What Is The Morby Method?! | Episode 18 - The Real Estate UNLOCKED Podcast

Episode Transcript
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Joseph Marohn (00:12):
What up everyone and welcome back to the Real
Estate Unlocked podcast.
I am your host, Joseph Marohn,and today we're going to be
diving into a game-changingstrategy to enhance your real
estate opportunities.
I'm talking about a creativeway to structure the deal when
nobody else can, One of the onlyways to navigate the challenges

(00:35):
of large down payments.
Today, we're going to becovering the topic of the Morby
Method.
The Morby Method is a unique,creative finance strategy
designed for acquiringproperties when sellers require
a large down payment.
It consists of two keytransactions First, securing a

(00:58):
non-recourse loan to covermajority of the purchase price,
followed by bringing in aprivate money lender to cover
the remaining amount.
Second, after the transactioncloses, the funds provided by
the PML to fulfill the downpayment are returned, allowing
the homeowner to now sellerfinance that portion.

(01:18):
In other words, you'repurchasing a property that
required a large down payment,yet still little to no money out
of pocket.
Now, if that's a creativefinance strategy you're looking
to add to your tool bag, thenstay tuned because we're going
to show you exactly how to startusing one of the hardest

(01:39):
creative finance strategiesthere is today.
Now you know how we do it onthe Real Estate Unlocked podcast
.
If we're going to do it, we gotto do it right.
We can't just bring on anyoneto speak about the Morby Method.
We got to bring on the veryfirst student ever to do the

(01:59):
Morby Method method.
Today, our special guest on thepodcast is Ingryd Hernandez.
Ingryd is a seasoned realestate investor with a
compelling personal story.
Immigrating from Colombia tothe US as a young child, Ingryd
journey from facing earlyhardships, including reliance on

(02:22):
Section 8 and food stamps, tobecoming a successful real
estate professional is nothingshort of inspiring.
Today, Ingryd is a licensedreal estate expert specializing
in buying properties usingmethods like creative finance,
DSCR loans and cash strategies.
She also excels in flipping,wholesaling and lending on real

(02:48):
estate properties.
Her extensive knowledge waslaunched by joining the Sub2
Mentorship Program.
If that wasn't enough, Ingrydco-hosts the popular weekly live
podcast Explaining with Ingrydand Steven, where she and her
co-host dive into real estatestrategies and financial tips to
help listeners explore newopportunities and navigate

(03:11):
property investment.
Ingryd joins us today to shareher knowledge and experience
with the Morby Method and helpus break down such a unique real
estate strategy that can openup a lot more opportunities.
Real estate strategy that canopen up a lot more opportunities
.
So, without further ado I'vebeen talking long enough,

(03:36):
Everyone if you will, pleaseallow me to formally introduce
to you Ingryd Hernandez.
Ingryd, what's up?
How are you doing today?

Ingryd Hernandez (03:43):
Hey, Joseph, that was quite the introduction.
I think it takes the cake forsure on anything I've ever been
on.

Thank you.
I appreciate it.
Yeah yeah, the intros is kindof like my forte.
I love doing that.
I get a lot of good feedbackfrom it, so I appreciate that.

I'm going to call you Dr Marone instead of Dr
Dre.

Love it.
Yeah, I'm doing my little MCthing here.
How's your day going?

It's going.
I mean, it's another day beinga real estate investor.
I think you and I were chattingbefore we got started a little,
we had a guest flood, one ofour properties by not knowing
how to turn off the water in oneof the bathrooms the toilet
water.
But we also set up a brand newSTR that we bought subject to

(04:34):
literally bought.
It had the utilities turned onon Tuesday and by Thursday night
we had guests staying in thehouse from the quick turnaround.
We did Never done such a fastturnaround in my life, so yeah,
it was pretty neat.
So yeah, lots of highs and lowsand that's kind of what the
adventure becomes and you kindof have to enjoy the process.

(04:56):
And even somebody flooding myproperty, I'm like you know
makes for great content.
That's the reality of whatsomeone experiences.
I would say Ingryd three yearsago would be crying on her knees
Ingryd today.
It's just you reflect back andyou laugh a little.
You're like, wow, I can'tbelieve that I could stomach

(05:17):
something like this now versusthen.

So yeah, I guess asking the tenants to turn off
the water is just a little bittoo much, huh.

Truly, oh my goodness, yeah, yeah.

Okay, cool.
Well, Ingryd, welcome to theReal Estate Unlocked podcast, a
place where we bring value tonew and intermediate investors
by bringing on guests who areextremely knowledgeable, such as
yourself, to cover real estatetopics on a very basic entry
level.
Now I know you got a crazyschedule, so thank you for
making time for us to come hangout with us today.

(05:52):
Appreciate it.

Yeah, my pleasure.
I'm really excited to talkabout a strategy that is
somewhat complicated.
So if anybody out there feelslike they have something that
matches understand that maybeyour first step is just to
recognize it and to actuallyfulfill it.
Might be something different,but that's why your girl, Ingryd
Hernandez, is ready to help you, especially if the property is

(06:16):
here in Arizona.

Okay, cool, Okay, so we're going to talk about
the more we met here today,right, talk about the Morby
Method here today, right?
And the goal is for you to notonly fully understand how this
strategy works, but when and howit's applied when structuring a
creative finance deal.
Now, we are both fully awarethat most people they get this
strategy confused, right?
I mean even myself.

(06:38):
I think I watched Pace Morby'svideo about four to five times
just trying to wrap my headaround it all.
It's one of the toughestcreative finance strategies
there is to understand becausethere's a lot of moving parts.
So, with the power of Ingrydand myself, we're going to do
our absolute best here today tosimplify this topic so everyone
here can leave out of thisepisode knowing exactly how to

(07:01):
do the Morby Method.
But before we do that, I wantto put the spotlight on you,
Ingryd.

Yeah.

Ingryd is one of the OGs in Sub2, and in fact the
very first student to actuallyclose on a Morby Method deal
inside of the community, andbecause of that it landed her on
page 59 of Pace Morby's bookWealth Without Cash.
Very impressive, Ingryd.
But I want to make sure that wedon't just label you as an
investor that only does Morbymethods.

(07:29):
I know you do a whole lot morethan that, but I'm sure you can
agree that it's much easier ifsomeone that's done it has
walked through with somebodythat's about to do it right.

The Morby method is really a method that's
traditionally used incommercial lending.
So when we talk aboutmultifamily deals, deals that
have a very specific capitalstack structure, in which can
this?
What I'm saying right now cankind of go over some listeners
heads, especially if you're abeginner to maybe slightly

(08:01):
intermediate but when you're,when you're buying multifamily,
especially something with asyndication that's attached with
some commercial lending product, it requires that capital stack
.
Likely, the commercial lendingproduct is in first position,

(08:22):
the syndication funds are likelyin second and beyond, depending
on what that looks like withthe people who actually put the
syndication together.
So it's taking that philosophyand bringing it down to the
single-family residential level.
So that's all the Morby Methodis, which is coined by Pace

(08:45):
Morby, my mentor in sub two.
But I will say he coined itbecause he's a great marketer.
But it has been a philosophy ormethodology that's been going on
for since we've had bankingavailable as a lending tool for
products.
So I just want to make surepeople aren't like, oh well,
this is some sort of scam orsome sort of something.

(09:07):
No, this has been around a longtime and it's a philosophy used
all the time in commerciallending.
It's just something that youkind of parallel back down to
single family.
You're like, oh, it's the samething, You're just capital
stacking that structuredifferent.
You're the same way you wouldmultifamily, but at a level with
just the seller participatingas a part of it.

So yeah, Right, thank you.
Okay, cool.
So before we start diving intothe Morby Method, I know I've
had the pleasure and honor tomeet you, but for the people
that don't know who IngrydHernandez is, why don't you tell
us a little bit about yourjourney into real estate and how
you landed in the creativefinance world?

Yeah, absolutely.
Well, you covered a littlepiece of it, which is I am not
from this country.
I moved from Columbia when Iwas almost seven and I did just
become a US citizen this pastyear, march 2024.
Wow, just become a US citizenthis past year, march 2024.

(10:11):
It was a long journey, but agreat one in terms of how good I
feel about finally being ableto vote and things like that.
But the reason I got intocreative finance was because
back in 2017, my husband and Iboth licensed agents.
At the time, we had well, I hadbeen licensed since 2013.
He got his license in 2017.

(10:31):
But we fixed up our house thatwe lived in, that we had rented
out the previous two years.
The renters did a number on it,so we had to put a lot of sweat
, equity and work with acontractor to fix it up.
We sold it.
We had some money in the bankaround and work with a
contractor to fix it up.
We sold it.
We had some money in the bankaround $40,000 or $50,000.
I can't recall anymore afterpaying some debt off and we're

(10:52):
like this has to be enough forus to get started.
I hear all these wonderfulstories through other platforms
that talk about investing and Iwas like this has to be enough.
Got a hold of a hard moneylender, and they're like this
has to be enough.
Got a hold of a hard moneylender, and they're like nope,
it's not enough.
And I'm like I don't get this.
I've known people who havestarted.

(11:13):
You know, from a much worseposition than me.
What am I missing?
Right?
You should always point thefinger back at you.
It's like what are you doingthat you don't understand you.
It's like what are you doingthat you don't understand?
There's a greater something outthere.
So, like any good oldermillennial, we just got on

(11:34):
YouTube and started searchingstuff.
So, youtube, we found theBiggerPockets platform.
They were talking to a coupleof local Arizona investors, so I
took their names down and Istarted looking on YouTube and
then it ended up.
I ended up listening to JerryNorton and then Jerry Norton
just didn't quite give me allthe things I needed to

(11:56):
understand.
Take the next move other thanto buy into his mentorship.
But, then I but, like, thatthread led to Pace Morby.
So this was in 2020, when wewere all stuck in our houses,
kind of um in like the fourthquarter.
Um, he was having a localmeetup.

(12:18):
After I stayed up till 2am towatch, to watch his 27 Ways to
Exit a Property Through CreativeFinance, and I was like what.
So I was already kind of wrappedup around his awesome marketing
and I met him in person and hewas at a Mesa flip that he was

(12:41):
doing giving away tacos.
So you know, a way to my heartis definitely tacos.

Definitely the tacos.
Yeah for sure.

So that was like December of 2020.
I met him.
I met his project manager, annaMartinez, his sales guy, tino.
There was another guy that waswith him Nick, I don't remember
his last name and the following.
I was like these, these guysare really real.
They're actually doing whatthey say they do.
We were.
We were trying to figure outwhich mentorship we were going

(13:10):
to join, and so I joined hismentorship and it was the best
investment I could have evermade.
Quite frankly it changed my life.
It was a life-changinginvestment, but I do want to
preface it was life-changingbecause I was ready to receive
everything I was about to learn,but it was life-changing not at

(13:33):
like the snap of my fingers.
I had to put work into it.
So, um, that was January 2021.
Like you said, I'm an OG.
He started his mentorship, Ithink May of 2020.
So I was somewhere in thethousands.
I was close to 2,000 people hadjoined and yeah, and now

(13:57):
there's like what, 14,000,15,000 people joined.
So, yeah, it's definitely grownand, as they say, the rest is
history.
Really, that's how I gotstarted.
I joined the mentorship, put ina lot of time and effort and
try to be resourceful andhelpful in the mentorship, and
that's how I kind of got aleadership role in it too.

Yeah, you know you touched on a good point.
You know, um, a lot of people,they they think they can just
buy into a mentorship, right,and then automatically they're
going to start finding success.
Right, and you can't buysuccess.
You have to be a go-getter, youhave to be driven, motivated.
And you got it.
Like you said, you got to putin the work Right, and, um, I

(14:42):
personally thought likementorships were like all scams.
I didn't think any mentorshipwas legit.
And you know, I just wasgetting on my journey and I was
reading books and whatnot, likeyou said, you mentioned Bigger
Pockets.
I was watching some podcasts,reading some books and I
happened to come across Pace's,you know Wealth, Without Cash
book, and I didn't even know whoPace was, without cash book,

(15:05):
and I didn't even know who Pacewas.
But you know, reading that bookand then you know, learning
more about him and his story andI was like, dude, I got to know
more about this guy, thissounds interesting.
So I found my way into thementorship and, like you, best
investment I've ever made formyself, you know, it's
completely changed my lifeforever.
So and I'm I'm excited to seewhere you and I both end up.
You know we'll see.
We're on that journey, right,so yeah.

And look I went to the university, so, like
I went to Arizona State, godevils.
But I would say, if I had tochoose between the mentorship
and going to ASU, the mentorshipevery single day and twice on
Sunday, for sure, every singleday and twice on Sunday for sure

(16:01):
.
One of the things that I made,or one of the mistakes I made in
at ASU, that I was luckilylistening when I was in the
mentorship is that you have tonetwork, and going to college,
college the biggest opportunityor the biggest ROI, is really
networking, and I didn't realizethat until now, being an old
fart, like okay, wait a second Ididn't take advantage.
Like I remember all thesepeople I don't remember their
names, I didn't take down theiremails, their phone numbers Like
these are people who hadcommitted to something and were

(16:21):
going to make something ofthemselves, and I was too into
myself, right, like I didn'tthink about everybody else.
And coming into this mentorship, I think that was one of the
biggest differences in mypsychology.
Behind it, which is no, there'sother people with more
experiences, more money, more umlike knowledge than me.

(16:43):
I should know all of them if Ican.
So right.

Yeah, for me it was more of like an ego thing.
I'm like I could figure thisout on my own.
I don't need why do I got tocut this person in on my deal.
I can figure this out.
But you know one thing that youknow, pace really harped on in
the beginning was go out andmake 50 friends, Right.
And I'm like, okay, I'll gomake some friends, pace.
And man, that's that was thebest decision ever, right,

(17:08):
because I started meeting peoplethat really helped me out on my
journey.
When I was actually runninginto issues and running into
hurdles, I was able to reachback to these people and they
helped get me through the finishline.
So without them and without thecommunity, I would not be where
I'm at.

So yeah, absolutely yeah, I mean and one
of the values that he provides.
I think it's one thing to gonetwork and being be told to go
soldier through that.
I think the other is how healready prefaces the expectation
in this mentorship, whicheveryone has to be a go giver.
So it sets the right tone forpeople to help each other out.

(17:44):
No-transcript lower bar of,let's say, getting started with

(18:31):
wholesaling.
Totally different strategies interms of when you're
wholesaling, it's all aboutactive income.
So your commitment to somethingis really surface level in
terms of you're not going to ownassets, you're just
transferring paper.
Right, you're getting a pieceof paper and selling a piece of
paper and making the differencein between when, when you start

(18:52):
owning assets, there's adifferent expectation there.
Now, the reason Step 2 is soamazing is because it has, I'll
say, a lower bar of entry.
Why?
Because you don't have to bebankable.
You don't technically have tohave reserves, although any good
investor will tell you youshould always have reserves.
The equity aspect or theappraisal aspect is not

(19:17):
something that you'd have toworry about per se.
One of the things that youmostly worry about in a sub-2
deal is whether or not you'llcash flow or at least break even
, because there's a lot of otheradvantages to owning assets.
But, putting all of thosethings aside, that's why buying
sub two is more or less abeginner strategy.

(19:38):
When you start talking aboutMorby method, there is a level
of maturity that goes into it.
You do have to be bankable, youdo likely need reserves, you do
need to make sure that theproperty appraises to your
target, otherwise you'll have topivot a little, which I've had
to do with my second one that Ipurchased using that methodology

(19:59):
and you have to be patientbecause you're going to getting
a DSCR loan, you know ainstitutional financial product
and those things take time.
Both of mine took at least 45days, which was, you know,
really tough for me because Iwas like I thought you guys said

(20:21):
you could close this in 20 daysand that's absolutely not how
it works in the real world.
And so all of those things willlike will bring challenges,
especially if your appraisalcomes back and there's some
contingencies involved.
That's what happened with myvery first one, even after I
asked is there any contingencies?

(20:41):
Let's take care of them ASAP,cause I'm somebody who, like I
want to.
I don't like having tasks to do.
If I have a task to do.
I want to get it done off myplate as soon as possible and I
generally move faster than thebank.
So, like I'm, I'm a greatbanking client because I'm
probably waiting on you versusyou waiting on me, because I'm
probably waiting on you versusyou waiting on me, and I take

(21:02):
pride in that.
That's awesome.
But this one I will say, like Itold you, I had that
overflowing toilet in one of myproperties that flooded and I
didn't cry.
Going through my first Morbymethod, I 100% cried.

I believe you.

This is so painful, so yeah, for sure.

Okay, well, you brought up your deal and I want
to hear more about it.
So if you don't mind, maybewalk us through that first Morby
Method deal you did.
I haven't heard all thespecifics on it, but I know the
deal got a little hairy fromwhat I was reading in the book
and you know we don't we don'thave all the details right there
but maybe if you can walk usthrough and do a breakdown on

(21:47):
structure, on how that, how thatplayed out.

Yeah.
So, like I mentioned in thebook, I'll never use that lender
again and that you know, markmy words that that still holds
true, just because they made itso difficult.
Because they made it sodifficult, so painful, but as I
matured in the experience ofbeing a great client to an
institutional lending company, alot of it also had to do with

(22:12):
me not being as prepared withwhat is required.
And totally up for yourlisteners, if you do want to
have an institutional loan atsome point and you want to be
better prepared so you don'thave, you know you don't end up
crying like I did.
They can definitely DM me onInstagram and I'll send them a

(22:33):
presentation of how they can getthemselves organized in
preparation for a loan.
Because if they're bankablewhich is something I can't
control meaning they have goodcredit, good DTI, so debt to
income ratio, this strategy isgreat for you.
It's something for you toconsider.
So a couple of things about theMorby method before we really

(22:53):
get started on this firstexample.
So, for example, it truly isstill a distressed or slightly
distressed scenario with sellersmeaning they want a certain
number, they can't get thatnumber, the market is not giving
it to them and they're stuck onthat for one reason or another.

(23:15):
For me, that's still notnecessarily somebody who's just
looking for gain, because areasonable seller because you
know normally it's like a selleris either in it for pain or for
gain.

Yes.

When somebody is in it for gain but they're
reasonable, they know they haveto lower their price point.
But when somebody is anunreasonable gain seller, then
you have to figure out what'stheir bunnies Like, what is the
problems you're trying to solvefor them.
So with this first example thatI had, the seller actually had
a free and clear property.

(23:47):
The property was like theyowned nothing and they wanted to
get at least $500,000 for forthis house out in Phoenix.

Was it an investment property or was it
their primary?

No, it was their primary home.
The homeowners were landscape,they had a very fruitful
landscaping company and theyactually made good money.
But the wife did not want tosell because this was their like
dream home that they finallypurchased and paid off and paid

(24:28):
off, and so the thought ofmoving away was a very
disheartening, stressful thingfor them and their family.
And although their property hadbeen on the market for months,
the only people who would havebeen able to help them was an
investor.
So I don't have all the details, but they had a judgment and an
IRS lien against the house, andso a judge said you must sell

(24:48):
your house to rectify theseloans.
Which, if he had a betterlawyer because this is a
homestead technically they couldhave probably fought that judge
technically.
But who knows, maybe he wasjust tired of fighting, I don't
know he didn't want to gothrough the hassle.

(25:08):
Probably, and so most of thetimes when a primary home owner
is in a distressed situation andthere's liens and judgments
against it, knowing that it's ahomestead property can actually
help you rectify some of thoseliens and judgments where you
can negotiate them.
But because he was in themiddle of going to court, around

(25:31):
all of that, there was limitedthings that he could do as far
as negotiating.
So when I entered the picture,the property had been on MLS.
I had a wholesaler bring it tome, you know, and say, hey,
here's their situation.
Do you think you could meetwith them?
And their agent said, yeah,certainly.

(25:52):
They spoke Spanish, so theyfelt way more comfortable
talking to me as well, because Icould say it in their native
tongue and they could betterunderstand the scenario, which
was also something that wasultimately extremely important
in this situation.
So I met with them.
I understood that their housewas free and clear.
They needed so much money topay off these judgments.

(26:13):
I'll be honest with you,because this happened back in
like April 2022, which is liketwo and a half years ago or
something.
I don't have all the numbers asexactly as I'd like them, but
it was around, I'll say $130,000or $160,000 that they needed to
clear and he did not have thecredit to be able to go get a

(26:36):
loan because, due to thesejudgments and all of that, it
also messed up his credit.
So, when somebody says, well,why wouldn't they just refinance
their house?
Well, he was not in a positionto refi and his wife didn't work
, so she was not in a positionto refi.
So truly an investor.

(26:56):
Despite all the crap thatpeople talk about investors, we
were the only ones who couldreally help um this, these
sellers and again, I, yeah, yeah, I went and I bonded with them.
You know I I talked to them andI was like I walked them through
as much as I could, again intheir native tongue.
And so they were.

(27:17):
They were attached to me afterhaving those conversations, you
know they they felt they couldtrust me and they could
understand what I was trying tooffer to them.
So because their property wasfree and clear.
Another nugget about a Morbymethod is that, at least in this
market right now, with slightlyhigher interest rates I would

(27:37):
say a 6% or more interest rateyou have to make sure that the
property has around 40% ofequity of what you believe the
house will appraise for Okay.
The reason is is when you goand do a loan to value meaning
you want to go get money out, if, if you need to get 50 to 60%

(28:01):
out minimum to pay off whateverto a huge down payment to the
seller, help them pay offcertain liens, like the
situation here was for sure.
That's what I ended up doing andit was the way that I was able
to really lock this up, that Iwas able to to like really lock

(28:29):
this up.
So what I told them was likethis is going to be two
transactions.
The first transaction will becompletely through the brokerage
with your agent.
The second transaction will not.
So that it was clear that thiswhat I call a two-legged
transaction for one deal.
So that it was clear.
And what I did is I actuallysat there and I documented it

(28:51):
through paper and pen and madesure they understood each step.
So when you submit a Morbymethod with a brokerage, it
looks normal.
I'm buying this property.
So this one in particular Ibelieve we bought for 510 was
the purchase price 20% down andthen the 80% was the loan to

(29:16):
value.
Now at the time the rates werein the fives and what ultimately
was the money that they weregoing to like I was going to
give to them was enough to coverall of their liens and things
and then have them put somemoney in their pocket as they
try to rectify, you know, someof their debt situations and

(29:38):
whatnot.
So ultimately that firsttransaction looks just totally
normal.
Their agent gets their fee.
I did incorporate into therebeing able to pay the wholesaler
with the amount that we weretaking out, and then any of the
fees associated with getting theloan the seller would cover.

(30:01):
With getting the loan, theseller would cover Again.
I knew the situation was apretty distressed one and of
course I'm putting my neck onthe line because I'm having to
go through the process of theloan.
You have to pay for anappraisal.
An appraisal was like 650 bucksor something like that
Ridiculous, and then theappraisal came back with some

(30:22):
contingencies, meaning therewere some things that they had
to actually fix in the house inorder for the appraisal to say
it was sure, hey, if there's anysafety concerns, because there
was some things that wereshowing up that were kind of off
like hey, was there leaky roof?

(30:49):
Because why is this drywallmessed up over here, you know,
and so certain things needed toget fixed.
They had a pool with a kid wholived there and no pool safety
stuff, and out here in Phoenixyou have to have a pool fence or
you have to have like autoclosing sliders so that the
safety of the children aremanaged.

(31:11):
So, like safety issues andthings like that is something
that you do have to deal with onoccasion on appraisals.
So we went through that processright.
So the first leg is again looksnormal.
But at the time I hadaccumulated some capital from

(31:31):
doing wholesales.
So I'll be frank in this firstdeal that I did, I didn't have
to get a private money lender.
I was my own private moneylender, own private money lender
.
The second one I did, I didhave a private money lender,
which we can go through that onefairly quickly too.
But on this deal I sent in anoffer 510, 20% down.
All the fees were being coveredby the seller, and then it gets

(31:54):
funded through the bank and Ihad that cash in my bank
accounts.
So through the process of theloan, the lender makes sure that
I do have reserves.
You have to have reserves A lotof times with these banks, you
have to have like six monthsworth of rental reserves for the
record and you have to have thedown payment, both of which I

(32:15):
had, and so I put in the money.
The first transaction getsclosed.
The title company is one of themost important partners in this
I know they're a new partner,but it's an important partner to
have in this and that is thatthey will hold that down payment
, transfer it to a new escrowaccount, a new escrow number,

(32:43):
and then they will switch thatmoney with a note, indeed, of
trust that you've alreadycreated with them, under
whatever terms.
So in this scenario it was likearound $127,000 and some change
.
They kept that, or theyrefunded me that money, replaced

(33:05):
it with a note with the seller,and then the seller agreed to
keep the note silent for threeyears.
Okay, so that was mycircumstance for this deal,
because I already know thatthey're going to buy the house
from me on a wrap.
So I'll end up making more.
I don't want to complicate itmore, but just know that they're
going to buy the house from meon a wrap, so I'll end up making
more.
I don't want to complicate itmore, but just know that at the

(33:28):
end of the day, if you know yourmoney math, you will make money
, like that's what this scenariois here, but anyway.
So now I have a loan at 80% onthe property and then I have
their note in second positionwith the 20% that I put down,

(33:49):
that I got refunded and it'ssitting silent on the property.

Right, meaning you're not making any payments
to it.
There's no interest on itwhatsoever.
It's more like a balloonpayment, correct?
Yeah, it's a non-interestbearing savings account, if you
will.

So it's just sitting there for them, for the
seller, not for me, correct?
Yeah, it's a non-interestbearing savings account if you
will.
So it's just sitting there forthem, for the seller, not for me
, right, it's still a debt thatI owe to them technically.

Okay.
So you pointed something outthat's really important.
You said that the title companyis your partner.
They're the most importantpiece on this.
Right, you have to physicallygive them these instructions,
right, because they're not goingto know how to do this, so you
have to give them theinstructions.
Now, did you find that thetitle company was giving any
pushback about this?
Like they're like hey, I'venever heard of this method, this

(34:33):
strategy.
Did you run any hurdles withthat?

So I was very preemptive about this.
I didn't just choose any titlecompany, I chose a title company
who had worked with Pace Morbyout here in Arizona several
times and I wouldn't say titlecompany, but escrow officer, who
was very familiar with creativestrategies.
So I cleared this plan with herbefore I even put the offer in.

(34:59):
And I would say, it doesn'tmatter what state you're in,
make sure you're clearing thisstrategy with your title company
before you open title, becauseyou want to make sure that they
can help you and that they'regoing to deliver on what they
said they were going to do.
Obviously we're in sub 2.

(35:21):
So they had templates for usfor this, holdback instructions,
essentially to escrow.
So I had holdback instructionsfor the second leg transaction
of this deal and clearly it saysfrom the first transaction hold
this amount.
That's one set of instructionswe sign, so I sign, the seller

(35:44):
signs, and then the second setof instructions says OK, release
this back to to myself and inexchange you'll get this note
with a summarized level of termsright, like high-level terms,
not the actual note, but you doattach the note to that
instruction because you want tosay, ok, give this money back to

(36:06):
Ingryd, and here's the notethat's going to replace that
money.
That's the exchange andhonestly, that was it.
And so what they'll do isthey'll record that second note.
We did ask for a delayedrecording, because most DSCR
lenders do not like it when youput a lien in second position.

(36:29):
But I will say the timingmatters more than that.
I had to do like replacing anAC unit or replacing plumbing

(36:49):
something significant that justrequired me to go get financed
and putting a lien on the house,which is very common in the
investor world.
Too bad, so sad DSCR.
I'm going to put that secondlien against the house.
What they care about the most is, in the first three to six
months, that the note looks likeit's stabilizing so that they

(37:10):
can sell it in the secondarymarket.
What does that mean?
Mortgages or your brokers whenyou go get a loan, they create
all these requirements that youhave to satisfy so that they
give you money.
Now, when they have this reallypretty note, this promissory
note that that lendingtransaction creates, now they go

(37:31):
sell that note.
So if they're going to go sellthat note and you've put a
second lien on that property, itmakes it harder for them to
sell it.
So now you've made it harderfor them.
So in my opinion, the bestthing you can do is delay the
recording of the secondary note,the seller finance note, so

(37:56):
that they can do what they haveto do, which is stabilize and
sell the note while you're stillsecuring the seller through
that transaction.
So they'll have a copy, you'llhave a copy, and then you'll
both agree on when you'll sendthe note for recording.

Okay, so what's the standard there?
How long did you have themdelay it?
And is that a typical amount ofdays that you should typically
have it, uh, delayed, or isthere a standard there, or
because I've?

heard.
Here's the silly part.
For this one, I like, waitedmore than six months for my next
one.
I did it right away okay so itjust, I guess one would say.
But it just depends on how youwant to roll the dice.

(38:48):
I know I had enough assets nowwhen I did the Morby Method.
It was one of my firsttransactions.
It was literally the secondhouse I've ever bought and held
when now I have other assets.
So I know that the worst casescenario if a lender comes to me
and says you can't have this insecond position, otherwise

(39:10):
we're going to make your notedue right away Do you know what
I would just do?
I would detach that note,attach it to one of my other
assets, wait till the heat diesdown probably like six months a
year and then go ahead andreattach it smart.
So those are ways that you canmitigate it.

(39:31):
Now that you, I feel morecomfortable in my own skin,
right Like I know how I couldproblem solve some of those
things.
But I will say, when I firstdid this first deal, I didn't
have assets like that.
So I don't think I would feelas confident or as comfortable
in saying something like that.
But now I'm like, what would Ido now that I have, you know, 15
assets to choose from?

(39:52):
I would just do it right away.

Okay, so you may or may not know the answer to
this, but, like, let's say theydid find out, you know what type
of repercussions would?
I know?
You mentioned that maybe theycan accelerate it, you know,
call it, do on sale, but whattype of repercussions could
someone face if they have, ifthe DSCR loan was to find out
about this?
Second, you know lien on theproperty.

Well, the first thing that could happen is
you could just have aconversation with them and say,
hey guys, am I making my monthlypayment?
Are you seeing my performance?
Then, chata, you know, likethere's nothing else to talk
about here.
That would be one.
I would say that would benumber one.
Number two is kind of what Ijust declared right now, which

(40:39):
is, take that second note,attach it to something else you
own, allow them the ability tosell the note which is probably
what they're trying to do andthen, after you know six months,
a year or so, reattach thatnote if your seller is good with
it.
I would say, if your seller isnot good with it and the

(41:02):
acceleration does come, like youknow, you may have to go find
another lender.
That's the unfortunate piece,but I just don't.
After going through all thatprocess, I'll promise you the
reason.
I'll tell you why.
They likely will not call itdue right away, because now they
have to pay, they have to takemoney back that they've already

(41:24):
given.
So there's a broker involved,there's loan processors involved
, there's all these people thatthese loans feed, and now you're
asking them to take that moneyand give it back, and so it's a
really tough process for thebank to mitigate.
That's why the likelihood of adue on sale on any kind of

(41:47):
performing note and I sayperforming note is unlikely,
because there's so manyrepercussions at the person
level, like a, like an employee,that makes it really difficult
for them to do that.
Now, if you're not performingthat you know that triggers all
kinds of other stuff and that'swhy those are easier to say.
Well, they're likely going tocall it due, but when you're

(42:10):
performing you know it's hardfor them to tell you what to do.
Yeah, Okay, cool Nobody toldMichael Jordan not to travel on
the basketball court.

He does what he wants, yeah right.
Love it.
Okay.
So now that we all understandyou know, the issue that the
Morby method solves is that youknow our sellers pretty much
want a larger down payment,right.
So pretty much that kills dealsfor us, why Most of us that buy
real estate, you know,utilizing creative finance or
whatever method, we want to bein the deal with little to no

(42:43):
money out of pocket.
I can't tell you how many dealsI've actually walked away from,
Ingryd, because of this and notknowing how to structure it any
other way.
But there's actually threethings that you can do when a
seller wants a large downpayment.
One, you can just get better atnegotiating, right.
You know a lot of us have towork on that.
If you're getting a seller thatwants a larger down payment,

(43:08):
there's ways you can negotiatethat right, and that's going to
come down to your skill.
Point Number two would be wecan ask the seller to do a cash
out refi, right, so the sellertakes out a loan against their
equity.
Then they seller finance thatto us.
So essentially we buy the dealon a hybrid, and the third
method would be the Morby method.
Now, Ingryd, if someone wantsto start utilizing the Morby

(43:31):
method, what are the initialsteps they should start taking.

Okay, one is be bankable, or know somebody
who is bankable that they couldwholesale the deal to, like your
friend Ingryd Hernandez, who'son your podcast right now.
So that's one.

Okay.

Two, after you've gotten through that is,
understand what you believe thehouse will actually appraise for
.
So this is where you can'tpretend you know how to comp and
pretend you know how to figureout the ARV.
Understand that a professionalwill be walking that property
and figuring out what the houseappraises for.
So this can't be who's betterat negotiating.

(44:14):
This is a very direct, clearand transparent conversation
with the seller to make surethat they understand that that a
lot of this is going to fall onthe appraisal.
Three, get a TC that reallyknows how to put this together
so it's not confusing.
I love to use TC deal pros outhere in Arizona.

(44:34):
Perla Argyle is my gal, soshe's helped me with these,
although I've personally did myown TC on that first one because
I'm a licensed agent out hereand so it was easier for me to
put the paperwork together.
But that's who I rely on a lotnow.
And then fourth, make sure youhave that title company that you
can walk through what thisprocess looks like, so that when

(44:57):
you see this come across yourdesk you're not scrambling to
figure out who would you go with.
I would say those are the fourthings that you really need to
be aware of.
The fifth is more or lessunderstanding how to comp these.
So let's say my same deal at510,000 and he wanted a little

(45:20):
bit more.
The most I could possibly givehim was 80%.
But what I'm seeing with theserates being in the you know high
sevens, low sevens, I'm notseeing any deal really work as
well with an LTV higher than 60%right now.
So 60 to 70%, maybe 75%.

(45:44):
So if a property is worth,let's say, 400,000, the most
cash you're going to be able totake on something like that from
a lending institution is$300,000 and still make the
numbers work to cash flow.
So you do have to practiceunderwriting and I first started
, which was go pick a house,pretend I had a deal with that
house and understand where mynumbers had to be in any method,

(46:06):
whether I was doing cash, aMorby method, a seller finance,

(46:26):
whatever it needed to look likeso that I understood what my
numbers needed to reflect andthat's what I call the money
math calculations, like if youdon't know your money math then
you don't, then you won't know.

Absolutely so.
One thing you said.
You said we got to be bankable.
Wait, Ingryd, are you?
Are you telling me that I haveto go apply for a loan?
I thought we got into creativefinance because we didn't have
to go run our credit.
What's going on here?

Well, bankability comes in all
different ways, and so, yeah,unfortunately, this is where you
have to have your big girlpants, your big boy pants, and
you have to actually look goodfor any institution, regardless
of what any guru tells you aboutany kind of creative finance

(47:14):
worth.
If you're not bankable, you arenot growing.
In my opinion, you have toeventually convert yourself to a
bankable person, because whenyou start thinking bigger and
you start thinking more likenationwide or or like if you
have a true business that cangrow, if you are not bankable,
you have yet still to make it.

Correct, and you know this is the only creative
finance strategy that a bank isactually involved.
Morbid method involves yourcredit and, to be clear, they
pull your credit, but the dealitself is not based off your
credit, correct?

Correct.
It'll still be based on thedebt service ratio coverage,
which is a DSCR.
Usually that's the productyou'll use, unless you use a
more conventional like secondhome loan, and that one is
totally based on you, yourcredit and your reserves.
A DSCR says here's how much Ihave for my mortgage on one hand

(48:06):
and here's how much I have onmy other hand that the rent
covers.
If the rent is covering exactlyyour mortgage, that's a 1.0
ratio If the rent is coveringabove your mortgage and then it
becomes a math calculation.
Usually DSCR loans are tryingto hit a 1.25.
So let's say your rent and yourmortgage is or, excuse me, your

(48:28):
mortgage is $1,000.
That means your rent needs tobe $1,250 to hit that 1.25 ratio
.
So if it's $2,000 mortgage andit has to be $2,500.
So yep, that's the way it works.

Got it Okay and I know Pace he uses
myinvestorloancom.
Is there a DSCR lender that youprefer to use that you can
recommend?

The answer is yes.
I'm actually working withsomething with Pace right now
that goes beyond my investorloan, so people probably have to
follow me on Instagram to staytuned about when we're ready to
go to market with that.
So, yeah, not quite ready tosay it out loud.

Okay, got it.
No, no worries.
So I just want to make sure wedon't lose anybody here.
So, Ingryd, can you explainreal quick what a non-recourse
loan is?

Sure.
So a non-recourse loans is aloan that you can go and get
without personally guaranteeingit, meaning, if you default on
it, yes, you're losing the asset, the property it's attached to.
But you, Ingryd, for example mein this scenario, like I

(49:46):
wouldn't be personallyguaranteeing, or like all my
other assets or my personal homewouldn't be at risk over
getting a non-recourse loan Iwill say I'm seeing less and
less options for a fullnon-recourse.
I'm seeing way more DSCR loansthat have a level of personal

(50:07):
guarantee to them.
So I don't also want to foolyour, your audience.
Um, those are harder to come by.
They're harder to come by butthey're great if you come across
them.
But usually they're reservedfor people who have strong
financial positioning.
So the better more biggerassets and portfolio you have

(50:29):
that you can showcase, or moreexperience the better the deals
you'll get in those non-recourseproducts that are available.

Okay, and now I think the part you know, because
we've talked about in thisbeginning of the podcast that,
the more we met, there's a verycomplicated strategy and a lot
of people get confused on it,and I think the part that most
people get lost on, and so Ireally want to hone in on this,
is for the PML portion of thedeal, right?

(50:59):
So for the listeners who areunsure about the need of a
transactional PML, could youclarify its role and why a DSCR
lender requires you to bringthat money to the table?

So a DSCR lender wants to see that you're
putting some skin in the gameand, to be frank, they're kind
of blind to the fact that youare going to have that replaced
as a seller equity note.
Because, as far as the DSCR isconcerned, the lender, the
seller, is getting all the moneyright.
Everything that you're offeringthe seller is getting all the

(51:31):
money right, Everything thatyou're offering, minus whatever
fees and stuff that areassociated.
But if a borrower has some skinin the game, they're likely to
stay performing and not default.
When you have zero skin in thegame, you're more likely to
default in terms of yourresponsibility to that asset.
So that's why a DSCR lenderwants to see you putting

(51:52):
something in it.
Now I think this part will be alittle bit more difficult to
explain.
Again, this is a more advancedstrategy.
So my first deal I was my ownlender.
I had that money in the bank.
The second one that I did, Iactually took a loan, or cross
collateralized is the way thatI'll say it I took a loan

(52:15):
against one of my propertieswith one of my PMLs.
I secured it with a differentproperty.
I had them put that money in mybank account, not into the
title company, but they werealready secured.
So think of it as like asecondary transaction.
I just did so.
I went to my lender.
I said, hey, I have all thisequity in this other property.
Will you lend me this $107,000for this really short time two

(52:40):
or three weeks is what I saidbecause sometimes Morbid Methods
can get a little bitcomplicated at the end in terms
of when the lender will actuallyclose, because they'll promise
you you'll close one day andthen actually don't close until
the next week.
So I like to be a little bitconservative around that.
So he lent me that money.
I secured it with a deed oftrust and a promissory note and

(53:03):
said, hey, I'm going to pay youthese terms.
The goal is less than fourweeks.
Literally I only kept it forone week, but I was kind of like
worst case scenario with him.
I took that money.
Now it's in my bank account andthat money I use towards the
Morby method.
I would say that's probably theeasiest thing that you could do

(53:26):
with a private money lender.
Why?
Because DSCR loans expect youto put your own skin in the game
.
So if your private money lenderis not a part of your LLC with
that down payment now you haveto explain where that money came
from.
You probably have to keep thatmoney for at least 30 days to
season.
If you're not prepared in asignificant way, like if it

(53:49):
wasn't a transaction against anasset, like I just talked about,
it gets more complicatedbecause the bank wants to
understand where that money camefrom and generally they don't
want to accept more debt againstthe property you're trying to
get a debt against, right?
So that is why it makes ittougher.

(54:11):
So a workaround is to have yourprivate money lender be a
short-term partner in your LLCand you can show that in your
entity docs back to the bank asa part of that down payment and
then, after the transaction'sdone, then you can restructure
your corporate structure foryour LLC to take that private

(54:33):
money lender back out.
So that's another way of doingit, so that when that money
comes into your bank accountit's easier to explain where
that money came from and howyou're going to pay it or
sitting in escrow.
So that's another approach,right?
So both of you you and theprivate money lender on an LLC.
The private money lender givesinstructions that they send it

(54:57):
to title.
Title holds on to it whileyou're going through your first
leg of your transaction and then, when it comes to the second
leg, the holdback just says givethis money back to this private
money lender along with the feethat they're making for having
that money in escrow.
And then you, the borrower, areresponsible for making sure
that fee is paid for.

Man, that is gold right there.
Ingryd, you're dropping bombson us today.
Okay, so I know there's severalways you can structure the
seller's note.
Now, correct me if I'm wrong,Ingryd, but another way to do it
is you can actually structure apartner ownership in your LLC
with the seller right.
So, essentially, you'restructuring a partnership
agreement without having tocreate a second note that's

(55:40):
recorded against the property.

That is correct.
That's another way to do itseller be a part of the LLC so
that the down payment componentof this doesn't have to go
through a transaction lender.
It's already a built-incomponent of the transaction and

(56:04):
it really will then come downto how the lender will allow for
that structure to take place.
So I would actually adviseagainst this approach, even
though it is something you cando Now.
If this was my mom, okay, I'lldo it that way, but the fact

(56:27):
that there's so many factorsthat could really implode, I
don't recommend this approach.
But all of you have to beadults about what decision you
want to make.
And you could have the sellerbe a part of the LLC so it's
easier to mitigate that downpayment and it's kind of seen

(56:49):
like a gift as a part of theprocess, so that you don't
actually have to bring the downpayment, and it's kind of seen
like a gift as a part of theprocess, so that you don't
actually have to bring the downpayment with you as a part of
the loan.

Yeah, I think I agree with you right there.
I would feel more comfortabledoing a silent second.
I don't know about putting them, I just know that that's
another way of going about it.
So there's just.

I think you're buying a lawsuit when you do it
that way.

Yeah, there's so many different creative ways you
can do things.
But you got to be carefulbecause it can get hairy quick
Right.
So Right.
Okay, so how does the Morbymethod empower individuals to
achieve financial independenceand get more creative in today's
real estate market?

At the end of the day, just gives you more
tools in your toolbox.
So the more leads you have infront of you like I can honestly
say, if I have an able andwilling and motivated seller,
there isn't a reason theyshouldn't do deals with me and
those reasons would beunreasonable, like

(57:49):
unreasonableness, like what theywant the money.
Math isn't mathing and that'susually the way that I like to
explain things to my sellers islike here's all your options,
here's how the math works andhere's how I make money.
I want them to know how I makethe money.
Even when I disclose in mycontracts because I am a
licensed agent in the state ofArizona, I tell them I'm in this

(58:11):
to make money and I'm theprincipal and here's how I'm
going to make this money.
Period.
And if it doesn't work for them, then usually it's because they
want too much or, in my opinion, they're being unreasonable.

Yeah, definitely Okay.
So before we close it out,Ingryd, any final tips or
encouragement you have for thelisteners who are considering
doing the Morby Method for theirfirst investment.

Gosh, if they're considering the Morby
Method.
Like I was saying before,there's some things that you
have control over that you haveto prepare.
A lot of them is how youcommunicate with the lender, how
bankable you are, how organizedyou are.
Again, I'm available to giveyou a free presentation on what
that looks like and thenunderstand that you're going to

(59:06):
have to be patient.
This requires patience.
This requires patience.
This will likely require someinvestment, like having to pay
the appraisal and the inspection, that sort of stuff, which is a
very traditional way of buyingand have faith.
So, as long as you have theright partners in your favor,
like TC Deal Pros or your titlecompany, and everybody's on

(59:31):
board on what you're doing,really, it's just a matter of
like not quitting.
As Alex Hermosi says, you can'tlose if you don't quit.
So Awesome.

Well, Ingryd, you absolutely crushed it here
today.
Super impressed by you.
You brought a lot of value tous all and it's almost like you
know what you're doing overthere.
Yeah, no, but seriously, you'reextremely knowledgeable in this
space and I'm sure everyonetuned in here today gained a lot
of value from this.
So thank you.

Yeah, no, thank you, and I'm honored that
you have me on this podcast andI really appreciate that I was
invited over and I'd be happy todo it any other time.

Joseph Marohn (01:00:07):
Absolutely.
We may have to do a littledeeper dive.
There was still quite a bitthat I wanted to dive into, but
I want to be respectful of yourtime, so maybe we could do a
part two on this.

Ingryd Hernandez (01:00:16):
All right, sounds good.

Okay cool.

Now, Ingryd, how can people get a hold of you
if they want to bring somedeals your way?
Yeah, the best place to reachout to me is Instagram.
It's Ingryd I-N-G-R-Y-D,underscore Hernandez.
I'm definitely in my DMs a lot.
That's the best method to reachout to me.

Awesome.
Now, if you guys are findingvalue from this podcast, don't
forget to show your boys somelove.
If you like what we're bringingyou, don't forget to subscribe.
It helps us continue providingvalue to others by reaching a
broader audience.
We're out here to serve,providing value to others by
reaching a broader audience.
We're out here to serve, learntogether and help as many people
as possible.
So it'd be much appreciated andI'm super pumped to say that we

(01:01:00):
just reached the 1000subscriber mark.
So super pumped about that.
Stay tuned, because we're goingto be doing a giveaway on this
channel and that's myappreciation to you guys for
continuing to watch this podcast.
So thank you.
So don't forget to also smashthat like button and drop a
comment down below on one thingyou learned today about the

(01:01:21):
Morby Method.
How many deals have you lostout on not knowing this strategy
?
Appreciate all the continuedsupport and, guys, stay tuned,
because we're pumping theseepisodes out every two weeks.
I got some awesome topics andguests coming up next.
That will change the entire wayyou do business.
You definitely don't want tomiss out.
Best believe I'm going to keepbringing you that fire.

(01:01:44):
Thank you, Ingryd.

Thank you.
Thanks for watching.

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What Is The Morby Method?! | Episode 18

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}What Is The Morby Method?! | Episode 18