don’t get the title to the car until you pay it off. So contract for deed, a land contract in California, it would be you’d have a contract, once you fulfill the contract, you get the deed, contract for deed. So we have done it many different ways. Some of them, they want to file it, and they want to feel good about that. And then it is on the in the courthouse. This the ownership is still my company, Stonebrook Investment Group, if you look it up online, but it’s in the title is clouded. So if it searches run, they would see that document. I would say this though, because I’m working with integrity with Anna at EMA and everything that I’m doing. It usually is I don’t file anything at the courthouse. And then we involve the attorneys with closing. So the attorney has the contract for deed, the client has the contract for deed, and it’s so Rick has a contract for deed. So we’re all upfront with what’s happening. And the reason we do that is because oftentimes, after five or six years, if something happens, and they say Brook, you know, I went through a divorce, or I need to go and they leave, then I don’t have to go through an enormous expensive lawyer foreclosure process to clean the title. I don’t have to quiet title suit, I don’t have to go through all of that. I simply work with the accountants to clear the books on a deed in lieu of foreclosure process. And then I would resell the house based on current interest rates and where the market but can’t

Mat Zalk 15:03

you also, can’t you do that also, by including in the original contract for deed, a quiet start a quitclaim deed that they can then sign to basically sign over any interest they had in the property back to you if they want to actually get out of the contract where you just say, we do this for apartments, for example, when we sell apartments. Our attorney Tom vote has a wonderful attorney down at Jones, gotcha. He does at the at the end of it, he says there’s a final final drop dead date if you haven’t closed, but you can have some extensions on inspections you can have especially extensions for financing. But if you haven’t closed by this date, the contract says you have you can you can sign this quick claim deed which says basically, in essence, you have no right or claim to this property any longer. And as long as as long as the other person contractually sorry that the person on the contract signs that they indeed have no, they have no right to to any claim on the title. Is that not a different way? Have you ever experienced?

Brook Reutter 18:09

Sounds like you’re describing a lease with an option, like in other words, they, they have signed this saying, if you don’t close by a certain date, well, I’m not I’ve already closed in. Right. So I might say, you know, I’m gonna give an interest rate on a 20 year loan and we’re locked or whatever the deal is we put together just the bank and we’re just collecting the payments, they can refinance it, if they want to pay us off, they have done that, they can sell it right out, which is an interesting thing we can talk about, or they can just park it and never refinance it because they don’t trust banks for whatever reason, and they want to pay higher interest with us. And they just want to just keep going, right? So I do the quitclaim deed because it’s mortgage law as

Mat Zalk 18:55

it’s got it, okay, so all that is contract for deed that lease to own on the other end is, there’s a down payment for the option to buy the property at some point in the future, you probably predetermined that price, and then they’re paying every month, at least some portion of that goes into the equity component of the house, or it

Brook Reutter 19:12

can, it’s all ugly, I’ve had some people do that, you know, 50 bucks a month or not, it’s just an option, and it’s just straight rent.

Mat Zalk 19:19

So there’s a possibility then if that’s the case, and then the tenant in this case now has some equity built into the house such that when they go to refinance, if they want they’ve got an equity downpayment contribution already made, but still, it’s it’s governed by the landlord tenant act of the state of Oklahoma. If you want to evict them, you still have the right to evict them in FET court in small claims court downtown, but you also then are responsible for the maintenance of the property. So if the H vac system goes out, you’re still responsible. And the the critical difference here is that on one hand, you still take depreciation interest expense for the mortgage that you may have on the property even though you’ve you’ve kind of lease to own it and then I’ll contract for deed side. You no longer have the right to do depreciation or any So you’ve sold the property you no longer that is

Brook Reutter 20:02

exactly right. That’s exactly right. Cuz it’s a big differences

Mat Zalk 20:06

in your in your strategy whether you want depreciation and whether you want the you know, depreciation comes with headache comes with additional expense as you call it variability in your in your cash flow. Whereas contract for deed comes with no depreciation, no ownership rights but has more stable stability in the cash flow because you’re collecting interest in essence

Brook Reutter 20:25

Yeah, which is why I’m here for Keyrenter, right, I manage all of the properties, the assets, the the bulk financing of the finance company, right. But I don’t have depreciation, which means great cashflow, good assets, liquidity, but I don’t have the tax benefits of depreciation. So I’m working with Keyrenter to build up something you guys can manage, because like I said, I value your management, your renovations, and you guys do that. And then if I buy something and want to sell it, and underneath, that’s how I spend my time on that site. So the strategy Yes, I have a little bit of a tax issue right now. And I need some depreciating assets in the future. That’s why we’re talking.

Mat Zalk 21:10

So that’s it. For I love the depreciation elements of real estate, it’s such a, it’s a non cash component, but in the end, you’re not paying the government and that that means there’s actually additional cash in your pocket. Let’s talk about this, this big mistake that you’ve that you’ve run into, or that you ran into in 2008. The liquidity side, what do you think? I mean, for a real estate investor that owns one property 10 properties on either end of the spectrum? How much liquidity Do you in your experience? Would you advise somebody to keep if they’re in the rental game, forget for a moment that the contract for deed game but at least to own in or just pure rental? What sort of liquidity in your experience, would you would you recommend people have?

Brook Reutter 21:45

Wow, dry powder, you know, man I for 2008, and I’ll give a shout out to all the old school investors in Tulsa, no sharp mortgage. And so I don’t know if George and family are listening to this or whatever. But I remember borrowing money from him in the early 2000s, as we all used to do with, you know, Tulsa real estate investors. And the issue was all of the above, you just never know. 2008 changed the game. Because, you know, I used to have a guidance line. You know, in 2005, I had a local bank, and I had a half million dollar guidance on I can just buy a house and they do an appraisal at 80%. And they just write me a check for the 80%. That was no cash out of pocket, boom, boom, boom, the Wild West, right. The problem is, I got a phone call that summer from my banker, and they said, Mr. Reutter, we appreciate your business. We are pulling the line of credit. But I’ve got three properties in play. I’ve got to renovate it. No, no, whoa, allow you to close. But you cannot do a draw for renovation. And we’re shutting it down. So you’re fine. Thank you for your business and your wonderful credit score. So that was a six figure cash Bammo evaporation, was was squeezed on. So I think to answer your question, it depends on your personal situation. If you’re a single guy with no overhead and an apartment, you can play a few few extra games, you know, paid off car, you know, you get what I’m saying. A, but if you have overhead family, kids, you really need to be aware of what your the nut is that you’ve got to hit each month. So I can’t I can’t really give specifics. But because of what I went through, I will tell you this, I want to be real healthy based on where we are right now. Because I remember 2008 And nine with George Sharpe telling me, you know, Brook, I remember the oil bust in the mid 80s. And I remember buying 10 houses at the courthouse for you know, between six and $7,000 each because there was an issue. So I think the liquidity problem is not just surviving day to day when the sun is shining, and all those well, and tenants are paying rent. I think the issue is for the next opportunity, if that makes sense. I what I want to do is I want to be ready when things are changing for new purchases. And that’s kind of where I am now. Really, really, really am. I even my accountant said wow, Brook, you’re like we’re conservative than I am because I just keep a lot of cash on

Mat Zalk 24:35

the side. It’s from experience. I mean, I can’t

Brook Reutter 24:37

question I mean, I know there’s nuance there that the difference but like and number but I I think you know whether or not you want 50 grand or 100 grand, you need some cash on the side.

Mat Zalk 24:48

So I’ll say two things. Dave Charney who’s a very close family friend of ours, owner of Capitol homes and a real estate investor himself in a very significant way, said that in 2008, they had all these you know, they they take raw land, they develop it into into parcels, they put in the sewage, the energy, infrastructure, etc. And then they, and then they develop houses on ultimately they sell their houses, but they’ve got capital tied up for a long period. He said in 2008, some of his banks called them and said, We you’ve been a great client of ours, just like you, you’ve been a great client of ours, we’re extended to you. But we’re now closing these lines. And I’m sorry, you got to figure out alternate financing. And it was it kicks you right? In the pants, it’s tough, especially when you’ve got a lot of deal flow in the in the works. So that’s really tough. On the other hand, in 2020, when COVID hit, I called my banker Josh Cole over at security bank has been our banker for for years now since we started Keyrenter and started the property ownership business. And I said to him, Josh, I want to know, should I pull I’ve got a high five figure credit line with him that we tap into occasionally. And I said, Should I pull this, put it into different accounts? And just pay the interest on it? Because we have tremendous uncertainty about what’s going to happen with our business with liquidity in the market, etc? Or should I leave it with you and you guarantee me that you’re going to keep this line of credit open? Having heard these stories from Dave turn? Yeah, I was like you from 2008. And he said to me, Mat, we’re a community bank here to support the community, that doesn’t matter what happens with global liquidity we’re gonna keep we’re gonna keep that line of credit open for you to use to support your business because we’re here. In essence, our mission is to support local businesses, and what kind of bank would we be in a community like this if we pulled your line of credit at the time that you needed it most? And I was like, wow, I mean, I love them. I’ve always loved them. Lynette Lambert, over at security also has done our SBA loans. She’s wonderful to work with also a client. Josh has done so much work with us. But I was floored by that response. He said, we’re not taking away the line of credit keep it doesn’t matter what uncertainty we’re facing, you’ll have access to that cash. Wow, holy, wow, the two sides of the same thing. I mean, oh, wait was arguably a much deeper, graver crisis and had a more prolonged effect than 2020. The COVID Scare, but that the two sides, two sides or two looks at a similar story, honestly. Right. So in the in the selling of a contract for deed, you know, tell us tell us a couple of stories where people have bought out they’ve refinanced and paid you off. Yeah. And the prepayment penalty that you normally employ? Or is it just kind of, hey, thanks very much. Shake the hand and now you’re off to buy another house to do it again. How does it work?

Brook Reutter 27:09

Sure. And for those that are really finance minded with this, I just also want to clarify one thing.You can do a contract for deed, even if you have a loan on the property, okay, so these are not paid off. Okay. So again, what I took it as my original asset base in oh eight and oh nine and slowly transitioned them over. So what I do is I have package loans, let’s say, you know, I’m going to talk in vague terms for the conversation 10 homes on a million dollar loan through a bank because we have several banks locally that we work with. So if someone actually pays down, then I would say to the bank, alright, we’re going to peel this property off the package loan, so that way it’s released and then I would call David Dreier, local attorney, that’s fabulously well known and and then I will have a closing where we will do a general warranty deed signing and I will deed the property over to the client once they paid the loan off. So So I actually had that happen three times and people say oh my gosh, what do you mean like people don’t pay? Well, I am I’m here to provide a service and if someone needs to go it’s like a used car lot not a problem. I will take it back and then I will sell it again. And that will be it’s much more like a REIT i It’s a finance it’s not one is the problem. It’s part of the package. I will take that house back resell it, but if someone wants to stay there and pay it off, we’ve had one family they’ve put a lot of family in that one house and they made you know triple quadruple payments every month really accelerated the principal and then we had kind of a little birdie at the end good for you guys. You paid the house off and we did it over and it was great. Did you have

Mat Zalk 29:08

tacos and surveys at this party?

Brook Reutter 29:10

Oh I collect payments before I had the dropbox now you learn those message I mean Friday at five Mr. Bro. Okay, come on, get the payment and you got to try these.

Mat Zalk 29:22

Gosh, that’s a perk. That’s a perk of being her.

Brook Reutter 29:28

One other thing I want to throw out too. The IRS loves contract for deed. Okay. Judges love contract for deed. Okay, so mortgage law, right? Bankers don’t mind it either. You know, then my banks understand what I’m doing no problem. Here’s who doesn’t like contract for deed and creates a little bit of a nuance that you have to manage insurance companies struggle with it. And the reason is, is if you know you as a call I come and want to buy insurance for a property that you bought a contract for deed, it might not be in your name, right. And they don’t care that it’s the title is clouded, you know what I’m saying they won’t care. So the one thing that we have to do is we do the insurance with State Farm, Todd Brown in Broken Arrow, he’s fabulous. Stonebrook Investment Group owns the policy, and there’s additional insured, and additional insured will be our client. In addition, there will be our bag. So if there is a problem, and the House has major issues, then we have file on insurance. And then I have to, in my integrity manage that process for Does that make sense?

Mat Zalk 30:46

Absolutely. Does that mean though, that if the house burns down entirely StateFarm is going to cut a check and that your name, it goes to Stonebrook? Or does it go to Stonebrook? And the bank and the, you know, the occupant of the property? How does that work in terms of actually cashing that check so that you can pay out a contract

Brook Reutter 31:05

and the bank, so we would sign it over? And then we’ve replaced two roofs like that. But the cost of insurance and then my price point is such that the Cost Of Roofing if there’s a 1% of the value of the house? deductible, deductible, right, and then the cost of a roof doesn’t make it worth the while I sat down with the clients and said, Okay, here’s the deal. Your deductible is 1300. You know, we looked at a lot of roofers, the average roof is $4,500. And because they’ve depreciated it, there’s a hailstorm. Really, you don’t want your payment, because because we pass it on, right, we don’t want your kids to go up to file a claim. So why don’t we just say, let’s put a new roof on 40. And if they’re struggling, this is the integrity part. I want him to say I want them to be happy off. Often, they’ll just put a new roof on, because they’re gonna have to be out of pocket. You know, 20 103,000 Anyways, on a 45 mineral roof, one of the things we’ve done is we’ve we’ve left clients that 1500 bucks, let’s wrap it in, under your payment, you know, no interest, I just want to help you. That make sense? Yeah. Clients love that. So do we advertise? Not at all? I get calls weekly. Mr. Brook, you got something else? My brother’s moving into town. I love that. You know, I’d love to get a house. So good name is above all.

Mat Zalk 32:32

So let me ask you in a 30 year in a conventional mortgage, a 30 year fixed rate through Fannie or Freddie or others Ginnie Mae or whoever else. There’s, there’s a due on sale clause. And some of our clients ask us about this. Because if they deed the property from their personal name into an LLC, it could theoretically trigger the due on sale clause, because that’s a trade. It doesn’t. You know, I think generally speaking, as long as you’re paying your mortgage payments, that mortgage, the servicer does not care. They don’t they’re not going to do I’ve never heard of it happening. And I’ve done this for a number of my property specifically. But is there an issue? If you have a 30 year mortgage? And you and you do a contract for deed? Is there an issue where the mortgage company could actually call that due on sale clause and try to make you pay off the entire deal? Yeah,

Brook Reutter 33:17

I have tons of experience with it. So rather than ramble on, let me ask to tell you visually, and then you go to details as you need. Okay. Over time, I’ve experimented deeding 30 year notes that were true traditional rentals as deeded into my personal name to see, I would just see, I’m in control of the LLC. I’m in control of my name. Wells Fargo called me on it. I remember I had six loans back in 2004 with them, and they sent me a letter saying, Oh, no, no, we look, you got to deed it back. Okay. Wow. So I did it into the LLC. So I had to put it back in the contract for deed world. Remember, we are not deeding the property over again, used car lot. Once they satisfy the contract, they get the deed. So if this client wants their attorney or the attorney that closed to file the contract for deed at the courthouse to cloud, the title, it has not as of yet over, you know, all of these years caused the due on sale clause, because if my banker looks on on the title, they’re not seeing a title change. They’re just seeing something filed. Is that clarify? Oh, absolutely. Absolutely. I will say I have preferred though over time to work like as you do with security. I worked with Mabrey bank will in our longtime bank fabulous down there, and they understand what I’m doing. And so they’ve never asked for any kind of clarification if I needed to appeal the house. offer file the contract for deed to give our clients comfort or not. So there’s loans on there. We don’t I don’t ever really have that issue, because it’s all disclosed. And it’s all upfront. Sure.

Mat Zalk 35:14

Also say just as a quick plug whether Mabry security or any other bank, it’s worth having a great banking relationship. Oh, yeah. And it’s worth not, you know, not worrying so much about interest rates and going, oh, this person over here, yeah, give me 25 basis points less or lower, whatever it is, like, just stick with a banker that knows your business knows your boss, and you are loyal to them. So that banker, he or she will repay you with understanding what you’re doing and why you’re doing anything else is sorry, okay. I’m

Brook Reutter 35:45

a movie guy. I gotta go. Yes. Do you remember that Leonardo DiCaprio movie, Catch Me If You Can Sure. Great scene where his dad is in trouble. And he pretends to be the limousine driver pulls up, opens the door up. And then his dad walks out and says, Watch the president of the Bank of New York greets Your father. And he’s enamored with his dad and his dad walks in and sits down and says, I just have a little tax issue. I just need, you know, 50 grand to tide me over. And the banker says, Yeah, but we don’t know you. Right? That had a huge impact on me. Because that’s what you’re saying is exactly right, your security and your incidence and neighboring with me, if they know you, they understand what you’re doing. Don’t ever go ask for money when you need it. Ask the way in advance, prove your mettle. And so when times are tough, that’s the relationship that’s the most important in my mind. So I agree,

Mat Zalk 36:40

because the banker has to, in essence, go back to a risk committee or somebody higher up and say, you know, this is the person this is their history with us. This is the repayment history, this is their cash flow, this is all these things are we willing to extend ourselves a little bit to a greater degree to help this person out of the situation or help this person in your case, what you just said before this situation actually comes to a head and that longevity and that experience together is worth its weight in gold. So we have a lot of banking relationships, we deal with a bunch of different banks, we had Scott Reeves on here, he does a ton of our lending with us and you know, build one or two or three, I think it’s worthwhile having a bunch of people that you that are in your network that will lend to you that have your personal financials and understand your business, but build the relationship and don’t don’t go, you know, looking around for the best for you. Sure, you could ask for a better rate was also in a loan, you can extend the term you can ask for, you know, you can ask for rate reductions. You can ask for, you know, prepayment penalty waivers, you can do a whole bunch of stuff you can there’s amortization schedules, etc. There are many, many parts of a loan, you can ask for various things and beggars are willing to concede I’m not saying don’t negotiate if you have, you know, a bunch of bankers that are fighting for your business, but I am saying, you know, establish the relationship of trust and mutual understanding and it’ll be better for everybody. I want to talk for a moment you mentioned moving too quickly. You had your you bought your first four Plex establish a brokerage, you’re buying real estate for yourself, and you move too quickly. What what do you say to people so often and you know, I’m I’m 38 years old, we’re talking here on in 2020, jump 38. I am a millennial, we want to move quickly. We want to be billionaires immediately, because we saw Zuckerberg do it and we saw Sergey, Google do it. And we recognize that’s a possibility in our world. You know, we want to move quickly. We want to be really fabulously rich, early on. What do you say to people that want? You know, they haven’t taken their first step yet? Or maybe they’ve taken their first step? And you know, they need to crawl before they walk, so to speak. How do you how do you counsel people to avoid making the mistakes of moving too quickly, like you do?

Brook Reutter 38:37

Yeah. I think mentoring is huge. And I’ve often dreamed because I’ve enjoyed Robert Kiyosaki so much and Rich Dad Poor Dad, that I wish I would, I would wish he would have a panel for some of his you know, not as famous students right for me. And that would be me. I would love to be on that town. Because he says something that I took completely wrong. And if those who know Rich Dad Poor Dad, they say your your residence, your house is not an asset. Okay, so I made the mistake of Miss misinterpreting that when I bought my first four Plex, remember in the late 90s, and I talked to you, I leveraged my residence. I’m not saying that’s the most horrible thing to do. But I leveraged my residence to put a downpayment on a 20 year, a 20% downpayment on a 30 year fixed conforming loan. So I leveraged my residence. The problem is that that leverage grew on my residence and it did not create cash. So I love leverage on investing investment property that pays for on cash flowing property, I get that. So those that are asking How to Be careful. My mistake was I didn’t understand when Robert Kiyosaki was talking about your houses. Not an asset. He was living in a car, and then an apartment with his wife Kim when he got started. So his first mortgages were not for where he lived. His first mortgages were for a rental property. And then he was in an apartment. So he got into a lot of debt that paid for itself with rental income. I got into debt where I live. So it took me a long time. And that’s great when asset prices are going up. When asset prices are going up. When the tide rises, all boats rise, okay. But as Warren Buffett says, when the tide goes out, you learn who’s not wearing supplements, right? So 2008 That’s, like where we’re at now, that was uniquely banking, uniquely, uniquely, real estate focus, and that balloon popped hard and fast. And all of a sudden, there was no liquidity, right? I had more debt on my house than I could handle. So I needed to get a day job. If I had had a paid off house, we’re living in an apartment, then it’d be no big deal. You know, I could have just dealt with over here. So mentoring would have probably taught me more the big picture with my personal balance sheet, my personal cashflow, how things relate. You know, the other side on my fake Robert Kiyosaki panel would be, you know, I always think of Suze Orman right personal financial coach as high school and Dave Ramsey as college. These are good plants like you got to go through high school and college to get to real life. But I bypassed them and went right to Kiyosaki entrepreneurial world. Banking by No Money Down leverage, whoo. But then again, we’ve had a secular 40 year unbelievable bull market, if you will, and in the bond market and equities in the world. And I think we’re heading to some really difficult times as things get redefined. So millennials, right? Look at your personal balance sheet. Look at your dry powder of cash and diversifying, that can be debated. That’s a future podcast, right? Like you have to be really good at something that you go all in it something but you need dry powder. So I would have cash. And then I would I would practice on paper. And then I would find somebody that has gray hair. And I would follow them around. And I would watch some deals beginning to end. And I would look for the negative not just the positive. I don’t mean being optimistic versus being pessimistic. I just mean reality, just get to reality. What do you hate about this? What do you love about it and you need truths. I think you’ll avoid a ton by just talking to some gray haired folks, if you will. So

Mat Zalk 43:00

it’s funny, you mentioned the Kiyosaki thing because I bought my first rental property in 2014, in Boulder, Colorado with my sister at the time. So I’d signed on a bunch of different notes. We bought our first bought, we probably I probably had 10 properties or 12 properties before I ever bought a primary residence. So buying a house that I lived, I was in Dubai, I was renting there, you know, whatever. But then I finally I finally bought my primary residence. It was a unique experience. And you know, it just I had owned all these properties. My wife had any properties to her sending a note on the on our primary residence was like at first time thing for me it was like Yeah, cool. I understand how this works added to the list. Yeah, it’s it was fun. Let’s switch a little bit what what, who are some colleagues in the industry that you really respect that some of our viewers should know or follow or read?

Brook Reutter 43:51

Interesting. Are you talking to local colleagues?

Mat Zalk 43:54

Anything? I love local colleagues, anybody International? Yeah, talk to Robert Kiyosaki. Talk to a bunch of people you know, that are famous anybody? Who are you? Yeah. So you listening to what books? Are you reading that people?

Brook Reutter 44:06

Yeah. You know, I I’m really kind of a macro nerd. So I’m at a place where we remember our, you know, grandparents that survived the great depression. So you know, like, why don’t we find these $10,000 You know, wads of cash in the in the attic. cans out in the backyard. You know, I have a little bit of that because the banking crisis is really rough for me. So what I what I’ve done is I’ve kind of built this to be really strong. So I’m at a place that’s really strong, but I’m paying attention to some macro things right now. So George Gammon, the rebel capitalist is somebody who, I don’t know him personally, but I just think we would be buddies like, I would hang out with this guy. So I love Ken, like George Gammon, you know, these guys that are kind of in that Rich Dad clientele. I struggle with some major Media, I feel like there’s so much spin in the world on so many subjects. That’s why I’m a hard, hard asset guy. I don’t mind leverage because it’s against a hard asset in real estate. But inflation supply chain energy, all of this stuff makes me cynical. When CNBC says it’s all good, it’s all good. The truth is, though, life goes on. So it’s not like we stopped, we don’t give up we just picked. So that’s why I like real estate. So key renter will rent a property, whether it’s this price or this price, everybody has to live someplace. So we make decisions accordingly, right. So my mentors, the sources, you’re asking me about a guy who I like to listen to tend to be a little bit more macro mind. I will watch Bloomberg before I’ll watch CNBC. I love George Gammon. I love Daniel DiMartino. Booth, I kind of go down that path. And then locally, I’m a little quiet with my business right now because I’m just focused on managing what I have. So you guys have a tax lien sale. I love that. Or the tax resale you know what I’m talking about? Across the realized that I want to be in that group next year. I love it. I love it. So I’m really looking for where are we going to pick it watching prices closely want to do more properties with Kia, Enter? And so that does that answer

Mat Zalk 46:29

the question? Absolutely. I love it. We’ve been talking with Brook Reutter, Stonebrook Holdings, he does contract for deeds. And also some some just General, General traditional, I should say, rentals that we manage, so we’d really appreciate it. Brook where can people find you? If they want to learn more if they want to if they want to get a contract for deed that you’ve worked so hard to produce over the last 25 years? Where can they find you? Where can they learn more? They want you to do a little bit of mentoring for him.

Brook Reutter 46:58

Yeah, I would probably start within just my email. I don’t have any social media focused on Stonebrook Investment Group is the entity but my email [email protected] So [email protected] is a great way to reach me. I’m on LinkedIn but that job so not talking a job here but that’s fine. I can be reached in Stonebrook Investment Group is linked with me on LinkedIn as well. So reach out and yeah, I have I have both sought and given mentorship along these lines. So happy to help

Mat Zalk 47:40

super important from trading or being on the podcast today. Learned a lot. I really appreciate it. Yeah, you got it. Thanks, man. All right.

Outro 47:50

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