If you have a great deal, the money will find its way to you--just know what you’re bringing to the table and what you’re asking of the money partner. The key here is building momentum and being loud about what you do as an investor so as you meet people, you can build your network of private lenders.
Operate With An Abundance Mentality:
2:00: Bill didn’t start out with money 30 years ago.
3:45: A quadplex across the street from the University of Oregon was one of the first deals Bill quickly tried to figure out how to fund.
6:17: If you have a great deal on your hands, you can probably just flip the contract if you can’t find the money.
7:15: sometimes you don't need the money but to know that you have the confidence that you can get the money is really, really important and allows you to kind of strike while the iron is hot.
9:55: People aren't going to invest with you if they don't know that they can.
Stick To Your Word and Know What You Have To Offer:
11:15: don't over promise and deliver on the promises that you do make.
14:00: We bring stable property management to our lenders.
15:05: Maybe on your first one it's, hey, you bring the cash, I'll do all the work, we'll split things 50-50.
Proving Yourself As A Partner:
18: 40: if you don't have your financials in order, your company's worthless and your deals are worthless.
20:35: When raising private money, especially when you're new, don't be so desperate that you make really, really bad deals.
23:05: Nobody wants to back out of a deal, but if it’s not going to end up being a win-win situation, you’re better off losing your earnest money.
General Talking Points:
25:57: Newer investor first BRRRR deal financing discussion.
28:06: You can get a quadplex with an FHA loan.
30:05: usually we're planning one to two years to get permanent financing placed on it. It’s up to our lenders to call it back based on our rollover promissory note.
Connect with the Good Stewards:
Amanda: [00:00] Be careful with the words that you say and the words that are out there because you don't want untruths out there. But the other thing is don't over promise and deliver on the promises that you do make. So that's something that we've done over the long term so that people trust us. We're building relationships as we go along and we're trying to put things together in a win-win situation.
Ryan: [00:23] Welcome to The Good Stewards podcast, the only podcast dedicated to seasoned real estate investors who want to maximize the cashflow potential in their business. We are “buy and hold” investors with a thousand plus properties and markets across the U.S. who bring an insider's view into the nitty gritty details of real estate investing. If you're looking to develop the mindset teams and systems that can dramatically build your real estate business and network, you're in the right place.
Ryan: [00:56] Welcome to this episode of The Good Stewards podcast. I'm Ryan Dossey.
Amanda: [01:00] I'm Amanda Perkins.
Bill: [01:01] I'm Bill Syrios.
Andrew: [01:02] And I'm Andrew Syrios.
Amanda: [01:04] Hello, Good Stewards. We're going to talk today about where to find money and why you should never let money be the problem in sourcing a deal. We are really excited to cover this topic because we've hit obstacles like this in our business and we figured out solutions to solve the money piece or us to determine that it wasn't worth moving forward because the deal wasn't right. Before we dive in, we want to make sure that you check us out on thegoodstewards.com. Subscribe to our podcast. Download your free copy of our eBook. If you like the podcast, feel free to share it with others that you think might benefit and send us a review. We want to share what we've learned. We like your ideas, keep bringing them to us.
[01:46] Diving in today. It's really a matter of kind of operating from a place of abundance rather than scarcity. You can oftentimes talk yourself out from even taking that step with a deal or even looking for deals because you think, well, I don't really have any money - But that's not the right attitude here. And so that's sort of what we're trying to cover today is that don't let the money stop you. There are other places that you can find money. There are partners that you can partner with. If you're talking about a small house, there are private money lenders, you can go to, hard money. If the deal is right, basically, the money piece will fall in line. So that's what we're trying to communicate today. Bill, kind of when you started out in this industry, did you have a big pile of cash in your bank account?
Ryan: [02:38] A small loan for $1 million or anything?
Bill: [02:40] Yeah. I remember when I first hit my big obstacle and it was like enormous. A real estate agent brought me 29-unit apartment complex near the University of Oregon. And this is a big thing for me. I was messing around with houses around the University of Oregon, but this is a big mountain. I just didn't have any money, but this was a great deal. Needed a lot of work. It was right across the street. It's like it will never be unrented in its lifetime if only I could find a way to buy it. And I asked the real estate agent who brought it to me, who could I partner with on this? And she said, I have just the person, his name was Greg Whiteley and we continued to be partners today, as a matter of fact, this was 25+, 27 years ago, something like that.
[03:33] But then, Greg and I both had a problem because neither one of us had the money. So, I started talking to everybody I could think of. And I ended up talking to a real estate agent. Her name was Jan, as I remember, and Jan led me to a hard money lender. His name was Gordon. So, one thing kind of leads to the next, but I think that the point of it was I was so excited about this deal. I was not going to let this deal fall by the wayside for the lack of money. I was going to find it somewhere. And then we ended up, when it was all said and done, we got seller financing, we got a hard money loan and we got Greg's mom to kick in $120,000 to kind of close it because neither one of us had any money to put into the deal. So we actually got a no money down situation. And then of course, we had to find that rehab money, which is just another story. But I think it starts with, and Amanda's already alluded to this, if you're excited about the deal that you found because you know it's a great deal, that's going to be the impetus and motivation to find the money. So, start with the great deal. And then, any great deal can be funded because there are people around who want to jump on the bandwagon if you have that kind of situation.
Ryan: [04:49] Yeah, money in particular is attracted to opportunities. So, if you have an opportunity, you're not really going to have that hard of a time finding capital to fund it. Assuming it's really a good deal. I think that that's probably like the disclaimer for this episode of it does start with making sure you've got something that's a real winner.
Amanda: [05:13] Well, and if we want to follow this particular deal, Bill was talking about that he acquired in the mid-90s to where we are with it today, it's still an apartment complex that Bill and Greg owned together. It's right near the University of Oregon campus. It's probably quadrupled in value since you purchased it. We've been able to work our methods with it and that one building that you and Greg purchased in the 90s is actually funded further deals for both of you down the line and it generates cash flow. It's really the best-case scenario type of a situation. And it really just started with the idea that let's say it was $750,000 back in the 90s. I feel like that's in the ballpark. And you didn't have that money and you didn't really know how you're going to get a loan for it, but you cobbled it together and you made it work and really what it was, was you had that good deal that sort of spoke for itself and you found the right partner and the right situation for that.
Andrew: [06:17] And I would note like generally speaking, if you have a great deal on your hands, you can probably just flip the contract. So, putting an “and/or assigns to” in there as well. If you're not confident and being able to close it, or finding partners or things like that, you can put something like your entity or your name “and/or assigns” and then just flip the contract over and do basically a wholesale, even if it's a larger property. So, if the deal is good enough, there'll be money somewhere, somehow to be found if you really pound the pavement.
Bill: [06:52] Yeah, and I think pounding the pavement is part of the situation here because if you're pounding the pavement for a properties to purchase, it should be pounding the pavement also for networking with sources of capital. And I would say those would be private lender partners, private lenders that would just flat out loan you the money, bank sources as well. You got to have your finances in order. Amanda, maybe you could talk about a little bit more about that. But essentially, I think there's two streams here. You have to find the great deal and you have to network with the people who have resources that can help you purchase these great deals. So, don't let off the gas on either pedal here. They both need to be going at the same time. And sometimes you don't need the money but to know that you have the confidence that you can get the money is really, really important and allows you to kind of strike while the iron is hot and you walk into situations - I can close with cash. I can close quickly. When you come with that kind of confidence to deal, you're going to get your best deal.
Ryan: [07:58] I would also add, in 2020, networking is also done online. So, making sure that people know what you're doing. Making sure that people are aware of the fact that they can even place capital with you. This is kind of a fine line. You can't just be like, hey, I'm offering an X percent return that'll get generated. You don't want to be on pretty quick. But one of the things we'll do is like kind of a long copy of Facebook or Instagram posts of kind of here's the whole rundown on this deal. Here's a little bit about my story, kind of the wins, the losses, the highs, the lows. This one was a win-win. It was funded by somebody I met on Instagram or somebody I met on BiggerPockets or somebody I found from Facebook and we paid them an 8% return.
[08:51] They got X on their money and we did a two year. We kind of basically just walk people through what working with us looks like. And the results of that have been pretty, pretty nuts. We've got one guy alone that has probably placed $600,000 with us. We've got another guy that, initially, we met on BiggerPockets and didn't even know that he had the option to invest with us, who's now done a few for us. I actually walked a friend through doing this and a simple post about one deal and kind of the ins and outs, the profits, the process and what they paid their lender. A single Facebook post raised him $400,000. College buddy reached out and was like, man, I didn't even know you did this kind of stuff, I've got some capital I'd like to deploy.
[09:42] So, don't be hesitant or shy about this. I mean, you don't have to do it in a way that's like, I'm offering a blank percent return secured by cash flowing real estate loan to value. It's just, people want to know your story. I've got one guy I met on Instagram who lives up in L.A. who sold an apartment complex, ended up with $1 million liquid back to him and was like, hey, I know I can invest with you and I don't know what to do with this money. People aren't going to invest with you if they don't know that they can.
Amanda: [10:21] No, and what you just said too is, you don't have to be selling yourself, just be talking about what you're doing. People are interested in finding out what others are doing. Like with us, we've developed, not everybody's starting out as going to be doing this, but eventually you'll have a few years under your belt and we will be just talking to some of our lenders. We have good relationships with our banks that loan us money that, sometimes the principals that we work with are like, hey, are you guys looking for any syndication partners? If you have a deal, bring it together because they know that we follow through with what we're doing. And that's really, I go back to be impeccable with your word.
[11:07] It's one of the four agreements. But basically, be careful with the words that you say and the words that are out there because you don't want untruths out there. But the other thing is don't over promise and deliver on the promises that you do make. So that's something that we've done over the long-term so that people trust us, we're building relationships as we go along and we're trying to put things together in a win-win situation. So that you're just always kind of trying to work towards building those relationships because you never know when a 50-unit apartment complex is going to come down the line based on a contact that you made maybe three years ago and it's a really great opportunity and you don't want to shoot yourself in the foot because you weren't out there making opportunities for yourself.
Ryan: [11:52] I'm all for about this, but I'd say REIA’s are another really good option for that. You never know who you're going to meet, who you're going to kind of bump shoulders with. I attended a REIA two hours north of me at the invite of a guy who was running it back when I lived in Indianapolis and stumbled into a guy who had like millions of family money liquid and it was like yeah, you ever have a big deal you need done, I'm your guy. Right? You never know who you're going to run into or who you're going to meet. Yeah, you're probably going to meet a lot of like new investors that are trying to do the same thing you're wanting to do.
[12:29] Caveat with that if you do go to a REIA, try to go talk to the people that aren't where you're at. Don't circle up with a bunch of other people trying to wholesaler. A bunch of people trying to do their first flip. Go circle up with the guy who is talking about his large portfolio or property management or syndication, that kind of stuff.
Andrew: [12:51] Yeah, the newbies are not allow to go here. Although I should know there's a lot of other, like there's been just a proliferation of different real estate meetup groups nowadays. They're all over the place, so it's not just the REIA. It'd probably be good to kind of make the rounds and as you'll see some people who go to certain ones, they don't go to others and things like that. But you definitely want to look for the more experienced types there.
Amanda: [13:14] The other part of that, we've talked a lot about like, don't let the money stop you. I just sort of want to pull it back to what does that mean. So oftentimes when you're looking for money partners, there's a chance that they're going to bring a big chunk of the money, but that means that you're going to be putting in all the sweat and the labor and doing all the work. That's sort of your piece that you're offering when you're sort of trying to bring it together. So, you have to be creative in the way that you're looking at it. A bank isn't necessarily going to be that partner for you, but we're talking about people with cash in the bank that don't want to go out and pound the pavement and collect the rents and do the rehab and that sort of thing.
[13:53] You have to look at what your piece of it is that you're bringing to it. In our case, our piece that we're bringing to it is stable property management and the ability to reposition a property and that sort of thing. So, we have had some deals in our past where we have people that bring the money and they own a chunk of it, we own a chunk of it and we didn't necessarily bring the money but they're there and we're all recognizing the profits together. And at some point, down the line the goal is refinance out, pay back the money and maybe find the next deal with that money.
Ryan: [14:28] I would say on that note for like newer investors, you'll hear about syndications where basically somebody brings the money and they get 70% of the deal. This is typically how it works. You can always negotiate a better deal. We know people that their money partner gets 10% of the deal and they get 90% or 50-50. I would say don't feel like you have to offer to work the deal for free and give up the majority of the deal just because they're bringing the cash. Anytime you're talking about raising money or capital or partnering on deals, everything's up for negotiation. Maybe on your first one it's, hey, you bring the cash, I'll do all the work, we'll split things 50-50. And that was what I initially did with my first lender and that was on flips.
[15:21] And then it was like, hey, I don't want to give you 50% of the deal, let me just pay you an interest rate. And then it just kind of evolved from there. So, don't feel like you have to give up 70% of the deal and do all of the work just because you don't have capital. I think one thing you'll probably get into Amanda here though is, having good credit is important. It's pretty hard to sell somebody on investing with you that you're going to own half of a deal on that you guys are again then going to try and cash out, refinance on, if you're rocking a 500.
Bill: [15:57] Before we jump into that, which I think could be the next logical step. I'm reminded that episode 21, which is actually coming out second Monday of February, I think it is, is on partnerships. We've really talked about how people often bring different pieces to the table to make this thing work. And I think every single one of us here and probably many who are listening have been in partnerships. And it's really important to think through what makes a quality partnership when you're talking about, I'm going to bring the sweat equity, I'm going to bring the oversight of the rehab, etc. and you're going to bring the money is still is going to become a partnership. And what are the implications of doing partnerships? So, check out that episode for sure.
Amanda: [16:48] Back to the money piece, maybe when you're first starting out and you are learning the ropes a little and you're not bringing all the experience to the deal, maybe you are giving up a little more. Like Ryan said initially he was giving up 50% and doing all of the work. But then figured out, oh, well, I could just borrow it and do this. Be open to change as things go along and as you get some more experience under your belt, you're bringing more to the table. Definitely demand what you want, but also be reasonable in the idea that, okay, well they're also bringing a lot of money. We have a partner that negotiates and he's pretty greedy in the piece that he takes and that's just, we kind of decided, is this what we want or are we going to find somebody else?
Ryan: [17:37] I love that I know who you're talking about.
Amanda: [17:42] Ryan had mentioned, your credit, that sort of thing. It's not just your credit is really important. I mean, if you don't pay your bills and you have bad credit, you're not financeable. And so that's important. But the other thing is also your accounting is a very important. Right from the get go you need to have a very good system. And if you aren't capable of doing that system yourself, you need to pay somebody to do it for you because you can't present yourself to anyone, not a private lender, not a bank without having really organized accounting that makes sense, that matches your tax returns, all of that. Tax returns, banks are going to dig really, they're going to dig through them with a fine tooth comb. You need to learn what they're looking at so that you can also explain what they're looking at.
[18:32] Because sometimes you have to put all the pieces together for someone. And some of our accounting is very confusing. So, dumb it down by explaining it and make sure you know what you're talking about because, basically if you don't have your financials in order, your company's worthless and your deals are worthless.
Ryan: [18:55] TurboTax works when you're 15. When you're an investor and have a few assets, you need a bookkeeper.
Amanda: [19:02] Yes. And a tax preparer. All of that. We could probably have a whole lecture on that, but I mean that's really important. You can't sell yourself to someone and prove that you're credit worthy or that you're worth being a partner with if you don't have your books in order and your financial health in order.
Bill: [19:22] With your financial health, let us give a nod to Dave Ramsey, except maybe for his view of real estate debt, other than that… To have an abundance mentality towards yourself, I think particularly in the beginning means to stay modest in your expenses because if your credit is not in a good shape, as Amanda said, you kind of just shot yourself in the foot to begin with. Why are you overspending? I got to ask.
Amanda: [19:55] Your ability to move forward with making those deals. If you're driving fancy cars with big payments and you have a whole bunch of consumer credit card debt and you have all these obligations that mean that you have to earn a lot of money just to pay your bills, you're focusing on that and it basically takes your ability away to focus on, okay, I want to be building my wealth for the future. That will come but we're really focused on… You can have your debt be good debt by performing real estate, but live within your means or below your means because that's only going to help your fiscal health.
Ryan: [20:35] I will say on the raising private money angle, especially when you're new, don't be so desperate that you make really, really bad deals. I met a gal who is an HGTV flipper, who I won't name, who was paying 37% interest on her money. And this girl was doing like big gorgeous houses. I met her at a friend's party, we kind of got to chatting and I was like, why on earth are you doing this?
[21:13] Like, first off, you're better than this. Like, you don't need to pay somebody almost 4% interest a month to get them to work with you. Second off, like, your projects are gorgeous and very profitable. I mean, their model is they take kind of a $20,000 house, gut it down to the studs and rebuild it as like a vintage resto mod kind of a home. Very, very neat details and stuff. We're kind of going back and forth. And she was like, well, they helped me get my start. And I was like, it's great that they help you get your start, but they no longer have that risk anymore.
[21:51] And to be frank, I don't know what their usual interest rate is in indie, but I'm pretty sure they're well exceeding it. With my initial lender, the first deal he funded for me on interest, he was like, yeah, we'll do 15% for six months. And I took the deal and then later I was like, wait, that's 30% interest a year. Why would I do that? And you know, it got to the point that it was like, it was super easy text message money, but I had to like, hey man, look, the return I've been paying you is great for you but not so good for me. So, either I need you to come down or I need to go look for better funds. So, I would just say in the beginning, be very, very careful. I don't know what the old saying is, but the gist of it is basically whoever has the money makes the rules.
Bill: [22:45] It's the golden rule, it’s the golden rule. Whoever has the gold, rules.
Ryan: [22:50] There you go. So, I would just say, make sure you don't in your angst, in impatience, in desperation to get started. Make sure you don't end up in like an indentured servitude model in 2020.
Andrew: [23:05] Debt slavery. This might sound a little bit like sacrilege here, but I mean, if you do come into a situation where your only financing option is usury capital unlimited, then you can walk from the deal even if it's a good property and it makes sense to buy, even if you're going to lose your owners. But I mean, usually it's $1,000 and that sucks. But even if that's the case, you have to look at this subjectively. Nobody wants to back out a deal. We hate back—I hate personally backing out in deals. We've done it a couple times, but if you can't close it without the usury capital unlimited, then it's probably worth just walking on the deal and then pounding the pavement for some more better money sources.
Ryan: [23:54] Don’t chase bad money with good money.
Andrew: [23:58] Never be afraid to walk from a deal even if you lose your earnest money. It's certainly not something you should want to do. You should try not to do it. You shouldn't go into a deal ever thinking that there's a high likelihood of you backing out. But at the same time, every investor I know has done it at least a couple of times. It's not the end of the world. It will happen. So, leave that option open.
Bill: [24:18] And think creatively here too. Because how about if you're in a difficult situation money-wise, how about asking the seller, look, I'll split the profits for me. Here's what I plan to do with the house I'm buying. Maybe this seller is a source of those funds that you need. And if they saw that they could get in on the deal, well, there's complications there for sure, but it could be the real estate agent too that…
Ryan: [24:47] As long as they're a silent partner, you should be fine. It's when they're allowed to give opinions.
Amanda: [24:53] Well, and it really just goes back to always developing those relationships. Just always talking about what you're doing so that you're looking for opportunities so that you're not stuck with the most expensive money as your only option. Because that hard, very hard money as we'll call it, I wouldn't ever go for it 30% or higher interest rate or even in the 20s. But for some people, maybe the deal is there. It would have to be smoking, but you have to be always looking out for the future so that when these deals come along, you've generated that relationship. You went and sat down at your regional bank with your financials and sort of spelled everything out to them to sort of see if you were credit worthy. You started there. Maybe you have some work to do in that area. Focus on fixing those issues. Closing those collection accounts and paying off your consumer debt. Just always be kind of moving yourself forward.
Ryan: [25:57] So what would you say, Amanda? Let's say I'm a newer investor. Maybe I've got one or two deals under my belt and let's say maybe I've been flipping or wholesaling and I come into the first BRRRR deal that I want to do and I'm trying to figure out, how am I going to fund this thing? Where would you recommend they start?
Amanda: [26:20] You could start with going for a seller financing option. If the deal makes sense, you could start with one of your hard money lenders. It might be worth a 12% interest rate and 3% points to make it work. You could talk to friends and family and see if they have any IRA funds that are sitting in their accounts, not earning very much money and see if they're interested in securing their retirement funds against a property that you're investing in that hopefully you can refinance out later. If it doesn't need too much work, which that might not be the deal we're talking about, there are construction type, rehab loans you can get with your bank for minimal money down. That might be an option to you.
[27:11] Also go to your REIA meeting, go reach out on bigger pockets, do things in your lives that you're reaching out and kind of putting it out in the world because lots of people have a lot of creative solutions to offer. And so, it's worth considering what people are putting out there. Maybe it's not right for you, but maybe it's worked for someone. It's worth learning a little more about. So, I would start there as I would say.
Ryan: [27:35] I'd also tag on if you're a young or your spouse is extremely gracious. You could house hack or even do like a live in BRRRR, using something like an FHA 203k or maybe it doesn't need much work and you're getting a really good deal using 3,5% down FHA. And then looking to, I think you have a year before you can refi or rent it out legally. But that's another option, if your spouse is willing.
Amanda: [28:06] Of course. Within FHA you could get up to a 4-unit. Correct?
Ryan: [28:06] Yes.
Amanda: [28:13] Maybe that's something that works for you. You live in one unit, you have three, you kind of work through it. Three residents pay your rent for you, you eventually move onto your next and move out and you have a performing four unit, ideally. They're not that easy just to find a really amazing four unit out there, but they're out there. Maybe somebody has one they're not taking care of and they're looking to get rid of. You never know without asking.
Ryan: [28:46] On the capital raising note, just because we've talked about some different rates here. We're typically paying 8% to 9% with the bulk being 9. Bill who will tell you he's tried to sell some lenders on 7 and they're not really a big fan on that. It's not as appealing. But just if you're kind of curious, those of us on the Good Stewards what we're paying for our money, it's typically…
Bill: [29:12] We should add that we don't pay points and a point is 1% of the loan. So, $100,000 loan is a $1,000.
Ryan: [29:18] It's also interest only. So, we're only paying basically for while the money's out. And then we do typically do a two-year renewable term. I think that's one of the things I'd caution new investors. If you think the deal is going to take six months, budget more time. Because if you can't get a refi, your bank needs seasoning or something. Last thing you want is to have a balloon due to a private lender that you can't refi and pay off.
Bill: [29:44] Amanda, you might want to explain our little rollover promissory note, which I find really helpful and some people might want to know about it.
Amanda: [29:51] We're sort of in a position where we've been in this for a while so we're not just getting started. We have a network of private lenders to call on and that we're continually finding money for. And sometimes we have more private lenders than we have deals to fund. But basically, we usually will write our notes and for about either one to two years we can do last if they really want to. It's usually we're planning one to two years to get a permanent financing placed on it. But the way our promissory note was written that basically after that term expires, it's up to them to call it. And with our private lenders, they don't usually call it because once they get paid back, they're going to be trying for us to borrow their money again because
Ryan: [30:44] They don't want their money back.
Amanda: [30:45] They don't want their money back.
Bill: Well eventually they might.
Amanda: We do that so that we aren't constantly rewriting our notes. But sometimes, and we do this also, we write modifications that basically just reiterate the terms and extend the loan terms. Oftentimes we have to do that, especially in the case of if they're loaning us funds through their IRA. But basically, the modification is same terms. We just extend. The only thing we're changing is the date, the payments continue. And that's something that works for us. But everyone has to get started someplace and basically, it's just you have to do what you're say you're going to do and you have to pay people back at the end of it no matter what. If you overshoot and you overshoot the rehab and you plan for best-case scenario and worst-case scenario comes up and you don't have a cushion to fall back on, you could sink yourself before you even get out of the dock.
Ryan: [31:50] My first flip, I cut my lender at $7,500 check to close the deal. And I would say at the time, $7,500 was a lot more money to me, than it is now. Back then it was like, my gosh. But it was, if you're going to take somebody's money and borrow it, they're going to get paid back. It’s kind of like some people look at credit cards or charge cards of like, wow, it'll just go to collections if I can't make the payments. If that's your attitude getting into real estate, investing with private lenders, like this is people's livelihood that you're playing with, this industry isn't for you.
Amanda: [32:37] No, certainly not. On that note, I think we are going to wrap it up. Thanks for tuning into our episode today. If you like what you heard, remember to subscribe and share the podcast and download your free copy of our eBook. You can find us at thegoodstewards.com. Thanks for joining us today.