The Private Lender Podcast

PLP – 139 Know The History Of Your Property With Title Insurance With Rachel Luna

Keith Baker — Tue, 31 Aug 2021 03:00:00 -0600

When you buy a property, you want to be sure that it's free of any debt and lien. This is where title insurance comes in. You don't want to wake up one day, and your pool is torn down because it was built over a utility easement. Or the heir of the seller comes in and reclaims what is theirs. Title companies prevent these things from happening. Join your host, Keith Baker, and his guest, Rachel Luna, on the importance of title insurance. Rachel is the Agency Development Manager of Patriot Title. As The Texas Title Queen, she drops a ton of knowledge and discusses the parts of a title policy, what is covered, what is not covered, and why you need title insurance when you purchase a property. Learn the schedules of a title property and why title insurance is a must. If you're a lender, you better listen to this episode.

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Know The History Of Your Property With Title Insurance With Rachel Luna

The Texas Title Queen Breaks It Down For Lender Nation

I would like to thank you for sharing your time with me. If you're looking for practical tips and advice on how to put the power of the banking system into your investment accounts, then you are in the right place. If you want to learn from my mistakes so that you can both avoid them and profit from them, then pull up a chair and pour yourself a drink, my friend, and take some notes because this show is for you. I'm dedicated to giving people, like you and me, the knowledge and confidence for successful and profitable private lending.

In this episode, I sit down and talk with the Texas title queen, Rachel Luna from Patriot Title Company, who has graciously agreed to come on this episode and drop a ton of knowledge around the topic of title insurance, what it covers, what is not covered and where to find things in the policy. Before we get to the heart of this episode, first, a little bit of housekeeping, number one, I'm about to lose my voice. The kids had a soccer tournament. They won the first two games and lost in the third. However, it was exciting. It was a blood pressure event. It was a good tournament. I’m proud of the kids but I shot my voice. I threw it out. Rather than waiting, I figured, “I'm going to make everybody suffer with me.” That's the first bit of housekeeping.

The second bit of housekeeping is, have you joined the Private Lender Podcast Facebook group? If you haven't, why the hell not? Simply search in Facebook Groups for Private Lender Podcast, click on Join. Answer a few questions to let me know that you are a private lender and not looking for deals or looking for money and not looking to boost up your groups, but going to help add value to the community. Answer those questions, I'll let you in and then let you get started. While you're at it, head on over to PrivateLenderAcademy.com and click on Apply Now to learn more about putting the power of the banking system into your investment accounts or get some one-on-one time with me, I can answer your questions and show you my mistakes. That's PrivateLenderAcademy.com/apply.

The housekeeping is finished and now it's time to get to the heart of this episode. Our guest has been providing title insurance and escrow services for Houston area investors for about as long as I can remember. I caught up with Rachel Luna at the FlipCo Financial Meetup and was excited that she agreed to come on and talk about title insurance. For the simple reason, everyone, including me that says that you must have it, but very few people understand why you need it. I'm going to let Rachel answer that for you. I think you're going to enjoy this. She is dynamite. She is Miss Personality. She has a pistol, a load of fun, is very energetic, knowledgeable and smart. I'm going to let her get down to the brass tacks of this episode and let's get to the interview with Rachel Luna from Patriot Title.

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Lender Nation, I want you to buckle up because we're going to have a fun conversation about a boring topic. Our guest is coming and is going to bring all the enthusiasm and the excitement into something that nobody or very few lenders even think about and that is title insurance, exceptions, exclusions and endorsements. Welcome to the show.

Rachel Luna here from Patriot Title. It's going to be an amazing show with some amazing information with some boring topics.

I can't thank you enough. You are the perfect person to come on and talk about this because you're going to bring life to it. You already have just started with this. Let's talk about you for a moment before we get into the doldrums and the coffee stuff. Tell us about you. How did you become the Rachel Luna?

[bctt tweet="Title insurance is there to protect you from legalities that will forbid you from your goal." username=""]

The Texas Title Queen, as they call me or The Title Queen. I started this business many years ago. I was passionate about it and being able to help people grow their business in real estate and help along the way people accomplished one of the biggest dreams and purchases of their life. If it's not investing, it's purchasing their home for the first time or transacting a sale. Being able to be the end part of that transaction at the title company, helping people protect their investments, but also be a part of their investment.

I believe that as a title company and what we do is it's a very important piece of the whole puzzle. I love that being that piece and I love how every transaction is different. Every single day is different. Every client is different. This business has been nothing but learning and that's why I'm here. They call me the queen because I’ve self-educated, learned, evolved with this business and come out with solutions that can help all parties and all professionals in the real estate business in general, to help grow in their knowledge in real estate, but their knowledge and title and why it's so important. That's why we're here.

We only met in person after the COVID thing, but I have seen you around in the Houston area for years helping investors and homeowners. In fact, Rachel has a new branch, so they're expanding. Is business good?

Business is good. I'm expanding in Woodlands. This is going to be our Woodlands location. We're off of Sawdust over here and 45. We're in a conference and there's not much going on in here because we're setting up IT and getting phones implemented. We have a new conference room. We're getting this set up. There are computers over here on the floor. We're setting up stuff. It's a new shop, but it's all a process. I'm excited. I love opening up a new location to service and expand for our customers out there who need us in other areas of town.

Congratulations. That's good news to hear. Let's start off with what is title insurance? I demand it as a lender. I always demand a lender policy. Explain why am I crazy?

[caption id="attachment_3198" align="aligncenter" width="600"] Title Insurance: Title insurance exists to protect your investment. If you're someone purchasing a property, you want to know what is on that property. It protects you from many other different variables.[/caption]

No, you're not crazy. You're being a smart man. I advise all to do the same. Title is protecting your investment. We do our due diligence from the sovereignty of a property. If you're a lender and giving money out to someone or if you're someone purchasing a property, you want to know what is on that property. Just because you see the person who signed the contract is the person that's registered in the CAD or the tax records and their name is on that. Let's use Harris County, Montgomery County, or Tarrant, it says, “XYZ person.” They're on the tax roll there and they're on the CAD and they signed the contract, it doesn't mean they're the only person that's entitled to that property or there are not any other issues.

What it does is protect the consumer, the lender and all parties of the transaction because you don't know what exactly is going on with an individual, their personal finances or if they're filing for bankruptcy. There are so many variables I can go on and on why you need title insurance to protect yourself. Your money or investment or purchase could be in legality that will forbid you or not allow you going forward to sell the property, do a refinance cash out on that property because there might be some other encumbrances that prevent that in title that was not caught because there was no insurance and due diligence done prior to.

It protects you because there are so many variables. In Texas, especially because it's a community property state as well. That's another wrench in there but there are so many variables of why a property can get. It could be an insurable, number one, but it could also be a bad investment when you thought it was a good investment. That's preventing bad investments. Why do you get titles? It’s to prevent a bad investment, is the bottom line.

Texas being a community property state, that divorce may not be final. That spouse may have a legal right of 50% of that property or a son or daughter. The black sheep of the family could come back all of a sudden say, “That was granddaddy's house and I'm entitled to something from it.”

“There's an interest that belongs to me. Where is it? Why didn't I get paid? Who sold this? Where's my money?” Go to the title company, but no. If you don't have title insurance, you're like, “You owe me money,” and then there could be the whole legality. That was what, at the end of the day, ended up being a bad investment that could have been prevented. At the end of the day, if you're asking me, why do you need title insurance? It’s to prevent you from making a bad investment.

For one, I don't pay it. The borrower does. That's better, but it is a small price to pay to avoid letting your money be held hostage. Getting into that, we've got to clear up this title. It's going to take the lawyers a couple of years, “No. I only loaned it for six months.” I can foreclose all I want. It doesn't matter. I won't have clear title to that property if I have to foreclose. For me, it's avoiding holding your money hostage.

You want to make money on your money, not have it tied up in legalities because of not being informed or not doing your due diligence. Not allowing a third party, like the title company to do the due diligence to protect your investment, to protect you so you can get your money to be in and out and move onto the next project, borrower or whatnot.

That's the beauty. If there is something that's missed, that’s why there is title insurance. It’s to remedy the situation and make everybody whole.

[bctt tweet="A property should be clear of debts and liens for the new consumer." username=""]

That's why the title company does its job. In the case that there is, you're insured, protected and that's why the title companies have underwriters. That's why they're an insurance company. That's why you pay them to protect you and then fix the wrong. It gives you the mind.

For everyone, a title company is no different than any other insurance company. They're going to be regulated by the state, whatever state they're in. They're going to have to follow the rules. They're probably going to have standard forms from that state that they use, at least to get started and then things change and go in all other areas. That's what we're going to go into all other areas. When my borrower finds a property and I agree to borrow, he opens the title. He begins the title search with Patriot Title and then we get a title commitment.

That title commitment is going to talk about any exceptions that won't be covered in insurance. There are exceptions and also exclusions. Anyone who has an auto policy or a home owner's policy is going to know that certain things are going to be excluded. Radioactive waste coming from your garage would be excluded from a homeowner's policy, for example. When you get a title commitment, the title company had gone through, done their research and due diligence and said, “We can trace it all the way back to sovereignty,” which I like to say is when we stole it from Mexico or the Indians, either way, you want to look at it.

Whenever we say, “We're putting a fence around this land and I'm calling it mine.” You go all the way back. You get a title commitment and there are certain things that the title won't cover. If somebody hasn't paid back taxes, for example, the title doesn't come in and step into that. As part of the closing process, the title company ensures that those taxes are paid or deferred, however, credit is given to the buyer. The bottom line is those taxes are going to be handled at closing such that exceptions will come into play. Before we got on the line, I had a bit of a thought about this.

It's like, “The property is being conveyed clear of debts and liens for the new borrower.” The title company at closing will ensure and assure the lender and the new purchaser that the property that they're receiving is going to be free and clear of debt and lien and not to exclude taxes, HOA, any other underlining lien holders that might be on the title, or that might have any derogatory authority to foreclose that would affect the new owner. We make sure that all debts and liens are paid in full so the new borrower who's getting the property is receiving it with only their new lienholder or obviously as a free and clear investment to pay in cash. We do ensure that all debts are paid in full upon conveyance. Conveyance is transfer title.

Conveyance means a transfer of title from one party to another or one person to another or entity. Another example is conveyance or the right of possession if the house is sold, and let's say there's a tenant or a renter in it. That new owner has to honor the lease that the tenant is under until the completion of that. However, if there's a problem with that title that is like, “It has nothing to do with the title of the property. That's the property.” That is an exception to anything as well.

Tenants, anything with the physicality of the property in reference to being a landlord type of situation. Our insurance is only to protect the title, the actual debt in the lien, the conveyance of a predecessor-to-predecessor, owner to owner throughout the years, to make sure that every owner conveyed that property without any debt or lien or clouds in the title. A conveyance is a very clean and clear pass-through of the owner to owner throughout the years. We're here to ensure that no one from many years ago was going to come and have some right to your property that you purchased here many years later.

We make sure that all of that is a clear conveyance of title throughout the years for you, the end buyer and owner, to have a good title. In reference to somebody living in the shack behind the house, we have nothing to do with it. That's something that's negotiated in the contract process. We are here to show the history, the debt and the ownership conveyance. The ownership lineage of title now in reference to who lives there and how or damage that’s contract stuff.

You don't care about the use of the property. It's just the conveyance of the title.

Also, the deb. That there's nothing there that's going to come back and the paperwork.

Wells Fargo is not going to come back and say, “We're going to foreclose now. I don't care if you just bought it.” That's not going to happen.

[caption id="attachment_3199" align="aligncenter" width="600"] Title Insurance: The person who signed the contract is the owner of the property. Someone who isn't the owner can't sell it, so look at schedule A to know who the owner is.[/caption]

We made sure Wells Fargo got paid off in full. That's what we do. Some exclusions are he's talking about this vision, which would have been landlord stuff, but it would be some of the city stuff. Some of your exclusions to title would be city easements, some right of ways that the property might be backed up to a utility right away. Those are some of the things that are excluded in the title because of the fact that the utility districts and the counties have the right to do what they need to do for the community.

If your property happens to fall in an easement, then that would be excluded from your title. We cannot ensure that the city won't come in on your property and dig up an easement or something to put new pipes or new fiber optics that might affect your property. That would be considered an exclusion. Those are usually on Schedule B. I’m discussing Schedules, A, B, C, and D.

Let’s run through the schedules of a title policy.

As we left off, you open the title, then we get the title back. The title commitment is ready from Patriot Title, and we send you out your title commitment. Your title commitment is ready. Here's a copy of the tax certificates, the preliminary taxes of what we've found. These are all our findings. This is what we do. This is our due diligence. The commitment I consider was like your Bible of what we do in due diligence. It's going to have everything on that commitment and the tax certs. This is what we're based on in our due diligence. This is all our research available now.

Schedule A is going to show you basically who is purchasing it. That would probably be yourself or your client, who the lender is, who's lending the money. If they ask us to put it on that front Schedule A and what their loan is going to be for based on the contract that you provided us. At the very bottom, it's going to disclose who the vested owners are. Why that's so important is that it has to be the same person who signed the contract. Why?

Because someone who signs a contract has to be an owner of the property, let’s say Gerald Jr. signed it, but it's Gerald Sr. who's the owner of the title. Gerald Jr. is not the owner. Gerald Sr. is, so Gerald Jr. should not be selling this property or doesn't have rights to sell that property as it states in the title at this point. There could be some variables that may be Gerald Sr. died and now he's an heir. We're going to a whole different spectrum of things.

It's important that you look at Schedule A because it tells you who is the seller and if that person who sold it is the same person that signed your contract and/or is there someone else that's on the ownership as well as the person that's under contract?...

PLP – 138 Utilizing Real Estate Books For Lead Generation And Beating Competition With Max Keller

Keith Baker — Mon, 23 Aug 2021 03:00:00 -0600

Writing a book can help you attract private money lenders and motivated sellers so you could win the marketing game in real estate. Today’s guest, Max Keller, proves that. Max Keller is a real estate investor, best-selling author, and business coach. In this episode, he joins Keith Baker to discuss utilizing books as a lead generation technique and how to get prospective sellers to trust you so you could stand out among competitors. He also shares the two ways to get deals through hunting and trapping. He explains how he gets deals through the use of different methods giving them a network of people. Tune into this episode so you could have the opportunity to build great relationships and make your business grow too!

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Listen to the podcast here:

Utilizing Real Estate Books For Lead Generation And Beating Competition With Max Keller

Max Keller Utilizes Books To Get Sellers To Know, Like And Trust Him

I want to thank you for sharing your time with me. If you're looking for practical tips and advice on how to put the power of the banking system into your investment accounts, then you are in the right place but if you want to learn from my mistakes so that you can one, avoid them and two, profit from them, pull up a chair and pour yourself a drink because this show is for you. This show is dedicated to giving people like you and me the knowledge and the confidence for successful and profitable private lending, the most passive form of real estate investment known to man.

[caption id="attachment_3186" align="alignleft" width="200"] Home To Home: The Step By Step Senior Housing Guide[/caption]

In this episode, I sit down and talk with Max Keller, who’s up in the North Texas area, the Dallas-Fort Worth Metroplex. Max is using a very unusual strategy for finding his deals and that is to use books to get his sellers to know, like and trust him. Before we dive into the heart of this episode, I got to do a little housekeeping and need to ask you, have you joined the show’s Facebook group? Why the hell not? Simply go to Facebook Groups and search for Private Lender Podcast.

Answer a few quick questions so that I know you’re serious and can follow instructions and you will be let in. You’ll get to hobnob and mingle with private lenders from all over this great country of ours. We may be divided but it’s still a great country. If you want to get your private lending off the ground for possibly some opportunities to bounce a few ideas off of me or perhaps we could even go down the coaching road if you like, please go to PrivateLenderAcademy.com and click on Apply Now. It's time to get down to the brass tacks of this episode.

Max Keller was recommended to me by someone I held dear in the podcast industry. Julie Houston, thank you. She has helped me out in ways, mindset, technical, process, things that I wouldn’t think of. She hasn’t charged me a dime for it. All of her advice has been for free, maybe a lunch or two here or there. Considering the value that I’ve received from Julie, I’m in the deficits. Julie, thank you. A big shout out to you. Thank you for introducing me to Max.

This has been a game changer in many ways for me. Thinking about this helps expand the mindset into what’s out there. I’m babbling already. It’s best to get to the interview, let Max discuss and describe how he uses books and how he’s helping his students to get some solid leads, generating some nice leads for some nice property acquisition. Let’s go ahead and jump into the interview with Max Keller.

Lender Nation, I am pleased to have Max Keller on the show, who was formerly a teacher and now is a full-time real estate investor but more importantly, he can teach you how to write a book. Max, welcome to the show.

It’s good to be here. Let’s go.

You come highly recommended from a friend of mine. That gets to the door but the fact that you were a teacher, that's something I've always wanted to do. Hence with the Private Lender Academy, I'm finally coming to get to that point. My path is a little bit reversed from yours. Tell me what brought you to this moment here on the show. How'd you get to the world of real estate and books?

[bctt tweet=" If you don't know what’s working, you can't duplicate it. " via="no"]

I hear that phrase, “Overnight success, lifetime in the making.” That's the way it feels. Everything that I did build on itself. Before I was in real estate full-time, I was an Algebra teacher at a Title 1 school. I coached football, basketball and track. I taught algebra and I loved it. The only thing is I wanted to make more income. My goal was to take a more passive approach and get maybe 1 or 2 rentals a year. If I stayed on that pattern, then at the end of finishing up teaching and retiring, I'd have a nice little nest egg. Going in real estate, I started realizing that it's a great way to increase your active income and start doing more deals.

I left my job years ago. The day after Memorial Day, I told my principal, “I wasn't coming back.” It was a tough decision but it's been great. I've flipped about 130 houses lately because of where the prices have been. We'd done mostly wholesaling but deals in Texas still cashflow, especially mobile homes and things like that. I've been doing investing. On the borrowing side, I did the normal progression. My first deal was a self-funded whole tale. I took it down with a line of credit. The houses were a lot cheaper than in 2015. I cleaned it up a little. I sold it. I made $15,000 and that was cool. I wanted to do it again.

The next deal, I took it down with that same line of credit but then once I had another deal, I couldn't keep doing that. My credit was good. That helped. It's funny. My credit was so good because I never used it. It's like, “What a weird system?” It was fine. I went to a community credit bank like credit union kind of thing, local bank and that worked good. I did a couple of deals like that. I was running out and they wanted me to jump through a lot of hoops. I went hard money. I did hard money for my flip deals for a while. I got involved and started meeting some local private money lenders. I love working with them. It was fun. I got to show them my deals. Some of them had a lot of experience. Some of them didn't have very much at all.

Being a teacher, which has the teacher mindset, I'd say, “Come and check out. Let's not rush. Come and see one of my properties over here in Hearst. I'm doing this one. Check it out. I've got one over here in Irving.” I explained to him how it worked. It was hard because I'm a people pleaser. I liked my hard money lender. It was expensive. It wasn't as much flexibility and I wanted to have more long-term stuff too. I knew private lenders were looking to find good people, good deals and make good rates of return.

I started using books and things like that. That was a total unknown but I started using books as an education piece to attract more private money lenders and motivated sellers. The overall model of how I got here is I taught before I got in here and I still do. That's the best way to build relationships, help people and make the business grow. I'm glad that I still get to do that. It's fun.

I'm glad to know that, one, you taught algebra. God bless you. What grades? I'm curious.

It was the eighth if they were ahead and then ninth on grade. I had one group of kids that were two years behind. They should have been juniors. It depends on how you are as a student. Let's say it like this. When you go to teach and you go to the job fair, there's elementary, middle school and high school. The elementary line, there are 400 people in it. All these people who've been waiting their whole lives to be kindergarten teachers.

You go to high school line. Those are people with a lot of experience. They love their subjects. In middle school, junior high, there's nobody. If you have middle school kids of your own or cousins, you'll know but I liked it. What I liked about working with kids is the same thing I like with the people that I work within real estate. I like working with people that tell the truth. Kids, believe it or not, they almost always tell the truth. I remember one time I went to class. My hair spiked up. I thought I was looking cool and on trend. The kids shut that down in three seconds like, “Mr. Keller, we can see all the way through to your scalp.” That's the way kids are.

Adults aren't always like that. From my own experience, it's important that I get to know the people I'm working with. On the other side, your readers, it's super important that they understand what's a good deal and what's not a good deal before they invest in it. Are they getting in with the right person? There's a lot of sleek talking people. Adults aren't always truthful. We got to find who's telling the truth. Who's doing what they say they're doing before we invest in the deals. That's a piece of teaching that I bring we’ll never forget.

To your point, I would say real estate investors are very persuasive and passionate people. I tell students do not fall in love with the investor's passion or enthusiasm for the project and be the one to tell them, no. Have your brands. This is where you lend. Don't be afraid to say no. I bought Tim Grover's new book. He coached Kobe and Jordan. I heard him on a podcast. There was a guy who was trying out for the NBA and Tim Grover told him, “You're not NBA material. You can play for a long time. You can make a lot of money but the NBA is not your game.” The guy was upset, offended by Tim's honesty.

[caption id="attachment_3187" align="aligncenter" width="600"] Lead Generation Through Books: The traditional marketing methods are going to be obsolete because of Wall Street. They have a big appetite for single-family homes. They have a lot of data, technology, and resources. With that, they can pay more than most people are willing to pay.[/caption]

Years later, he sees him at an all-star game. The guy's not playing in the NBA. He goes, “You're the only one who told me the truth.” Everyone else bolstered him up, “You can do it.” Tim was like, “You're not there.” I don't remember if it was a talent or a mindset thing but he could see. He’s like, “You're a great athlete but NBA is not for you. Go to Europe, you'll kill it.” He wasted his time. That honesty of youth with the children telling exactly how it is, I believe into following that. I have to ask this because we're coming out of the COVID situation. This is the middle of 2021. You spoke that you're wholesaling. You're up in the Dallas-Fort Worth area. How crazy is the market up there? Bidding wars, above ask, what are the metrics that are going on?

For most people, that's the way it is. For us and for the deals that we do, it's not like that but it's because the way that we market is totally different. We started marketing very different back in 2017. For most people, it's tough. I got a call from a lady, Diana. It's another exclusive deal. We're getting a lot of exclusive deals but it's because the way that we're reaching out to people is so different. We're leading with value and education. Not that other people don't have that too. Most folks are marketing for deals.

In my opinion, it’s totally wrong. The way that they're marketing for deals within a few more years is going to be totally obsolete. The traditional marketing methods are going to be obsolete. The reason is because Wall Street, big hedge funds, have a big appetite for single-family homes and in our neck of the woods. They're still cashflowing. They have a lot of data, technology, resources and can pay more than most people are willing to pay.

It was by accident and it worked out good. A little context, back in 2017, I was on track to do about 30 deals for the year but I felt like every house I was going into is like what you're saying. I was interviewing for the deals and taking number. I remember going to this one house in Grand Prairie. There were literally twenty investors in the house. When you're doing deals like that, I call them a win lose.

The homeowner wins because they get a price that they wouldn't have gotten 2 or 3 years ago but you lose because you're taking on the same amount of risk but you're not covering that risk. If you have a private lender on that deal and you're doing these skinny deals, their money has more risk. It's a real situation that's going on. How we've circumvented, it is two ways. One, I found a niche that I like to work with. I made a list of all the deals that I had done. I was up to about Deal Number 50 in 2017. I made a list of the deals. I put the criteria of the people I wanted to work with. For me, it was pretty simple. I want to make a good profit on a deal because it takes me about the same amount of time to flip a house and make 40 than it does to make 20. I was like, “I need to stick with the better deals.”

[bctt tweet="Lead with value and education so people can trust you." via="no"]

The other one is, I didn't want to work with people when I make an offer. They couldn’t resist. It was like a tug of war like, “No, my house isn't worth that much. What are you talking about?” I’m like, “I'm the expert. I do this all day.” This is what I'm talking about. I want to work with people who saw me more as their consultant and trusted advisor. I want to have fun. I didn't want to work with people that I had to go bail out of jail and they were yelling at me on the phone. All the things that went with my traditional motivated seller marketing.

What happened for me were two things. One is when I looked through my deals, most of them didn't meet all three criteria but the ones that did were all seniors. I was like, “Seniors?” I started to peel back. I was like, “I want to work with more senior homeowners. What marketing is helping find those folks?” I found out that my traditional marketing wasn't where they were coming from. I was getting people by accident. They see us in the neighborhood. Their family members would call us.

They would close a lot higher rate. I found they were like slow to trust. When they did trust you, they were very loyal. They wouldn't go behind your back for $100 or Redfin's going to give $2,000 more dollars. I was getting these deals and making an offer. Somebody else was $10,000 more and they were still taking my offer. I didn't know why. There are times in our business where things are working but we don't know why they're working. You don't know why you can't duplicate it.

I was like, “I need to know why. I don't want to lock into stuff.” I called up one of the sellers and I asked him, “Remember me, Max Savior Home Buyers?” That's our home buying business. He's like, “Yeah.” I said, “You had a higher offer. Why don't you take that?” He said, “The reason is because we trusted you. You seem like you genuinely cared about our family and making the right decision. You were telling us about stuff that didn't even relate to you but it was good for us. Ultimately, that was more important than just the money.”

That was the big a-ha moment number one. I started learning more about senior housing. My big a-ha number two, how we market is totally different and what makes it a lot easier to keep doing business in DFW. I was at an appointment with the adult child of a senior home owner. We bought their house. They said, “You've helped our family out a ton. You should write a book about this stuff.” I was like, “No. I'm a math teacher. I'm not an English teacher.” It's a big difference. Let's face it.

I thought about it and I was like, “It's a good idea.” At the time, I was known in my area, my suburbs that I bought houses in as the guy who knew a lot about senior housing but I could be the guy who wrote the book on senior housing. I had a real unscientific approach. If anybody on here who’s trying to write content, do an eBook, write a book or write a blog, I've got a gift that I'm going to give you at the end that can help you do that and save a lot of time but I didn't have that at the time.

I wrote down all the questions that the seniors were asking me, all the questions they should ask me, pros and cons of all the different options. I took care of my grandma growing up. If you look at my pictures of my birthday and stuff, it's my grandma, all of her friends and my friends too. I've always been around seniors. I liked working with them. I like kids and seniors. You got to have a lot of patients to be around both. I like kids because they tell the truth and they're hilarious. I love seniors because they're so wise. It's amazing, the greatest people.

I wanted to do that more in my business. When I finished this book, it was done. I thought it was pretty good. I started giving it out to my prospects and friends. I printed out 100 copies. Every time somebody call our office, instead of saying, “We're going to come over to the house.” I say, “Have you gotten a copy of our book?” They're like, “Your book?” The other people buying houses don't have books.

I said, “Yeah, I'll send you a copy of it. Chapter Three is all the ways to sell your house, pros and cons of each. It's a big decision. I don't want you to make a big mistake. Can you read Chapter Three before I come over?” They're like, “Yeah.” It did a couple of things. One is when we went over there, they read Chapter Three, but they read the other chapters too. They got to know us. They felt like we were credible and trusted because we put the time into it to write a book.

What else was cool is most of the time, there was nobody else. Why would they call other people when they already have the person that wrote the book on the subject? That's how we get deals. We use a lot of different methods. We have a network of people all over, investors, agents and brokers that license our content. I'm buying right here in DFW. I'm not buying in Florida or Houston. We have people who use the books.

We did the same thing on the private lending side. There's an education piece behind that. You're doing an amazing job coaching people up on that. We give people our book. It's been cool. I call it share and attract. We share what we're doing with people. We attract the people to us that want to work with us. It’s like hunting and trapping. Some people love hunting people down. They love the thrill or the chase. I never liked that. I never liked hard closing techniques. It felt unnatural. Trapping is where you set out the date. This is what the opportunity looks like. If they come to...

PLP-137 Is This The New Normal?

Keith Baker — Mon, 16 Aug 2021 06:30:00 -0600

Is This The New Normal?

Hello Private Lender nation and welcome to episode 137 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.

Love the show? Subscribe, rate, review, and share!

Here’s How »

If you’re looking for practical tips and advice on how to put the power of the banking system into your investment accounts, then you are in the right place.

But do you want to learn from my mistakes so you can both avoid and profit from them? Well then pull up a chair and pour yourself a drink, my friend. Because this podcast is just for you, as I am dedicated to giving people just like you and me the knowledge and confidence for successful and profitable Private Lending.

In today’s episode, I will bore you and discuss some very recent conversations I had while on a trip to San Francisco and the Bay Area, and I heard some interesting insights from some friends of the show. But before we get to the heart of the matter, first I need to do a little housekeeping.

1 - Have you joined the Private Lender Podcast Facebook group? Well why not? Head over to the show notes for the link or simply search Facebook groups for the Private Lender Podcast.

Private Lender Podcast Facebook Group

2 – And, please head over to PrivateLenderAcademy.com and click on Apply Now to learn more about how to get your Private Lending off ground and for opportunities to receive coaching from me.

Apply – Private Lender Academy

OK, the housekeeping is finished and now it’s time to get down to the brass tacks of today’s episode: Are we normal?

I took a short trip and flew to San Francisco earlier in August and spent a few days catching up with some friends of the show as well as a few dear old friends who call the Bay Area home.

And I caught an A’s game against the Rangers, so I’ve now ticked 3 Major League Ball parks off my bucket list.

I’m glad I was able to take the trip before the government tries to lock us down again, which brings me to the question I have for you, dear listener:

Are we in the new normal, or are we simply in a bubble in the housing market cycle?

I won’t name any names yet as I haven’t’ asked whether I could mention names (you know, in case they are wrong) and I had the idea for today’s topic and wanted to get this episode recorded and distributed so here we go:

One position I heard, especially in the case of the Austin, Texas market, is that we are in the new normal. Austin will mimic housing in the Bay Area historically speaking, which means high prices are here to stay (at least in the Austin area) and they will only continue to rise.

Then, I heard the belief that we are long in the tooth for this market and a correction is coming – a very popular opinion that many investors share. Especially those investors who lived through 2008 and the mortgage crisis.

In the case of the Houston area, I did a little reading and have found the following:

Average house price up 14%
1 month of inventory (6 months is considered a stable market)
500,000 people move to TX every year
Construction material shortage, lumber up 250%
Days on Market are almost non-existent

So, which side are you on?

Are we in the new normal with prices continuing to increase?

Or is there a correction looming?

Connect with me on social media and let me know:

Or email me: keith@privatelenderpodcast.com.

OK. Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.

It doesn’t take that long and it’s a small price for the value I try to provide.

That’s gonna do it for Episode 137 and just a few final thoughts:

1 – Join the Private Lender Podcast Facebook Group

2 – Remember to head over to http://privatelenderacademy.com/ for more information. And to be eligible for discounts and other pre-launch goodies like group coaching calls, then click on “Apply Now”

So, as I sign off I’d like to say in addition to self-awareness and mindfulness, I wish you safe and prosperous Private Lending.

I’ll catch you on the next episode.

-k

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Join the Private Lender Podcast community today:

PLP-136 George Salas On Getting Long-Lasting Revenue Through Short-Term Rentals

Keith Baker — Mon, 09 Aug 2021 03:00:00 -0600

Most people flip houses, become a landlord, or purchase properties to get the most returns in real estate. But for George Salas, he found an incredible opportunity in short-term rentals, where a lot of people don't even consider. He joins Keith Baker to delve into how rent arbitrage increased his ROI significantly. He shares how he acquires his financing and puts together ample funding to keep the ball rolling. George also explains how he deepens relationships with the people that he trains, eventually building joint ventures.

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George Salas On Getting Long-Lasting Revenue Through Short-Term Rentals

Learn How Rent Arbitrage Can Increase Your ROI

If you're a regular reader to this show, then you know that I do my best to keep the topics of the interviews either strictly private lending-related or at least interesting from a different investment or personal perspective. The topic of the episode is no different as guest George Salas is flip and crushing it in the short-term rental space.

I met him at a Mastermind in Key West and I'm happy that we connected. I got on the plane to fly to Key West. I did not want to go. It had extremely limiting beliefs and yet is one of the best things I've done. I love to know stories of innovators and how people pivot when times change or when they get bad, and given the recent COVID scamdemic and the current bubble and the retail housing market.

It's a real disease. All that stuff is over 99% survival rate. It's a flipping scamdemic. We are in a bubble. I'm calling it. Greenspan said, "You can't see a bubble until you're beyond it or it's burst." I'm calling it a bubble. More than $50,000 above ask in the market is a bubble. You can bookmark this show and can come back to it and give me grief or cheer me on when I'm proven right.

I couldn't think of a better time to introduce you to my guest and his business model. The best thing of all is that George Salas is crushing the short-term rental game right here in Houston, in H-Town, which makes my smile a little bit bigger. Let's go ahead and get down to the brass tacks of the show and straight to the interview with George Salas.

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George, welcome to the show.

Thank you very much, Keith. It is an absolute honor to be here.

I'm looking forward to you to explain your business model. That is, you don't flip, landlord, own or finance but you do short-term rentals. I'm going to give you the floor. Tell us how you got into real estate, short-term rentals and the basic mechanics of your business.

My journey started when I was six years old. I'm sitting in the living room of my parents' house. My mom and dad pulled my brother and me aside and said, "Guys, we need to talk to you. You're going to go to your grandma's. You're going to stay there for a little bit." This is from a city by the name of Lima in Peru, the capital. We moved to a small town.

It was just my mom. It was an environment where I get to stand by my dad. We left that city into a small little town and then the town was 20,000 people. I didn't get to see my father for nine years but he came back again into my life. We were moving here to the US. I came when I was fifteen. I wouldn't get to say bye to him twice and it affected me my entire life until I realized that I didn't need to be better for my dad.

I didn't need to be in a place I’m good enough because I felt I wasn't good enough. I felt that because my father was never a great provider. We moved here. All through my young 15, 18 to 20, I was a grocery stacker. I worked at Kmart. Then I got into the nightlife and I invested in a nightclub. I was in the nightlife for ten years. I was the number one top promoter in Houston for 7 or 8 years.

[bctt tweet="Bad decisions aren't as bad if you learn from them. Turn everything around and make something completely drastic." username=""]

All of a sudden, I had the opportunity to invest in a club. I had a bunch of money saved up. I did invest in the venue and then I ended up losing everything. Here I am in the city. I had invested $400,000 into a club that I didn't have control over. I didn't have knowledge about real estate. I lost every penny of it. I'm sitting in the living room of my apartment at the time and I don't know what to do with my life. I'm literally lost. My buddy Ben Franklin called me. We go to his property in Flint. We spent 3 to 4 hours there and something clicks in my head with all of this inspiration.

That was a life life-changing phone call. I started training, taking courses, going to seminars. I went to a seminar in January of 2019. Four months later, I got my first flip. I did start flipping. I want it to be this real estate guy. I wanted to do a lot of deals and build an impact on real estate without knowing that you needed to have a lot of money to invest in real estate if you want to buy, fix and flip.

You need $50,000, $60,000. For DLS, you do what we do. At the time, we didn't have the resources or knowledge to do it. I made $46,000 on my first flip in 2018. Then six months later, I figured out what wholesaling was. By the end of that year, I had brought $98,000 of wholesale fees and used that cash. This is from the $5,000 in my pocket keys.

I use that cash to put into my first twenty rental arbitrage, Airbnb that had cashflowed me $2,500. It's little apartments, studios and I started with those. Since then, until now I've been able to build a six-figure business a month. Our short-term rental business does $150,000 a month. I've done 50 real estate deals in two and a half years.

I've got an amazing network of friends like yourself and in the know of all of the real estate community here in Houston. I'm in the best time of my life. I'm happy, fulfilled, fulfilling my destiny. It all started with that phone call and making those bad decisions. Sometimes bad decisions aren't as bad if you can learn from them. If you can turn everything around and just make something completely drastic. Look for that thing that you're wanting to find, which was a success in real estate and then I reached out to short-term rentals. That's pretty much a breakdown.

It's compelling because I find it funny that I had to go to Key West and meet you, even though we're right here in Houston. I've seen you come up on Facebook back in the good old days when we went to REIA meetings in person. I'll even throw John Jackson in there in Dallas. I'll include him. It is a very good supportive network.

The event, it's the same as I. It makes all the difference when you have people that you feel have your back or going to shoot you straight on something. To your point, if you mess up and you have a loss, it's either have a win or a lesson. That's the way it is. As long as you own the loss, then it's a lesson and you keep moving forward. You get into the typical way. You've wholesaled. By wholesaling, you know how to analyze a deal and see where the spread is and the margin, “What's the rehab going to cost this stuff?”

As we were talking in the pre-show, you're buying single-family residences, condos or studios. The SFR, the single-family concept but you run them not like your normal rental. If you get $300 cashflow positive a month, you're doing well. You're bringing the apartment cashflow syndication model and that's what the short-term rentals do. When you acquire, how are you financing? Are you using a bank or private money? What mechanisms and cash are you using to acquire your property?

When acquiring, we have a few strategies. I'm going to talk about purchase strategy and non-purchase. We use a method called rental arbitrage keys. This method breaks down like this. You go to a landlord, rent the property and ask them to allow you to sublease it on short-term rental platforms for 3, 4, 5, 6 to 30 days.

That's one method and it doesn't require you buying the property. Utilizing this big real estate. I'm talking about 3,000, 4,000, 5,000 square foot homes without having a buyer. If they bring in anywhere between 5, 7, 8, 10, we've got several houses doing $15,000 up a month. I'm talking about that method. What we've purchased, which we also do, I would say 60% of our portfolio is rental arbitrage, 20% is purchased direct and about 20% is purchased joint ventures.

[caption id="attachment_3170" align="aligncenter" width="600"] Short-Term Rentals: Short-term rentals allow you to do a lot of deals and impact real estate without having to invest a huge amount of money.[/caption]

We've got a few. We purchased via subject-to, partnerships, joint ventures and our corporate program. What we do for subject-to is we're taking over the payments, taxes, HOA fees and commitment with these wholesalers or landlords or sellers. We're taking the deed over to our property, and we're staging. For example, we have a property in Hawthorne, Texas, which launched in December of 2019 and it consistently brings in an average of $7,500. We just have a $50,000 reservation for 62 nights. Before what we did a little bit under $7,500 but it averages $7,500.

Our mortgage is 60, 48 and that's PITI all in. We do our cleaning and everything. We're all in for about $2,500 max utilities, $400 or $500 cleaning supplies, $2,500, so that's an $800 or $900 on top of our mortgage. Anything above $2,500 is profit. That's what I meant. Do you have any questions about that one?

It was different of words. I was going to ask when you say rental arbitrage is that you get a master lease on the property. You lease it from the landlord, sublet it nightly on the short-term VRBO or Airbnb model. The master lease might not be the right word but you lease the house, pay the monthly, you divvy it out and book it. That's a very clean model. I create financing but I like to keep the numbers simple. To me, that keeps it simple.

This is how I started. I needed cashflow to build a business. I didn't have the money to buy it. Even though I got into purchases several and we own about ten, we did not have the capital to buy a bunch. That was just the method. We don't use master leases but a master lease would speak, in a sense, more of a triple net lease, a commercial lease. It's closer to that when you control everything you take of the maintenance.

Master lease, you take care of everything. You're taking care of your maintenance and all of that thing. With houses which is our method now, we don't go off with apartments anymore because the houses are ten times more profit. I'm just being very conservative. We utilize these residential leases. We do 2, 3 to 7-year leases with initial terms of a minimum 2 to 3 and second terms where we create that option for us.

"We have to take care of your property. Let's do a six-year term but I'm going to come in and rent your property for three years.” In our next two years, let's figure out, what is it that you need for rent increase? Most people right now are getting the max ever the rent. Rents are up by 20% here. We negotiate that second term and the rent increases as low as possible. It's got to be favorable for both parties and we would just focus on these longer leases. Everybody makes fun.

That's your rental arbitrage. When you purchase, you get them sub-to. That's smart. I assume you leave it as long as you can in that original name. Do you put it into a trust?

When we purchase sub-to, we put them into a trust immediately and one of my LLC is the trustee LLC. Then I've got a separate LLC that is the beneficiary. Then we just leave it there. Not saying that you don't run into issues. This is a creative finance strategy. Sometimes if the wholesaler doesn't do a good job explaining all of the little points that you've got to touch, all the disclosures, sometimes we run into an issue that is very unlucky that the seller falls for bankruptcy.

Then it complicates the whole entire transaction. We're figuring this out with one of our sub-tos, but if you do it the right way, the only problem is that you can call the note due if they wish to. Most of the time, 95%, 97%, maybe 90%, it doesn't happen.

I've never had a seller file bankruptcy but I did have a tenant one time in my failed Baytown rental property. The judge gave him four months of rent-free living. The bankruptcy is going to probably get messy before it gets clean. I would like to know about how that turns out for you? I know that you like to partner with your students.

[bctt tweet="Buying profits is one thing, but buying properties with someone you're teaching is another." username=""]

You offer coaching strictly in the short-term rental arena. I liked the model because you bring them up and then you become business partners with them. You got to be careful. A lot of the wholesalers, the first three deals you got to split with me. Once you train these folks up and you go into a JV, what does that look like?

What we're doing is we're internally launching and we've launched it already. Nothing is out in the known yet in the community. What we do is we train these folks which our students are real estate investors because our focus is helping real estate investors get to that six-figure short-term rental cashflow.

Sometimes some of these real estate investors are busy with their wholesaling business, realtor business. They're busy with their subject to creative finance business fix and flip or landlord. They have a lot of properties. What we do is we give them the option. There's no, "You have to partner. We come and train you." If you have too much on your plate, we give that only the students that have been qualified.

Meaning, you've got to have an X credit score, pre-qualify, X amount of funds to be able to do that, because if we launch and buy properties. Buying properties is one thing but buying properties with someone you're teaching and making sure you do this on a consistent basis than others because you ran out of money and that messes the whole entire thing up.

We do the option and our methods are very precautionary. I've called it location process frequents. We party with them 50/50. We go out there, find the deal and rehab it. The studio will purchase it in their LLC or their name or whatever. We use the student's cash or credit. The students bring into cash or credit and they bring into private money.

In a sense, we teach them every step of the deal as if they were doing it because we're doing it together as partners. We teach them as far as so, the students come to the property with us to do the analysis of making sure that the property's numbers are going to work. We meet there to assess the rehab with the contractor. Then we also take them there. We deal with the rehab and we're showing them exactly the back end, the front end how the entire properties have staged the sign.

They're not doing it themselves. We're doing it together. My team is providing the labor, the steps. They're seeing all the steps. Everything is getting executed and they're learning. Most people learn what they do. They're doing with us. Then we turn around and refine the property and deed it over onto our partnership LLC or limited partnership. We all make money. Go home. We have the process in the back. They can do whatever they want and pick the same process and then just rinse and repeat.

In an average ballpark deal, how much does a student need to bring in private money? With sub-to, it’s going to be less but if you're getting in, what was the average buy-in? If I was going to fund one of your students, how much and how long would it need to be out?

The average buy-in depends on the property but we estimate with the down payment costs, as we buy correctly, which is always 75% to 80%, 82% because you can't find anything above that. We're closing with a property this first week of June and this one is pretty much at 78%. They're putting up $40,000, $50,000 on the down payment side of the short-term loan.

On the refinance, if all things work out, our appraisals are coming back, so I'll find out. After figuring out and seeing all the comps we're estimating, you never know what the place was, though but the market is fairly high right now. We're estimating anywhere between 4 or 25 for this deal, maybe 4 or 50. We're going to be in cash out of pocket 30 to 40 max, maybe even less.

[caption id="attachment_3171" align="aligncenter" width="600"] Short-Term Rentals: Through rent arbitrage, one can lease the house, pay the monthly, divvy the finances, and then book it.[/caption]

That includes the short-term loan, the rehab loan and all that. They're going to be cash out of pocket. Then after that, they are all refinanced but they are all carry across, which some tax could roll a little bit above or beyond if things get complicated. All the refinance there are costs for staging. For example, this property is 5,000 square feet but it's going to bring in about $15,000 to $20,000 a month.

We are estimating about $25,000 to $30,000 on the furnace sheets and about $5,000 to $7,500 on the labor, maybe a little lower. You're putting 3540 plus 3540. Maybe a miscellaneous, we estimate 80 to 100 per deal but then you turn around and bring back in an average after the 50/50 split on this deal, our projections for the partner on that 80 to 100 is $3,000 to $4,000. If you do the Math times twelve, that's about 48% annually over a period of five years, which is our term. That's about 200% to 250% of IRR.

When you bring it into the refi, are you going with community banks that are providing your refinancing?

It's going to be either your credit union, an investor loan or just a regular type of financing. One of those three, depending because 80% cash-out refi and we're at 80% on the refi LTV, then we're good.

You're not going to Freddie or Fannie to refinance these. What it means is that if you go to a traditional bank, you're going to get a lot of flak trying to refinance. When I've been refinanced out of bridge loans or acquisition loans, it's never been with the bank I'm familiar with but in some credit union or a community bank and they'll take it all day long because it's backed by real estate and the big banks won't touch it. I was curious. You are getting biz mortgages to refi. Let me just run through the timeline. You buy it, rehab it, appraise it. You're refinancing the short-term money for 3 to 6 months before you refi it?

Up to six.

Do you have a five-year term on that?

Five-year term after we refi. That's when we decide, "We're going to sell or not." The market should be up. There is going to be a certain small cost you're going to have to do in five years.

I understand that you are considering trying to put some money together for a fund so that you can have an ample supply. This is not an

PLP-135 The Fifth cure to a Lean Account Balance

Keith Baker — Mon, 02 Aug 2021 00:30:00 -0600

Hello Private Lender Nation!!!!
If you’re looking for practical tips and advice on how to put the power of the banking system into your investment accounts, then you are in the right place.
But do you want to learn from my mistakes so you can both avoid and profit from them? Well then pull up a chair and pour yourself a drink, my friend. Because this podcast is just for you, as I am dedicated to giving people just like you and me the knowledge and confidence for successful and profitable Private Lending.
In today’s episode, we will continue with our monthly lesson from the book by George Clason's the Richest Man in Babylon. Today’s lesson is the 5^th cure for a small account balance, which is simply: Make your house a profitable investment, or in other words, own your own home. but before we get to the heart of the matter, first I need to do a little housekeeping.
1 - Have you joined the Private Lender Podcast Facebook group? Well why not? Head over to the show notes for the link or simply search Facebook groups for the Private Lender Podcast.
Private Lender Podcast Facebook Group
2 – And most important of all, the Private Lender Academy still needs some work before I introduce her to the world and therefore I’m departing from the original plan in hopes of getting the course to life. However, on August 17^th at 7:30pm CST, I am holding a webinar/Facebook Live where I will begin to teach the principles of the academy. The purpose of the webinar is to get 10 committed people to opt-in to group coaching where I teach you everything I know about originating private loans.
As a result of participating in the group coaching, you will help me refine the PLA and receive a free copy of the course once it is complete. I am looking for 10 students to form this focus group that will help refine the course over a 4-week period beginning in late August.
So head over the www.PrivateLenderAcademy.com and click on Apply Now
Apply – Private Lender Academy
OK, the housekeeping is finished and now it’s time to get down to the brass tacks of today’s episode: the 5^thcure for a lean account. And like so many lessons in life that we should heed, the principle is quite simple, but sometimes we humans seem to have trouble with the execution.
Let’s get down to the brass tacks and listen to what Arkad tells his students:
Make your house a profitable investment. A. K. A. - Own your Home
"If a man sets aside none parts of his earnings upon which to live and enjoy life, and if any part of his nine parts can be turned into a profitable investment without detriment to his well-being, then so much fast will his treasures grow." So spoke Arkad to his class at their fifth lesson.
"All too many of our men of Babylon do raise their families in unseemly quarters. They do pay to exacting landlords and liberal rents for rooms where their wives have not a spot to raise the blooms that gladden a woman's heart and their children have no place to play their games except in unclean alleys.
"No man's family can fully enjoy life unless they do have a plot of ground wherein children can play in the clean earth and where the wife may raise not only blossoms but good rich herbs to feed her family.
"To a man's heart, it brings gladness to eat the figs from his own trees and the grapes of his own vines. To own your own home and to have it a place he is proud to care for, puts confidence in his heart and greater effort behind all his endeavors. Therefore, I recommend that every man own the roof that shelters him and his family.
"Nor is it beyond the ability of any well-intentioned man to own his own home. Has not our great king so widely extended the walls of Babylon that within them much land is now unused and may be purchased at sums most reasonable?
"Also, I say to you, my students, that the money lenders gladly consider the desires of men who seek homes and land for their families. Readily may one borrower to pay the brickmaker and the builder for such commendable purposes, if one can show a reasonable portion of the necessary sum which you yourself have provided for the purpose.
"Then when the house is built, you can pay the moneylender with the same regularity as you did the landlord. Because each payment will reduce the amount you owe to the moneylender, a few years will satisfy his loan.
"Then will your heart be glad because you will own in your own right a valuable piece of property and the only cost will be the king's taxes.
"Also, will your wife go more often to the river to wash your robes, that each time she returns she may bring a goatskin of water to pour upon the growing things.
"Thus come many blessings to the man who owns his own house. And greatly will it reduce his cost of living, making available more of his earnings for pleasures and the gratification of his desires. This, then, is the fifth cure for a lean purse.

Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.

It doesn’t take that long and it’s a small price for the value I try to provide.
That’s gonna do it for Episode 135 and just a few final thoughts:
1 – Join the Private Lender Podcast Facebook Group
2 - Head over the www.PrivateLenderAcademy.com and click on Apply Now
Apply – Private Lender Academy
if you would like to be part of the group coaching focus group.

As I sign off I’d like to say in addition to self-awareness and mindfulness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k

PLP-134 Mindful Money: How To Make Better Money Decisions With Jonathan DeYoe

Keith Baker — Tue, 27 Jul 2021 03:00:00 -0600

How does the state of our mind affect the way we make money decisions? You came to the right place to find out. Keith Baker’s guest today is Jonathan DeYoe, founder and CEO of Mindful Money. Jonathan explains to Keith Baker how mindfulness creates a space between the external stimulus and your response. It’s that moment of calm you need to make the right decisions based on facts instead of emotions. When you adapt mindfulness in your finances, you start making better decisions. How can you practice mindfulness? Tune in to find out!
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Mindful Money: How To Make Better Money Decisions With Jonathan DeYoe
Investing In Your Happiness
I'd like to thank you for sharing your time with me. If you're looking for practical tips and advice on how to put the power of the banking system into your investment accounts, then you are in the right place. If you want to learn from my mistakes so that you can both avoid and profit from them, then pull up a chair and pour yourself a drink because this show is just for you. I'm dedicated to giving people like you and me the knowledge and confidence for successful and profitable private lending.
[caption id="attachment_3155" align="alignleft" width="194"] Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend[/caption]
If you're looking to join a community of private lenders then head over to the Private Lender Podcast Facebook group to connect with other private lenders and to share experiences, stories and opinions. While you're at it, head on over to the PrivateLenderAcademy.com to learn more about the forthcoming course on private lending and click on Apply Now to register for pre-launch discounts and other goodies. I was a little skeptical when I first learned about our guest. I wasn't sure he'd be a good fit for the show at first because I didn't spend a whole lot of time digging too deep, but after speaking with him for a minute, I knew he had to be on the show so we booked it. I'm happy to share Jonathan DeYoe with you and hopefully introduce you to him.
As I've shared in previous episodes, I am on a bit of a mindfulness journey. I like to sign off wishing you mindfulness from every episode. Given that life has happened to me in the last few years, divorce, etc., I'm happy that someone has applied the mindfulness approach to money. As I look back, I wish I would have applied mindfulness years ago especially to money because at least in my case, with the relationship with my ex, money wasn't a huge issue but it was large enough. If we both had been mindful about it, maybe things would have been different, at least on the money front. I’m not saying I'd still be married but the awareness and the understanding would have been a lot better. Such an approach can eliminate a lot of the money pains and ill feelings that couples have. Let's go ahead and get down to the brass tacks of this episode and get straight to the interview with Jonathan DeYoe.
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Lender nation, I am throwing a curveball to you because we're not going to talk about private lending and all but we will be talking about money. Our guest has an interesting approach to money, one that I certainly want to use this platform to get out into the world and more people to learn and that is mindfulness. Early on in my practice, unfortunately, mindfulness was not court-ordered for me so I'm doing this on my own little by little. Jonathan DeYoe, welcome to the show.
I'm excited to be here, Keith.
Jonathan has nothing but good reviews on Yelp and whatnot. He is in the Berkeley, San Francisco Bay Area if you want to get in touch with him. This whole mindfulness thing, I don't have the words but you do. This is what you do on a daily. Let's start with your practice, your financial advising and how you bring that mindfulness element to the complete lack of financial literacy that is taught or the vacuum that is teaching financial literacy in the United States. Jonathan, the floor is yours.
[bctt tweet="Mindfulness is when you create a space between the stimulus that the world gives and your response. " via="no"]
Maybe a little background makes a lot of sense. In a brief nutshell, I'm a seminarian. I came to California to study at the Lutheran Seminary, turned Buddhist academic, turned financial advisor. The concept of mindful money comes after a long journey of self-discovery, comparative religion, philosophy, psychology and trying to figure out how people work and the decisions we make. I started in 1996 and wrote the book in 2007. After 10 or 11 years in the business, I had this semi-epiphany that it's the decisions we make that create our problems or our successes. The question is how are you making your decisions?
If you have a space between “Oh my god,” or, “Yay,” and a decision where you can think, you can make a better decision. That's where mindfulness comes in. It’s creating that space between the stimulus that the world gives us and our response. Mindfulness has been studied and practiced for thousands of years, specifically to resolve this issue of our over-reactivity to the stuff that's coming at us from outside of us. It turns out in finance, there's a lot of that. Putting those two things together became exciting and became something that I was like, “I figured out. This is my mission. This is what I want to share with the world.”
Before we got on, I sat on my stairs for a few minutes. I didn't meditate but I started noticing my breath. I’m trying to bring it in and give some of that space. When ADD was going around and all the rage in the late ‘70s and early ‘80s, my father was convinced I didn't need any medicine. I just needed a good ass whooping. That's all. I missed out on that boat so to speak. Had I gone down that route, my life would have been a little different in terms of disidentifying the news media, Instagram hits and all the stimuli that are coming in and molding decisions.
I sat there, trying to find that space and not try to attach to any thought, which is hard. This interview was a guided meditation for me. You talked about that space and where this is all coming from. You are a seminarian which is awesome. It's funny because Friedrich Nietzsche was also studying to be a Lutheran minister before he went to the University of Bonn. You had a personal journey then you got to this point. You’ve been doing it for many years now. You have got to be the one lone voice in the darkness talking about mindful money. How do you convince people? How did you lead that horse to water?
[caption id="attachment_3156" align="aligncenter" width="600"] Mindful Money: Don't take from the ‘serious money’ to refill the 2% money.[/caption]

I almost didn't want to name the firm, Mindful Money. In 2001 when I started my own firm, I named it DeYoe Wealth Management until 2019. A couple of years ago, we changed the name. My book was published in 2017 and that's when I put it all together, mindfulness with money, why that's important and how to use those two things together. I was the only person talking about it and I thought that if I brought it out there, my peer group would say, “That's soft. That's silly. How can you say that? You're full of crap,” that kind of stuff and I would feel small.
I discovered how much I'm afraid of not being believed in. I need people to trust me and to believe in me. If I don't have that, I don't value myself as much. That's a deeply personal thing. I'm coming to realize some things about myself after years and years of working too hard, trying too hard and all kinds of stuff. The fear of not being accepted in my industry where this philosophy or this belief system drove me to turn away from it for years and years. Finally, I said to my team, “This is what I want to do.” I girded myself for the barbs and they're like, “That's what you believe. That makes a ton of sense. Let's do this thing.”
Now we're all together and doing this thing in the world. It's cool. We're not entirely alone. There are 3 or 4 books that are entitled Mindful Money. Years ago, somebody won a Nobel Prize for behavioral finance. Daniel Kahneman has a new book and I recommend this book, Noise. He used to talk about how we have all these biases and our biases are problematic. In my opinion, the benefit of mindfulness is it enables you to get over some of the biases. If you're aware of the biases and you're aware of your experience of the current environment, you can go, “I'm having an emotional response I don't need to have.”
His latest book is all about noise. In our social media world, there is so much noise and there's much overwhelm. Our amygdala doesn't know how to deal with it. There are lions coming out of the bushes every step and we don't know what to do with us. Our bodies and our minds are not designed for this continuous constant threat and stress so we just react. Mindfulness becomes more and more important. Because there's an academic saying, “The benefit of an advisor isn't stock selection or investment selection, market timing.” Planning, education and behavioral support to help you do the right thing at the right time, not do the wrong thing at any specific time, not react. Act based on a plan. Stop reacting based on markets or something somebody said on a peer set or on the water cooler or whatever. We act based on a plan. We don't react to what the world is doing to us.
The best illustration I have in my head for that is we ran out of toilet paper for a virus for the respiratory system. Not Kleenex. It’s not for sneezing and coughing. I was at the grocery store. There was a run on toilet paper. It’s herd mentality. I was right there. I'm one of the bad people. I admit it. I've instituted a par system so I don't have to worry about that. I used to work at a bar. Each bottle of liquor or each beer had a par. You always had to have ten bottles at any one time or the high-end scotch, you just had one. The cheap well vodka, you had twenty.
[bctt tweet="The benefit of mindfulness is it allows you to get over biases. " via="no"]
Being here on the Gulf Coast, we're used to hurricanes and being without things for a while. I keep updating my hurricane list. I don't do it just from June through November. It's a year-round thing. When Hurricane Harvey hit, my wife at the time was like, “How can you be so calm?” I'm an insurance adjuster so I deal with risks and bad things all the time. I told her, “This is an act of God. We've prepared as much as we can and we're fully insured. I confirmed all insurance premiums have been paid like flood and windstorm. We're good. We've done everything that we can.” She got mad at me when I threw a party to watch the pay-per-view fight right in the middle of Harvey because I was calm. I didn't have to react. I was prepared. It went a long way of trying to confirm. What you're saying resonates and hits home.
This is a story that my dad told me. This is the Cold War era. He's in the Navy. There was this guy on the plane that was always calm and he was very analytical. If there's ever an issue, turbulence or something was happening, my dad would look at the guy and he would say, “Is he calm? If he was calm, we're steady and we're good.” There was this period where they were to land in Iceland but an engine blew. They're like, “What's going to happen? Are we going to be able to make it back? Are we going to go into the ocean?” They’re not sure what's going to happen. They were doing reconnaissance. They were looking for submarines from the air.
That engine blows and they're trying to get back to Iceland. He's looking at the guy and the guy's like, “We got this. We're fine.” He's calculating and figuring it out. The other engine blows and they're like, “We have to start ditching stuff into the ocean. We have to start pushing stuff out the door so we have enough lift. We got to stay above so we can get to the coast and land this thing.” He keeps looking at the guy and the guy is calm. They pushed some things out the door and the guy is totally calm. He goes, “Now we get it. We have to lose another 300 pounds. If we can lose 300 pounds, we're going to make it all the way.” No engines. They're just soaring.
He keeps looking at a guy. The point of the whole story is we need the guy. In Hurricane Harvey, you were the guy. We need to have something to look at that is calm and collected because if we don't have that, we all lose our minds if we don’t have somebody that's like, “Wait. Back up a second. This is normal. It's an act of God. These things happen. We prepare the best we can and we go forward.” Be the guy.
Welcome to Houston. I don't know what to tell you. We do have good weather for about two weeks a year and it's not humid. It's pleasant. We get a lot of snowbirds coming down for the winter and whatnot. I don't want to throw my parents under the bus but a little peek inside of things. On a Sunday morning, I went to my mom's house. My dad passed away so we're going through the stuff. I'm making sure mom’s all right. My sister lives close to her and my nephew is with her so that's all good.
My dad had a Master's in Chemistry and I was like, “There's his thesis. I'd like to keep that.” That's a trinket that I'm cool with. I'll dust it every week. We got to this and mom started laughing. She's like, “From 1967, here’s a certificate of completion from a financial education class.” My dad was not the best with money so we started laughing about how funny it was that he took financial education literacy class. I started thinking, “He didn't die in debt. He was in the black. He wasn't in the red.” I started thinking about that and I was laughing about it.
You don't have to be good. You just have to be consistent. Having that background of money and being that middle-class aspiring like, “Do you want to be rich and famous?” “No. I want to be rich. I don't want to be famous. I don't want people to know I'm rich.” When it comes to being mindful with money and budgeting, I can definitely see where if you can give yourself a little bit of space and get quiet, you're budgeting your allocation to retirement, vacation fund and all that. I would imagine once people get into that, your job is easy at that point.
[caption id="attachment_3157" align="aligncenter" width="600"] Mindful Money: The first rule of investing is to manage your risk.[/caption]

The most difficult thing we have and we do this with all of our clients is we walk through the planning process. In the planning process, we remove the crazy. For example, like a Bitcoin. We remove the investment that would act like a GameStop or an options trader. We remove the expectation of the upside and the downside. We look at averages, long-term, cashflows, spending and making decisions based on things that give us higher probability outcomes. By removing the crazy, we create ground rules on how people work with money.
Whenever stress occurs, they’re like, “What is the plan you told me I’m supposed to do? I'm supposed to save this much every month, invest this way every month and rebalance on a regular basis. Keep it simple.” If you keep it simple, you end up getting the things that you want out of life. If you get sucked into the crazy, which there's plenty of crazy to get sucked into, you lose out on the higher probabilities that you're hoping for. You lose out on the probability of the kids going to school without debt, their retirement income you can't outlive and the legacy you want to live behind. By going into the crazy, you lose out on the higher probability path to get where you want to go.
We talk about the plan and the meditation. You sit down and you focus on your breath. You sat in the staircase before we got on here and you focused on your breath. You're in, out. That focuses and desensitizes you to everything's going on around you. In personal finance, your plan is your breath. It is the thing you focus on. When all the world is going crazy, you go, “What are those four simple things I'm supposed to do?” That's the benefit of planning. Once you have a plan in place and you have a portfolio that reflects the plan, we're not portfolio wizards, we admit it. No one's a portfolio wizard. Everyone is either lucky or unlucky. We are allocated and diversified.
Thank you for being the first in the industry to admit that.
There are no wizards. No one can predict the future. No one can guess what's going to happen next but there's still a way to build a portfolio. There's still a way to strategize on finance. We use those ways and then we're patient and we're disciplined and the plan enables that. When somebody says, “What about this thing?” I say, “Let's go look at the plan and see what the plan says about that.” Keep it simple. That's how we get from where we are to where we want to go.
My dad showed me a video on how Post-it Notes recreated at 3M and the research scientist had 3%, 5% or whatever their annual budget was supposed to be dedicated for whatever they want. This guy wanted something to mark pages in this hymnal when he's singing in the church choir. It’s simple things like that but I always think you should always have that gambling money. When Bitcoin does come along, it's like, “We got the fear of missing out,” which only puts you into a state of lack and wanting and is not great. If you still want to scratch that itch, I'm a firm believer in, “Fine. Take that 0.5% or 1% of whatever you've allocated in your plan and know that you're going to lose it anyway.” It's like going to Vegas. “I'm going to take $1,000 to Vegas and piss it away. I'm coming home.” To me, that mentality is a healthy part of what we call asset allocation.
[bctt tweet="When you keep it simple, you end up getting the things you want in life. " via="no"]
Back when Steve Jobs was accepting an investment from Microsoft in the late ‘90s or early 2000s, Apple’s on the ropes. Apple is dying. They are not going to survive. They need capital. We had a couple of clients that said, “It looks like Microsoft's going to make this investment. Apple's got great products.” If you're an Apple user, you are an Apple user. You've got the phone, the watch, computer, iPad or laptop. You've got...

PLP-133 The Fourth Law of Wealth

Keith Baker — Mon, 05 Jul 2021 01:00:00 -0600

The Fourth Law of Gold
Hello, Lender nation and welcome to Episode 133 of the Private Lender Podcast! I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
I hope everyone is enjoying their 4th of July observance the day this episode goes live, and to the other 194 countries not named the united states of America, then I hope you have a good Monday!
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If you’re looking for practical tips and advice on Private Lending and how to keep your money safe, then you are in the right place. But if you want to learn from my mistakes so you can both avoid and profit from them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
Today we continue with the lessons taken from the book The Richest Man in Babylon: the fourth law of wealth. This is but one old-world principle that has remained relevant and true through the centuries, no matter the currency, and no matter the political climate.
But before we get to the brass tacks, I would like to perform the housekeeping:
1 - Have you joined the Private Lender Podcast Facebook group? Well, why not? Head over to the show notes for the link or simply search Facebook groups for the Private Lender Podcast.
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The Private Lender Academy is slated to launch after July 4th, 2021.
OK, the housekeeping is finished and now it’s time to get down to the brass tacks of today’s episode: the 4th Law of Wealth (Gold).
In the book, the Richest Man in Babylon, there are 7 cures for a lean purse, and 5 laws of Gold (wealth) and today we will discuss the 4th law of wealth, which is simply:
“Gold slips away from the man who invests it in businesses or purposes with which he is not familiar, or which are not approved by those skilled in its keep.”
“To the man who has gold, yet is not skilled in its handling, many uses for it appear most profitable. Too often these are fraught with the danger of loss, and if properly analyzed by wise men, show small possibility of profit. Therefore, the inexperienced owner of gold who trusts to his own judgement and invest it in businesses or purposes with which he is not familiar, too often find his judgement imperfect, and pays with his treasure for his inexperience. Wise, indeed, is he who invests his treasures under the advise of men skilled in the ways of gold.”
The lesson here is simple: seek the advice from those who have a successful track record of investing theirs, and other people’s money, to help ensure your success. Gather opinions and seek counsel from proven investment strategies.
Do not get caught up in the swell of a bubble market when “everyone is doing it” or “it’s so easy, why aren’t you doing it?” Do not bet your treasure on the shiny object.
But rather seek friendship, fellowship, counsel, and advice from those skilled in successfully handling and investing money. Let them help guide you beyond the wolves and the hype of speculation.
Remember, you’re net worth is equal to your network. No go out and find such people to help stay safe and invest with logic rather than emotion.
Ok, the sermon is over. Thank you for listening.
Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at Google Podcast, Spotify or whatever platform you are using to hear my voice.
But it would mean the world to me if you could leave an honest rating and review over at iTunes, because it's apple and they're still the benchmark.
It doesn’t take that long and it’s a small price for the value I try to provide – for free.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to me and the Private Lender Podcast so they can develop the skills and confidence to become a successful Private Lender.
That’s gonna do it for Episode 133 and I’d like to provide you with a few final thoughts:
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2 - Remember, the http://privatelenderacademy.com/ will launch in July 2021. Head over to http://privatelenderacademy.com for more information. And to be eligible for discounts and other pre-launch goodies like group coaching calls, then click on “Apply Now”
So, as I sign off I’d like to say in addition to self-awareness and mindfulness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k

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PLP-132 Guiding The Lender: Sarah Montes On RMLOs

Keith Baker — Mon, 28 Jun 2021 03:00:00 -0600

Once you become a lender and you're looking for people to purchase your property, how do you find the buyer? How do you make it look affordable? How do you know which rules and regulations to follow? An RMLO or a residential mortgage loan originator will do just that. Learn from Sarah Montes who is the President of Texas Pride Lending on why you need an RMLO. Joining Keith Baker, Sarah explains how an RMLO guides the lender on the payment process. Listen in today on how Texas Pride helps lenders in this regard.
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Guiding The Lender: Sarah Montes On RMLOs
I would like to thank you for sharing your time with me as well as your consideration. If you're seeking practical tips and advice on how to increase wealth without cheap banks or unpredictable Wall Street through private mortgage lending, then you are in the right place. If you want to learn from my mistakes so that you can both avoid and profit from them, then pull up a chair and pour yourself a drink because this show is for you. This episode has been more than four years in the making. It has got a bit of a story behind it.
Before we get to that, I want to encourage you to join the Private Lender Podcast Group. It is a public group, but I personally vet the applicants to ensure that it truly remains a group of just us private lenders. After years of empty threats and promises, the Private Lender Academy is finally launching in July 2021. You have the opportunity to get in when the doors open as a founding member, which means you won't be charged full price and you'll receive founder pricing on additional courses in the future. Go to PrivateLenderAcademy.com for more info. Click on that Apply Now, fill out some information, tell us a little bit about yourself, and you'll be on the list for the founding member.
It is time to get down to the brass tacks of this episode. It's when my best borrower switched his business model from buying and converting into owner-financing notes using private lender money as the underlying lien. He streamlined his business and went more into a wholesaling model, which means he didn't need a private lender. He also went into a small apartment complex, which was way above what I had to offer. He did me a favor and introduced me to his friend, Landon Rothstein, who has been on the show. I initially was Landon's private lender before coming as his partner in Asset REI in 2017.
At that time, Landon was a student of Mitch Stephen. He was looking to use my money as a first position and then wrap it with seller financing with an additional lien. He explained that we would use an originator to keep everything legal and above board. Since this came from Landon, I was skeptical and decided to investigate things myself. Ultimately, I came to the conclusion that Landon wasn't BS-ing me. He was indeed accurate, right, and correct. Before we put an owner-occupant inside a house with my money providing the lien, we used Texas Pride Lending, which took the end buyers' application, financial information, records, and everything that a bank or loan officer would take. They confirmed that the borrower could reasonably be expected to make the mortgage payments based on their finances, how the note was structured and the length of the note. It would be reasonable for the borrower to be expected to make these under the federal guidelines, Freddie Mac and Fannie Mae.
It was during this process when I met our guest, Sarah Montes. She took care of everything and made the process extremely easy for me as a lender. If I had a question in the morning or afternoon, it was answered with the package, documents, or whatever was requested. The lender is quick and customer service-oriented for me. After I started this show, I begged her to come on the show and talk about Dodd-Frank. Why do we need RMLOs? Why do we need a loan to be originated? Our schedules never aligned. I hadn't reached out to her for over a year. I sent an email, "How are you doing? Here's a link to my recording schedule. I still want to get you on. I would love to interview you."
[caption id="attachment_3145" align="aligncenter" width="600"] RMLO Lending: The main thing the RMLO does is to make sure that the buyer can afford the payment of the lender.[/caption]

She booked it and replied almost immediately. That was the universe or God's way of telling me, "The time wasn't right before, but the time is now." Speaking of that, the time is now for you to pay attention. If you've ever thought about having your first mortgage wrapped or you're an investor looking to utilize seller financing as an exit strategy, which I suggest you do, then you need to read and take notes because Sarah is about to educate all of us. She takes a complicated federal law and breaks it down to where somebody like me can understand it easily. Without any further yip-yap from me, let's go ahead and get to the interview with Sarah Montes of Texas Pride Lending.
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I have a very special guest for you. This is the first RMLO on the show and only so far and for a good reason, you're about to find out why. Please help me welcome Sarah Montes to the show. Sarah, thank you so much for coming on.
Thanks for having me.
A little background with everyone. I've gone on ad nauseam about my foray into lending and into owner finance with my partner, Landon. That's how I was introduced to Sarah. Landon was using her Texas Pride Lending for RMLO. What is RMLO?
It stands for Real Estate Mortgage Loan Originator. That's what we're doing. We're originating the loan on your behalf, the private lender/owner finance. We've been doing originations for Landon for years. Thanks, Landon, for introducing us.
I always tell people never to loan to an owner-occupant because it's no longer a business loan at that point. Now, you're in the consumer world. There are a lot of protections that are in place for the consumer and some obstacles to do business with them that we have to comply with. If you are going to loan to an owner-occupant, or in this case, my loan is going to be wrapped to the owner finance model like Mitch Stephen and Landon use, then it has to go through the RMLO process. People ask me, "Why do I want to go through the RMLO process? It's an extra step and cost." I like to twist a quote from Chuck D and tell them that, “The reasons are several and all of them are federal." I'm going to let you go into that part of it, why we need the RMLO, and all that fun stuff. The floor is yours.
[bctt tweet="Your debt-to-income needs to be at least 50% to buy a house." username=""]
If you're going to be loaning to the consumer, to the end buyer, if you're an investor, you're going to do your fix-and-flip or whatever you're going to do to a part of that property. Once it's finished, you're going to be a lender. You're going to lend money to a person to purchase this property. If you're acting as a lender, you have to follow the rules as a typical lender like the banks would because now, you're acting as a bank. That's where the rules and regulations come in. It's to make sure that you're following all the guidelines and not taking advantage of the buyer.
They put some guidelines in place in 2014. The guidelines are good because they are pertaining to a small creditor. We have guidelines for the big banks and then for the little people like us that are going to do a few a year. We're going to be lending under $1 million. What we need to do is make sure the main thing on Dodd-Frank rules and regulations is to make sure that the buyer can afford that payment. That's where we come in. The RMLO will gather all of the proof of income. The lender, seller, and RMLO, we're not putting that buyer in a situation where they're not going to make that payment. It's going to be common sense underwriting. Does this person, after he pays his car payment and credit card bills, is he still going to have enough money after paying his house payment to live?
It's all the whole DTI, Debt-To-Income ratio, but I want to say it’s common sense underwriting because we're not looking at their credit. We're not doing any of that like a bank. The main thing is the ability to repay that loan. That's one. The reason why also that you use an RMLO is because if you ever have to foreclose on that person, if they default and you go to court, you want to be able to say, "I checked the financials. I had a third-party RMLO check their financials to make sure that they could afford this payment." If you don't do that, they can come back to court and say, "I couldn't afford that payment and they still gave me that loan."
If that happens and the judge on their side, then you would have to pay back all the interest that you ever earned on that loan and pay their attorney costs. It's going to cost you more in the long run than doing everything you need to do now. In the beginning, do it right and be compliant. The other compliance side of that is to make sure that the buyer has disclosed all the loan terms. Whatever the loan terms are going to be, for us, we send out the loan disclosures in writing. They sign off on it. If you have to go to court, they can't say, "I didn't know that was my interest rate. I didn't know this or that." Here it is. It’s all in writing in a pretty little package for you.
It goes to one of our core values as a private lender. There are two ROIs. One is the return of the investment first. If you're going to loan $100, make sure you get your $100 back. The second one is a return on that investment. If I have to go to court, I would not want a judge to say, "I'm sorry. You're going to have to pay everything back." I'm a stickler for this, especially with my money go through the RMLO process. Depending on what state you're in, make sure you're under usury as well because you don't want your loan invalidated in court.
The other thing that we do with your RMLO is we know all the laws, regulations, and thresholds for you to stand there. This is where we come into is to guide you to say, "These are your terms, but let me suggest this because of the thresholds that we have as small creditors." That's another great reason to use an RMLO that knows the laws for a small creditor. An RMLO is a licensed loan officer. The majority of them out there are trained in the conventional world. They're only going to know the big predator regulations. They're not going to know the small creditor regulations like Texas Pride does.
You provide services in Texas. Do you go out of state as well?
No, we're only licensed in Texas, but we are opening up other states in 2021.
I was a little ahead of the curve. That's fine and good to hear.
I want to add. Everybody asks me all the time, "Why can't you do other states? There's so much need out there." We have so much going on here in Texas that it's hard this whole time that we've been doing it. That's what's kept us back from doing it.
[caption id="attachment_3146" align="aligncenter" width="600"] RMLO Lending: A qualified mortgage is that the buyer has the ability to repay the loan terms. To make sure that there are no risky features in the loan terms, that you're under the thresholds for a small creditor.[/caption]

I'm in the same boat. I don't even have to leave Houston, let alone Texas, to put my money to work. Unfortunately, I run out of my own money. It's not like I have a whole lot, but I do try to put it out there. People say, "Why don't you lend here?" I'm like, "Why?"
I have a lot of private investors do that come from out of state. They specifically want to loan in Texas because they know the market is so hot.
I look forward to seeing what states you guys do pop up in. This isn't just, “I'm bringing somebody on.” I've used Sarah and Texas Pride myself. This is like a testimonial coming from me. We're Dodd-Frank compliant. You've provided all the documents to protect me, the lender and/or real estate investor, for doing owner finance. We're compliant there. What are some of the other benefits on the backend of having the RMLO go through the loan?
At the end of our processing, underwriting, we'll give you a full underwriting package for you to keep for your files. If you ever decide that you want to sell that note, later on, you have this compliant underwriting package that says you have a qualified mortgage. It's a stamp of approval that you have a qualified mortgage. Note buyers typically will pay a lot more when you have a qualified mortgage. That's probably one of the biggest reasons too why you should if you're planning to sell that note later. Even if you say, "I'm not interested in selling my note," you never know. Later on down the road, maybe you package them up. You have ten, sell the whole portfolio, cash out, and start all over again. That's another reason to have an RMLO package in your files for each property that you do.
I tend to hold my notes until the end. However, that's not to say that I might not get in a bind or need to sell 1 or 2 years' worth of a note that income stream.
Maybe you have another opportunity you want to go after.
I need to recapitalize to go off into something bigger and better. I'm only teaching and coaching on residential, but in my personal lending, I've gone out into multifamily and commercial as well. There's a whole other set of underwriting and everything else beyond that. To circle back, let's define a qualified mortgage.
A qualified mortgage is you have made sure that the buyer is qualified through the ability to repay. That there are no risky features in the loan terms that you're under the thresholds for a small creditor. The interest rate has to be under 6.5% plus time. That number is continuously fluctuating every week. We have to check it and see where we're at. Whatever the prime rate, plus 6.5%. That's your max threshold for the interest rate. As far as the terms, you can't go over 30 years. You can't do a 45-year mortgage or something like that.
There are all these little different things that we need to do to make sure that the terms are within the threshold to call it a qualified mortgage. Once we run everything, we'll give you a qualified mortgage report that says, "Check, it's passed." Another thing is points and fees. You can't charge over 3% in points and fees. It's different things like that we make sure. As we RMLO, I'm the one that's going to make sure to keep you within those thresholds and guidelines to make sure that you have a qualified mortgage.
[bctt tweet="Keep your purchase price payment affordable." username=""]
I'm used to hearing points and fees. If I lend out of my self-directed IRA, those fees that I pass onto the borrower would be included in that 3%?
That's right. It has to be under 3%, but those are the lender fees, the fees that are going to hit the APR. It's not title fees and escrow reserves.
Is it 3% points in junk fees?
Yes, just lender fees. It’s anything that you're going to tax the buyer with origination fees, funding fees, and transaction fees. Anything that's going to be paid directly to the lender, that's where you're capped.
Thank you for clarifying.
If you're paying the title company or an attorney, it's not in that.
Normally, when I've done owner-financed notes or wraps, we don't even charge points to the end buyer as long as they've got a big enough down payment or whatever threshold Landon has set. Whoever has got the most money when we do these things, he's the one with the boots on the ground doing it.
Ninety-nine percent of the lenders do not charge origination fees.
We're trying to help someone who's unmortgageable get into a house with a mortgage. Let's roll back here. I'm curious and know I can Google all this. I tried to Google what the prime is but I didn't get the prime rate is what I'm looking for. I was trying to search the prime rate now.
I usually go to Bankrate.com. It will say conventional, FHA, VA, and all of that stuff if you just do a conventional loan. It's typically right around 3.5%. Now, the interest rates are super low. You might see 3.2%. It goes for the week. Every week, it changes. It's hard for us to charge higher interest rates. We're about at 9.25% since we don't know what the future holds and when these interest rates will start rising again because we used to be at 9.99% or 10%. We're struggling with that because of the low prime rate. What I would suggest is to do a five-year ARM, Adjustable-Rate Mortgage, so that you don't have to guess what's going to happen in five years. You can start off at whatever it is now and then you say, "In five years, I'm going to add the 6.5% to prime, whatever the prime is at that point." As interest rates start going up, so does yours as well. You're going to be with the market. You're not going to be left behind. As interest rates go up and your threshold is up to 13%, you're kicking yourself. It's another way to protect yourself when it comes to interest rates.
Correct me if I'm wrong. In Texas as the consumers, you got to be under 10% or no higher than 10%?
It's based on the 6.5% plus time.
Back to the consumer side of things, DTI, Debt-To-Income. I like to give people quick stuff like, "Average guy or lady on the street wants to buy a house." What kind of DTI do they need?
For quick, fast numbers, I would always say 50%. Say, "How much money do you make? The 1% rule for the payment is a good tool for you." I always say, "One percent of the sales price is typically your mortgage payment that includes taxes, insurance, servicing fees, and everything." If you use 1% of your sales price, then that will give you what your estimated payment would be. It's easy numbers. If you have a $100,000 house, your payment is going to be $1,000. Maybe that's a bad scenario. If you have a $200,000 house, your payment is going to be $2,000 a month. That person has to make $4,000 monthly to afford that payment. You're out in the field, walking the property with a client for fast, quick numbers that you can put in your head, say anything under 50% would qualify the buyer. I...

PLP-131 Three Strategies for Private Lending with Less than $50,000

Keith Baker — Mon, 21 Jun 2021 00:01:00 -0600

Hello Private Lender nation and welcome to episode 131 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time and your ears with me today.
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If you’re seeking practical tips and advice on how to increase wealth without banks or wallstreet through private mortgage lending, then you are in the right place. But if you want to learn from my mistakes so you can both avoid and profit from them - well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
In today’s episode, we’ll go over 3 ways you can start lending with less than $50,000. But before we get to the heart of the matter, first I need to do a little housekeeping.

1 - Have you joined the Private Lender Podcast Facebook group? Well why not? Head over to the show notes for the link or simply search Facebook groups for the Private Lender Podcast.
Private Lender Podcast Facebook Group
2 – And most important of all, the Private Lender Academy is launching in just a few weeks and if you would like to get on the list for pre-launch bonuses like discount codes, then head over to PrivateLenderAcademy.com and click on “Apply Now”: provide some background on your investing experience and goals
Apply – Private Lender Academy
The Private Lender Academy is slated to launch in mid-July, which is still after July 4^th weekend, so I’m not a complete liar. Look, it’s a lot more than I thought it would be, but I will bring it across the finish line: come hell or high water.
OK, the housekeeping is finished and now it’s time to get down to the brass tacks of today’s episode: 3 ways to lend with less than $30,000.

1 – REIT - Real Estate Investment Trust:
A company that owns, operates, or finances income-producing properties
Pay a minimum of 90% of taxable income in the form of shareholder dividends each year
·        Modeled after mutual funds – most publicly traded on public exchanges – provides liquidity
·        Do not provide much capital appreciation
·        Usually target a specific asset class/sector
Multi-Family
Commercial
Mobile Phone Towers
Hotels
Data Centers
Retail
Timberland
Warehouse

Most are equity REITS
Some are Mortgage REITS which lend to operators or purchase mortgage-backed securities

2 – Real Estate Fund
Think - hard money loans on Single Family Residences:
o  Fix and Flip
o  Buy and Hold
o  Commercial/Multi-Family
·        You provide capital at an agreed interest rate
·        ~ 1 year minimum
·        Quarterly interest payments
·        ~ 90 notice to receive return of principle
Episode 43 with Tom Berry from Investor Loan Source. Great way to see due diligence (loan packages) while someone else does all the work

3 – Lend to Owner Finance investors
           Provide the purchase capital in the first position
           Your lien is “wrapped” by a second mortgage from your borrower to the end- buyer
           3 – 5 years
           8%
Mitch Stephen perfected this model of investing.

So, let’s recap these first 3 strategies for lending with less than $50,000:
1 – REITs
2 – Real Estate Funds
3 – Owner Finance

OK. Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.
It doesn’t take that long and it’s a small price for the value I try to provide.

That’s gonna do it for Episode 131
1 – Join the Private Lender Podcast Facebook Group
2 - Remember, the http://privatelenderacademy.com/ will launch in July 2021. Head over to http://privatelenderacademy.com/ for more information. And to be eligible for discounts and other pre-launch goodies like group coaching calls, then click on “Apply Now”
So, as I sign off I’d like to say in additional to self-awareness and mindfulness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k

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PLP-130 The Fourth Cure For A Small Account Balance

Keith Baker — Mon, 14 Jun 2021 01:00:00 -0600

The Fourth Cure for A Lean Account Balance
Hello Private Lender nation and welcome to episode 130 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
If you’re looking for practical tips and advice on how to keep your money safe as a Private Lender, then you are in the right place. But if you want to learn from my mistakes so you can avoid them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
In today’s episode, we will continue with our monthly lesson from the book the Richest Man in Babylon. Today’s lesson is the 4^th cure for a lean account, but before we get to the heart of the matter, first I need to do a little housekeeping.
1 - Have you joined the Private Lender Podcast Facebook group? Well why not? Head over to the show notes for the link or simply search Facebook groups for the Private Lender Podcast.
Private Lender Podcast Facebook Group

2 – And most important of all, the Private Lender Academy is launching in just a few weeks and if you would like to get on the list for pre-launch bonuses like discount codes, then head over to PrivateLenderAcademy.com and click on “Apply Now”: provide some background on your investing experience and goals
Apply – Private Lender Academy
The Private Lender Academy is slated to launch after July 4^th weekend!
OK, the housekeeping is finished and now it’s time to get down to the brass tacks of today’s episode: the 4^th cure for a lean account.
And like so many lessons in life that we should heed, the principle is quite simple, but we humans seem to have trouble with the execution. The 4^th cure for a lean purse points precisely to the first Core Value of a Private Lender: ROI1 - Return of Investment.
Let’s get to it, and listen to what Arkad tells his students:
“Misfortune loves a shining mark. Gold in a man’s purse must be guarded with firmness, else it be lost. Thus it is wise that we must first secure small amounts and learn to protect them before the Gods entrust us with larger ones.
Every owner of gold is tempted by opportunities whereby it would seem that he could make large sums by its investment in most plausible projects. Often friends and relatives are eagerly entering such investment and urge him to follow.
The first sound principle of investment is security for your principle (Return OF Investment). Is it wise to be intrigued by larger earnings when your principle could be lost? I say not. The penalty of risk is probable loss. Study carefully, before parting your money, each assurance that it may be safely reclaimed. Do not be misled by your own romantic desires to make wealth rapidly.
Before you loan it to any man assure yourself of his ability to repay and his reputation for doing so, that you may not unwittingly be making him a present of your hard-earned money.
Before you entrust it as an investment in any field acquaint yourself with the dangers which may threaten it.
My own first investment was a tragedy to me at the time. The guarded savings of one year did I entrust to a brickmaster who was traveling over the far seas and in the city of Tyre agreed to buy for me the rare jewels of the Phoenicians. These we would sell upon his return and divide the profits. The Phoenicians were scoundrels and sold him bits of glass. My money was lost. Today, my training would show me at once the mistake I made of entrusting a brickmaster to buy jewels.
Therefore, I advise you from the wisdom of my experiences: do to be too confident in your own wisdom by entrusting your wealth to the possible pitfalls of investments. It is by far better to consult the wisdom of those experienced in handling money for profit. Such advice is freely given for the asking and may readily possess a value equal in gold to the amount you consider investing. In truth, such is its actual value if it saves you from loss.
This, then, is the fourth cure for a lean purse, and of great importance if it prevents your purse from being emptied once it has become filled.
"Guard your wealth against loss by investing only where your principal is safe, where it may be reclaimed if desirable and where you will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of money. Let their wisdom protect your wealth from unsafe investments.”
Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.
It doesn’t take that long and it’s a small price for the value I try to provide.

That’s gonna do it for Episode 128 and just a few final thoughts:
1 – Join the Private Lender Podcast Facebook Group
2 - Remember, the Private Lender Academy http://privatelenderacademy.com/ will launch in July 2021. Head over to http://privatelenderacademy.com/ for more information. And to be eligible for discounts and other pre-launch goodies like group coaching calls, then click on “Apply Now”
So, as I sign off I’d like to say that in addition to self-awareness and mindfulness - I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k
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PLP – 129 Jill Underwood On How Various Market Cycles Of The Past Shaped Today’s Real Estate

Keith Baker — Mon, 07 Jun 2021 03:00:00 -0600

Looking back at history is always a great way to discern how we got into the present. Joining Keith Baker to reflect on the previous market cycles of real estate is Jill Underwood. Together, they discuss the implications of the different crises and crashes the country has faced. Jill explains how the platforms of US Presidents directly affect the growth - or decline - of the real estate market. She details how the nation's debt plays a role in keeping rates low, which is pretty clear with today’s pandemic-hit society. The two also discuss the new tax credit policy rolled out by the Federal Reserve System and the right approach to these free money situations.
---
Jill Underwood On How Various Market Cycles Of The Past Shaped Today's Real Estate
Jill Underwood Discusses The Current Market Conditions And Compares Them To Previous Cycles
I'd like to thank you for sharing your time with me. If you're looking for practical tips and advice on private lending and how to keep your money safe, then you are in the right place. If you want to learn from my mistakes so that you can both avoid them and profit from them, pull up a chair and pour yourself a drink, get a notepad and a pencil, take some notes because this show is for you. I'm dedicated to giving people like you and me the knowledge and confidence for successful and profitable private lending. If you're looking to join a community of private lenders, then head over to the show's Facebook group to connect with other private lenders, to share experiences, stories, and opinions that are not political, sexual, or religious. Simply go to Facebook groups and search Private Lender Podcast Group.
I hope everyone is doing well since summer has officially begun. We are into the month of June 2021, the back end of the second quarter. There's a lot of fun stuff coming out. The Private Lender Academy is going to launch in July 2021. Stay tuned to PrivateLenderAcademy.com for more information on that. I'm looking forward July 6th, 2021, July 7th, 2021 launch date. Go to PrivateLenderAcademy.com/apply to go ahead and get on the list for your chance to get some goodies like discounts or pop-up Facebook coaching calls. You will be able to participate via Facebook. You'll have to come in through Zoom. Get on the list for those early-bird discounts and goodies.
Before we get to the brass tacks of this episode, I wanted to say that I have not had a retail mortgage loan officer on the show yet on purpose. One has been on my list but I wanted someone that could bring a little more. It's not that I haven't been approached. I have several friends that are loan officers but unfortunately, I didn't feel that anyone clicked or stood out as someone who could provide something different and unique to the audience here. This episode’s guest is different because I sought her out, asked her to come on this episode, and share her experience with us for two reasons.
One is her driven spirit and can-do attitude. She'll find a way. She'll figure it out. No problem is too big. I liked that. Also, her experience. She has so much experience with several market cycles. Our guest has been in the mortgage industry since she was 21 years old. She began as a receptionist, quickly rose through the ranks and became a loan officer. She's been through and survived the savings and loan crisis that started in 1986 and went into the 1990s, the dot-com bubble of 2000, and the Great Recession or global financial crisis of 2008. She didn't just survive these. She thrived through them. Let's get to the heart of the matter and to the interview with Jill Underwood.
---
Please help me welcome Ms. Jill Underwood to the show. Jill, welcome.
Thank you. I'm so happy to be here.
I'm excited. There are so many reasons that I wanted you on the show. Let's tell the audience exactly the biggest of the reasons. You are a loan originator, a loan officer. Tell us about what you do for your clients.
[bctt tweet="The more that the country stays in debt, the lower the real estate rates will be." username=""]
My tagline is that I help people make great decisions about their home financing. There have been many years in my industry where people didn't make great decisions but I'm still here making you and helping you to do the right thing.
You should never ask a woman how old she is but you've been doing this for a while. You're still here. You've seen some market cycles. You go back out. Your mom was a realtor, correct?
Yeah. I got into the mortgage business in 1981. I've seen a lot. I've seen many recessions. I've seen some very serious market changes as well and I'm still here. My mother was a real estate agent when I was growing up. I have a lot of older brothers and sisters. By the time I became a teenager, being a sponge of information, they were mostly gone. I got mom all to myself. I would seriously follow her around and hang out at the real estate office. She taught me how to talk to people. She taught me about negotiating and how to keep everybody happy with negotiations. She taught me about things like equity. A 13 or 14-year-olds shouldn't know what equity means but I did. I was twenty years old and broke as hell. She was a top producer with Century 21 at the time. There was a big Century 21 convention in Vegas, their top producer convention. At the last minute, my dad didn't want to go so she took me. I got my first taste of a real estate convention when I was twenty years old in Las Vegas. It was awesome.
That's got to be quite the experience.
It was pretty cool.
That was your first seminar/conference.
It was my very first type of seminar or conference. My mom and I were really tight. We at one point thought that we wanted to open a real estate office together. I went to college. I have a degree in real estate. I am still degreed in my industry but it never materialized for us to open our own office together. What happened is when I took the real estate finance class in my college courses, it has clicked with me. It was like, "That's it." The law class, forget it. I didn't understand a word that man was saying. The real estate finance clicked with me because she was already teaching me how to talk to people and the math was a breeze.
[caption id="attachment_3120" align="aligncenter" width="600"] Market Cycles: Back then, everybody got a loan. There were a lot of stupid loans back then too, because that's when it all started with the stated income loans.[/caption]

There's a lot of math involved, a lot of algebraic equations that I do. I ended up in the mortgage business. I started as a receptionist at Fort Worth Mortgage in Richardson, Texas. I went to assistant to the processors, processor, senior processor, assistant to the loan officer, and then loan officer. I've stayed on the front lines because I do enjoy being on the front line helping people. Now, I negotiate with underwriting. That's what we do. It's a big deal. That's a little bit about my history, my background, and how I got to where I am years later.
Congratulations. You don't get this far at that age without doing something right. In your story, you've seen so much. There's so much continuity in years in your head of the real estate and mortgage market, whereas most folks that I talked to get in and out at some point. They will talk to you about '08 all they want but they're not going to talk to you about the S&L crisis back in the '80s because they weren't there. They weren't around when the dot-com boom broke or whatever correction drop. I haven't had a loan officer on this show for a reason. This is private lending and not retail. For most of my loans, I don't go through RMLO. I don't have to. It's not a retail loan. It's not subject to Dodd-Frank. It's a business loan from one investor to another. There's a difference there but at the same time, I want to avoid the confusion between the loans.
[bctt tweet="Jill Underwood helps people make great decisions about their home financing." username=""]
What does the real estate market follow? It's the retail market. Buyers and sellers, all that, it's all rolled into one. I got to the point where I'm like, "I'm doing a disservice by not having loan officers on," speaking about the retail side because we follow it and then right out of the gate, 40 years. Can you put this wire in your head and download it onto this old hard drive right here? The '08, '09 was caused by the mortgage. A lot of people making stupid loans, collateralizing them, selling them off, and then buying insurance products that didn't even credit default swaps. That's the technical. We've been through that. Let's go back to around 2000, the dot-com. Everyone was becoming a millionaire. It sounds familiar. Take us back there. Do you see any differences and similarities between 2020 and 2000, for example? We've got two decades in between.
Back then, everybody got a loan. There were a lot of stupid loans back then too because that's when it all started with all the stated income loans. We did a lot of those with people who probably didn't qualify. There have been so many times in this industry where things just ebb and flow. A lot of it has to do with where rates are. A lot of it has to do with who's president at the time. Some presidents will come out and their platform is, “Everybody gets a home loan. Everybody gets the American dream.” Other presidents will come along. They've got to clean up the mess and things tighten up. I have seen so many swings of the pendulum from far left to far right in underwriting guidelines. Every time something bad happens, we all get called in. We all get retrained on whatever it is. There have been so many times. Every ten years, something changes and swings back in the other direction.
I like how you tie it to the platforms and that's a great segue. Coming out of the '90s, we had Clinton. In my opinion, not to get political, Clinton wasn't a Democrat, in my mind. He was on the Democratic Party. He was certainly to the left side but business-wise, I never considered him a Democrat. However, everyone gets a piece of the American dream.
He was the first one. Back then too, it was like, "Those lenders are discriminating." We all got called in and had to go through discrimination training again.
We went through that. It took me eight years to go through college. I'm no dummy. I was coming out of that when the dot-com boom hit. With my first sales job, it didn't last long. It was horrible. I was selling window tint. They put me in these brand-new neighborhoods with these huge houses. Everybody was a seed investor for whatever dot-com. It was crazy, the housing market and then it dried up. We get eight years of Bush. Bush was more Democrat than he was Republican in that sense because it was bubbling and the gates opened. Can you fog a mirror?
I remember those times. We were busy as could be. It didn't matter how much money you made. Just write down a number.
[bctt tweet="When everybody is highly leveraged, then you're toast if one small thing goes wrong." username=""]
Freddie and Fannie bought this. They allowed this. We should back up and explain that a little bit. When you sell a loan or a loan is underwritten, it is done in conformance with the Freddie and Fannie guidelines so that the loan can then be sold to another lender. For some reason, Wells Fargo keeps buying my mortgages. I try to get away from them but I can't. That is the standard by which loans are underwritten. What I'm getting at is you're pulling out some anger in me for Freddie and Fannie for allowing that.
I do that a lot. I'm good at that. Think about my side of mortgage lending. A traditional mortgage lender who's going to sell our loans to Fannie Mae or Freddie Mac, which is ultimately the government or even our FHA and VA loans. All of those are ultimately sold to the government. On my branch of lending, an underwriter's sole job is to make sure that we have a loan that we can sell on the secondary market, which ultimately means that this loan is going to be a security on Wall Street. It takes about four months after closing for this note, this paper to be a security on Wall Street. Leading up to the '08 crisis, it was like, “Everybody gets a loan. Let's make 125% of your value loan.” We were doing loans where you could buy investment properties like a rental property that was zero down.
You could seriously get an 80% first mortgage, 20% second mortgage and buy rental properties with nothing down. It was crazy. Where is that now? With all of those, there was so much going on because everybody thought, “This bubble will never burst.” That's what they did on Wall Street. At the time, I had clients who worked for a company where they're buying securities. They would call me and say, "Jill, what are you selling on the front lines?" They would know that in four months, they're going to be selling it on Wall Street. They always had the end of what was going on out on the front lines because they'd call me and ask me. They kept going. They kept rolling. Everything rolled and rolled, Fannie Mae, Freddie Mac, everybody. If you can fog a mirror, if you've got a social security number, you can have a lot. "Job? It's good. Did you get one? We'll give you a loan. Do you want to buy rental properties? Here you go."
They were handing out the money and as we all know, you can't do that forever. Some things got to stop but for the people on Wall Street, there is a problem with 2008. Nobody thought it was going to stop. Everybody thought this was going to go on forever and it doesn't. It can't. Nothing can. It’s like our run-up and values. The difference between the crash of 2008 and where we are is that in 2008 leading up to that, everybody was highly leveraged. Everybody owed 100% if not more of the value of their home. As soon as everything crashed and remember the Countrywide Option ARM, “It's 1% interest rate.” No, it's not because it was negative amortization. Instead of your loan balance paying down every month, your loan balance went up. That's sure to implode at some point.
Back then, there wasn't the same amount of equity in properties. There was little, teeny, tiny equity in properties if any at all. In this world, everybody's made good decisions. Everybody's got fixed-rate mortgages and a lot of equity and I think that's the difference. I don't see that we're going to have any kind of bubble burst or crash. Will values level off and maybe come down a little bit? Absolutely. My crystal ball says that will happen in about 18 to 24 months. I'm always happy to get out my crystal ball.
I was talking to one of my dad's friends’ advisers that work Wall Street stuff. I was equating. I don't see '08 coming again. That was a perfect storm. There were ARMs. There was the Wall Street bit, which fueled it. I don't see a repeat of that or coming. I see your typical Wall Street 10% correction. To knock the party down enough, maybe we need to tighten up a little bit. I'm thinking maybe that 10% somewhere in there. 18 to 24 months, I hope you're wrong. I hope it's sooner because I want to put some money to work as an investor. If that happens, it's good for you and bad for me. Nonetheless, I hope for a shorter time horizon but I don't think you're wrong. This one's going to play out. I don't think crypto is going to be direct with it but a lot of folks are looking at crypto. They're going to say, "Real estate, what are you going to do?"
A friend of mine got outbid with four houses. It's crazy. My niece, they're buying a house. They're moving. I was like, "Go sign a two-year lease and sell your house now,” because it's already worth $100,000 more than they got it on the contract for when it was being built. Pocket that $100,000. When somebody messes up, you slide that into that REO, get that foreclosure, and then you can get it priced right. I'm the old uncle, so that's not fun and cool. They've been renting since they got married years ago. I told her that and she's like, "I want my own place." I'm like, "That's what you could do but if you want my advice, I'd sell the damn thing." We don't have the ARMs like we used to. Is that even a product for sale? Do you still sell it?
[caption id="attachment_3121" align="aligncenter" width="600"] Market Cycles: It's not going to be a hard market crash where everybody falls on their face because there's a lot of equity in homes today.[/caption]

It's starting to make a comeback. They're different than they once were. I haven't done an ARM, an Adjustable-Rate Mortgage, product in years probably since '08, '09, 2010. They're coming back. They are starting to pop up. I've heard some other lenders starting to quote them. It used to be like, "Your rate is fixed for five years." Beginning in year six, it's going to adjust once a year. They're taking that down to now. It's going to adjust every six months as opposed to every twelve months. I found that interesting.
The fact that they're coming back, I'm no Nostradamus but come on. History repeats itself.
Here's the thing about an ARM versus fixed. The fixed rates are still so low. We are so spoiled with interest rates. I had somebody be like, "My rate is 3.5. That's so high." No, it's not. Eighteen, that's high. Ten percent, that's high.
It was in 1983, I believe it was. They built a subdivision behind me. It seemed like, within one weekend, the foreclosure notices went up. These people bought homes with 14% and 15% brand new homes. I'm glad you brought that up because that's one of my questions towards the end. We're over a decade of artificially low-interest rates. They've been kept. With simple supply and demand, at some point, they've got to snap back. Even with the Fed with this "inflation" which I don't know how you throw trillions of dollars into the market and not expel inflation. Back to the point of rates, let me ask you this. Do you fear rates increasing any?
Not at all. Here's my crystal ball on interest rates. I think that we're going to have another good two years of lovely rates in the range that we are. We've already hit bottom but I will say this. Interest rates are a quarter lower than they were years ago. Rates are still super good. Inflation is bad for rates and nobody likes that. I think that Fed is going to keep things under control. They watch inflation very closely. There's an inflation report coming out. The other thing...

PLP – 128 Memorial Day Tribute with Charles Bukowski’s the Genius of the Crowd

Keith Baker — Mon, 31 May 2021 00:15:00 -0600

Hello Private Lender nation and welcome to episode 128 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
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If you’re looking for practical tips and advice on Private Lending and how to keep your money safe as a Private Lender, then you are in the right place. But if you want to learn from my mistakes so you can avoid them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
Today will be another quick episode, but I give you full permission to get off the treadmill or elliptical as soon as this episode concludes in just a few minutes.
But before we get to the heart of the matter, first I need to do a little housekeeping:
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Make sure you visit
www.PrivateLenderAcademy.com to learn more and sign-up for pre-launch bonuses like group coaching calls and discounts.
Today’s episode is airing on Memorial Day 2021, and as such it is in honor of those who perished while serving this great country of ours. But this episode is also in honor of the family members that were left behind, as well as the survivors who continue to battle years after their service is over.
So in the honor of all those mentioned above, I would like to read The Genius of the Crowd, by Charles Bukowski
"there is enough treachery, hatred violence absurdity in the average
human being to supply any given army on any given day

and the best at murder are those who preach against it
and the best at hate are those who preach love
and the best at war finally are those who preach peace

those who preach god, need god
those who preach peace do not have peace
those who preach peace do not have love
beware the preachers
beware the knowers
beware those who are always reading books
beware those who either detest poverty
or are proud of it
beware those quick to praise
for they need praise in return
beware those who are quick to censor
they are afraid of what they do not know
beware those who seek constant crowds for
they are nothing alone
beware the average man the average woman
beware their love, their love is average
seeks average

but there is genius in their hatred
there is enough genius in their hatred to kill you
to kill anybody
not wanting solitude
not understanding solitude
they will attempt to destroy anything
that differs from their own
not being able to create art
they will not understand art
they will consider their failure as creators
only as a failure of the world
not being able to love fully
they will believe your love incomplete
and then they will hate you
and their hatred will be perfect

like a shining diamond
like a knife
like a mountain
like a tiger
like hemlock

their finest art"

OK. Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.
It doesn’t take that long and it’s a small price for the value I try to provide.

That’s gonna do it for Episode 128 and just a few final thoughts:
1 – Join the Private Lender Podcast Facebook Group to connect, learn, be inspired and interact in the discussions
2 - Remember, the www.PrivateLenderAcademy.com will launch in July 2021. Head over to www.PrivateLenderAcademy.com for more information. And to be eligible for discounts and other pre-launch goodies like group coaching calls, then click on “Apply Now”
So, as I sign off I’d like to say in addition to self-awareness and mindfulness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k
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PLP-127 The Third Law of Wealth

Keith Baker — Mon, 24 May 2021 06:30:00 -0600

If you’re looking for practical tips and advice on Private Lending and how to keep your money safe as a Private Lender, then you are in the right place. But if you want to learn from my mistakes so you can avoid them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
In today’s episode, we will continue to explore the lessons found in the book “The Richest Man in Babylon”. Today we will be discussing the 3^rd Law of Wealth.
Today will be another quick episode, but I give you full permission to get off the treadmill or elliptical as soon as this episode concludes in just a few minutes.
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Today’s topic is another lesson from the Richest Man in Babylon written by George Samuel Clason. You can go back and catch up on the first four installments in:
Episode 114:  First Cure for a lean account – save 10% of everything you earn for the future
Episode 116:  First Law of Wealth - Wealth comes to those who reserve AT LEAST 10% of their total earnings towards building their future financial independence/fortune.
Episode 118: Second cure for a lean account – control thy expenses
Episode 120: Second Law of Wealth - “work hard for your money, but then make your money work harder for you
Episode 123: Compound Interest the 8^th wonder of the world
Today is the sixth installment in which we will be discussing the 3^rd Law of Gold (wealth). And like so many lessons in life that we should heed, the principle is quite simple, but we humans seem to have trouble with the execution.
Let’s get down to the Brass Tacks of this Episode and discuss the 3^rd Law of Wealth, which state:
Gold clings to the protection of the cautious owner who invests it under the advice of men wise in its handling.
And then the book goes on to say:
“Gold, indeed, clings to the cautious owner, even as it flees the careless owner. The man who seeks the advice of men wise in the handling of gold soon learns not to jeopardize his treasure, but to preserve in safety and to enjoy in contentment its consistent increase”
If you follow the lesson sequence from the book, you are saving 10% of your income to invest, you are controlling your expenses – living below your means, looking to make your money work hard for you and now we come to seek advice from people who are wise in the handling of money: People who know who to Protect Money (Return Of Investment) and people who know how to make it multiply (Return On Investment).
Those just happen to be Private Lender No. 1 and 2 Core Value
Rodan (the spear maker) visits Mathon – a seller of jewelry and fine fabrics, also the gold lender of Babylon.
“Seek to associate yourself with men and enterprises whose success is established so that your money may earn liberally under their skillful use and be guarded safely by their wisdom and experience”

·        Loan to flippers to flip
·        Loan to landlords to accumulate rentals
·        Make acquisition/bridge loans to owner finance sellers
·        I like to look for grey hair, but I have and will continue to lend to experienced youth
·        Never lend money to somebody who “needs this deal”
·        Don’t lend to somebody or a deal a hard money lender won’t finance
I don’t charge money to produce this show, but I would be extremely grateful if you would help me get the word out and increase awareness by leaving me an honest rating and review over at iTunes, Google Podcasts, Spotify, iHeartRadio, or whatever platform you are using to hear my voice. It’s a small but quick request that will pay us both dividends. It earns a bigger following for the show and you get to erase some negative karma. It’s true! (prolly). Try it.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to the PLP.
That’s gonna do it for Episode 127 and just a few final thoughts:
Please join the Private Lender Podcast Facebook group to connect, learn, inspiration and get involved in discussions. . .
PLP Facebook group: Private Lender Podcast (public)
www.PrivateLenderAcademy.com
So, as I sign off I’d like to say in addition to self-awareness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k
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PLP – 126: Avoiding Huge Debts In Your Equity Contracts With Matthew Sullivan

Keith Baker — Mon, 26 Apr 2021 03:00:00 -0600

Buying a new home is truly exciting, but every owner dreads one thing: debts. Most homeowners who want to get their hands on equity contracts turn to credit or reverse mortgages when acquiring a new property. Unfortunately, these only push them deeper into debt. Thankfully, Matthew Sullivan found a solution to this problem while boosting property ownership. Joining Keith Baker, he explains their work at QuantmRE that gives homeowners access to a portion of their home equity. Therefore, they are not only saved from debt but also tedious monthly payments and interest. Keith explains how this helps homeowners more than just saving money, innovating real estate transactions today.
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Avoiding Huge Debts In Your Equity Contracts With Matthew Sullivan
How QuantmRE Boosts Property Ownership
This is the only place to be if you're looking for practical tips and advice on private lending and how to keep your money safe. If you want to learn from my mistakes so that you can both avoid and profit from them, then pull up a chair and pour yourself a drink because this show is designed just for you. It's dedicated to giving people like you and me the knowledge and confidence to participate in the most passive form of real estate investing there is, which so happens to be private lending. If you're looking for a shortcut to go ahead and get started private lending, then head over to PrivateLenderPodcast.com/ink to learn how you can put your money to work for you by investing in real estate back loans right here in the Houston area. Also, make sure to join the show's Facebook group to connect with other private lenders and to be a part of the growing community. You can search Facebook for Private Lender Podcast group.
On past episodes, we have discussed that 95% or more of my private lending is done out of my self-directed IRA, but there are other ways to get money to loan out that belongs to you without borrowing it from somebody. You can borrow from yourself. For example, you can borrow from your life insurance policy. Certain whole life policies have cash values you can borrow from and arbitrage the interest. The same thing with a home equity line of credit or a home equity loan. If you go to Bank of America and borrow money for 3%, yet you can loan it back out in six-month intervals to flippers for 13% or 12 points. You've arbitraged that 3, 4, to 12 so you're making 8% of that money even after you pay off the loan. It's a pretty neat deal.
Our guest has a very interesting take on the same thing. His company provides homeowners a contract on that equity that they don't have to pay back, except when the house is sold. It's like a home equity line. You're giving up a certain percentage of your equity for cash now that will be realized later on. I'm probably not describing it very well. Why don't we go ahead and get down to the brass tacks of this episode and go straight to the interview with Matthew Sullivan?
---
I have a very special guest with a very interesting topic. Please welcome Matthew Sullivan to the show. Matthew, welcome aboard. Thanks for coming on.
Keith, thank you for having me on.
I can tell you're from East Texas. Why don't you tell us a little bit about your accent there? Where are you from?
Alabama. I'm originally from outside of London in England. We can't call it Europe anymore because it's not. I moved over here a few years ago. I landed in Orange County and moved to Salt Lake City in Utah. I find the blazing daily sunshine of California far too decent. I felt I needed to get cold again. I might be heading back to California pretty quickly.
[bctt tweet="#NeverTrustAlwaysVerify - remember you must perform your own due diligence prior to investing any money." via="no"]
English bloods are calling out saying you needed some gray skies and some cold weather.
It was great to move. We've got the wanderlust. I was flicking through the advertisements for trailers and RVs. Goodness knows what's going to happen.
I hope it all goes well with you. I don't feel sorry for anyone who can live in Orange County. It's not as nice as my neighborhood, but I don't pity anyone in my neighborhood at all. You do have much better weather. I'll give you that. You may have a very interesting concept. You've started QuantmRE.com. It’s better if you can explain it than I try to bumble it. Please explain what it is that you do.
We have a solution for homeowners who have equity and want to access that equity but don't want to go into debt. It's quite a big problem because there's over $18 trillion of equity in residential homes in the US. Nearly sixteen million homes have 50% or more equity. There were some reports that came out showing that equity in homes has hit an all-time high. If you're a homeowner and you want to get your hands on your equity, the problem is you've got to go to the bank and borrow money. You can borrow money through a cash-out refinance or a second position mortgage. You can increase your existing mortgage. You can get a home equity line of credit. You can get a reverse mortgage. All of those are debt-based products.
That means that you end up owing money, which is secured against your equity, but you don't get any of your equity. You're just getting deeper into debt. That's fine as long as you can afford it or if you qualify. There are millions of people out there who want to try and access their equity but cannot because they don't qualify for loan, they don't have the income, they don't have the credit score, or the debt-income ratio is wrong. We have a solution for all of those people. We can allow them to unlock up to $500,000 with no monthly payments ever. There's no interest and there's no additional debt. They can use the money for whatever purpose they want.
How does one go about doing that? Talk about the mechanics of this.
[caption id="attachment_3099" align="aligncenter" width="600"] Equity Contracts: If your house goes up in value, QuantmRE takes a share of some of that appreciation.[/caption]

First of all, the important thing is to describe what it's not. It's not a debt product. If it's not a debt product, it's an investment product. In other words, we have investors who want to participate in some of the future appreciation of your home. The way they get paid rather than charging you an interest rate is to say, "If your house goes up in value, we'll take a share of some of that appreciation. That'll be the return on the investment for us.” They take a longer-term view and because it's not a loan, that means there are no monthly payments but the investor does get the return.
When you sell the property, what normally happens is you will give them back the original investment that they made together with a share of the appreciation. That share of the appreciation gives them a solid return on their investment. That keeps them happy. In the meantime, as the homeowner, you have been able to unlock equity. It doesn't matter in most cases if you don't have the income. We can work with people that have a much lower credit score. You get to tap into your equity without having to borrow money.
You touched on people with poor credit or low credit scores. Who is your ideal seller of equity at this point? Who are your homeowners? What demographic are you looking for?
There are a number of states. We're restricted at the moment by the number of states that we operate in. We work either with our capital or with other partners in nineteen states. It's not available across the UK. There are some states like Texas where it doesn't work. That's because of certain regulations around homesteads. I wouldn't say ideally because everyone is slightly different in terms of what they want the money for. Normally, we're looking for someone who has a home that's worth $200,000 or more up to a maximum of $5 million. That's the range. Most people that we work with, the average house value is around $600,000 to $700,000 or something like that.
We're also looking for people that have at least 30% to 40% equity in their property. There's a maximum combined lien-to-value, which means if you take your existing loans, whether that be a mortgage or a HELOC, if you add those together and then if you want to add our investment to that, all of that together must be less than 80% of the current value of your home. That means you still have 20% equity. It means that there's a big enough cushion to make sure that you stay incentivized as a homeowner. There are a few numbers that we work with. Depending on the state, we can unlock under 40% of the current value of your home. In most states, that figure is over 20%. We make an exception for California because there tends to be more equity in the properties there.
This would be a great strategy when the coasts see the real estate market's decline.
[bctt tweet="There are so many parallels in both of our lives in terms of who you work with. It's about changing attitudes or changing views." via="no"]
Also, when the markets appreciate, that's good for the investor. When the markets start getting a little difficult to forecast, we saw that with COVID. What COVID showed us was that homeowners immediately became more willing to explore alternative funding strategies the moment they thought that their home equity was not the sure thing. It's interesting when markets do change and the confidence in markets alters, then people tend to be much more willing to look at these types of alternative funding. The way the agreements work is because they're quite long-term agreements. Over the average duration of an agreement, the investor probably will make a pretty good return.
From the homeowner's perspective, they've got that lump sum of cash that doesn't have any monthly payments, so they can use it. We have people that use it to pay off expensive credit cards but also, they use the money to invest in other things, whether it be stocks, bonds or as a down payment on another property. If you've got hundreds of thousands of dollars locked up in your equity and here's a way to get that without any monthly payments or if you can do better than your home equity or better than the cost of the agreement, then it makes sense for you to diversify out of your home, which is your single most concentrated asset.
I'm curious on this agreement. You talk about lien-to-value. With private lending, Texas is a Deed of Trust and a promissory note state. This was an investment vehicle, not a dead vehicle like a private mortgage would be. What's the paperwork? What's the minutia? How it's done with the counties and the contract?
It depends on county by county. The language is slightly different but it's very similar to a trustee. We refer to it as a performance Deed of Trust. It's not a trustee because there is no loan involved. What it does is describes the performance of the agreement. In other words, what is due when the property is sold or if the agreement comes to an end. In language, that is similar to a Trust Deed. One of the challenges over the last few years has been getting various counties and cities to understand what this is. The good news is that these types of agreements have been around for many years. A lot of those early teething problems have been sorted out.
The investor in this case is you. Do you give a certain percentage of money? Is this a one-time payment to the homeowner?
It's a one-time payment. On average, it's up to 20% of the current value of your home. We have different durations of agreements. We have some agreements that run for ten years. Those are fine for people that want short-term capital. You can use them for bridging purposes. You can pay the agreements back within months if you want and there's no prepayment penalty in most cases. These agreements run for either 10 years or 30 years. There are two flavors. The way that we calculate the equity share is slightly different. The way that it works is that the investor put some capital in exchange for the right to participate in the future value of your home when you sell it or when you buy the agreement back.
[caption id="attachment_3100" align="aligncenter" width="600"] Equity Contracts: With COVID-19, homeowners immediately became more willing to explore alternative funding strategies when they became unsure about home equity.[/caption]

The investor has the option.
It's structured as an option agreement in most cases. I say most cases because we have our own agreements that are structured as an option. We also work with a number of the other players in this space. There are slightly different variations on their agreements. Some of them work as option agreements. Some work almost like a purchase option where we have the right to purchase your property at a certain value. All of those are variations on the theme. None of those are loan. The important thing is they steer clear of any language or any obligations which would make this fall into the bucket of being a loan.
Just playing a devil's advocate being in the insurance industry for so long. Back to your lien-to-value, I assume that there are going to be some provisions where if I've sold a piece of my equity off to you or done the option or if I refinance, it takes advantage of some lower rates. I’m sure there's a provision there that as long as it’s all-in and it's still at that 80% threshold, then I can do what I want. It's just if I go over that, then there's a problem.
The position is an equity holder. We've got to be quite careful to make sure that you don't diminish or dilute that position by taking on more debt. We're always going to be in a junior position in terms of the order of play with the liens. Having a lien, if you want to refinance your existing mortgage, you would need to get a waiver from us or from whoever the investor is, allowing the lender to remain in a senior position. Having a lien on the property does give us that protection, which means that it makes it more difficult for you to add additional debt without us knowing about it.
I don't live in the world of startups like you do, but I've been a part of one. Once the parent company came in and wrote a big check to help, you can't get any loans. You can't open any more credit and you can't dilute shares. That position had to be protected at all times, which is funny. As you know, when you're starting up, you need a photocopier or fax machine and you have no credit.
The great thing about this is it doesn't increase the leverage on your home. If you're using the money to fund a startup, one of the things that you don't want is additional monthly payments. It's part enough paying for stuff as it is. These are great instruments if you've got equity, to use that equity and get the business off the ground to the point where it has a credit score or where you have some income. You can buy these agreements back at any point. You're not locked into it for 10 or 30 years. It's flexible. There's no seasoning period. With some of the agreements, there's an incentive to pay these agreements off early. What we do in some cases is cap the maximum return that the investor can get in the first two years. If you pay these agreements back quickly, then there's a benefit to you as the homeowner. There's a benefit to us because we can get that money back. We'll get a good return on it and we can then invest that out again. The more times we can do that, the more return we're likely to make.
[bctt tweet="Depending on the state, 40% of the current value of your home can be unlocked. In most states, that figure is over 20%." via="no"]
We walked through two scenarios. One, it's a ten-year agreement and I'm the homeowner. I get 20% of my equity paid to me. In 1.5 or 2 years, I get transferred, whatever the case may be. Now I'm going to sell the house. I'm assuming in that performance deed, at that point in time, you as the investor have to make the decision whether or not to exercise your option to participate.
What happens is the option is triggered by the sale. Part of the process is that option becomes due in those. We are able to exercise that option when certain events happen. The sale of the home is one of those events. In that scenario, you've got two agreements, a 10-year agreement and a 30-year agreement. Both of those will be triggered when you sell your homes. If you decide to sell your home, when the sales proceeds come in, they would get distributed to us through the escrow process as one of the lien holders.
You gave an example of $200,000 loan, 20% is $40,000. In the course of two years, I'm going to have to give back more than $40,000. If I use this as a loan, for example, I get some quick cash. Business goes well and I pay you off in 18 to 24 months. Obviously, you're not doing this for free.
That's the important thing. Everyone needs to understand that the investors do make money out of this. Otherwise, you step firmly into that too good to be true territory. The way the investor gets paid with the 10-year agreement is a straightforward discount. For every 10% that we invest, when you sell your property, we will get back 16.7% of the value of your property at the time that you sell it. If you unlock 20%, that means that we get 33.4% of the value of your property when you sell it. If your property remains the same price, let's say it's $200,000, then in exchange for giving you $40,000 when you sell your property, we will get $66,000 approximately out of the sales proceeds. If you sell your property earlier than that, there's a cap on the return of 18% per annum that kicks into play.
If you sold your property after six months, we would not apply that multiple. We would say, "What is the lowest figure? Is it 18% per annum over six months, which would be 9% or is it that multiple?" What we have is a cap to make sure that if you pay these agreements off early, you don't have to pay the full multiple. There's a ceiling to the amount that you can pay. That's the same for the 30-year agreement. There's a cap, which is the maximum in the case of the 30-year agreement, that can be as low as 12%. If we look at the 30-year agreement, because that's a longer duration agreement, we have to calculate the return in a different way. Otherwise, what happens is the return would decay over that 30-year period

PLP-125 Announcing the Private Lender Academy

Keith Baker — Mon, 19 Apr 2021 06:00:00 -0600

Show Notes Coming Soon

PLP – 124 Private Lending With FlipCo Financial And Kayla Wojcik

Keith Baker — Mon, 12 Apr 2021 03:00:00 -0600

Because of COVID-19, those in the real estate industry had to pivot in a huge way to survive and find ways to thrive with the ongoing deurbanization. Keith Baker explores how people in this sector hone their strategies, particularly in private lending, by sitting with Kayla Wojcik. She explains their work at FlipCo Financial, a team of forward-thinking individuals in the real estate investing sector focused on bringing a better financing product to the Houston market and soon nationally. She dives deep into the type of loans they offer, why they don't charge appraisal fees, what a typical bridge loan looks like, and their most common borrowers. Kayla also shares their strategy when it comes to bread and butter houses, which experienced a huge decrease in February.
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Private Lending With FlipCo Financial And Kayla Wojcik
Bringing Better Financing Products To The Houston Market
I'd like to thank you for sharing your time with me. If you're looking for practical tips and advice on private lending and how to keep your money safe, then you are in the right place. If you want to learn from my mistakes so that you can both avoid and profit from them, pull up a chair and pour yourself a drink because this show is for you. This show is dedicated to giving people like you and I the knowledge and the confidence to participate in the most passive form of real estate investing known to man, private lending. If you're looking for a shortcut to begin private lending, then head over to the PrivateLenderPodcast.com/Ink to learn how you can put your money to work for you by investing in real estate backed loans right here in the Houston area with my friend, Paul Lamnatos over at Blink Lending. Make sure to join the show's Facebook Group in order to connect with other private lenders and to be part of the ever-growing community.
I'm excited to get to the interview with our guest, Kayla Wojcik, who's the Founder and Director of Sales and Operations at FlipCo Financial, which opened their doors and started lending in November 2020. FlipCo is a team of forward-thinking individuals in the single-family real estate investing sector focused on bringing a better financing product to the Houston market and nationally. What makes FlipCo private lender a little different is they were funded and started with one person's capital who wanted to put it to work or a handful of it. It was a private capital that was put to work just like me. The Angel investor that started it had a lot more money to get started with first and was smart enough to hire Kayla to run the business for him. Let's get down to the brass tacks of the show and listen to the interview with Kayla Wojcik as she discusses her lending criteria.
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I'm honored to have Kayla Wojcik from FlipCo Financial. Welcome, Kayla.
Thanks for having me.
Thanks for coming on. You have an interesting story and background that I'm a fan of. You're in Houston area providing flips and money for investments. Let's start back, not the very beginning but how did you get into the real estate space. Tell us a little bit about yourself.
A little towards the background around eighteen years old, I worked for an attorney. He wanted to get into the tax foreclosure market. He would throw down the list on my desk. He would say, "I need you to circle the ones that you like." He didn't give me any direction. "I'm going to need you to go knock on those guys' doors and offer them whatever amount I tell you for those deals." I did. I went out there. I door knocked a few times. I got a lot of door slams and people all around not answering. It was the good old-school way of doing it. It scared the crap out of me.
That's a lot for someone so young who doesn't know much about how that works that's my introduction to that. It lit a fire under me. I wanted to learn more about that. There’s something about when people door slam. You're missing something because other than that, they would have stayed and talked to you for a minute. I did set out to learn more about it. Fast forward, I came to the Houston market a few years ago. The opportunity for real estate flipping was a lot more attractive than where I was at, which was in San Antonio, Texas. It’s not a bad market area, but it's still a little bit slower moving, especially when you're looking at Houston. It's almost like you're looking at something that you want to get at that, whatever that is.
I came to the market as a wholesaler. I connected with a high volume wholesaler to help kickstart myself and give myself all the tools that I needed in order to be successful at that. Within my first two weeks of being there, I made my first acquisitions and sold them. They had told me all throughout, "You're not going to do anything for the next 3 to 4 months. Don't expect to get paid, in other words." I hit the ground running with that. I did well with doing wholesaling. A lot of it came from being an honest person and understanding the investor. I know a lot of wholesalers are taught, “Chase the deal, who cares. Make an offer. Go out and find someone. Someone will buy it.”
That wasn't my mantra. It made those people that had hired me mad. They were like, "We need you to work. Stop asking so many questions, just work." I would go to networking events with my little clipboard, "I'm looking to build my buyers list." Everyone was like, "Get away." I did my hardest to learn the most and get out there. I did well. At one point, I sold sixteen properties in one week. It was quite fun. Part of my success was because I found a better lender. What that means is at the time, my deals were falling through. The lenders were not being completely honest. Towards the closing table, my investors were falling out because there are too many surprises. A lot of weird stuff are going on.
I set out to find a better lender and I did. They were based out of Arizona. I started funneling all my business through to them. It was able to make me scale as well as them scale. They asked to recruit me onto the lending side. I took it. I was like, "I would love to get away from this and start learning more about that." I opened up their Houston office and focused solely on the Texas market. I enjoyed it. I've learned a lot. The way that their company was structured was not as creative for what the demand in our market is. It's ever changing. I see a lot of lenders are beginning to change their terms as well to stay relevant. I hit a wall. I hit a ceiling and the next thing I know, FlipCo was born. That's the background story there before FlipCo became a thing.
I'd love to go back and unpack a few things that you said there. San Antonio and Houston are different markets. San Antonio is a major market, don't get me wrong, but compared to Houston, it's a different industry and different drivers. You said that lenders are changing their terms to stay relevant. What do you see in your field of those changes?
I don't want to speak too confidently, but myself and my entire team set out to research the market. We've done some rigorous research for the past few months. I know that doesn't seem like a long timeline, but it was a good amount of people. We've got a lot of good information. I am seeing a lot of new lenders coming to the market. Some of the data that we've pulled in conversations we've had with the older guys that have been in the market for ten-plus years. Back then, their terms were all day long 14% interest in 3 points. That was the bread and butter right there. That wouldn't fly now in the Houston market. I could not speak on other markets but for the most part in Texas, we're competitive.
[bctt tweet="The market is changing, and people are realizing private money is more interesting than conventional lending." username=""]
There are so many new lenders coming to the market. These prices are being driven down. We got started on this research months ago. You go back to those same guys, everyone's vague about this because everything's a case by case scenario, but they seem to have driven down their vague terms into something a little bit lower. You're looking at not usually anything more than 2 to 3 points, whereas before people were confident with saying there would be four points upfront, plus a bunch of other stuff. The market is changing. People are realizing private money is more interesting than conventional lending.
With interest rates and depending on who you listen to, what side of the aisle is going to be great or we got inflation coming. As a private lender myself, I can't wait for interest rates to rise. It's my money generating that cash so the better. I have noticed with some of the lenders around town that I've spoken to, the money that they're lending out have to come down. Therefore, where they're getting their money, they have to give them less as well. A lot of players are hitting the markets. Every time I talked to an appraiser, it seems like there's a new hard money company coming in from someplace else.
Tell me about FlipCo. You found it in November 2020. Your team's been doing a lot of research. I saw from the photos that there are a couple of guys, but you're predominantly a female-based team. The reason I wanted you on this show is I'm a daughter daddy. I love stories like yours. Mike Tyson said it best, “Everyone has a plan until they get punched in the mouth.” I was going to go to college and that has changed. That's a big pivot in COVID 2020. Tell us about that.
It is a risky time to say, "Let's throw pasta at the wall and see if it sticks with this idea." To be honest with you, I was lending even during COVID. I know for March 2020, we settled down a little bit. Everyone was weary of what was going to happen, but I never stopped lending with the company that I was with. What happened with FlipCo was quite an interesting story. I found an Angel investor that listens to the business model and to me. I had already known and realize that business model was still working throughout COVID situation. Real estate was still going. Investors still needed funds. Private money is something that is becoming more and more attractive to a lot of the bigger type of investor.
I call mine an Angel investor. I got lucky with them. I gave them the business model and showed them the track record. They went for it. They did initially put in their personal funds for it, but quickly we found out that wasn't going to be enough. In the first week, we're projected to clear about a little over $1 million and they were putting in $5 million of their funds. There was no way we would be able to scale. However, I was strategic with this one. They have unlimited amount of funds that they're able to use through their bank contacts. They're a large company. They opened a lot of companies underneath. The way that they structure these companies and these models to be attractive to these banks is something that I hope to get involved within 2021 starting with them. It’s already at the beginning stages because that's a whole other animal.
On my team, we have one guy that's solely dedicated to working with the banks that they already do, projecting our business and what would be our scenarios. In that way, we're attracting more and more funds. We now have $10 million to work with. We got started in November 2020. Banks liked the idea especially when it comes to real estate. It hasn't been that hard for them to convince banks to give us money for this lending on these deals. FlipCo immediately gave me everything I needed from IT to attorney, to marketing people, anything that I needed, anyone I wanted to hire. We took off with it. That's why we've been able to go so quickly. When I initially gave it to them I said, "By the 120th day, we would be ready to start looking at deals." We were already funding within 45 days. That's how quickly everyone jumped on board for this. It's exciting.
There was a little chatter on social media where your profile didn't go away but it went dark. It came back quick with FlipCo. We’re talking prior to this interview the speed at which everything came together. What happens when you get everything you've ever asked for?
It never happens like that for me.
In 120 days and funding within 45 days, which is your average bank time of purchase for your personal residence anyway. To go from idea inception to the mechanics of money flowing, that's quite impressive.
I would've never thought it was going to turn into this. At least we know there's a high interest for this kind of business if someone was ever interested in taking this business model over to someone else who was an Angel investor like myself. There are people out there that want to jump into this.
It's hard assets. Things can happen. No investment is 100% safe. No one's going to short a house and drive up the price like they did with GameStop. Things couldn't get manipulated but that's not going to happen. People say, "How many points do you charge?" They always want to know what are your points, what's your interest rate. It depends on the project. I've lowered my rates for some passion projects for people. I've raised it. I don't want to chase risk but if I'm going to do this, you're going to have to pay me some more. Average foreclosure in Texas is about $1,500. The borrower has to come with that fee. They have to pay for their foreclosure to me upfront. I put it away. God forbid if I have to foreclose, the money's there. I send it over to the attorney and I'm done. You got FlipCo. They didn't land in your lap. There was a lot of hard work that went through it, but it came to fruition a lot quicker.
It's almost like the Angel investor fell into my lap. It was in conversation. That conversation was told to someone else who they knew had been working on this model but didn't have anyone to fill in the blanks. I don't know if you believe in the power of manifestation and hard work but it's a real thing.
[caption id="attachment_3087" align="aligncenter" width="600"] Private Lending: Investors financing should be the first thing, but it is an afterthought for most people.[/caption]

I'm a firm believer that everything we want is on the other side of hard work. Talking about the model, what is the model? What type of loans are you putting out there for investors?
We're focusing on fix-and-flip and bridge loans. It’s mainly fix-and-flip loans. The bank likes to see that. That's how we're building our portfolio, our rapport with the bank. What we're offering is 10% interest and 2.5 points. It's case by case scenario. A lot of guys might be in and out of the loan. We are requiring guaranteed interest rate is what we're calling it. At least 4 months on a 6-month loan. That's usually fair because if guys are still trying to get in and out of it, it still takes about four months anyway. It's not like we're saying we're guaranteeing your entire loan of interest. It was a lot of back and forth.
The team was like, "I think that we're a little too competitive with our pricing." We're the new guys on the block. We're trying to scale. We're trying to go national. No one's going to recognize us or pay attention to us unless we look attractive. That's why I would say our terms are where they are at because we also don't charge any other fees. There's nothing. We're collecting that 2.5 and the 10% interest but mostly fix-and-flip. We're still working slow. We're not quite ready to release the dragon.
The fix-and-flip that you mentioned, you don't charge any fees. No appraisal fees.
We don't. We do in-house underwriting.
Let's get into that.
People get nervous, especially lenders. They’re like, "You do what." Our idea is we're not trying to be the lender for everyone. We do want to work with quality borrowers. We want to work with mostly repeat clients. We're not trying to be your next big hard money lender. Quality borrower means that those people have done more due diligence. It says in the background, "Never trust, always verify.” Our job is to pull that thing apart and look under rocks. We do have an in-house attorney that does a search of title. I know title companies are already supposed to handle that, but we have our guy immediately doing that in case there's something that won't be cleared and we won't find that out until last minute.
We do have a good team that has a lot of experience in our market, appraiser or underwriter. If you're licensed for it or not, it's an opinion and value. For us with our knowledge, that's more than enough for us to feel confident on a deal. If it's something that's a little bit more different or it's out of the box, we would hire a third-party appraisal for that. Other than that, we do our underwriting in-house. The idea is for us to be competitive in our market. That would mean that we need to streamline the process. If we say we can fund within 48 hours, we need to be able to do that if all parties are ready to go. We're trying to look attractive.
Are you funding within 48 hours of acceptance of application?
We can approve a borrower within 24 hours. We want to keep it that way. Part of the ability to keep it that way is we will have to hire on more people as we scale. We have enough. We're not moving quite as quickly as we should be. It gives us the ability to approve someone within 24 hours. We're not doing credit checks. We're doing financial statements. We're doing bank statements. We're doing experience. We're doing conversations with these people. I was having this meeting. A lot of it has to do with a borrower's character.
For example, I'm almost to the end of an option period with one of my flips. I've got to change all of the piping. It's a whole mess. A lot of people can't handle that kind of stress. They won't be able to take that to the finish line. This is the fifth extended option period that I've had on this property, but I don't give up. If you have a good feel for a borrower that gives you that mentality, has the experience, has the funds, has the financial statement, that should be enough at least for now. We do plan on pulling credit in the future though like a soft one.
I don't myself, but I make sure that the borrower knows that I can and will if need be. At the end of the day, I'm worried about more of the asset or I break it down. I want to know the person. To your point, know their character. I want to know the process that they're coming to. Is this flip that his doing his 30th flip? That makes me feel a lot better than somebody with three rental properties going, "I'm going to start flipping." There's a process. At the end of the day, it's the property. If the worst comes to worst, I have to take this thing back and foreclose. Are the numbers there? Is the margin there? Is it going to be worth my while?
[bctt tweet="Lenders are set up to...

PLP-123 Compound Interest – the 8th Wonder of the World

Keith Baker — Tue, 06 Apr 2021 00:01:00 -0600

Hello Private Lender nation and welcome to episode 123 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
If you’re looking for practical tips and advice on Private Lending and how to keep your money safe as a Private Lender, then you are in the right place. But if you want to learn from my mistakes so you can avoid them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
If you’re looking for practical tips and advice on Private Lending and how to keep your money safe as a Private Lender, then you are in the right place. But if you want to learn from my mistakes so you can avoid them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
Before I jump into today’s episode, I want to give a shout-out to Blake who sat next to me on a flight to Nashville recently. He’s a young man who is leaving the world of commercial real estate to go back to school to follow his passion. And he has a great outlook on money and not wasting it just because you have it. Blake, hold on to both your passion and your outlook on money and wealth – they will serve you well and I wish you all the best!
In today’s episode, we will continue to explore the lessons found in the book “The Richest Man in Babylon”. Today we will be discussing the 3^rd cure for a lean account: Make your money multiply with compound interest.
But first, a little housekeeping. . . . .
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Let's get down to the Brass Tacks
Today’s topic is another lesson from the Richest Man in Babylon written by George Samuel Clason. Today is the fifth installment where we will be discussing the 3^rd cure for a lean purse, or as I like to think about it, a cure for a low account balance. And like so many lessons in life that we should heed, the principle is quite simple, but we humans seem to have trouble with the execution.
If you would like, you can go back and catch up on the first four installments in the following episodes:
Episode 114:  First Cure for a lean account – save 10% of everything you earn for the future
Episode 116:  First Law of Wealth - Wealth comes to those who reserve AT LEAST 10% of their total earnings towards building their future financial independence/fortune.
Episode 118: Second cure for a lean account – control thy expenses
Episode 120: Second Law of Wealth - “work hard for your money, but then make your money work harder for you
So, let’s discuss the 3^rd cure for a lean account
So if you follow the lesson sequence from the book, you are beginning to increase your account value- and this is no doubt very satisfying to see it grow. However, if your money is in a savings account then you are not earning very much. According to Bankrate.com, at the end of March 2021, the national average for savings accounts was 0.07%.
While earning cash flow and saving a portion of it is but the first step to generating wealth, the 3^rd cure is to put each dollar that you have saved to work for you so that it will generate more money and wealth. Then, take the earnings and add them back into the account such that your earning will compound. I am a firm believer that this process should begin as soon we begin to earn money and should continue until the day we leave this earth.
This is the essence of compound interest.
For simple math, let’s say you start with 100k and receive 10%, or 110k when the loan is paid off. Then you incorporate the 10k earned in interest into the next loan so that you can earn interest off your interest. So your next loan amount would be 110k.
Make 1 loan at 10% every year and the original 100k will be worth $672,750 after 20 years – and that is if you don’t add any more money
Compound interest is the 8th wonder of the world. He who understands it earns it; he who doesn't pays it.
Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.
It doesn’t take that long and it’s a small price for the value I try to provide.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to the PLP.

That’s gonna do it for Episode 123 and just a few final thoughts:
1 – please join the Private Lender Podcast Facebook Group to connect, learn, inspiration and discussion
2 - Remember, the EASY button to lending in the Houston, TX market can be found at www.PrivateLenderPodcast.com/ink
So, as I sign off I’d like to say in addition to mindfulness and self-awareness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k
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PLP-122 Rod Khleif: Why Achieving Personal Growth Is More Important Than Goal-Setting

Keith Baker — Mon, 29 Mar 2021 03:00:00 -0600

Many people believe that achieving your goals is the epitome of success. However, what makes it more worthwhile is gaining personal growth along the way. Multifamily master Rod Khleif joins Keith Baker to tell his inspiring story of finding success and failure in real estate, teaching him to live larger than life and become strong whatever happens. He shares how writing down your specific goals helps a lot in gearing up for the challenges of life and how the feeling of gratitude allows you to manifest every goal you may have. Above all, Rod talks about finding a high level of self-fulfillment in giving back to society, sharing how he found a deeper purpose in feeding families every time the holiday season comes.
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Rod Khleif: Why Achieving Personal Growth Is More Important Than Goal-Setting
I Finally Got To Interview Rod Khleif!
I’m pumped up for this interview with Rod Khleif. He is a multiple business owner and philanthropist who is passionate about real estate, business and giving back. As one of the country’s top business, real estate and peak performance luminaries, Rod has owned over 2,000 homes and apartment buildings and has built over 24 businesses in his 40-year business career, several of which have been worth tens of millions of dollars. That’s just a few of the reasons I sought out Rod to be on the show. As you read on, you’ll understand why.
Out of 120-plus episodes, this is the episode in which I say the least. Rod is captivating and inspirational, at least for me. I sat back and started taking notes because I forgot that I was conducting an interview. Rod’s podcast, The Lifetime CashFlow Through Real Estate is one of the first shows I listened to way back years ago. It inspired me to do my own. His show inspired me to also begin seeking knowledge and to understand multifamily investing, which is Rod’s specialty. Let’s go ahead and get down to the brass text of this show and to the interview with Rod Khleif.
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It’s my distinct honor to welcome Mr. Rod Khleif to the show. Rod, welcome.
Thanks. Let’s have some fun, Keith.
I know full well who you are. I want my audience to know who you are. I listened to Rod’s podcast years ago as I’m coming up in my morning commute and it inspired me to do my show. Rod’s podcast is The Lifetime CashFlow Through Real Estate. There’s a lot of great information there. I’m excited and nervous. Rod, thank you so much. You honor me by coming on here.
Thank you for your kind words. That means a lot to me. For those of you that don’t know who I am, let me give you a little background on me and a story because it might help and inspire you. I immigrated to this country when I was six years old. I was born in the Netherlands, in Holland, wooden shoes and windmills. We ended up in Denver, Colorado. We didn’t have much. I worked close in the Goodwill and the Salvation Army all the way through junior high school until I lied about my age to work at Burger King when I was fourteen, so I could buy my clothes. I remember growing up, we ate expired food and drank powdered milk because that’s all we could afford.
Luckily, my mom had an incredible work ethic. She babysat kids so we’d have enough money to eat and have a decent life. She was a bit of an entrepreneur as well. She invested in the stock market with her babysitting money. She also bought the house across the street from us when I was about fourteen. When I was seventeen, three years later, she told me she’d made $20,000 in her sleep. I’m like, “You made $20,000, it went up in value and you didn’t do anything? Forget college. I’m getting into real estate.” I became a real estate broker when I turned eighteen. I’m an agent. I was a broker, which you could do back then with education. Now they got smart and you need some experience, but I was a real estate broker. I was going to be rich in real estate.
In my first year in real estate, I made about $8,000. This is 1978. In my second year, maybe $10,000 or $12,000, but in my third year, I made over $100,000, which back in 1981 was some decent change. What happened between year 2 and 3? I met a guy that taught me about the importance of mindset and psychology, and how your success in anything relates to your mindset and psychology. It’s 80% to 90% of your success in anything. Only 10% to 20% is the mechanics, be it in private lending and in multifamily real estate, which is what I teach. Whatever the vehicle is, it’s the smallest percentage. If it was knowledge, there would be much wealthy librarians and college professors out there. It’s the do and keep doing.
[caption id="attachment_3062" align="aligncenter" width="600"] Personal Growth: Whatever you focus on is going to get larger, both positive and negative.[/caption]

Fast forward now, I’ve owned over 2,000 houses that I’ve rented long-term and thousands of apartment units. In 2006, my net worth went up to $17 million while I slept. It’s a little more than my mom’s $20,000. I thought I was a real estate god. If you do Math on it, it’s $8,300 an hour over a 40-hour workweek, which I did. I could barely fit my head through a door. I thought I could do no wrong. When that happens, sometimes when people get like that, God or the universe will give them a nice little smack down. That was in 2008. I lost that $17 million and a lot more. I lost $50 million in 2008. I thought that was it for life. One of the things I enjoy talking about or drilling down on is the mindset it took to have $50 million and to lose in the first place, but then the mindset it took to get back to the success that I enjoy now. If you want me to drill down, I can go a little deeper on how that happened.
I want you to tell your story because I can regurgitate and it’s not going to be the same side of the impact that it has coming from you. I love the fact about what it took to get to that. How do you get the ability to lose $50 million? I love how you said you couldn’t get your head through the door, the hubris of youth. Getting back to do that, bouncing back, getting back up after that and returning. Please dive in.
How I was able to do it is re-associating with exactly what I wanted and more importantly, why I wanted it. I used to do these live bootcamps. I did sold-out live events for 2.5 to 3 years. I was supposed to have 800 people in Orlando in May 2020 and we all know what happened with that. I was freaking out. I was like, “We had hundreds of people that already paid. What are we going to do?” If you go to MultifamilyVirtualBootcamp.com, you’ll see me with my phone in the backyard shooting the video because we had to get the website up in two days. We did and we’ve now had thousands of people attending my live stream events. I had to innovate and pivot.
Let me mention something. If you’re reading this, I know you’re a leader. Now more than ever, the world needs leaders. Back then, I had to innovate and pivot. Maybe you do as well. Maybe you’re going through a tough time and you need to re-invent yourself. We all go through these periods in our lives and don’t fear it, deal with it. Do it, innovate, pivot, whatever you have to do to make it happen. Some of the biggest companies in history were built when times were tough. Keep that in mind. One other thing on that note as it relates to leaders is as a leader, you have to pay very close attention to what you focus on. Whatever you focus on is going to get larger, both positive and negative.
[bctt tweet="Some of the biggest companies in history were built when times were tough. " via="no"]
Be very careful and don’t get sucked into the news. The news isn’t out there to inform us. It’s there to startle and scare us. Don’t get me started on politics. Don’t get sucked into that crap. Focus on bringing in the good stuff. The bottom line is how I was able to recover was re-associating with what I wanted. I do these live events. One of the first things I do is this session. I’ll give you a high-level overview of what I do. I call it goal setting on steroids. This is how I had $50 million to lose and how I got back to the success that I have through this process. There are a few steps. I’ll go through it very quickly.
The first thing you need to do is to pick an hour when you have a lot of energy. Don’t do it after a meal. Sit down and write down everything you could ever possibly want in life. All the stuff, there’s nothing wrong with stuff. The houses, cars, boats, jet skis, planes, write it down. Write down how much money you want in the bank in 3 or 10 years. Write down how much cashflow you want from your investments in 3 or 10 years. Write down all the places that you want to visit. Write down all the things you want to do. It’s not just the stuff. Dig deep and write down everything. The little things and the big things. Everything you could ever possibly want, the jewelry and clothes.
Also, write down the things you want to do. Maybe you want to climb all the mountains over 15,000 feet or jump out of a perfectly good airplane. I did that in 2020 and I’ll never do it again, but it’s off the list. Write down what you want to do. Where do you want to travel? I’ve got a travel vision board. Also, write down what you want to learn in your lifetime, the skills you want to learn. If you want to be a private lender, I know Keith’s got some stuff coming out to teach you how to do that. If it’s multifamily, come and see me. I’ll tell you how you can spend a couple of days with me. It’s $97 and I don’t send to sell anything there. I teach for eighteen hours and I don’t sell anything for under $100.
The point is if you want to learn something, write it down, a skill, maybe a foreign language or you want to write a book. Whatever you want to do, be or have, you need to write it down, little things, big things, everything and dig deep. Also, write down who you want to help. We’ll do more for others than we’ll ever do for ourselves. You want to use this. This is the fuel that’s going to get your butt out of bed early, stay up late, work on a Saturday. Do whatever you got to do to live the life of your dreams. If you’re willing to work like most people won’t for a few years, you’ll live the rest of your life like most people can’t. This is the fuel that’ll get you to that.
Don’t let the pen leave the paper. Write it all down. Write down who you are going to help. I bought my parents a house when my dad was alive here on a canal in Florida. I bought him a car, took them on cruises. Who do you want to do things for? Write that down because that’ll juice you. It’ll motivate you. I’m sure there are quite a few analytical people reading this, Keith. If you’re analytical, don’t stop and analyze your answers. Keep writing. You can always scratch them out later. Don’t let the pen leave the paper. Once you can’t think of another thing, put a time limit on each goal. That’s the next step. Put how many years you think it’ll take you to achieve it, 1, 3, 5, even 10 or 20, recognizing that as human beings, we will overestimate what we can do in a year, and massively underestimate what we can do in 5, 10, 20 years.
[caption id="attachment_3063" align="aligncenter" width="600"] Personal Growth: If you want to learn something, write it down.[/caption]

I’m going to give you some examples for me. This is not me bragging. I’m hoping to inspire you. Most of these examples don’t even interest me anymore, but I’m hoping they’ll inspire you. When I lived in Denver, I always knew I wanted to live on the beach. There was no beach in Denver. I would visualize the palm trees, sand, surf and all of that stuff. Twenty years later, I built this incredible mansion on the beach. It was unthinkable when I was eighteen. Take the lid off your brain. I own the beach on one side. I had my boats on the backside. It was an $8 million, 10,000 square-foot mansion. If you can imagine it, you can do it. There’s nothing you can’t do. Put a time limit on each goal. Once you’ve done that, you need to pick your number one goal. If you’ve got 2 or 3 that are equally exciting, just pick one. When you get that goal, you’re like, “This is amazing.” That goal that you know you’ve arrived at when you’ve achieved it.
Put that on a separate sheet of paper. I want you to pick your top three one-year goals and put those on that separate sheet of paper. Leave some room in between them. Don’t overthink this. Don’t kill yourself trying to pick the number one goal. If you’ve got 2 or 3 that are equally exciting, just pick one. It won’t matter for this, but your number one goal and your top three one-year goals. At this point, you’re ahead of 99.9% of the people on the planet that do a new year’s resolution that’s forgotten by February. There are two more steps. The goals are important. You got to have them. That’s how you create what Napoleon Hill calls a burning desire in his book, Think and Grow Rich. You got to have a burning desire.
You got to want it but, “Why the goals are an absolute must?” is the real fuel. You need to write a paragraph under each goal why you have to achieve it. There’s no 50/50. It has to happen. Use emotionally charged words when you’re writing your description. Words are powerful. Words like amazing, incredible and beautiful. Use these words because they’ll juice you. You might say, “I can show my kids what incredible success looks like. I can show my wife or husband what it means to be free and live an amazing life of success. We can have the freedom to do whatever we want, whenever we want, go wherever we want, bring whoever we want.” Whatever is going to juice you, write it down. Put a positive reason why it has to happen under each goal. One little tiny step further. You need to put some pain in there if you don’t achieve the goal. Make it freaking painful, “So I don’t feel like a failure, so I don’t fail my kids, so I don’t fail my wife or husband, so I don’t live a life of regret.”
There was this nurse in Australia named Bronnie Ware. She was a hospice nurse. She dealt with patients when they were about to die. She asked them a question. The question was, “Do you have any regrets?” She even wrote a book about it’s called The Top Five Regrets of the Dying. Do you know what the number one regret was? It was, “Not living the life I could have lived but living someone else’s life. Not doing what I know I’m capable of.” We do not want that. If you’re sitting here and you’re afraid of failure, fear regret. It’s much worse. Fear being in the same place that you are a year from now unless you love where you are now. That’s what you fear. Fear regret, not failure. We fail our way to success. As a side note, I call them seminars. That $50-million thing was a seminar. It wasn’t a failure. I learned that it’s only a failure if you don’t get back up, and you don’t learn the lesson.
I’ve built 24 businesses. Several have been worth tens of millions of dollars. Most have been spectacular flaming seminars, but we fail our way to success. I met the billionaire owner of SPANX, the women’s undergarments. Her name is Sara Blakely, a beautiful human being. I met her at her mastermind. She told me that her dad used to ask her and her brother once a week, “What have you failed at this week?” What an awesome question to not fear failure. You’ve got your negative reason why you cannot fail in getting that goal. The next thing you must do is you must get pictures of your goals. This is how you manifest this stuff. Back years ago, I used to have a sign above my bed. When I laid in bed, I could see it. It said, “$100,000 a month.” Now I have 10X that. It says $1 million a month above my bed. I’ll reach it and that’s not ego. I will. There’s no question in my mind. That’s a big piece as well. You’ve got to know you can do this. You got to believe in yourself. The power of belief is incredibly powerful. You’ve got to believe it, even if you don’t have it and you know what to pee in.
[bctt tweet="Everything you want to manifest in life starts from a foundation of gratitude. " via="no"]
Get pictures of your goals. Let me give you some examples of manifesting. I’ll give you a couple of public examples. Jim Carrey wrote himself a check for $10 million when he was flat broke. He carried it in his wallet. He used to go up by the Hollywood sign. He would look at it and visualize cashing it. That’s how much money he made for Dumb and Dumber. Demi Lovato posted on social media, “I’m going to sing in the Super Bowl,” when she was unknown years ago. In 2020, go see who sang in it.
I’ll give you some personal examples for me. When I was eighteen, I figured I had to have a four-door car to show houses because I was going to be rich in other people’s houses. I bought this four-door Ford Granada, bench seat in the front, the ugliest piece of crap you’ve ever seen. I figured that’s what I had to have. I worked with a guy and he had Corvette. He let me drive one. That’s an important piece. If you want something, experience and test drive the car, go to the open house of the houses that you want. Experience it as much as you can. I drove this Corvette and I’m like, “This is freaking awesome.” It’s sleek and you sit back like you own the world. I got a picture of a Corvette out of a magazine. This is before the internet. I glued it or taped it to the visor of that bone ugly Granada. Every time I sat in it, it was right there in front of me, then a year I had a Corvette.
I’ll give you a couple more examples. This is back when the TV show Magnum P.I. was out. The actor’s name was Tom Selleck. He was this detective in Hawaii. It was the first time I’d seen an exotic car. He drove this Ferrari 308. I’m like, “Look at that thing. Look how low, beautiful and sleek it is. I got to have one.” I got a picture of that actual car. I put on the visor of my Corvette. Within a year or two, I have a Maserati that looked like it. The last example, I always wanted a Lamborghini. When I saw those, I’m like, “These are amazing.” I got pictures of them, posters in my room. What’s interesting is my son collected exotic cars. He had a model of the exact same color that I ended up getting. A color and style of Lamborghini that I ended up getting. None of this stuff may interest you. Maybe it does, maybe it doesn’t, but the message here is to get pictures of what does juice you and put them around you because they work.
I have a paper planner. In the back of this thing, I’ve got pictures that have been in here for twenty...

PLP - 121 Lending to an entity

Keith Baker — Mon, 22 Mar 2021 00:01:00 -0600

Greetings from the laughingstock of the professional sports world – Houston, TX. And welcome to episode 121 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
If you’re looking for practical tips and advice on Private Lending and how to keep your money safe, then you are in the right place. But if you want to learn from my mistakes so you can both avoid and profit from them, well then pull up a chair and pour yourself a stiff drink my friend, because this podcast is just for you!
The PLP is dedicated to giving people just like you and me the knowledge and confidence to participate in the most passive form of real estate investing known to man: Private Lending.
And if you are looking for a shortcut to begin Private Lending then head over to PrivateLenderPodcast.com/ink to learn how you can put your money to work for you by investing in private and hard money loans around Houston.
Also, make sure to join the Private Lender Podcast Facebook group to connect with other private lenders and be a part of the community.
Are you ready to get down to the brass tacks of today’s episode? – Cuz I know I am!
Today’s topic is about lending to an entity instead of a person, and what you need to do in order to protect your money. So let’s dive in, shall we??!!
A retail loan to an individual
           Retail bank (as well as SDIRA custodian) will require the borrower’s name, address, contact info, driver’s license, and social security number.
In the case of a loan or mortgage, the borrower’s social security number is important for 2 reasons:
allows the lender to perform a credit report to help underwrite the loan
allows the lender to report the borrower to credit bureaus in case of default or delinquency. This is how banks can keep some of the borrower’s skin in the game with a conventional or FHA mortgage – especially in a low or no money down scenario.

The same principles apply to Private Lending. While I don’t actually pull a credit report for a borrower, I require the same info as the bank, especially the social security number. If my borrower defaults, I can seek legal remedies against them with their social security number in civil court. And I can put a bruise on their credit report if I decide it is worth it to pay the money.
Now let’s look at what happens when Fraudulent House Flippers, LLC applies for a loan at the bank:
First off, besides requiring 20% of the purchase price at the closing table for an investment property purchase, they want to see the formation documents for the entity and who are the members and managers, and the LLC’s EIN or federal tax ID number, bank statements, etc.
They also require a personal guarantee, unless your LLC has a substantial amount of money deposited with said bank.
Why would they require a personal guarantee for a business loan? That’s a good question. But a better question is why should every Private Lender require a personal guarantee when lending to an entity such as an LLC?
I’ll walk you through the answer because it can ruin your day.
Let’s say I loan 100k to Fraudulent House Flippers, LLC to purchase and renovate a property. For three months I am paid as agreed, but in month 4 Fraudulent House Flippers LLC stops paying their note, and after the loan goes into default, let’s assume two things happen:
           1 – I foreclose on the property – a hassle I don’t want but have accepted the risk
2 – Fraudulent House Flippers, LLC dissolves the entity and now you don’t have anyone to sue in civil court or receive a deficiency judgment.
However, if you require a personal guarantee from every member of the LLC, you now have a means by which you ensure the borrower keeps their skin in the game, and their butt on the line. Because they can’t just walk away as if nothing happened.
Remember, you upheld and honored your half of the agreement by putting up your money. You should not feel bad for making the borrower live up and honor their half of the agreement, to the fullest extent allowed by your state law and loan documents.
A personal guarantee is a no-brainer and it is non-negotiable. Most heavy hitter RE investors won’t blink an eye at the personal guarantee – they see it as a cost of doing business. Except Ray Sasser of Episode 26 and 93 fame. Ray will try to negotiate for anything. It’s not that he is opposed to a personal guarantee, cuz he can back it up. But he loves to negotiate ANYTHING, just for the sake of negotiating, and nothing more.
Remember: it's your money and your terms!
Well, that’s gonna do it for Episode 121 and now I will give you my parting thoughts, which are:
I don’t charge money to produce this show, but I would be extremely grateful if you would help get the word out and increase awareness for the show by leaving me an honest rating and review over at iTunes, Google Podcast, Spotify, or whatever platform you are using to hear my voice. That is a small but quick request that will pay us both dividends. And to be honest I believe it is a small price for the value you hear on the PLP.  And that’s the truth!
If you would like to get started on your Private Lender career but don’t know where to start, head over to PLP.com/ink to learn more about how you can begin Private Lending in the Houston area with friends of the show.
And don’t forget to join the Private Lender Podcast Facebook group
And as we close I want to thank you for your time and for listening.
So besides self-awareness, I wish you safe and prosperous Private Lending.

I’ll catch you on the next episode.
-k

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PLP – 120 The Second Law of Wealth (Gold)

Keith Baker — Mon, 08 Mar 2021 03:00:00 -0600

The Second Law of Wealth
Hello Lender nation and welcome to episode 120 of the Private Lender Podcast! I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
If you’re looking for practical tips and advice on Private Lending and how to keep your money safe, then you are in the right place. But if you want to learn from my mistakes so you can both avoid and profit from them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
In today’s episode, we continue the lessons taken from the book The Richest Man in Babylon: the second law of Gold. These are old-world principles that have remained relevant and true through the centuries, no matter the currency, and no matter the politics.
But before we dive into the Second Law of Gold, I need to perform a little housekeeping:
           Private Lender Podcast Facebook group CLICK HERE
2 – Are you interested in doing your own Private Lending but feel like you need a little help to get you through your first handful of loans?
Then head over to PLP.com/INK and learn how you can get started in lending with my friend Paul over at Ink lending and fund their loans on properties right here in the Houston area, in one of the most lender-friendly states in this great country of ours! That’s right, Paul Lamnatos and his team vet the deals, underwrite the loan, and put your money to work for you. They even service the loan on your behalf - that’s about as passive as you can get.
CLICK HERE or on the image below to learn more!!
“Let’s get down to the Brass Tacks”
In the book, the RMiB, there are 7 cures for a lean purse, and 5 laws of Gold and today we will discuss the 2^nd law of gold, which is simply:

Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
“Gold, indeed, is a willing worker. It is ever eager to multiply when opportunity presents itself. To every man who has a store of gold set aside, opportunity comes for its most profitable use. As the years pass, it multiplies itself in surprising fashion.”
There is an old cliché that says: “work hard for your money, but then make your money work harder for you”.
I like to think along the lines of the flocks in the field or even raising children. There is usually a great deal of labor to bring your savings to life (see what I did there?) and to give your money the ability to multiply and bring more savings into the world and into your account.
Or your savings are like widgets or little robots that make money and produce more robots to make you money – but you have to oversee all of this.  This goes back to you taking control of you money, your finances, your future, your family legacy.
Don’t let complacency creep up on you, and never trust your money is working for you – you must verify that it is working hard for you.
You are shepherd of your money – a steward if you like
You are the CEO of your money – act like it!!
Work hard for your money but make your money work harder for you!
Teach this mantra to your children. Teach them how to raise their wealth, and the position of their family.
Ok, my sermon is over. Thank you for listening.
Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at Google Podcast, Spotify or whatever platform you are using to hear my voice. But it would mean the world to me if you could leave an honest rating and review over at iTunes because it's apple and they're still the benchmark.
It doesn’t take that long and it’s a small price for the value I try to provide.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to me and the PLP.

That’s gonna do it for Episode 120 and just a few final thoughts:
1 – please join the Private Lender Podcast Facebook Group to connect, learn, inspiration and discussion
2 - Remember, the easy button to lending in the Houston, TX market can be found at www.PrivateLenderPodcast.com/INK
So, as I sign off I’d like to say in addition to self-awareness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k
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Join the Private Lender Podcast community today:
PrivateLenderPodcast.com
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PLP-119 March Due Diligence for Private Lenders

Keith Baker — Mon, 01 Mar 2021 06:00:00 -0600

Hello Lender nation and welcome to episode 119 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
If you’re looking for practical tips and advice on Private Lending and how to keep your money safe as a Private Lender, then you are in the right place. But if you want to learn from my mistakes so you can avoid them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
In today’s episode, we will cover a few items of due diligence every Private Lender should perform if they do not utilize the services of an escrow or loan servicing company.
But before we launch full speed into today’s episode, I need to perform a little housekeeping of my own.

Guys, I have not been producing much content lately. I mean, I’ve been quiet over the last 12 months - I didn’t produce one episode in February of 2021.
I could blame a lot of things such as Covid, kids, divorce, death in the family, additional family drama, anxiety, depressive episodes and let’s not forget Texas became an ice cube for a few days recently.
But the truth is this: I chose not to produce episodes, or content, or the Private Lender Academy that I’ve been threatening you with, since forever.
I didn’t consciously choose NOT to do anything, but I now see that I chose to stay with the familiar feeling of procrastination due to a failed sense of perfectionism. Meaning I chose to stay in my comfort zone and watch the world go by as I wondered why I wasn’t making any progress toward my goals.
Well, I hope I can say I’ve finally gotten off my ass and put that mindset behind me. So let’s gets going and do some housekeeping:
PLP Facebook group: Private Lender Podcast (public)
https://www.facebook.com/groups/674936429994760
Are you interested in doing your own Private Lending but feel like you need a little help to get you through your first handful of loans?
Then head over to PrivateLenderPodcast.com/ink and learn how you can get started in lending with my friend Paul over at Ink lending and fund their loans on properties right here in the Houston area, in one of the most lender-friendly states in this great country of ours! That’s right, Paul Lamnatos and his team vet the deals, underwrite the loan, and put your money to work for you. They even service the loan on your behalf - that’s about as passive as you can get
If you would like to learn more go to PrivateLenderPodcast.com/ink
Ok, let's get down to the brass tacks -
t is now March, and time for us Private Lenders to perform a little due diligence.
1-     Did you send out 1098’s or mortgage interest statements in January?
2-     Were the property taxes paid by the end of January? Public record, so you can confirm this via the web in most counties in the US.
3-     Insurance premiums paid?:
a.     Property
b.     Windstorm
c.      Flood
d.     Seismic
4-     HOA dues paid?

The 4 previous points are performed on your behalf if you use an escrow or loan servicing company. This is why I suggest as a private lender you should utilize these services because they make your life easier and the borrower pays for the service!
It is a condition of retail mortgages and all my Private Loans that the borrower stays current and pays the insurance premiums and taxes. If your borrower is not paying these on time it could mean they are in trouble or quickly arriving at trouble, or perhaps cashflow is being delayed. Your job is not to ask “why?”
5 - The last thing I like to do at least once a year is to drive by the properties on which I have a lien and assess the condition of the property. Obviously, I want any property I lend upon to be in good condition, but it depends on the property and my Private Loan’s use.
A - So if I have a loan on a rental property, I want to see that the borrower and tenant are both maintaining the property’s condition and appearance. Curb appeal is very important to me even with the lower value rentals and required with nicer properties.
B – If I’m loaning to an investor who has sold the property with owner financing (beneath my lien) I want to see the buyer is performing the needed repairs.
C – this does not apply to flips or new construction, obviously. You will want weekly inspections/updates to ensure the project is moving ahead and the borrower is not getting into trouble.

To recap the Private Lender’s due diligence to-do list:
1-     Did you send out 1098’s/mortgage interest statements?
2-     Did your borrower pay the property taxes?
3-     Did your borrower pay the required insurance premiums?
4-     Have the HOA dues been paid?
5-     Drive by the property
We all intrinsically know that no investment is 100% safe, but with a little effort, you can help secure and ensure the safety of your money and investments. And that’s the moral of today’s episode. I would like to thank you for playing!
Here’s the deal, I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at Google Podcast, Spotify or whatever platform you are using to hear my voice. But it would mean the world to me if you could leave an honest rating and review over at iTunes because it's apple and they're still the benchmark.
It doesn’t take that long and it’s a small price for the value I try to provide.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to me and the PLP.
That’s gonna do it for Episode 119 and just a few final thoughts:
1 – please join the Private Lender Podcast Facebook group to connect, learn, inspiration and discussion
2 - Remember, the easy button to lending in the Houston, TX market can be found at PrivateLenderPodcast.com/ink
So, as I sign off I’d like to say in addition to self-awareness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
-k

PLP-118 Defense Wins Championships - Control Expenses

Keith Baker — Mon, 25 Jan 2021 06:01:00 -0600

"let thy motto be 100% of appreciated value demanded for each coin spent"
Click here for the Private Lender Podcast Facebook Group

PLP-117 New Year Obligations and House Keeping for Private Lenders

Keith Baker — Mon, 04 Jan 2021 00:01:00 -0600

Hello Private Lender Nation and welcome to episode 117 of the Private Lender Podcast and the first episode of the year 2021. I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today, and I hope my voice finds you doing more than well.
If you’re looking for practical tips and advice on Private Lending and how to keep your money safe then you are in the right place. But if you want to learn from my mistakes so you can avoid them, well then pull up a chair and pour yourself a drink my friend, because this podcast is just for you!
This will be the first episode of 2021, and probably one of the least controversial. But before I say something to get me canceled, I would like to take a minute for some housekeeping:
Private Lender Podcast Facebook Group
If you like the idea of private lending but find yourself a little hesitant to begin then click HERE to get your feet wet with the help of a professional Hard Money and Mortgage lender.
www.privatelenderpodcast.com/ink
My friend Paul Lamnatos is ready to answer any questions you may have and help you get started on your Private Lending journey. Click the link on the webpage and provide your email address and Paul will reach out to confirm a time when you can speak to him about Ink’s lending criteria, their loan process, and how you can begin profiting from loans on properties located in the greater Houston area – in a very lender-friendly state!
2020 is now over, and we Private Lenders have some of our own housekeeping to perform.
The 1098
Even though the private loans I speak about are business loans, they are still considered a mortgage. Thus the lender is required to file IRS form 1098 and provide it to the borrower, indicating the amount of interest paid on the note over the course of the previous year.
·        $600 or more of interest collected (including points charged).
·        Remember, points count towards the Usury limit in your state. 18% in TX
·        Must file and provide to the borrower no later than 31 January 2021
If you have your private loan serviced, which I strongly recommend you do, the note servicer/escrow company with do this for you and mail and/or electronically deliver the forms to you borrower.
I personally have one legacy loan with my partner Landon that I didn’t demand the use of an escrow/servicing company.
Here are some options if you don’t use a note servicer/escrow company:
·        Your CPA
·        Accounting software
·        Quickbooks or TurboTax
·        Online services
I just found 8 websites from a Google search (excluding Quickbooks and TurboTax)
The second order of housekeeping is the Fair Market Valuation for any investments, including notes, private entities, and real estate in your Self-Directed IRA.
1. Real Estate – Appraisal, Broker’s Price Opinion (BPO), County Appraisal Value.
2. Note – If amortized, attach the amortization schedule. If interest only, simply state the current principal value in the “EOY 2020 Market Value” box and that the note is interest only in the “Comments” area.
3. Private Entity – A letter from a managing member on letterhead stating the value or a balance sheet reflecting the value of the partner’s value.
4. Personal Property – Third-party valuation from a qualified professional.
In my case, I logged on and was able to quickly provide the fair market value of my loans and my investments in the commercial and multi-family deals I recently invested in.
Notes/Private Loans
The only loan that I don’t use a note servicing/escrow service is an interest only loan. Therefore, the principal balance is never reduced so the fair market value is always the original loan amount. I provide this amount and a note stating the loan is interest only, and I’m done for the next 12 months.
I do have 1 amortizing loan currently, but I use a note servicer who performs the calculation for an accurate remaining loan value. I simply provide an amortization schedule or my annual account statement to my custodian.
Commercial Building & Apartments
Since these Limited Partnerships just recently closed and acquired the properties there has been no change as concerns capital accounts or annual valuations. I have reached out to the sponsor and confirmed this, for 2020.
Next year I anticipate a different story and will report back to you guys as things move forward and I learn something new.
EPISODE RECAP:
Here’s the deal: I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast, Spotify, iHeartRadio or whatever platform you are using to hear my voice.
It doesn’t take that long and I believe it’s a small price for to pay for the value I try to provide.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to the PLP.
Next week we’ll continue with a lesson from the book The Richest Man in Babylon
That’s gonna do it for Episode 117 and just a few final thoughts:
1 – please join the Private Lender Podcast Facebook Group to connect, learn, inspiration and discussion
2 - Remember, the easy button to lending in the Houston, TX market can be found here
www.privatelenderpodcast.com/ink
So, as I sign off I’d like to say besides self-awareness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode. . . .

PLP-116 The First Law of Wealth

Keith Baker — Mon, 21 Dec 2020 00:30:00 -0600

If you’re looking for practical tips and advice on Private Lending and how to build and maintain wealth outside of banks or wall street, then you are in the right place. And if want to put the power of a bank in your retirement account, you should probably pull up a chair. But if you want to learn from my mistakes so you can avoid them, well then pour yourself a drink my friend, because this podcast is just for you!
Love the show? Subscribe, rate, review, and share!
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This episode is going live on December 21^st, 2020 – the longest day of the strangest year I’ve seen in my few orbits around the sun.
Before I get to the housekeeping, I would like to take a moment and say thank you. Thanks for sticking with me this far, and I hope you stick with me even further as we boldly go into 2021.
Housekeeping:
Join the Private Lender Podcast Facebook Group
https://www.facebook.com/groups/674936429994760
Did you know there is an easy button to start your private lending journey? If you are a bit unsure of making your first private loan, you can partner with my friends over at Ink lending and fund their loans on properties right here in the Houston area, in one of the most lender-friendly states in this great country of ours! That’s right, Paul Lamnatos and his team vet the deals, underwrite the loan, and put your money to work for you. It’s about as passive as you can get!!
If you would like to learn more go to PrivateLenderPodcast.com/INK, click the link, enter your info and Paul will reach out to confirm a time when you can speak to him about Ink’s lending criteria, their loan process, and how you can begin profiting from loans on properties located in the greater Houston area – in a very lender-friendly state.
OK, let’s get down to the brass tacks, right to the heart of today’s topic which is another lesson taken from the book The Richest Man In Babylon. Why am I doing this you might ask? Because there is no secret to building wealth, but there is a price that I believe very few of us are willing to pay, which includes hard work, unwavering determination, no guarantees, and nothing but uncertainty.
You can see examples of not paying the price for that which we so desperately desire.
I’ve seen it in my family, my friends and sadly I’ve seen it in myself. Remember ya’ll, my truck was repossessed when my wife (at the time) was 3 months pregnant with our first child.
That’s why I love the book the Richest Man in Babylon and the lessons found within it. These are time tested principles for building wealth. They are not get-rich-quick schemes. They are not “hacks” for you to avoid putting in the work and developing the discipline necessary to build your estate, your wealth. There is no cheat code to working for it – and nor should there be!
These principles and lessons are quite simple, but that doesn’t mean they are easy to implement or to continue for your entire money-earning life. But if you start good habits now, you will have a strong financial base from which to make future decisions. And you will build the discipline necessary to reach your goals and then some!
Last month we began with the first of 7 cures for a lean purse, or small savings/investment account/wealth.
And today we will discuss the first of 5 laws of gold, which fits hand in hand with the first cure for a lean account.
The First Law of Gold. The First Law of Wealth.
Original:
Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.
Wealth comes to those who reserve AT LEAST 10% of their total earnings towards building their future financial independence/fortune.
Pothead Explanation: Start providing yourself and your family with security by paying yourself first, at least 10% of your earnings to be invested in your future.
Out of everything you earn, everything (salary, side hustle, inheritance, online bookie.com, lotto winnings, etc., take no less than 10% every payday/week/month/etc., and put it away, save it to begin, and then to continue growing your estate for the future. If you make 1,000 dollars, think I only made 900!!! You find 10 bucks on the street, put 1 away for a rainy day (old age).
Why? Cuz the best time to plant a tree was 20 years ago, the second-best time is right now!!! So start digging and planting baby!
If you are contributing to a company-sponsored retirement plan, my suggestion is this:
1 – don’t leave money on the table. Whatever your company is willing to match then you should contribute at least this minimum.
2 – strive to get to a point where you are maxing out you retirement plan contributions.
3 – DO NOT include retirement plans in your 10% calculation
COLD HARD FACTS: Nobody will lend you money when you are desperate, nor should they!
Start saving any percentage you can. And slowly increase the amount you put away as new money finds its way to you.
Here’s the deal: I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast, Spotify, iHeartRadio or whatever platform you are using to hear my voice.
It doesn’t take that long and it’s a small price to pay for the value I try to provide.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to the PLP.
That’s gonna do it for Episode 116. Remember, please
1 - Join the Private Lender Podcast Facebook Group
2 - Remember, the easy button to becoming a private lender is at www.privatelenderpodcast.com/ink
So, as I sign off I’d like to say besides self-awareness and a Merry Christmasw, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
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PLP-115 What is the pulse of your local market?

Keith Baker — Mon, 30 Nov 2020 06:00:00 -0600

Join the Private Lender Podcast Facebook group and get real time answers to your questions as you build your network!:
https://www.facebook.com/groups/674936429994760
Also, did you know there is an easy button to becoming a Private Lender? Just CLICK HERE to learn more about lending your money on deals right here in the Houston area,
OK, let’s get down to the brass tacks, right to the heart of today’s topic: the pulse of your local real estate market.
2020 has been just a little crazy, no?
I personally know people who were optionally unemployed - WTF?
Eviction moratoriums
Foreclosure moratoriums
A new spike in Covid cases and restrictions
Wall St is thriving
Main street is dying
REITs took it on the chin and haven’t returned to pre-covid prices
Nationwide housing market are showing bulls and bears
I suggest we all pause for a few seconds and stop what we’re doing to look around us. To observe the current market trends and signs. What does your local market look like?
Perhaps you live near a major city and are experiencing urban flight.
Maybe you’re more coastal and have seen a staggering amount of vacation home construction and development. We certainly have in the Gulf Coast.
The city of Lake Charles – hit with 2 hurricanes (first Laura then Delta). I’ve had conversations with locals who work in the petro-chem plants and are looking to have their homes repaired or rebuilt and the prices are through the roof. Admittedly this is anecdotal hearsay at best, but when you hear enough strangers say the same thing in a matter of hours, I tend to put some credence to their words.
My neighbor down the street is currently on contract number 5 to sell his house. We’ll see if it actually closes before the end of 2020.
Saw an article in WSJ stating home sales set a 14 year high (2006)
What am I looking at to get the pulse on the Houston market?
HAR.com (local MLS)
           Monthly press releases that show month over month statistics.
Total Sales
Average SFR sales price
Median SFR sales price
Number of listings
Pending sales
Months of inventory
November 2020
·        $1 – $99,999: decreased 23.1 percent
·        $100,000 – $149,999: decreased 22.3 percent
·        $150,000 – $249,999: increased 18.2 percent
·        $250,000 – $499,999: increased 46.7 percent
·        $500,000 – $749,999: increased 58.1 percent
·        $750,000 and above: increased 81.5 percent
Here’s what I know:
Interest rates are the lowest ever since Freddie and Fannie began tracking them in 1971.
Stimulus plan and moratoriums running out, is another round coming?
Lockdowns?
This bull market is long in the tooth
Here’s the deal: I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.
It doesn’t take that long and it’s a small price for the value I try to provide.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to the PLP.
That’s gonna do it for Episode 115 and just a few final thoughts:
1 – please join the PLP Facebook group to connect, learn, inspiration and discussion
2 - Remember, the easy button to lending in the Houston, TX market can be found at PLP.com/INK.
So, as I sign off I’d like to say besides self-awareness, I wish you safe and prosperous Private Lending.

PLP-114 Lessons from the Richest Man in Babylon

Keith Baker — Mon, 09 Nov 2020 09:00:00 -0600

Hello Private Lender nation and greetings from what used to be the energy capital of the world – Houston, TX. And welcome to episode 114 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.
If you’re looking for practical tips and advice on Private Lending and how to build and maintain wealth without banks or wall street, then you are in the right place. And if want to put the power of a bank in your retirement account, you should probably pull up a chair. But if you want to learn from my mistakes so you can avoid them, and save yourself thousands of dollars and heartache in the process – well then pour yourself a drink my friend, because this podcast is just for you!
Let’s start with 400lbs gorilla in the room – where have I been?
Well, let’s just say that while mother nature has not been kind to the united states this year , she’s been kind to my wallet! Let me just say that business is booming!
Which is great for me, but when you pray for rain, you have to deal with the mud. So that means I’ve been on the road traveling more, seeing my kids less, and sitting elbow to elbow with people on airplanes, all while maintaining proper social distancing, as mandated by the airlines!
Happy to be back home, and get back behind the mic, and back into the episode groove! And I’m happy to say motivation is flowing back and work on the PLA continues – albeit slower than I would prefer! I think I might drop a surprise episode into the mix soon so keep listening for more info.
Housekeeping:
1 – PLP Facebook group: Private Lender Podcast (public)
Go to Facebook and search for the Private Lender Podcast group and click the
https://www.facebook.com/groups/674936429994760
Show notes page for the link
2 – did you know there is an easy button when it comes to starting your journey to becoming a kick-ass Private Lender? Yep – there is. You can partner with my friends over at Ink lending and fund their loans on properties right here in the Houston area, in one of the most lender-friendly states in this great country of ours! That’s right, Paul Lamnatos and his team vet the deals, underwrite the loan and put your money to work for you – about as passively as you can get – they even service the loan on your behalf! You don’t have to be like me rushing to file 1098’s and other tax documents on January 31^st at 11pm. . . .every year!
If you would like to learn more go to PLP.com/INK, click the link, enter your info and Paul will reach out to confirm a time when you can speak to him about Ink’s lending criteria, their loan process, and how you can begin profiting from loans on properties located in the greater Houston area – in a very lender-friendly state.  How’s that you ask?
Texas Foreclosure Facts:
·        Non-Judicial
·        2-3 month process
·        NO redemption period
·        Deficiency Judgements are allowed
Once again go to PLP.com/INK
OK, so here we go! Today marks the first in a series of episodes that are based upon the lessons found in the book The Richest Man in Babylon written by George Samuel Clason. If you haven’t read this book, then as your presumptive power of attorney I suggest you get a copy and read it immediately. Purchase or go to your local library and check it out today!
I was given a copy when I joined a 2-day REI mastermind about 6 or 7 years ago. Steven Kaufman of episode no’s 1 and 100 fame led the mastermind, and it changed my world – the very way I began to think about money, investing, and things like forgiveness and integrity. I read the book within a day, and so I began to challenge my definitions of things like family, success, achievement, duty and purpose. And now I have this podcast, I have a mission to teach 1 million of you how to safely lend your money to others, and I have the honor of being on the amazing journey of raising 2 happy, healthy, prosperous, fulfilled and above all, decent and kind young ladies.
So here is my plan: one episode per month will focus on one of the 12 lessons from TRMiB. Within the pages you will find 7 cures for a lean purse and the 5 laws of gold, as told by the character Arkad (a poor scribe who becomes the TRMiB) and so today I will begin with the first of seven cures for a lean purse and next month we will discuss the first law of gold.
Want to get something clear before I start – I am not bringing this topic up on the show just to give you some rah rah, you can do – because you already know you can do it. But in order for you or I to gain from the lessons, we must take action towards what you want to gain from the lesson. So please don’t just write this down on something and forget about it. Start thinking of ways you can implement these time-tested strategies in today’s world because methods are many and principles are few, as methods may change but principles never do.
would like you to go through these lessons and I hope you get gain as much as I have from them. There – I’ve given you my dad speech
The first cure for a lean purse or skinny bank account:
Start thy purse to fatten
How do you start to fatten-up/increase my account value?
“For every ten coins you put into your purse/account, only take out 9 for use:
Take 10% of your earnings and put into savings before you spend your budget.
Pay yourself first
This lesson is helpful and needed to become an investor in general, let alone to be private lender – you have to save up a sum of money in order to invest it and/or to lend it out. But this lesson is needed even more to continue, to learn more and to grow as a private lender and an investor. Never stop paying yourself first and do what you can to increase the percentage from 10 to 15 or 20% over the course of years.
You might say that you can’t afford to take 10% out of your paychecks, there is no money for savings. This was a response I would often hear from my dad when the topic of saving up for a family vacation was brought up. You might feel like you’re caught in a similar situation – I know I sure was.
But to this excuse I say bullshit. I used to think the same thing before my truck was repossessed when my wife was 6 months pregnant with our first kid. That really changed my perspective and fast.
I only saved $20 in the first week, but then slowly added more each week that began to boost my confidence and form the habit of regularly saving and paying myself first. I continued to gain momentum and began maxing out my 401(k) contributions- mind you this took years, it did not happen overnight, and you have to be committed to finding a more elite version of yourself and that starts between your ears. That horribly paralyzing, shitty voice that you hear in your head that only provides doubt, uncertainty, anger, shame, etc.
It’s the voice that tells you that you are an idiot, and not worth much.
So let’s take a page from Robert Kiyosaki and determine your first step is to stop saying “I can’t save anything”, or “we can’t afford this or that/to save” or “I can’t save anymore, there’s nothing left over to save” or continue to look at money from a place of lack, of not having enough.
Stop that stinking negative thinking. Start asking “how can I begin to save something?” , what changes are within my control that would allow me to save“, “what else can I do in order to make and save more money?” and you say there is nothing else you can do then stop listening right now and find yourself a podcast that is a better fit for what you’re looking for because this on certainly is right for you. Not be a jerk, but let’s get expectations out of the way. I will give you the first quote from the great philosopher and Jedi Master, Yoda, and say “Always with you what can not be done.
And if you come back with “Ok, I’ll give it a try” I will continue to quote Yoda:
“No. Do or do not. There is no try”
Remember, when it comes to saving, whether you’re just starting off or have been doing it for a while, this is a case of the tortoise versus the hare – slow and consistent action will win every time.  Don’t care if you can save 10 bucks or 1k – just start. And once you’ve started, don’t stop. Continue to increase your contributions, take less money out of your account and watch it grow.
Now that you’re starting to get your mind right, let’s figure out some areas where you might pick up some quick savings wins.
1.     401(k) match – don’t leave free money on the table
2.     Rollover old 401 or other savings plans to SDIRA
3.     Sell old clothes, memorabilia, records, VHS tapes, kids’ stuff, garage sales
4.     Look to cut out unnecessary luxuries like a daily latte/scotch or weekly spa treatment/round of golf. (I guess I could start drinking blended. . . . )
5.     Monetize your hobby - Etsy
6.     Create a side hustle (with your kids = even better)
7.     Blog/podcast – but make it profitable, not like me 😉
I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice.
It doesn’t take that long and it’s a small price for the value I try to provide.
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to the PLP.
That’s gonna do it for Episode 114 and just a few final thoughts:
1 – please join the PLP Facebook group to connect, learn, inspiration and discussion
2 - Remember, the easy button to lending in the Houston, TX market can be found at PLP.com/INK.
So, as I sign off I’d like to say besides self-awareness, I wish you safe and prosperous Private Lending.
I’ll catch you on the next episode.
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PLP-113 The 6 Pillars of Private Lending

Keith Baker — Mon, 05 Oct 2020 06:01:00 -0600

The 6 Pillars of Private Lending
Click Here to join the Private Lender Podcast Facebook Group
Hello everyone and Greetings from the energy capital of the world – Houston, TX. And welcome to episode 113 of the Private Lender Podcast, I’m your host, Keith Baker and I’d like to thank you for sharing your time with me today.

If you’re looking for practical tips and advice on Private Lending and how to build and maintain wealth without banks or wall street, then you are in the right place. And if want to put the power of a bank in your retirement account, you should probably pull up a chair. But if you want to learn from my mistakes so you can avoid them, and save yourself thousands of dollars and heartache in the process – well then pour yourself a drink my friend, because this podcast is just for you!
How’s it going Lender Nation? Wow, here we are at the beginning of the fourth quarter 2020, which has been arguably the most bizarre year in recent memory. I hope you are well and that you are doing more than just surviving in this Coronavirus universe that’s filled with pandemic fear, politics, and sensational media coverage because even the Weather Channel had to go really sensational to compete with the shit going down in this great country of ours.
OK, back to drinking – so after you’ve pulled up your chair and had a drink, I want you to set it down on the easy button to beginning your private lending journey.      What’s so great about that?
A seasoned professional lender vets the loans for you, who only lends in their backyard (the greater Houston, TX area). Fun Texas Foreclosure Facts:
Non-Judicial
2-3 month process
NO redemption period
Deficiency Judgements are allowed

Go to PrivateLenderPodcast.com/ink to learn more about how you can hit the easy button and begin your private lending journey by letting Paul and folks at INK Lending vet the loan for you, on a property in a lender-friendly state.
I have a bit of an announcement, or perhaps a re-announcement.
I’m finally stepping into the 21^st century – excited to say! After being asked by a few listeners including Steve Hiltabiddle (thank you guys) I am embarrassed to announce that I forgot I had previously created a Facebook group for the Private Lender Podcast but haven’t pushed it forward and have seemingly left it to die. I just admitted a guy who applied 6 weeks ago – that’s my Homer Simpson moment – DOH!
But now I am bringing it back, pushing awareness for the Private Lender Podcast FB Group and hoping you will join me there if you haven’t already. This is a public group but You will need to answer a few questions before being granted access.
However, once you are in you will be in a community of private lenders and other like-minded people, and your popularity is guaranteed to increase immediately. Once your membership is approved you will be able to ask questions, bounce ideas off other lenders, ask for references for service providers, vendors, etc.  And I will be posting more useful things hopefully a little more often – well that’s my plan!
Go to Facebook and search for the Private Lender Podcast group and join
https://www.facebook.com/groups/674936429994760
OK, let’s get down to the brass tacks of episode 113.
In Episode 111 we began building your foundation of successful private lending by discussing the 7 core values, that will help give you a touchstone for when you are uncertain. To give you a place to collect your thoughts when you are in doubt.
Well in this episode we are going to discuss the pillars of private lending. Your decisions will stand on these pillars, which stand upon your core values. Some of you will recognize them in the hashtags on my social media posts.
So let’s get to it
THE 6 PILLARS OF PRIVATE LENDING
Pillar No. 1:    My Money My Terms
Pillar No. 2:    Never Trust, Always Verify
Pillar No. 3:    ROIs
Pillar No. 4:    WIN-WIN-WIN ONLY: Always Full Disclosure
Pillar No. 5:    Never lend to friends or family members in need. Rather give them what you are able to give without the expectation of being paid back
Pillar No. 6:    Honor the contract, but DO NOT hesitate to begin foreclosure. It can be easily stopped in case the borrower makes good
Well, that’s gonna do it for Episode 113, so let’s quickly recap the components of your private lending foundation:
The Core Values:
1 – ROI OF
2 – ROI (Profit) ON
3 – Integrity
4 – Discipline
5 – Creative Initiative
6 – Take responsibility for everything
7 – Always Learn More

And upon these values stand the following pillars of private lending:

Pillar No. 1:    My Money My Terms
Pillar No. 2:    Never Trust, Always Verify
Pillar No. 3:    ROIs
Pillar No. 4:    WIN-WIN-WIN ONLY: Always Full Disclosure
Pillar No. 5:    Never lend to friends or family in need.

Remember: If you want to lend money the easy way, go to PrivateLenderPodcast.com/ink to learn more.

And join the Private Lender Podcast Facebook group to connect, learn, receive encouragement and inspiration, and to get into the discussions
Click here to join the Private Lender Podcast Facebook Group
I don’t charge money for this show, but there is a cost and I would be extremely grateful if you would help drive awareness to the show, to get the word out by leaving me an honest rating and review over at iTunes, Google Podcast or whatever platform you are using to hear my voice. That is a fast and simple task, and a small price for the value you heard here today. And that’s the truth – I mean you have the foundation laid out in front of you!
And if you are looking to create your stable of private lenders, or know people who have money but don’t realize the power of private lending, please, please send them a text, an email, a DM, and introduce them to the PLP.

Besides self-awareness, I wish you safe and successful Private Lending.

I’ll catch you on the next episode.
-k

PLP 112 – Lending On Properties 2,000 Miles Away With Jaspreet Baveja

Keith Baker — Mon, 07 Sep 2020 03:00:00 -0600

Since quitting his healthcare job after 8+ years, Jaspreet Baveja has been helping others achieve the dream of passive income through private lending. Jaspreet is the CEO of JGB, LLC and has built a business that allows him to pursue his passions of travel and spending time with his family while generating income on his terms. Today, he chats with Keith Baker to explain his process, lending methods, and habits and how he's able to lend on properties over 2000 miles away from his home.
Listen to the podcast here:
[smart_track_player url="" title="PLP 112 - Lending On Properties 2,000 Miles Away With Jaspreet Baveja" ]
Lending On Properties 2,000 Miles Away With Jaspreet Baveja
Lender Nation, greetings from the energy capital of the world, the last time I checked, it’s Houston, Texas. I'd like to thank you for sharing your time with me. If you're looking for practical tips and advice on private lending and how to build and maintain wealth without banks or Wall Street, then you're in the right place. If you want to learn from my mistakes so that you can avoid them, well then pull up a chair and pour yourself a stiff drink because this show is for you. This is dedicated to giving people just like you and me, the knowledge and confidence to participate in the most passive form of real estate investing known to man, private lending.
If you're looking for the easy button or a shortcut to beginning your private lending, then head over to PrivateLenderPodcast.com/ink to learn how you can put your money to work for you by investing in private and hard money loans in and around the Houston area. In case you haven't heard me say it before, Texas is a very lender friendly state with a relatively short foreclosure period. That's why we private lenders like lending here so much. As this episode is being released, it is Labor Day in the United States. To be specific, this episode is dropping on Monday, September 7th, in this dreadful year of our Lord, 2020.
I'm going to go off the ranch here, but I noticed earlier that the acorns had started the fall from an oak tree in my backyard and the squirrels are beginning to hoard their stash for the winter. It was quite fun to watch them not fight but scurry around. They were very excited about the fresh acorns that had fallen. Given the year it has been thus far and not knowing what the next four months are going to bring, not that January 1 is going to suddenly make our lives any better, but I’ve adopted a mantra and motto which is a very determined and emphatic plea to you, dear reader, and that is this. Three simple words. Prepare for winter. It's coming. The squirrels know it. If you haven't seen like something's coming, I don't know how much crazier things can get, but I don't want to ask.
I think it's a good time to prepare for winter. Start putting those acorns back, start not spending so much. Maybe get a little more conservative in the fiscal side of things. I'm trying to do that. At the same time, I'm trying to also become more liberal on the giving and the tithing and whatnot. As they say, the more you give, the more you get back. I'm trying that myself. I'm not suggesting you necessarily do that, but just saying that's where I'm at. We've had a hell of a nice long run on this bull market. We'll see what happens, but okay. Our topic is one for which I receive quite a few questions, and that is how to lend beyond your own backyard. I always say people tell people to start in their backyard before they move out and lend out of town or even across state lines.
It's something that I don't do myself because I don't need to leave Texas. It's fairly secure and safe for me and I can go still see the properties. However, I have the privilege of speaking with Jaspreet Baveja, a private lender in the San Francisco Bay area who's going to talk about how he generates positive ROI through private lending on properties that are over 2,000 miles away. In fact, I owe him a big, huge debt of gratitude because I was trying to wholesale some properties, some land in central Texas. It’s my guest Jaspreet who suggested I take down the deal myself and then that he would be a private lender.
Unfortunately, the deal fell through, but I'm really looking forward to the next one, knowing that I have a lender who's willing to finance development deals in a very hot spot of Texas. All he did was ask me one simple question and it got me out of a mental rut and it got me out of my own way. It gave me another option that had been kept hidden by my own limiting beliefs. I'm very grateful he made the suggestion. I want to say thanks, but let's go ahead and get down to the brass tacks and into the interview with Jaspreet Baveja.
---
Lender Nation, I'm honored to have with us on the show, Jaspreet Baveja. Jaspreet, welcome to the show.
Thank you very much.
Give us a quick background. I know you live in the San Francisco area, but where did your family come from?
We came from India. I was born and raised in India for almost fifteen years. We moved to New York for a couple of years down to Florida, Miami for ten years. I’ve been in the Bay Area now for over ten years as well. I met my wife here and she was also born and raised in India, New Delhi, like me. We've been married for several years. We have two girls. My parents live in Florida but are here at my house visiting in this COVID insanity. They said, “We waited long enough. We want to see our grandkids.” They came out and my youngest one had her birthday and the older one's going to have a birthday soon, so they're spending the time.
That's one of the things that most Americans, or certainly my American family didn't understand was the concept of family is a lot different from Indians. It's not better, not worse, but an old Indian grandmother trying to feed you when you're full and don't want to eat is the same as my grandmother was trying to feed me. It’s the same thing. The reason I wanted to bring Jaspreet on for you, Lender Nation, is I always say I only talk about things that I do. I lend in Texas and in my backyard, but Jaspreet goes across state lines.
I wanted to bring him on and turn the show over to you, Jaspreet, and say, how did you get into this private lending thing? You do it more for cashflow whereas I do it for my retirement. I found your story very intriguing. Obviously, we've spoken a few times and you were graciously kind enough to come on the show. I'm going to shut up and start taking notes here in a minute. If you could, how did you become a private lender? Were you a wholesaler or rehabber? Walk us through how you got to that?
I was working a full-time job at a healthcare company. I had been at that healthcare company at least six years when I got started in real estate. I had a rental property out here that became a rental because we moved out of a condo and we said, “We can rent it out for the same amount of money that we have to pay our lender.” That's all that mattered. A net-zero was all I was looking for because I was not an investor. I was not in that mindset at all. It was, “I can have two properties for the price of one and leave there and it will pay for itself and that'd be great.” It never works out that easily. It sounded great on paper, but luckily enough, it appreciated enough that we were able to get out of it for net-zero at the end, even after six-plus months of no rent from a tenant in California. It was normal. The eviction process is 6 to 9 months. Nobody even blinks an eye on that one. It's insane.
I said, “I’ll never do that again.” Lo and behold, two years later, I did that again. This time the rent was like time and a half of what it was before, but amazing tenants. They were making more in retirement than I was making with my wife's income combined as active employees. I was like, “I can trust these guys. They are pretty savvy.” It worked out well and it appreciated again. That one appreciated probably almost 50% in the 3 to 5 years that we held it. That was one of the biggest boosts for the cash influx to our family. It gives us a little bit of a nest egg to go ahead and do what I did. I quit my job.
[caption id="attachment_3002" align="aligncenter" width="600"] Private Money Lending: It’s a lot easier to lend to an established entity at a term of six to twelve months at double-digit returns with a first position lien guarantee, knowing that your money is secure in that asset.[/caption]

In 2017, I got started in real estate. My friend said, “You already got this one rental property in the Bay Area. Forget all that. That's not cashflowing at all. Let's look at cashflowing markets.” They dragged me over to Indianapolis from the Bay Area. Sight unseen and without flying out there ever, I bought two duplexes and relied on a network that my friends and investor buddies had already built. I got the broker, handyman, GCs, electrician guy and a flooring guy and slowly started building the network and a property manager. Soon enough, it went to crap. I fired the property manager and I got another one. Soon thereafter, it went to crap and I fired them.
You mean you have to manage the property manager?
You get the property out of state. You give it to a property manager. They hire everybody they need to. You make 8%, 10%, 12% a year and everything goes happy, go lucky. What are you talking about? Nothing ever goes wrong. You get a check in the mail, mailbox money. That’s ideal. It doesn't always work that way, unfortunately.
You’ve got to manage the managers and you get the easy mailbox money. You had bumps and bruises. Your friend, was he on the ground there in Indianapolis?
No. He was here and he has probably still had about 60-plus units out of there in Indy. They're powering through. The scale matters. The more invested you are and the more scale you have, the easier it is to handle those bumps and bruises. Let's say if even 50% of your portfolio goes away and you still got 40 paying tenants, it's a lot easier to manage those other 20, 30, 40 that are not, and get them rented and get them managed and all that stuff. That's where scale comes in, but I was barely at 2 or 4 duplexes. During this process of building my portfolio up is when I started networking with wholesalers and property managers like I said, and other flippers, other out-of-state investors that were investing in the out of California, whether SoCal or NorCal or whatever and talking to people.
One of the investors said, “Would you mind lending me money to buy this property in Indy? I’ll pay you X percent interest rate and you'll be the first position in the lien.” I said, “I heard that percentage return when I first was buying properties. I haven't seen it in the last eighteen months that I’ve been holding them. Maybe this will work out better.” That's how I started the process. I did some research, talked to a lawyer, looked at the contracts, and note and mortgage. I understood this is pretty similar to what my bank gave me when I was buying the property. They were giving me the loan and the documents look pretty similar. I figured out what it takes to get them. I don't think I spent months and trying to figure that out.
It was more like two weeks in to from when they asked me, I went and said, “Yes, let's go ahead and get started.” On the third weekend, I'd already funded the deal and it was close to $250,000. It was still something that I was comfortable taking the risk on because of that first position lien equity in the deal. The property was probably worth $500,000 and they were buying it for $290,000 or $300,000. I said, “There's enough equity that if everything goes south, I should be able to recoup my investment and still be able to make money.” I took that risk and it paid off pretty well. That was probably in June 2018. By the end of 2018, I'd done six more. It’s not even with that same guy but different people. Just word of mouth. I literally never advertised, never said to anything and talked about how I’ve done it. People came up and asked. I vetted them and off it went.
I want to unpack a few things there, if you don't mind. First off, you said you had a house in California that appreciate 50%. God bless the California real estate market because when it's good for people, it's good. When it sucks, it sucks. That's great that you were able to take advantage of that. I also love the fact that I wouldn't call it speculation per se, but for an outsider looking in California would probably consider speculation. You're able to profit and then put it into something very conservative like private lending, which is great. You should always have some spec money. You always have a little blackjack money, little roulette money. Some for the craps table, just to have a little fun, or for the stock market, if that's your casino, whatever. I do like that. The other thing I wanted to ask is what was the term of that first note that within three weeks that you had funded $250,000?
It was a 6 or 12-month loan. It was going to be personal guarantee to an LLC that had existed for a while and they were going to buy it. They were going to wholesale this one. They were going to buy it at a discount and then put maybe $1,000 to $5,000 in to clean it up. Not do a full-blown flip, but presentable and then market it. They have their own brokerage too. There's a pretty well-established team of investors. They got wholesaling, flipping, buy and hold and all that under their umbrella. They've got all these different components of their business that they utilize. It was pretty easy to figure out. They've done a lot of deals. They are open to the market. They have a huge podcast following. They have a huge investor following. It was a lot easier to lend to an established entity in terms of 6 to 12 months at double-digit returns with a first position lien guarantee, knowing that your money is secure in that asset.
You touched on one of my favorite things. When lending to people I say, “Who do I lend to?” I always tell people to be extremely discriminatory in this case. That's not for me to do the protected classes. I want to see a lot of gray hair. I like to see age when I lend to people, people that have been through it. This reminds me of the savings and loan crash of ‘88, or when this turned. I love that. The other thing I like is I always required people to have skin in the game, which usually means the money in the deal, but there's also reputational risk. I’ve turned a lot of newbies and first-timers away. However, if they have a coach or a mentor that is earning or had their shingles out and they have students and they have a reputation risk. If there's reputational risk, I like those too. It sounds like with this team, they've been around long enough. It wasn't like your friend's cousin Jimmy found a flip. This is a business deal.
A legitimate business that has been operating for years. Even on my website, I did the same thing. I put a link to one of the biggest counties in Indiana, which is Marion County. I put Marion County’s online website on my website that says, “Click here.” You put in any entities name or a person's name and you will see a release of mortgage. You see those deeds going in their name or the entity's name going back years. When you see 100-plus of those transactions, you know that they're active in the market and how long are they active. You can see the addresses and you can see dollar amounts. It's a free, simple resource to do a background check and you know you can't go wrong. This is literally the county's website. This is a recorded deed that they can't lie about. You go straight to the horse's mouth to hear, “Yes, they've done this deal.” You go down the list and it’s 100-plus of them.
How quick is that comfort level? That warm and fuzzy?
It overtakes you. You're like, “This is pretty good.” You get their LLC. You can go and save the information on the website, the state’s registrar website and you go take a look and say, “They've been there. They've registered 8 or 10 years ago or whatever. They've done hundreds of deals and they've got all these people investing.” Clearly, they're doing something right.
You also touched on something that is a deal-breaker. A lot of people want to have the loan to the LLC so if it goes tits up, they can walk away. They close down the LLC and there's no personal liability. Not in my world and it doesn't sound like that happens in your world either. You get the personal guarantee for everybody listed on that LLC. I know a couple of lawyers that insist not for LLCs because that's a whole different thing together, but a loan to an individual, especially in Texas. They put the name of their wife as well because we're community property. They could make the argument. “No, only half that loan.” If I loan out $100,000, only $50,000 of it is tied to him.
I have never lent to a person's name ever. I have been involved with at least 60 of my own loans so far, and I have helped get about 40 or more other people's loans into place to help connect the dots, and not once has it been in a person’s name. It's always been an entity name and the entity has to have existed for a while, seasoned guys, and that's it.
[bctt tweet="You can protect yourself in so many other ways than just worrying about entity creation." username=""]
That's how you stay safe. Your background is not in money or finance, is it? You said you've worked for a healthcare company.
I was doing healthcare regulatory compliance. I was doing documentation for physicians and surgeons and matching the dots for state regulations and doing data analytics, but it was never around finance and dollars and liens and figuring out mortgages. None of that. The only time I'd ever dealt with a mortgage, it was when I was buying my own primary residences. That's it. That speculative money that you're talking about, it was a primary residence that I got from my family. We moved in and a couple of years later we said, “The family is growing. This is too small. Let's go to a different house and we’ll rent this one out.” That's how it happened. Luckily enough, we stayed in it for at least 2 out of the 5 years. It’s tax-free. We take that money and run.
This is also another interesting point is that this is not in your retirement account. This is cash money out upfront. Is it taxed as ordinary income for you?
Yes. I’ve switched over to having an S corp election. We'll see dividends and salary and self-employment tax and all that stuff. We'll see how that works out, but I did it out of my own name for the first twenty deals at least. That was my name lending to an LLC. I eventually set up the LLC and then I said, “Maybe the LLCs hit its quota. Let's go over to an S corp. You grow, there's no need to have everything ready and everything figured out day one. A lot of people get held back in this scenario of, “I want to have all my ducks in a row.” You should focus on the deal and the stability and the verification of that

PLP 111 – Core Values for Private Lending

Keith Baker — Mon, 31 Aug 2020 06:15:00 -0600

Seven Core Values
ROI - Return OF Investment
ROI - Return ON Investment (Profit)
Integrity
Discipline
Creative Initiative
Take responsibility and be accountable for everything
Always Learn More

" And you who philosophize disgrace and criticize all fears
Take the rag away from your face. Now ain't the time for your tears."
from "The Lonesome Death of Hattie Carroll"
- Bob Dylan
Stay safe out there!
-k

PLP 110 – The Fastest Way To Start Private Lending With Paul Lamnatos

Keith Baker — Mon, 10 Aug 2020 03:00:00 -0600

What is the easiest way to start private lending? We have learned from one of our previous episodes that the most passive way to do this is to lend your money to other lenders and let them do all the hard work for you. While this lending to lenders scheme certainly is an easy button, you still have to perform your own due diligence when doing deals. In this episode, Paul Lamnatos, Chief Lending Concierge and Managing Partner at BlinkLending, joins Keith Baker and gives us a ton of tips and advice on how to proceed in these deals. Make sure you settle down, take notes and learn how to make money in private lending – in a blink.
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The Fastest Way To Start Private Lending With Paul Lamnatos
I'd like to thank you for sharing your time with me. I hope everyone is doing well out there in this COVID. This is going out sometime in August 2020 and I'm already getting ready for my kids not going to school at least until January. Poor me. In episode 108, we had Jason DeBono on from NuView Trust. He discussed the most passive form of private lending and that is lending your money to brokers or hard money lenders and let them do all the heavy lifting. I call it the easy button as if there was such a thing. As a private lender, you still need to perform your own due diligence, but you don't have to worry about finding the borrowers. You don't have to worry about finding the deals. They facilitate that for you.
I had the privilege of speaking with Paul Lamnatos from Blink Lending, who delivers a ton of value. Read this when you're sitting down because he drops a lot of great value nuggets, knowledge nuggets, bombs, whatever you want to call it. He funds his own "hard money loans," but then he sells the notes to private lenders, like you and me. Get this, he guarantees his loans, which is something I never do. Enough of my jaw wagon, let's get down to the brass tacks into the interview with Paul Lamnatos.
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I am stoked to have Paul Lamnatos from Blink Lending with us on the show. Paul, welcome to the show.
Keith, I'm happy to be here. Thank you for having me.
The pleasure is mine. Full disclosure, Paul and I have known each other around the Houston real estate investing community for a few years. I met him when he was over at with Zeus and readers know that. Paul has done something rather interesting and spectacular and he's gone off, got his own, he's got BlinkLending.com, where if you need a mortgage, a refi, the conventional, give them a look. There's also Ink Lending and that is what I want to talk to you about and the model that you have, because you're not a hard money lender, you loan out funds and then sell the loans to private investors, private lenders. Is that correct?
Yeah, that's right. You'll often hear private money, hard money lending. What's the difference between the two? Depending on who you ask one might say 6 and 1/2 it does or the other or tomato or tomato. At the end of it, I define it as where are you getting your capital from? Are you getting it from financial institutions like hedge funds, banks do lines of credits, or are you raising the money privately through your own funds and through your network of funds? Meaning people that have money sitting in an IRA account or a 401(k) or idle checking, savings account money. All of our funds are privately raised funds and because of that, we hang our hat on the private lending side of things like that better than hard money lending sounds better.
The easy button for becoming a private lender is to loan your money to someone who's already loaning it out a hard money lender or like yourself you're funding loans and then selling the loans to the private investors. You're doing all the hard work. For me, having someone else doing the work, you might become skeptical, but this is what you do. This is your day in and this is your day out. You’re not accounting for the oil and gas company and then flipping houses on the night. This is your gig. I'm happy you came on because I want to talk about your process. When you're looking at a deal, someone says, "I've got this awesome flip. I can be all-in for only 80% LTV." Walk me through that.
First, when you win, “I’ve got this awesome deal,” my brain went to, "I don’t want to hear about it. What's your credit score? How much money do you make? How much money do you have in the bank?" I like to say I'm a private lending investigator. I've even given myself an acronym, a CIA private lending agent. A CIA that has been on our federal guys, but I feel that at the same time we investigate as they do as private lenders. The acronym, CIA, is a reminder to me to always ask about Credit, Income and Assets. There's not one that's going to be an absolute crusher. If let's say credit's bad or income's bad, if you don't have assets, you're not a client for us. That 80% deal you're talking about, even if it's 60%, 50%, and the client has less than $20,000 in their checking savings account, accessible money, they're not a client for us. The reason for that is I want to prepare before things go bad. Why do things go bad in loans? People don't have funds to pay them back. Before I'm lending my money, I have the ability to look at their bank statements, not ask them how much money they have, but to request their actual bank statements. When I get their bank statements, they’re not just looking at the first page and how much money is in there. Let's go through and say, "How's your money coming in and out?"
You might have $80,000 in your bank account, but if you had a $78,000 deposit from PPP, that tells me that you're running a business with a $2,000 average balance. What is the average balance of your bank account? CIA is always check Credit, Income. Those two won't give me a note, they'll adjust my terms. Credit to me is someone's numeric representation of their ability to do what they say they're going to do. When I'm negotiating terms or discussing a transaction with someone, as a private lender, my number one concern is getting my money back. It's not the return on my money I'm interested in, it's the return of my money. That's a famous Mark Twain quote. At least that's where I found who said it or maybe it was somebody else, but the point is I want my money back. When I've eaten off the left side of the menu, when I haven't bought a new pair of shoes that I wanted, when I didn't get the tie clip or the cufflinks or the car, whatever sacrifices that I've made along the way to save every nickel and dime I have. When I go and lend it out, I love that sign you have behind you, "My money, my terms." I'd be shocked if next time you're looking in the back here, you don't see something like that because that's it, it's mine. I get to lend it out. Income, the reason I look at that, Keith, is because what's an exit strategy?
[caption id="attachment_2974" align="aligncenter" width="600"] Private Lending: Credit is someone's numeric representation of their ability to do what they say they're going to do.[/caption]

If there's someone who is a W-2 engineer, W-2 CPA or they're self-employed but have conventional qualified tax returns, meaning I can refinance them into a conventional loan, I love that. That tells me if they're wanting to sell the house and the market doesn't go as they like, I have a safe gap, exit strategy, and then I can refinance them out into a conventional loan. Being a fully licensed insured and bonded mortgage company, we have access to the same loans the big banks do, we do them at lower rates, much faster turn times and we don't charge their junk fees. Another program that we have access to is for the real estate investor who takes advantage of all of his God-given American tax write-offs as he should and is coming and saying, “Paul, I've got an 800-credit score. I’ve got a property that's cashflowing. Don't penalize me because I take advantage of my tax write-offs. What other programs do you have?” If we have an exit strategy to get them out, then that makes us feel good too.
It all starts with credit and then it loops around to the assets. I'm big fans of skin in the game. Our process, "Keith, you've got an 80% deal. That's great. We're going to lend up to 70% of this transaction. We need you to bring 10% of the cost of closing." For the person that qualifies for conventional financing, we'll go up to 75% of the after-repair value. The reason for that is terms are based on risk. If the risk is high, the terms are high. If the risk is low, we can get lower terms. When someone qualifies for that, we can give 75% because we have the ability to refinance date. Not to go into all these numbers back and forth, but that's where we would have started bringing cash and skin in the game.
Let's unpack a few things. Number one, you mentioned my number one pillar on the show is a return of investment. That is my primary concern. If I loan $100, I want to make sure I'm getting that $100 back before I get the 105 or the 110 or anything else. That's my pillar. I love that. I love the fact that you said that to skin in the game. That's where the, "My money, my terms," comes into play because we've seen people at Expos and whatnot, I'll teach you how to get private money. You don't have to put any money into the end of the deal. I'm always shaking my head. I'm like, "No." I have done deals like that. When I've loaned at 25% loan-to-value, all day long I was like, "You need closing costs? You’ve got them." I will do it but I would consider a normal 60%, 70% LTV deal. I want to make sure you can float that loan for 90 days and pay the first, draw yourself for the repairs before we started coming back. A lot of similarities and because I copied mortgage, hard money, and private lenders. It's all the same game with the different flavors, but I love your acronym of CIA, Credit, Income and Assets. If you ever see Paul speak, he has a presentation on the CIA. It's a lot of fun to go through because let's face it, money, insurance and lending, those things are boring.
When you find somebody who has to have some passion about it and some energy to it, one, it helps pass the time. Two, it also helps your learning process, the enjoyment. I'm being entertained. I'm not learning. That you're going to retain a lot more coming through that. Return of investment all the way skin in the game. We're going to set up a link later on for the show. I'm going to put and give it PrivateLenderPodcast.com/ink. If you would like to learn more about the private lending side and how you can get involved with Ink Lending. I know Paul a while he's quite active. If there is an easy button, this is it. I know COVID and everything else is going crazy, but your business is plugging along. Let's try to connect some people and hopefully you’ve got the Lender Nation that can learn something and it will be mutually beneficial for everyone. I was stubborn and talked to a lot of hard money lenders and mortgage people before I started private lending.
I was one of them.
Let's say someone like me who’s stubborn, I'm going to do it my way. I know you're an investor and a lender yourself. How do you go and look for borrowers as a private lender?
I don't know if you'd call it old school, new school, it seems to recycle itself. I enjoy getting to meet somebody face-to-face. I like paying attention to the mannerisms, how are they carrying themselves? How are they talking? As a potential client, someone I'm lending money to, feel how they carry themselves as to how they're going to manage the funds that I'm releasing to them. It's going to show the judgment of who are they going to hire for their contract, which that's a big thing for me blatantly. We changed something in that any client that we're going to lend to, we want to meet face-to-face coming to our office, even though it's COVID going on. If someone may be against it, let's do a Zoom as you and I have, but we want to meet our borrowers and clients. The other part is if they don't have the experience, we're okay letting first-time investors, whether they're fixing and flipping or buying and holding, but we want to see what their contractor’s experience is. What's the relationship with the contractors? Is the contractor insured, bonded?
Do they have a business phone number? Do they have a website? How can we verify the contractor? What I've noticed is first and foremost, the reason you have defaults, in 2008 when I was around, there were a lot of bad loans done, but here's the bad loan that was done. It had nothing to do with the 580-credit score or the adjustable-rate mortgages. No one put any money down. You don't put any money down, you don't have any skin in the game you can walk away from. We didn't talk about the theme of this but what's coming clear from it is the verifying the skin in the game and asking the questions. Getting them to bring money to the table takes care of foreclosures. The other part is bad contractors. If I could have skin in the game and verify their contractor, I feel safe and I sleep well at night with my money being lent out. Also in Houston, we require all of our houses, all of our loans to carry flood insurance. You don't know. When we're doing private money loans and we're not getting our money from banks and hedge funds, we don't have to lend our money based on somebody's opinion of value because that blows my mind.
It blows my mind how people will lend money on a third party a payment to value. It's your $100,000. You're going to hire that guy to tell you what the house is worth. You better get good at running comps yourself or get good at getting a team that can do it for you. At 1:00 we do the final pre-funding walkthrough. Before we fund a loan, we walk through the house. I used to look at houses two weeks before closing. You get the contract, then you go out to it the next day. I realized that when I went there, the people that were selling the house are moving out. They've been out of the house for ten days. The air conditioning units are gone. Let's look at the property right before closing to make sure that nothing has changed.
Another thing I did that saved my time. I realized when I was looking at deals early, if we have a title issue, if we have insurance issues, the client changed their mind. Here I am spinning my wheels at the time. I have been going out and looking at the property myself, and it gets me familiar with it. When you're asking a question of, “How to get involved?” Get out there. I know it's difficult with the events, but there are tons of Facebook groups. The 713Houston Facebook page is awesome. Landon has done an amazing job with that page. I know you're on the page. I'm on the page. There's been real estate. The point is even though we can't go to a Quest Trust and do a live event, we can still meet people online with it. I'm sorry I don't want to go off on a tangent with skin in the game, flood insurance, verify. I want our insurance policies for twelve months. In God we trust and everyone else you verify.
[bctt tweet="When you're doing private money loans, you don't have to lend your money based on somebody's opinion of value." username=""]
In God, we trust all of this has to pay in certified funds.
On draw process. I want to mention that because I came across a cool little trick about private lenders I like to pass on. We put a minimum. You have to be $15,000 work in rehab before you request the draw. Why I like that is because, from a safety standpoint, we’re doing 70% of the ARV or 75% if you qualify for long-term conventional financing, the first three deals, you're bringing 10% of the cost to closing. I love how as lenders, we have all these rules and all these exceptions that go in there. My rules are this, my exception is for the first three deals, you’ve got to bring 10% of the cost to closing. We do things that other private lenders don't do. We're not charging interest on money they haven't gotten. The rehab budget, we don't charge them money on that. We also don't charge them money for drawer inspections. When we go out to inspect to release funds, we're not charging $125 or $250 for that. We're also not charging wire fees, when we wire clients' money. We're also not charging them payoff fees to generate a document that tells them how much they owe us. That's asinine. Something else, we're not charging them extensions. All of our clients get two free 30-day extensions. We don't have any pre-payment penalties or minimum interest. If you get in and out of a deal in seventeen days, you pay us seventeen days of interest. That's it. I hate the two-story bill.
The story you get at the beginning of what your bill's going to be? The second story you get when you get your bill like Sprint. I hate them. $69.99 a month should be $69.99, not $82.17 or whatever they get me with. We stay away from that. Because we stay away from that, we attract the client that is okay bringing 10% to closing. After all, if I'm going after someone who’s got 720 credit scores, $100,000 in the bank, which there are many clients out there. By the way, let me backtrack. I'm debating on staying in Harris County, I see these other guys, they want to open sixteen offices in another state, we have almost five million people in Harris County. How many loans can you do? Your geography and in that five million people, you have many great borrowers. When there are only many loans to do, why not do it with great borrowers? They recognize bringing money to closing gets the better terms because if their risk is lower, they can turn to me and say, "Paul, you're asking me to bring you money to closing. Why don't you charge me less interest in points?" I get that. That's a valid request and it makes sense on both our part. They brought 10% to the closing, here's the cool trick on the rehab. We have them and all of this, as it's called upfront, is you have to do $15,000 of rehab work before making your first draw.
I did that because I started getting phone calls after they do $4,000 worth of work or they do the electrical rough, or they do the plumbing rough. I don't want to make time for all that. Because we don't charge interest until they've received the money, you can get an accounting nightmare, $4,000 on Tuesday, $6,000 on a Wednesday. The $15,000 helps us selfishly, but when they've put 10% of costs down and they've coughed up $15,000 of their own money before I give them any funds, how likely are they going to walk away from that deal? We're close to 200 transactions and we've only had one foreclosure. That foreclosure I know what I did wrong...

PLP-109 Fear Setting: Meditatio Malorum – the pre-mediation of evils

Keith Baker — Mon, 03 Aug 2020 01:00:00 -0600

Episode 109
Dear Lender Nation,
Here are the links for Episode 109:
Tim Ferris' TED Talk
Fear Setting Workshee t
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PLP-108: Passive Investing: Private Lending Through Brokers And Hard Money Lenders With Jason DeBono

Keith Baker — Tue, 28 Jul 2020 03:00:00 -0600

Perhaps nothing could be as passive as letting others do the work for you. When it comes to passive investing, the easiest way to get into private lending is to loan your money to a hard money lender and allow them to do their magic. Guest, Jason DeBono from NuView Trust Company, is someone who uses this as his own personal strategy, and he sits down with host, Keith Baker, to share his whys and hows with us. He explains his process from having the money in a self-directed IRA to making contact with the hard money lender or brokers, as well as some of his investment strategies in terms of self-directed IRA and cryptocurrencies. Plus, Jason then provides a couple of great wisdom and advice on working with lenders and borrowers and how to have more skin in the game.
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Listen to the podcast here:

Passive Investing: Private Lending Through Brokers And Hard Money Lenders With Jason DeBono
Our topic is one that I'm ashamed to say I haven't covered in the last hundred episodes or so, but that gets changed. I've often said the easiest way to get into private lending is to loan your money to a hard money lender. Let them do all the work, find the borrowers, vet the deals, look at the numbers, look at the properties, service the loans, make the payments. You're not going to get as much interest or points. You're not going to make as much but then at the same time, this is getting passive because you're not doing as much either. You're letting that hard money lender make the decisions, do those works, vet the deals, and tell the borrower, “No,” or “We'll do the deal, but you’ve got to have more money and more skin in the game.” I interview Jason DeBono from NuView Trust Company and this is exactly his own personal strategy. I'm going to let him discuss it but it's like the truncated version of what I've been spitting out for the last hundred episodes. Without further ado, let's go ahead and get into the interview with Jason DeBono.
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Jason, welcome to the show.
It’s good to be here.
How are you? How's it over in Florida?
As everyone else, we're all adjusting and adapting to the new normal but all is well, thankfully.
I hope you guys are staying safe. How is NuView Trust handling Corona? Are you allowing people and customers into the office? How's that working? Is it all online?
Our business is nationwide. A fair bit of business comes into our office. It's a small amount. Even before the state shutdown, we had already closed our office to visitors. I've been working through getting people working from home. In our business, because of the line of work that we're in, there are too many things. We can't let the whole office go home. There are unfortunately too many things that come into our office like checks, mail, and stuff that has sensitive client information. We want to make sure that we're protecting our clients. We've got a good office building here that we can space out in. We’re taking all the recommended precautions and then a little bit more to try to keep the place spread out.
I love using self-directed IRAs for private lending. I do a lot of it myself. You let someone else do the legwork for you which I want to hear about. Please explain how your process goes from having the money in your self-directed IRA or making contact with that hard money lender, looking at the deal and flowing through the transaction. If you can start with that.
My time is spent overseeing the business and that takes a significant chunk of my time. I don't always have time to go out and pound the pavement and be out in the marketplace to find deals directly. I've done this for many years. I've got about 6 or 8 different groups that are in the lending business that are bright and do what they say they're going to do. I let them source the deals for me. I make it known that, “I've got retirement money. If you've got a deal that you don't have the funds for, but you still want to broker it and make the money off of it, I'm happy to be a lender.” My approach, and I can't speak to everyone that this is the best approach, but I trade interest for points.
Anytime there's a loan that exists out there, either it's been written and they want to sell it and recoup the cash or it hasn’t been written and they want to originate it and they need someone to have the money to do that. I have no problem giving up any of the points upfront for the right to own the loan and own the interest. It keeps me from having to go out and do the legwork. It cost me a few percentage points of potential value upfront. In my IRA, if I can have someone TIMI up loans at 8% to 14% time and time again, I can cherry-pick out the ones I want to do and say no to the ones I don't easily. I find it to be an effective strategy.
[bctt tweet="There's a lot of money that you can sock away. Many people miss opportunities because they don't look for it." username=""]
You're getting between 8% and 14% on your interest rates.
Rarely, I've done under 8%. It's a strong deal, shorter-term and there may be some additional value like an equity kicker at the end or something. I'm a believer in making the deal work. While about 80% of the deals I've done are all through a broker. About 20% of the loans that I've done have been direct. If the deal works better at 5% interest, I don’t want to make 5%, but I don't mind 5% interest if I'm getting 10% of the deal on the backend or some equity kicker participation. There's always a way to structure a deal. At the end of the day, if we can't structure it, we'll move on and find another deal. We're flexible in the way that we participate. I like to keep the risk low and I like to keep the opportunity as steady as possible.
How long are your notes normally when you loan out?
It’s almost always a year. I don't know if this is the right approach but anytime that the loans extend, I do offer an extension and add a clause. Even if it's someone else's loan that I'm purchasing and I keep the points on any extension. If you want to extend for at the same terms. I usually do extensions in 3 to 6 months tranches. I'll do them at 1% for each extension. If you want to extend for three more months, it's 1% and then I get to keep that point.
Your hard money lenders, do you know what their points are? You said you let them have the points because that's how they're going to make their money in the churn of turning the deals through of the points you're going to get the interest. Do you know how they're getting paid or how much percentage-wise?
Typically, 3% to 5% is what I see. As the world gets a little bit more competitive, in 2010, 2011, 2012, we’re here in Florida. We were writing loans at 3 to 5 points and 14% interest regularly because the deals were cheap and the numbers worked. As these deals get more expensive and there's more money out in the marketplace to lend, terms naturally compress a little bit. We're seeing regularly 2 and 10 down the middle of the plate deals. That's what I've seen. There are still some 3 to 4-point deals and 11% to 12% interest deals out there. It depends on the nature of the deal or the background of the investor.
These year-long notes, are these rehab loans or acquisition and seasoning? What type of the use of property are you loaning on?
Almost always rehab properties. Probably 90% fall into that category because they tend to be shorter-term in nature and there tends to be a higher opportunity. I did a loan and I wish I could go back and write about twenty of these. It was in the year 2010. It was a loan that someone kept for five years and they paid 14%. It was unbelievable, but they bought this property at a steal. The rent was through the roof and they figured, "Even at 14%, I might as well keep renting this thing.” They were making a premium even after paying me. I love that deal. The only reason that it ended was the individual that bought it got caught in the market and they had terrible credit. They had to give back some properties. They had to wait this five-year period to finance the property out, where they were willing to give them a loan. They refinance out. They made a ton of money. I made a ton of money over it. I was getting a point every year in between and I was getting 14%. The borrower never missed a payment. It was a unicorn of a deal without a doubt.
You’ve got to love that. You keep getting 14% and pull some points here and there at the same time. I could see why you'd want a ton of those notes sitting into your portfolio.
Especially a tax evading account like an IRA.
[caption id="attachment_2958" align="aligncenter" width="600"] Hard Money Lenders: There's nothing that prevents you from making international investments. Sky's the limit in this self-directed account.[/caption]

Especially with the Corona, COVID and everything, and the $3 trillion that got pumped. It is my mission in life to convert everything over to my Roth IRA. I'm of the mind tax my seeds, not my crop because my crop will be much bigger in the future if I do my due diligence properly in all that stuff. I'm on board with you 100% with that. I am self-employed but I'm doing it through an LLC. I'm going to set up a C corp or an S corp and then pay myself and my kids. If my kids have earned income, what can I do?
Add it to your Roth IRA.
They're up to the same amount. I told my kids, “I'll pay you minimum wage for internet research and do some mailers and stuff. I will match whatever you earn. I'll put it into your IRA because that’s legally what you can do.”
That’s a fantastic plan. I'd even take it a step further to say you could even look at potentially some health savings accounts, Coverdell Education Savings Accounts for those kids or health savings account for the family. There's a lot of money that you can suck away. Many people miss opportunities because they don't look for it. You're doing a fantastic job. You're going to help your kids. Forget about the money they have. You're going to teach them the power of compound growth and that's what keeps the wealthy more wealthy.
Was it Einstein who said that compound interest was the eighth wonder of the world? Leave it alone and watch it grow. That's my strategy. That's what I suggest people do if they can. If they're in a tax situation, to go ahead and start moving everything over little by little into Roth, pay a little now. I've been making my conversions little by little as the deals come through. It's not a huge tax burden. It will take me a little while to switch it all over. Hopefully, I'll get to enjoy that money someday but if not, then it will be passed down to the kids. That’s how the wealthy stay wealthy. That's the whole point. You're doing mostly flips. You're out in Florida. Is that a deed of trust or a mortgage state?
It is a mortgage state.
My understanding with a deed of trust is there are three parties. There's the lender, the borrower, and then there's the trustee that holds title until the contract is complete. There's no third party in Florida with the mortgage state then. It's just the borrower and the lender. Does the lender retain title until the loan is paid off?
No. The title is held by the property owner which would be the borrower, but there's a lien on that title until it's satisfied. Once it's satisfied, satisfaction of mortgage is sent over to the County and then the lien itself is removed from that property.
It's similar then. It's just the terminology and semantics. You are nationwide.
We have clients in all 50 states. We've got international clients that live internationally and clients that even invest internationally. An IRA is a domestic product but there's nothing that prevents you from making international investments. Sky's the limit in the self-directed account.
[bctt tweet="Quality goes out the window when they're free. We care about quality when we pay for them." username=""]
There's something else. I know we didn't speak about this but you allow investments in cryptocurrency.
We do. We're not the facilitator of the crypto investment. We're just the custodian of the entity that owns the crypto. What we do in that manner is customers come to us. They say, “I want to invest in crypto.” We'll work with them to set up an entity and LLC. The IRA will invest into the LLC, then the LLC will participate in whatever crypto platforms, storage, wallet that they choose. They'll keep track of everything. It gives the most flexibility. You're not limited to what our platform offers. Anywhere you can go to open an account, you can go set up a crypto trading platform.
Do you dabble in crypto?
I do not personally dabble. I did own some of the GBTC which is almost like a Bitcoin mutual fund type of investment. It’s publicly traded. I did buy some of that and I was fortunate to buy it at a decent price and run the wave up and then part of the way back but it was good. It's funny if you invited me to Vegas, I'd grab my wallet and you wouldn't have to even finish the sentence. I'd be on the next plane. I enjoy going and gambling, but that's where I keep my gambling. I limit it to that. If I'm there for 48 hours, I'll hit the blackjack table. I'm all about getting rich quick in that environment. Once I leave Vegas, it's not gambling anymore for me.
I'm not trashing Bitcoin or any other crypto by any stretch of the imagination. There may be a place for crypto in the long-term holding sense, but I don't like to play the short game. I know a lot of people have made a ton of money in the stock market. I'm embarrassed when I tell this story but I rarely owned stocks. When I do buy companies that have a good fundamental business. I am the guy that if you look at the COVID related drop and rise, I sold Apple, Amazon and Netflix at the very low of the market. All three are at record highs. They've all significantly blown away where they were even pre-COVID. I don't buy stocks for that reason because I don't know how to tie them up. I don't know how to tie them down.
What I do know is if I buy a loan or I invest in a loan and it's a good quality property, that's got good financial backing, and it's a good quality borrower that has a high likelihood of being successful with the deal. I'm happy to take my 8%, 10%, 12% and sometimes 14%. I leave the gambling stuff to Vegas. Even though looking back in hindsight, I'd love to still own those stocks, knowing what I know. I haven’t had to watch this game. I don't have to wake up with the stress. I'm happy with that stress and with the blackjack table. I don't need that in my everyday life. For me, it's tried and true. Private lending and passive investing are the only way that I put money to work.
I'm in line with you on the whole Vegas thing. A couple of years ago was the last time I went and for the first time in my life, I did not gamble. I walked through both the Luxor and Mandalay Bay Casinos daily and never cashed in anything. I kept walking and that was a big win for me. I'm still riding that win because normally I'm penniless. I'm asking people for money so that I can have a sandwich from friends or whatever.
Vegas will eat you alive. Everything in moderation has its point but good for you. That's a strong sense of willpower.
That's not going to happen the next time I go. I'm going to make up for the lost time. I usually start at the blackjack table, get down and then throw Hail Mary at the craps table and try to get back up. For me, it's an entertainment blowing off stress and drinking what I think is high-quality liquor when they're watering down the well stuff.
Quality goes out the window when they're free. We care about quality when we pay for them. Vegas has it figured out if they don't take your money at the tables, they'll take more else. My philosophy is simple. In 48 hours, there's only so much damage I can do. It satisfies and scratches that itch. For most people they're scratching that itch on the Robinhood app, trying to get rich overnight because they somehow think they understand why Tesla went from being valued at $80 billion to $250 billion overnight. Somehow, they are smart enough to understand it and they're going to get rich as a result. They're all welcome to play that game. I'll take my 48 to 72-hour, lumping every now and then in Vegas and the rest of the year. Tried, true and steady is the best way to go.
[caption id="attachment_2959" align="aligncenter" width="600"] Hard Money Lenders: The eviction and foreclosure process are not about who's right. It's about following a series of bureaucratic red tape to try to get back what is rightfully yours.[/caption]

That's the beauty of private lending. You got a piece of property that if this thing goes tits up, there's a piece of property that you can go get and you're not going to lose everything. My first pillar of private lending is the ROI, Return Of Investment. If I'm giving out $50,000 or $100,000, first point, I want to make sure that's coming back. What's the return on the investment after that? That’s my thing and that's why I like private lending. I also like passive because you are a full-time employee of NuView Trust Company. That's your day job. The last thing you want to do is another day job flipping or running the contractors. You've got a good source of income. You maximize that and passively on the side, you take your self-directed IRA, put it into the private loans, asset-backed lending. Private lending is one of the few investment vehicles that the common man can participate in, which you can get insurance policies to protect the property.
Being here from Houston, I don't know if you've heard about this little storm called Harvey. You guys being in Florida, hanging out there in the water. Hurricanes happen. I always require flood insurance even if it's $400 or $500 a year. I always tell borrowers and flippers, “If $400 is going to break your deal, it's not a deal and I don't want to lend to you anyway.” When Harvey hit, it wasn't a typical storm like you get this massive cyclone coming up in Florida with winds. Harvey for us was tons of rain. Twenty percent of the homes affected had flood insurance. That immediately went into my criteria that day when I heard that on the local news.
On that note, I preach due diligence being that we're in the self-directed account space, especially in private lending, title insurance is required. I have many times that people have said, “I know this deal. Do you care if I don't get title insurance?” I said, “That depends. Do you care if I don't write the loan?” It protects us all: title insurance, hazard

PLP-107: The Tipping Point of this Private Lender

Keith Baker — Mon, 20 Jul 2020 06:00:00 -0600

What can I say - I've hit my tipping point. I would categorize today's episode as a therapy session for me, so thanks for hanging in there. I hope you find some value in there. . . .
If you want to find out more about how our federal representatives are compensated then start here:
How Congress Retirement Pay Compares to the Overall Average
I'll be back next week with the an interview with Jason DeBono who discusses the most passive form of private lending there is.
If you want to fact check the story I told, then please send an email to info@privatelenderpodcast.com and state Fact Check in the subject line.
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PLP-106: What You Don’t Know About Subordinate Lien Investing With Jim Maffuccio

Keith Baker — Mon, 22 Jun 2020 03:00:00 -0600

The number one rule in real estate investing is return of investment. That is, for every dollar that goes out, you want to get it back, if not, more. That is why people just starting with real estate investing stay away from subordinate liens. But what really are subordinate liens? On today’s show, Keith Baker talks to Jim Maffuccio about subordinate liens and how he got started in this world of distressed second liens. The Founder and Principal of Aspen Funds, Jim’s role includes identifying and developing key investment opportunities currently focused on distressed residential real estate debt, as well as leading efforts in business development, building and maintaining key relationships with hedge funds, note buyers, and sellers, and key service providers in the mortgage note industry. If you want to know if investing in subordinate liens is the right path for you, you wouldn’t want to miss this episode.
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What You Don’t Know About Subordinate Lien Investing With Jim Maffuccio
This is the only show that's dedicated to teaching everyday people, like you and me, how to prosper with the most passive form of real estate investing known to humankind, while giving tips and ideas that can help keep your money safe with private mortgage lending. It's just as simple. If you're looking for practical tips and advice on being a successful private lender and on how to create wealth without banks or Wall Street, then you're in the right place. If you want to learn from my mistakes so that you can avoid them, jump around them and prosper much quicker, then pull up a chair and pour yourself a stiff drink and get ready to take notes because this show is made just for you. The show does not constitute an offer to sell, a solicitation of an offer to buy or recommendation of any security or any other product service or investment.
We're only talking here and rapping out loud. Do your own due diligence and make sure you stay compliant. Having said that, let's get into the heart of the matter. I've got the good fortune of talking with Jim Maffuccio from Aspen Funds. Not long ago, I decided that I was going to no longer interview real estate fund managers for various reasons. Mostly, because I had locked onto some green fund managers and they didn't exactly succeed. Knowing that I wanted to be conscious of who I led on the show, what we talked about, so on and so forth so I say, “No fund managers for a while, except those few crowdfunding, and things like that.” One of Jim Maffuccio of Aspen Funds’ assistant reached out to me and said, “Would you consider interviewing Jim on the show?” I immediately said, “No. Thank you, but I can't recommend anyone invest in subordinate liens and especially nonperforming subordinate liens.”
[bctt tweet="There are no bad notes, only bad prices." username=""]
I didn't feel like it was a good fit, but the more I thought about it, I was thinking, “Who’s better to speak about such a topic on this show?” It is a topic I'd like to cover, but it's one that I don't feel like I have much authority on. I have done some lien lending in the second position, but I don't feel like I have done it enough to talk confidently on it. I decided, “Probably, it wouldn't be a bad idea to have someone like Jim to come on and talk about the ins and the outs.” Just because I don't do something, it doesn't mean that I can't interview someone who does it. It doesn't mean that I can't learn from Jim's process to help you do the same. That's the whole purpose of this platform. At the end of the day, here we go interview with Jim Maffuccio of Aspen Funds. Let's get down to the brass tacks in his interview.
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Everyone, thanks for joining me. I want us to give a special thanks to Jim Maffuccio, who has come on to talk about his Aspen Funds and the particular niche that they've carved out for themselves in second lien notes. Jim, welcome to the show.
It is great to be here with you, Keith.
I'm excited because as everyone knows ad nauseam that I tell them, especially the people starting off that got their first self-directed IRA, “Stay away from second liens. Get good loan-to-value. Stay safe.” The number one rule is the return of investment before we talk about the return on it. For every dollar that goes out, you want to get it back. How did you get started in this crazy world of distressed second liens? That it's not even good ones, but distressed.
In a nutshell, I'll give you a quick background. I was a civil engineer. I graduated from LSU Go Tigers in 1979. I did go into the oil field. I went to work for Exxon in 1980. I did the corporate engineer thing for about 5.5 years. The entrepreneurship turned on in me and I got my real estate license in 1986. I jumped out into transactional real estate and then I got involved in development. I was developing small residential infill projects in Ventura County Coast, California. I went through the S&L crisis and lost everything. By 1995, 1996, I was tanked, broke, underwater, having a seven-figure net worth going into that and all kinds of projects went dumped and went South. It was because of a mortgage-related crisis. I got back into the game and in 1999, I started back in. From 2005 to 2006, there I was again. A bunch of leveraged real estate development deals is doing great and killing it. The market was on fire. I even had focused on affordable housing thinking that there was going to be some correction because values had ratcheted up in that timeframe.
The 2008 mortgage crisis took everything so deep and fast. For so long, nothing could stay underwater that long and survive. Once again, around the 2010 timeframe, I was completely broke with a negative net worth in Kansas City, a new city. I'd lived in Ventura County for many years and here I am, 55 years old with five teenagers, two of them are adopted internationally. I literally have no immediate source of income and no investors to speak of. I could probably go back to California at that point and raise money again, but when you're beaten down, that's not the thing you're after. I was flipping homes because every other home was boarded up and it was a heyday.
I was flipping homes and put some people to work doing that. At the same time, studying the market because whenever there's a crisis, there's always opportunity. I had an epiphany in 2010. I saw the place to get in involved in the rebound, in the coming recovery was the distressed debt. Everybody was going after the REOs, further downstream, foreclosure auctions, and then further upstream from that, the pre-foreclosures and I worked in short sales. I did some of all of that, but I thought, “At the end of the day, where the distress starts is when a loan goes into default.” These institutions have to get rid of this paper before they go off a cliff.
I started looking into that. In 2010, I went to a note investing conference in Denver and 95% of the content was about senior liens. Buying the defaulted first mortgage and then running through. It's a checker’s game figuring out, “Are you going to exit through the property or are you going to exit through the borrower or making some modification with the borrower?” There was one guy off to the side and in one of the breakout rooms talking about second liens. As soon as I saw what he was doing, the lights went on and I went, “This is where I'm sticking my fork into because I needed something that I could come into with minimal investment, most multiplier effect, and the greatest leverage.” Buying the seconds, particularly when the first mortgage is performing was genius.
When I saw it, I was like, “This makes all kinds of sense.” Whereas hard dollar equity is super important in anything real estate related. What we learned was we could make more money in terms of multiple on the loans where there wasn't so much equity above our position. If any, it is because there's this thing called emotional equity. These are people that are paying their first mortgage so you know they have an income. They want to stay in their home and we've bought this nagging second lien that's on their property for pennies on the dollar. We have a whole lot of room to work things out with the borrower, whether it's a onetime fast settlement or a loan modification. That's on the ones where we have very little to no equity.
We make our best multiples on those, but they're low numbers. We may buy a loan, for instance, for $50,000. That's the payoff balance that the borrower owes, but we may pay $5,000 for that loan. Maybe the first $10,000 of our position is covered with equity, but everything beyond that is blue sky. We can go to that borrower and enter into a loan mod or settle that loan and make it 2X, 3X on our money pretty quickly if we have a reasonable and cooperative borrower. The good, the bad and the ugly of this thing are we've been doing it several years full-time.
We've built a company, we have twenty people and we're focused on second mortgages. After doing thousands of these, we made between 2.3X and 2.5X on our purchase price. If we buy $1 million worth of these defaulted second mortgages, we will pull in $2.5 million of revenue. It typically takes anywhere. We start getting exits in six months and typically out to three years. It's patient money because there's an elaborate workout process we go through, but it's pretty good multipliers. I wish there was more of the product. That's a nutshell of what we do on that side of our business.
We then do have another side of the business, which is an income fund where we are buying re-platforming mortgages, whether they're seconds or firsts, and we buy some hard money loans from other originators as well. That's the way we can keep our truly passive investors that want mailbox money. We can keep them happy with a nice preferred return. We do all the brain damage of keeping the loans on track. When they break, we fix them. Since that's our core competency if we have a default rate of 10% to 12% in our income fund, we know how to do workouts. We know how to get that thing back to performing status.

I'm going to back up a little bit. Is your fund for accredited investors only?
At this time, it is accredited only.
For education, you run through the SEC Code 506(c).
That’s where our funds are. That's the particular exemption that we fall under.
Are you buying tapes of houses of seconds? Is it a cherry-pick piecemeal? How do you get your deal flow?
It's everything from buying one-offs, but more typical for us because of our size is we are buying larger pools. In the second’s world, you're not going to find a lot of quality products like on the note exchanges. It's a relationship-based deal. It's not a normalized market. A lot of the institutions that generated this paper, they charge it off their books typically after 90 days. It's treated differently than a first mortgage. It's almost treated like consumer debt. I don't fully get that end of it, but it's charged-off and it's worthless to the institution. A lot of them won't even sell that paper, it'll just expire. The statute of limitations will time it out.
It'll never see the light of day because they have higher priorities. Some of them look at the political cost of selling this paper out on the street and then ending up with some cowboy that's mistreating the precious consumers and that's happened. We're very compliance minded. We have a great reputation. We've been vetted at a pretty deep level by a government entity that we bought some paper from through an intermediary. We have the FDIC looking into our processes. We came out with an unofficial report, but got the thumbs up, like what we were doing was good because we're not out to take people's homes.
We have to start foreclosure probably 65% of the time, but we only end up foreclosing less than 2% of the time. Most of the time, it's agreeable at that point in time the borrower realizes, “I can't afford this house.” We're people-oriented and minded. To us, a win-win is when we can cancel a whole bunch of debt for a borrower, keep them in their home, create a reperforming asset that we can then 2.5X or 3X of what we paid for it. That's very typical. Those are our numbers. It's a wonderful thing. It is a win-win, truly.
The bigger the risk, the bigger the reward, but it sounds like if you're paying pennies on the dollar, you are a couple of things. One, you're setting yourself up properly. Two, if anyone's out there reading, originating their own private loans, you don't want to sell a loan to Jim. You want to avoid selling the loan to him, especially if he reads my show and take any of my advice. Don't use this as an exit strategy, but it's always good to know it's there if you need it. You mentioned something that I liked. You said that these people have emotional equity in the property. They're performing on the first lien. I'm curious, are these usually like home equity lines?
They could be. I'd say probably 30% or 40% of our home equity lines. Others are fixed rates seconds that people took out whenever they took them out. There are two components, emotional equity and pragmatic equity. Emotional equity is, “We've bought this home. We put our own finishes into it. We've lived here to 10 to 15 years. We know our neighbors. We like the school. Our kids have friends. We're not going anywhere if we can afford the monthly payment. If we can afford to stay, we're going to stay.” People or your typical household don't wake up in the morning and look at Zillow and say, “Look at this, honey, our equity has gone down $5,000. Maybe we should sell this asset.”
It's a home sweet home. Most of our assets are across the middle of the country. We have some on the coast, but we're in 38 states with our portfolio. I ran the numbers on the pool of seconds that we bought and it was an average of 32 loan pools. The average FMV or home value was $250,000. You can see it right in the median pricing for the nation. This is a bread and butter housing. It's more or less workforce housing and people don't want to leave. They're not going to leave because they're upside down $20,000 or $30,000. They're going to leave because they can't afford the monthly nuts.
The other thing is, “What are their alternatives if they do leave or if we do end up having to foreclose?” In a lot of cases, the homes that are securing our position would rent for more money than what their mortgage payment is first and second combined. If you think about where are they going to go, if they've been through the 2008 to 2014 cycle, there's a good chance they've modified their first because when they had trouble paying our loan, they also had trouble typically paying the first. Some of these people are still sitting on 2%, 3%, 4% money on their first. The best alternative financially, even for them is to stay home or stay in their house. We have a lot of tools to help them because of the discounts we buy.
Most of the loans we buy these days, we're buying in the 20% to 25% of the unpaid principal balance range. Those loans would typically be ones where the seniors performing and we have enough equity to cover our investment. We've paid all the way up to in the 60% range of UPB if we have a loan that we pay $40,000 but it's an $80,000 balance. Even above our $80,000 balance, there's another $150,000 in equity. You tell me where the risk is in that. I would rather own that second than the underlying first. If you think about it, I've leveraged my position. The first mortgage is like my financing, but I don't have to pay.
It's a crazy sub-to.
That's exactly what it is. That's one of the reasons this is a pretty lucrative game because many people, including a lot of institutional players, either don't realize that you can or aren't willing to foreclose from the second position. When we foreclose from the second position, there's a false narrative out there that says, “We have to pay off the first.” That's not the case. In most states, we have the right to reinstate the first and keep it current. Even though it's not our loan, we're not the borrower on the loan. We foreclose from a second, we get the deed to the property and it's a sub-to deal. It's exactly what you said. There are states where the first does not have to let us reinstate and they can pursue foreclosure. Those are typically the states that take a couple of years to foreclose.
That gives us plenty of time to clean the property up and sell it. We've made some incredible profits on the handful alone ones that we did foreclose and where we flip the property. We've foreclosed from second and then turned around and resold the property back to the borrower because it took that to wake them up to realize that we were serious about securing our position. Those have ended up being wonderful stories because you got the original borrower. That's back in place on their property and they're performing again. We had to put $200,000 down, which got us back our investment plus some, and then they're making us do monthly payments. They've been great borrowers ever since. We have all kinds of stories as you can imagine in this business.
I did not do this so this is one of my tales of woe. What I tell people is if you're going to lay a second on a property, you want to talk to whoever owns the first position. I did not contact them
[caption id="attachment_2935" align="aligncenter" width="600"] Subordinate Liens: When we foreclose from a second position, there's a false narrative out there that says we have to pay off the first. That's absolutely not the case.[/caption]

first and put the second on the property. Lo and behold, the first is the one to foreclose and then wiped me out and I said, “Don't call the attorney representing them. Is there something we can do here?” The guy who had the first position was even more fed up with the borrower than I was trying to track money. He's like, “You want to make it whole. It will be $47,000 and it's yours.” I was like, “The property is not even worth that. Fine, done.” It's automatic that you're taking it over, you foreclosed out the second position, but the first lien is superior, therefore, it stays in place. Do you have conversations with any when you purchase the seconds? Do you say, “We've bought this, here's our plan if we have to foreclose,” or is it all in the paperwork?
Typically not because the first is serviced by the major and national servicers. They won't give you the time of day. These loans are owned in trust. There's not like a single investor they can go talk to. Their servicing agreement tells them what they can and can't do. The handful of times that this happens, we just make the payment. We send them the check or in most cases, pay online. I don't even know if they know where the money's coming from. They don't care. By the way, you touched on something super important. When we buy these...

PLP-105: Humility. Honesty. Vulnerability

Keith Baker — Mon, 15 Jun 2020 01:00:00 -0600

What is up Lender Nation?
Greetings and welcome to the Private Lender Podcast, I’m your host Keith Baker and you are listening to episode 105.
This podcast is the only one of its kind dedicated to teaching everyday people (just like you and me) how to prosper with the most passive form of real estate investing known to humankind, while giving tips and ideas that can help keep your money safe – with Private Lending.
Look, it’s just this simple: If you’re looking for practical tips and advice on being a successful Private Lender, on how to create wealth without banks or wall street, then you are in the right place. But if want to learn from my mistakes so you can avoid them and prosper much quicker - well then pull up a chair and pour yourself a drink and get ready to take notes my friend, because the Private Lender Podcast is made just for you!
Let just start by saying I’m not sure where today’s episode will end up, but I need to produce an episode – I’ve been stuck in the creation process recently and I think I know why:
I don’t want to talk about private lending – with all the shit going on in the world, I’m not really in the mood. I’d honestly rather talk about current events other things that don’t fit the scope of this podcast – but these topics are not my expertise, so I prefer to look to others for inspiration.

Last episode I played John Coltrane’s Alabama on the podcast and Youtube + Facebook flagged it for having a copyright. So this time I’ll just put the links up on the show notes page so I don’t get censored.
So let me run down my recent list of people I have relied upon for perspective:
[caption id="attachment_2917" align="aligncenter" width="300"] John Coltrane[/caption]
1 – John Coltrane – even if you don’t know what the song Alabama is about, it is extremely haunting.
Alabama

[caption id="attachment_2926" align="aligncenter" width="201"] Billie Holiday[/caption]
2 – Just like Lady Day (Billie Holiday) and her song Strange Fruit. Listen to it and tell me it doesn’t screw with your head: Strange Fruit
These two musicians wrote and performed the truth with humility, honesty and vulnerability.
The remaining two individuals are still alive and working in America. I follow both of these men because they are outspoken, and I don’t always like or agree with what they say – but I always respect what they say, and I will make the time to listen to them. Through their content they have insured that I respect them as people – people who work hard, who have opinions and emotions. No different than me and you.

The first person whose content I would like to share with you is from the great Dave Chapelle and his Youtube recording entitled “8:46”. I don’t recommend this to you for the laughter, because there are only a couple of belly-jiggling funny parts. This is real. Watch it.
I recommend 8:46 in order to provoke thought. Thoughts and beliefs for and against what you are about to hear, either way – it’s thought provoking because I believe Dave Chapelle presents the truth with humility, honesty and vulnerability.
Just like businessman Andy Frisella, and his REAL AF podcast episode 46. I provide the link to this episode because whether I agree with him or not – I believe he presents the truth with humility, honesty and vulnerability. Real AF Episode 46

Look folks, as I keep walking down my path on this planet I want to express what I believe to be laws of truth:
1 – real wealth has nothing to do with how much money you have
2 – financial wealth that you keep and pass along to future generations is a marathon, not a sprint
#You are the CEO fo your family's money. Act like it!
#Never Trust. Always Verify.
#My Money. My Terms.
That’s gonna do it for episode 105, I want to thank you the listener, for sharing your ears and your time with me. Because I sure do appreciate it.
And now is the part where I ask for an honest rating and review at iTunes, Google Podcasts, Spotify or whatever platform you are using to hear my voice right now.
Ok. Adios. Ya’ll stay safe. Take care. And besides self-awareness, I wish you all safe and prosperous Private Lending.
I’ll catch you on the next episode.

PLP 104: WTF happened to us?

Keith Baker — Mon, 01 Jun 2020 01:00:00 -0600

1963
Addie Mae Collins
Carol Denise McNair
Carole Robertson
Cynthia Diane Wesley

2020
George Floyd
My grandmother always said "there's a lot of meanness in the world."
Today will be a very short episode as I do not have much to say.  But I've decided to let the music of John Coltrane speak for me, but really for so many others. . .
[caption id="attachment_2917" align="alignleft" width="300"] John Coltrane is legend[/caption]

https://www.youtube.com/watch?v=saN1BwlxJxA

Also, check out Ed Mylett at: https://www.edmylett.com/
and Ed's Instagram: https://www.instagram.com/edmylett/
Click Here if you would like to read Ed's post that inspired today's episode
#MAXOUT

PLP 103: Appraisals Part Two: The Uniform Residential Appraisal Form

Keith Baker — Mon, 11 May 2020 03:00:00 -0600

One of the most common things to note when doing real estate transactions is the appraisal of the property. Through this, the value of your property or deal is appropriately assessed. Continuing with the second part of the series on appraisals, Keith Baker goes over the Uniform Residential Appraisal Form, also known as Fannie Mae Form 1004 and Freddie Mac Form 70. Here, he breaks down the document and gives a page-by-page look into the sections that show the things that will help you analyze the properties or deals. If you are new to this, it helps to take a look at this essential form. This is a great tool that you can add to your toolbox when it comes to evaluating the value of a property and more.
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Appraisals Part Two: The Uniform Residential Appraisal Form
This is the one and only show of its kind dedicated to teaching everyday people like you and me how to prosper with the most passive form of real estate investing known to humankind, private lending. While at the same time giving tips, tricks, and ideas that can help you keep your money safe. It's this simple. If you're looking for practical tips and advice on becoming a successful private lender and how to create wealth without banks or Wall Street, then you are in the right place. If you want to learn from my mistakes so you can avoid them and prosper much quicker, then pull up a chair and take some notes because this show is for you.
[bctt tweet="My money. My terms." username=""]
Early May 2020, Texas has begun to open back up from the Coronavirus shutdown and lockdown. I understand the death toll is still rising in the United States but hopefully, we can get over and around this quickly. Let's remember to keep our eyes on the prize. The present may be uncertain but the future is to be determined by us. Our topic is Part Two on Appraisals. I'm going to go over the Uniform Residential Appraisal Report or also known as Fannie Mae Form 1004 and Freddie Mac Form 70. It's a seven-page document including definitions, amendments, certifications, some language, and all that fun stuff. There are about three pages that we're going to dive into and go over in detail with the actual report. I'm going over a report from a house I sold several years ago. This appraisal report is 35 pages in length.
Let's go ahead and jump right into it and start looking at this. You can download a blank version of the Uniform Residential Appraisal Report on the website. On the first page is the invoice a lot of times. In this case, the appraiser that the borrowers' lender used put the invoice first. I see that they paid $470 for the appraisal, which several years ago is not bad. I eyeball around the $500 mark for a little bit of inflation. The second page contains appraiser certifications, the requirements, list of the subject property, who the borrower is, especially the lender's name because that is the actual customer of the appraisal report.
The third page of this particular report is a cover page. It has a photo of the house I sold, the lender-borrower address, and basic stuff. The fourth page is a letter to the lender saying, “You hired me. Here it is. Subject to all limitations and discrepancies listed herein.” That’s the formality of communicating the appraisal report to the lender, which in this case is going to be you. You want to read every page of your appraisal report very carefully. Page five is the summary of salient features, which goes on to describe the overall dwelling, the improvements, the number of beds, baths, so on and so forth. I address the legal description. The lender and borrower are both identified.

Page six is the actual first page of the Uniform Residential Appraisal Report as put out by the government. It's broken down into sections or paragraphs, which on the left-hand side you'll see the first being the subject property, the borrower, the lender, the type of loan, whether it's a purchase or a refi, the address, legal description and the current owner of record. The next section discusses the contract on the property. Did the appraiser look at the contract? Were there any provisions or seller concessions in the contract? In this case, the appraiser did look at the contract, and lo and behold, he didn't appraise the house for a spot on the sales price. Funny how that happens. After the contract, there's a section for the neighborhood and this is going to be the boundaries or the streets. It lets you know if it's urban, suburban, or rural. What are the growth trends? Is it a stable neighborhood? Is it a new build? Is it rapidly filling in? Is it a slow in fillers, a declining neighborhood? It’s good information there that the appraiser puts in. It's still an opinion but it's nice to have. You can look and see, and when you're trying to compare apples to apples, this information can help.
The next section is the site, which is going to be the property. Where is it? What are the dimensions? What is it zoned for? Does it have zoning? What is the highest and best use for that property? Does it reside in a FEMA flood zone? Are there any adverse site conditions? It’s very good to look into this, see and make sure to get everything that the appraiser has put down, especially the highest and best use. It's funny because if you're looking at a residential property in a master plan community, the highest and best use is as a single-family residence. Usually, that's a no-brainer but I figured I'd bring it up to feel more time.
The next section we discuss is the improvements or the dwelling. It gives a general description like the year built and the design. What type of foundation? Is there a basement? What type of building materials were used, stick frame 2x4, drywall, tile floor, hardwood floors? How many cars is the garage? Does it have a garage? It also lists any physical deficiencies. Does the property conform to the neighborhood function, style, and condition? Is this a dilapidated house that needs to be flipped? In this case, this was a house hack. I had lived in the house and remodeled it myself, and then sold it for a nice chunk of change. In this appraisal report, the property did conform to everything that the neighborhood had to offer as most will. It was in a little bit better than average condition. That was represented in that section.
On the second page of the Uniform Appraisal Report is the Sales Comparison Approach. This is where the subject property is listed and it'll be three comps that the appraiser uses to arrive at his estimate of value. This section will list things such as sales prices, the square footage design, the construction age, and the room count. What type of HVAC or heating? Is it essential heating or central air? How many porches, patios, fireplaces, any extra amenities? You will also find the data source in this. In this case, it's the MLS, Multiple Listing Service. Also at the very bottom of the page is the reconciliation and final estimated price value. A lot of times, you will see the appraisal come in at the loan amount right on the money or just a little above. However, I do know friends who were selling houses and appraisals are coming back low. It's causing some problems for them given this is the Coronavirus time. I'm keeping my eyes on it and trying to touch base with those friends to find out what's going on and try to keep my pulse on. That's on the sales side. That's ultimately where investors want to be selling on the retail. Those are the Sales Comparison Approach.
[bctt tweet="The present may be uncertain, but the future is to be determined by us." username=""]
Page eight goes on to provide comments regarding the Sales Comparison Approach and also gives some neighborhood analysis. Is this neighborhood subject to a homeowner's association or a Planned Unit Development? That's PUDs. That's the master plan community or the developer. How many units have been purchased? Are any rented? Was the project created by the conversion of an existing building within a unit development? In this particular report, nothing is filled out because the house was not subject to HOA fees. That was in the City of Houston proper and we’re under city ordinance rather than an HOA control.
Those were good aspects and bad aspects. I didn't have to pay HOA fees, but then I got the same service. I got what I paid for in a manner of speaking. You’ll also see the cost approach and the income approach. I look at the cost approach because my day job is an insurance adjuster. I want to see what our replacement costs would be. In this case, it was $1,000 more than the sales price of the property. That's probably a good thing. You don't want that replacement cost being way too high, especially if you're insuring it for the sales price. The sales price was $315,000. If it would cost $400,000 to rebuild that house, I would want to insure it for that amount, not what I paid on the note or what I borrowed for or how much I paid on the contract. Keep that in mind when it comes to the cost approach.
The income approach is mostly for commercial buildings and income-generating properties. My understanding is that the income approach does not do justice for single-family residences. That's why the Sales Comparison Approach is still used. You go down to page eight of this. It had comments. The scope of work, the intended use, definition of market value, statement of the assumptions, and limiting conditions. Run through those and see if there are any limiting conditions or any caveats that the appraiser has left in because he had some difficulties doing the appraisal. You want to look through that. This is a house hack, but let's say you're planning to rehab it and sell it in 90 days. You provide that scope of work to the appraiser so that he could look at an as-is condition and then after-repair value. Your LTV is going to be pinned to that or it should be. You definitely want to find out if there are any limiting conditions or any concerns or caveats.
The rest of it is bull at this point. It's redundant stuff. The meat and potatoes have been delivered. This is just a bunch of verbiage that talks about what the appraiser certifies, that he or she went to the property, check the MLS, so on and so forth. If it's done under the supervision, let’s say it's a new appraiser and they haven't broken out yet. They haven't gone out on their own, so somebody oversees everything, all the reports. There's a blur, a little area for their supervisor to sign off. At the bottom of that page is where the appraiser signs as well.
From page 13 through 35, I'm going to go through pretty quickly because we just went through the meat and potatoes. That Uniform Residential Appraisal Report is what banks are going to look at when they buy notes. They want to see that this loan was originated properly within certain guidelines. Mostly, they can sell the loan to Freddie or Fannie. Nonetheless, that's what this form is there for. Don't stop reading it there. There are 35 pages in this report. I'm going to pick out a few that I feel we should go over briefly and that you should be aware of.
You're going to find supplemental addendums, photos of the subject property, photos of comparables, a building sketch, the complication map, and flood map. That's key, you always want to see that. Usually, they’ll have a tax assessor's map and a market condition addendum. A page that says they've studied the local real estate market and these are the trends. Prices are going up, days on market are decreasing, increasing, or staying the same or steady. The other thing I like is you get to see the front photo of the comp. In this case, the house was half-brick and half-wood exterior, half-cedar shake shingles. One of the comps didn't list it for the pricing, but it was a similar size of the lot. It was an all-brick building, which would bring a higher price.
See if you’d be able to look through and see the comps. Are they close to apples to apples? You want them to get as close as they can. That's what the appraiser's job is to do. The cool thing I like is they give the definitions of ratings. For example, a C-1 is a brand-new built house. This is in a subdivision or a custom home. C-2 is not a new building, but one that has been recently updated with the modern bells and whistles. These go down all the way to C-6, which says, “Improvements have substantial damage.” The dwelling is not in good shape and it's damaged enough to affect the safety of the building. That’s what you want to see as a rehab, the C-5s, and whatnot. You want to see some distress properties and those C-6 or C-5 definitely in that area.
[caption id="attachment_2907" align="aligncenter" width="600"] Uniform Residential Appraisal Form: If you want to sell your note, have a copy of the original appraisal to go along with the loan package so that whoever buys it sees that you followed prudent underwriting guidelines.[/caption]

To recap, this is a Fannie Mae Form 1004, Freddie Mac Form 70, Uniform Residential Appraisal Report. Especially if you don't have any experience in comping properties, do not loan money without one of these. This is non-negotiable. This will break the deal if the borrower will not pay for an appraisal. Keep that in mind. It’s a great tool to have. It's a standardized method of evaluating the value of a property based on sales comps. Especially if you want to sell your note, you'll definitely want to have a copy of the original appraisal to go along with the loan package so that whoever or whatever buys it, sees that you followed prudent underwriting guidelines in making that loan.
There are lots of important things there. That's going to do it for this episode. I want to thank you for sharing your time with me because I do appreciate it. This is the part where I ask for your honest rating and review over at iTunes, Google Podcast or whatever platform you're using. Also, keep a lookout for some more episodes of Ask A Private Lender to pop up here and on Facebook. Besides self-awareness, I wish you all safe and prosperous private lending. I hope everybody stays safe. I'll catch you on the next episode.

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PLP 102: Appraisals Part 1: The Strength Of A Good Appraisal

Keith Baker — Mon, 04 May 2020 01:30:00 -0600

Before any property is purchased or sold, it's important that it undergoes a thorough appraisal. The importance of an appraisal truly cannot be underestimated because you should know the actual value of the property you're buying or selling, lest you operate at a loss. Keith Baker discusses the importance of an appraisal in the lending process. In doing so, he outlines the three types of appraisal approaches and gives you nine questions to ask when selecting an appraiser to join your team of professionals. Get familiar with the process of appraisal today!
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Appraisals, Part 1: The Strength Of A Good Appraisal
Plus 9 Questions You Should Ask Before Hiring An Appraiser On Your Team
This show is the only one of its kind. It’s created and dedicated to teaching everyday people, like you and me, how to prosper with the most passive form of real estate investing known to humankind, private lending, while also giving tips and ideas that can help keep your money safe. It's this simple. If you're looking for practical tips and advice on being a successful private lender, then you're in the right place. If you want to learn from my mistakes so that you can avoid them and prosper much quicker, then pull up a chair and take notes because this show is made for you. It is late April in the year 2020 and the global death toll from COVID-19 has crossed more than 200,000 lives lost. I hope you stay safe and sane. No matter how crazy things get, it's up to us to choose to stay positive and to create our future, whatever that will come to look like. Let's keep our eyes on the prize. Our present is uncertain, but the future is up to us to create.
Our topic is appraisals and the nine questions you need to ask your any potential appraiser if you're going to add them to your team. Remember as the lender, you choose the appraiser, but the borrower pays their fee so it doesn't cost you any money. I will roughly go over the three types of appraisals, the different approaches, which one we'll use for single-family. The two that I use myself, but the one that is the single-family standard. We'll get into some questions. This is part one. On part two, I'll go over the actual form from Freddie Mac and Fannie Mae that you most likely had when you bought your house, even if you're not an investor. I have a question for all the real estate investors out there and homeowners. Have you ever had a purchase or a deal killed because the appraisal came back too low and the bank wouldn't fund the loan? It happens all the time, especially in volatile markets. It is frustrating, to say the least.
I have a friend who is selling his personal residence. It's not a real estate deal, but it's a normal retail sale. It was killed because the appraisal came back lower than what the bank was comfortable with. That's where I want to get to this. Banks aren't in the business of evaluating the value of properties, so they hire out a third party expert, a professional to do it for them. They use that to make their lending decisions in there and base their criteria and terms. As a private lender, it is no different. You want to seek the unbiased opinion from a third party on the market value of a property and base your lending decision and terms off of that. It's critical. The keystone number for a deal is, “What is that After Repair Value or ARV? What is the value? What is the realistic after repair value in the future for a retail sale?” Even if it's a rental, all my criteria and decisions are based on the number that I come up with or what that appraisal gives me. I do my own.
[bctt tweet="You are the CEO of your money. Act like it!" via="no"]
I look through the comps, but it is nice not to have to do that and to have somebody else who does it for a living do it and gives me the report. It takes me a few minutes to read through it and decide, yes or no, which way I'm going to go on that particular loan. It's time to get down and dirty. There are three types of appraisals that you'll see on the Uniform Residential Appraisal Report. This is Freddie Mac Form 70 and Fannie Mae Form 1004. The last approach that is used, they give it all of two lines in the entire report is for the income approach. You don't look at the cost of a building or any sales around it. You look at the value of the building from, “How much money can it generate? How much revenue, rent, money and other streams?” As a business, how much can that property bring in? Oftentimes, commercial real estate is based upon what type of income one could expect that property to produce.
We don't see it with single-family houses for several reasons. If you do the numbers the way they do them, you take the income or the net operating income and the value that comes up with the cap rate, the numbers don't work to judge a single-family residence with the income approach. I figured since it's on the form, let's go ahead and talk about it. The second to last approach is the cost approach. That is simply, “What would it cost? If something happens like a hurricane, tornado or fire comes through and demolishes the building, what would it cost to rebuild that building to a condition that existed before the event?” That's an insurance way of looking at it. As an insurance adjuster for my day job, I rely heavily on cost estimates on what to repair, especially when it comes to personal property or industrial equipment. What's the cost of repair or replace is normally the value of that particular piece of equipment. Since we're talking about properties, we're talking about houses, real estate. I want to know if I can rebuild the house for $100,000, but the comps, the sales or the market value would be more than this.
[caption id="attachment_2901" align="aligncenter" width="600"] Importance Of An Appraisal: Banks aren't in the business of appraising the value of properties, so they hire a third-party expert to do it for them.[/caption]

Let's say if I have a house that I want to loan on, let’s say $100,000, but it would cost $120,000 or $150,000 to rebuild it, that's a consideration later on down the road with the insurances, when it comes to closing and what you're going to require. It's important from a doom and gloom perspective, in a devil's advocate, and to keep my money safe perspective, the cost approach is helpful. The last type of approach is the comparable sales approach, which is the gold standard of the appraisal and the real estate industry because the entire page two of the Uniform Residential Appraisal Report is dedicated to three comparable sales and the subject property. Before a property is listed, there's reconciliation as to where and how the math adds up to get the appraisal value for that particular property.
As I said, the comparable sales model is the gold standard. That's what everybody goes off of. We've talked about the three types of approaches. The heaviest weighted comparable sales. I like the cost as well. Let's get into what questions you're going to ask that little bugger when you put them on your team, that appraiser. These are nine that I've put together in bullet points that I want to know about when I'm hiring. I'm an ageist. I like gray hair. I like people who've been out there doing it for a while I have a good feel and comfort for what it is they do. However, that's not to say that there aren't good young appraisers, so not to blow anybody out of the water, but pick that for what it's worth.
The first question I like to ask is a silly one. It is, “Are you licensed or certified in the state where this particular property is going to be located or is located?” You want them above board, suited and booted and ready and able to do business in that state or your state. The second question is, “Have any complaints been filed against you or your company? Have you been disciplined by the State Realty Board or any other commission? If so, and why?” You always ask for their state number and license number because you can go back to your state website, check it out and verify that they're telling the truth or maybe they're lying. It's a good place to start. A little bit of background check. Look at the license number and run it up the flag pole and see that they have been successfully safe and not getting in trouble with the state.
[bctt tweet="Look for people who put their money where their mouth is." via="no"]
Number three is, “What is your fee?” It is important to know because you're going to have to put that on your loan app. If they want $350, make it $350. If you want to make money off of it, that's up to you, but then the borrower has to pay you. I like things neat and clean. There's no paper trail from the borrower to me to the appraiser or inspectors. Anyone who's coming out on behalf of myself or the investor, I want the fees to go straight to them. It's easier and cleaner. That’s my personal preference.
Question number four, “How many appraisals have you performed?” This is why I like people with lots of gray hair who've been doing it for a long time. That gives me a certain level of comfort, but that's not to say that someone in their early 30s hasn't done several thousand already and has a good handle on what they're doing. Start a question and see how they respond. Let's see if they're confident with themselves or if they're not. That can make it or break it right there for me. That's why number four is in there, which leads to question number five, “How many appraisals have you performed in this particular area of the subject property?”
Maybe the subdivision, maybe not that part of town, specifically. I like appraisers that have a wide net of business that they'll do, but I also like to know that they've seen some transactions in that neighborhood or close to it. It makes me feel a little more comfortable. Number six is probably my favorite of all, “Are you, yourself, an investor, Mr. or Ms. appraiser? If so, what's your experience? Are you a flipper, landlord, lease options or whatever?” If they do invest in real estate, I'd like to know what their background comes from because it can help me determine. If somebody leans too hard towards being a landlord, then I know I'm going to be safe from that perspective. If someone is a rehabber, I feel better than if I'm going into rehab, they can provide me some more input that maybe I don't have from the borrower. Are they investors? They don't have to be, but it gives me the warm and fuzzy. It’s one of the criteria that I like to look for. I like to look for people who were putting their money where their mouth is.
Question number seven, “On whose behalf do you perform the bulk of your appraisals? Are they the big banks?” When I say big banks, I mean Chase, Bank of America, Wells Fargo, the big retail banks, or what I call mortgage brokers or small banks. Whether it's LendingTree, for example. They match people with mortgage brokers. That's it. That's a lead gen type of thing, but those mortgage brokers, you don't normally sell those loans off to the big banks, but it gives me an idea where their split is. Option C is, “How many real estate investors do they do appraisals for?” D, “Who else?” If it's not a big bank or a mortgage broker, retailer or real estate investor, who do they do the bulk of their appraisals to find out more than anything else? I don't put any weight on the other, necessarily. It's interesting for me to know one of those things.
Question number eight, “How long will the process take from the moment we have a contract and the borrower pays the fee for the appraiser? How long is it going to take him to go out to the property, inspect it, come back to his office, pull the comps, and put together his appraisal report? When can I have it in my hand and make my lending decision?” Normally, appraisers are only a few days or it's pretty quick. They're like property inspectors. They tend to get in and get out. The longer they spend on the project, the less per hour they make. It's good for me to know so that if somebody is hammering me on, “I need to close fast,” which is a red flag. Ask a landlord who let someone in and they had to move in right away. They needed someplace right away and then it took them months to get them out.
[caption id="attachment_2902" align="aligncenter" width="600"] Importance Of An Appraisal: Appraisers are like property inspectors - they tend to get in and get out. The longer they spend on the project, the less they make per hour.[/caption]

I treat that as a red flag if they have to close right away. Things do happen. People back out and all that stuff, but their due diligence should already be done at that point so you can step in rather quickly. Back to the question, “On average, how long does it take?” I need to know that so I can set expectations, mine and the borrowers. The final question goes back to the first but I want to know what database they use to create the appraisal. I'm assuming it's going to be the local MLS or Multiple Listing Service. Here in the Houston area, that is HAR.com or Houston Area Realtors, but that may not be the case. I don't know where everybody may or may not be lending in the parts of the country. MLS is the gold standard. If you're not using that information, I'd like to know why. It could be this property is extremely niched. There could be valid reasons why they're not using the MLS to come up with an appraisal of a property, but you want to know those reasons. If they're not going to use MLS, question them. Ask them why and ask them to walk you down the road so that you understand exactly how those appraisals come in together. That's going to wind it down.
To recap, the three different appraisal approaches or methods are the income approach, predominantly for commercial buildings. The cost approach which feeds my morbid curiosity as an insurance adjuster, and the comparable sales approach, which is the gold standard and pretty much all residential appraisals are based upon. The nine questions you need to ask your potential appraiser, whether or not they're licensed, have any complaints filed against them? What their fees are? How many appraisals have they performed any or near the subject property, whether or not they're an investor? Who they do most of their work or the bulk of their work? Does it come from big banks, mortgage lenders, and mortgage brokers, etc.? How long will the whole process take for you to have a report in your hand, on average? What database will they be using to create the appraisal? If it's not the MLS, you want to know why and get lots of extra support documentation to be safe.
That's going to wrap it up for this episode. I want to thank you for sharing your time with me. I do appreciate it and this is the part where I grovel with you. I ask you to leave an honest rating and review over at iTunes, Google Podcast or whatever platform you use. Keep a lookout for more episodes. I’ll ask a private lender to pop up here and there on Facebook Live and other channels in the coming weeks. I'm finally getting the hang of this Corona thing, kids being home all the time, and then work continuing. I'm going to try to become more active out in the social world and talk private lending more as we go into the summer of 2020. With that, I bid you adios. Stay safe. Take care, and besides self-awareness, I wish you a safe and prosperous private lending. I'll catch you in the next episode.
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PLP 101: Three Silver Linings For The Long-Term During This Difficult Time

Keith Baker — Tue, 28 Apr 2020 03:00:00 -0600

The current Coronavirus situation has left many of us feeling helpless and anxious. Nevertheless, hope is not at all lost, especially if you are planning to start your journey to becoming a private lender. In today's show, Keith Baker tells you now is the perfect time to do that. In the service of providing the positivity that we all need right now, he shares with us three silver linings that we can get from the current situation. Here, he taps into what we can do with self-directed IRAs and then reminds us that our future is solely up to us.
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Three Silver Linings For The Long-Term During This Difficult Time
Now Is The Perfect Time To Start Your Journey To Becoming A Private Lender In A Self-Directed IRA
This show is the only one of its kind that is dedicated to teaching everyday people like you and me how to prosper with the most passive form of real estate investing known to humankind while also giving tips and ideas that can help keep your money safe with private mortgage investing. It's this simple. If you're looking for practical tips and advice on being a successful private lender and how to create wealth without the banks or Wall Street, then you're definitely in the right place. If you want to learn from my mistakes so that you can avoid them and prosper much quicker, then pull up a chair and pull yourself a cup of latte Larry's coffee because the Private Lender Podcast is made for you. This episode 101 is sponsored by the letters WTF. I hope you are safe and well amid the COVID-19 pandemic wherever you are. As of mid-April 2020 on the global scale, there have been 2.4 million confirmed cases of infection, 623,000 have recovered and 165,000 have perished.
Here in the United States, 22 million have been able to file their applications for unemployment insurance. I've completely brought the mood down and bummed everybody out. I do want to have something positive for everyone. In the spirit of finding positivity in crap, we're all going through this together, yet we're supposed to be apart or at least at a safe distance. No one can remember anything like this affecting us in the US as much as it has since SARS. In the spirit of trying to find a silver lining, I'm not going to promise to make lemonade from all these lemons. I believe this can be a step in the right direction, especially if your life's been dumped upside down and you're one of those 22 million people looking for their next paycheck. Keep your enterprise. The present is uncertain, but the future is up to you and me. It's up to us. I don't want to give any false hope. Times are crappy. We're going to have to buckle up.
[bctt tweet="You are the CEO of your money. Act like it!" username=""]
What I'm talking about here will not satisfy any short-term needs like putting food on the table or paying any bills, but then you don't read this show for that. The moves I'm talking about making are definitely to help you in your long game, but also knowing that the short-term is very bleak. For example, the former Mrs. Baker was laid off because of the effects of Coronavirus on the company she was working for. That sucks. It's not a great time for her. There are a lot of unemployed people and unfortunately in Houston, the job market for oil and gas, especially the upstream is not in a good swing. It's going down. I don't wish harm to anybody but history does tell us that during uncertain times like these is when giant shifts in society and wealth can be made. I believe this COVID-19 has the ability to make more private lenders than any other time before. It’s going to help open the doors of opportunities from the millions who have been affected. It's going to happen in an ugly and crappy way.
Silver Lining Number One
If you can hold your breath like Andy Dufresne in the Shawshank Redemption, you can crawl through a mile of crap and come out clean on the other side. A lot of bad things are going to happen to people and to good people, people that we know and love. The sun will rise tomorrow. Why not try to find some good actions to take towards making your situation better for those around you now and in the future. What positive could come from this? How’s this going to make private lenders? Silver lining number one, let's take that 22 million to 25 million they're anticipating, all of those retirement plans that will no longer receive contributions from the employee or the employer. That sucks in the short-term because that comes with also no paycheck, no health insurance and no certainty for the future. That is definitely a scary place to find oneself and I feel for everyone going through that. These old retirement accounts can be rolled over into IRAs, which costs nothing and it's not even a taxable event and there's no penalty.
[caption id="attachment_2888" align="aligncenter" width="600"] Silver Linings Private Lending Silver Lining: There's going to be a lot of gloom and doom all around us, but there are going to be opportunities on the horizon held down the road.[/caption]

Your 401(k) custodian most likely would love to do it for you and keep your business and account at their company. The question is, why I do this? In the past, IRAs have had more flexibility in investment options than the company-sponsored 401(k)s. There are some exceptions with Fidelity, other custodians and other brokerage houses where you're given almost a brokerage account. You can trade individual stocks in your 401(k), which is nice like mutual funds, ETFs. There are some limitations. I have worked at companies where we had three options in the 401(k), it was all stocks, all bonds, or blend. If 401(k) is limited, when you take that old 401(k), convert it to an IRA and now you can invest in so many more things than a limited 401(k) program at companies that only have about 30 or 40 mutual funds for you to choose from. You get that money rolled over into a vehicle that's a little more open-ended when it comes to options and also limited. That's a good thing. That's a silver lining number one.
Silver Lining Number Two
Silver lining number two is even if you make too much money and cannot contribute to a Roth IRA, once you roll over your 401(k) into an IRA, then you convert that normal IRA parts or all of it into a Roth IRA. You will have to pay taxes on that. This will be a taxable event. However, there will be no penalty. As it stands in April 2020, you will not pay any taxes when you withdraw the funds during your retirement from the Roth IRA. I say find a way to tax the seeds and not to crop. The US government gave away $2 trillion it doesn’t have. Who do you think is going to pay for that down the road? I'm not saying I'm right, but I'm letting you know that that's my thinking and that's how I'm trying to position myself for this.
[bctt tweet="The present is uncertain, but the future is up to you and me." username=""]
Silver Lining Number Three
I'm trying to get as much into Roth as possible because someone's going to have to pay the piper. I don't want to be doing it with my retirement account and with God knows what healthcare is going to be like when I get to the end of that road. That's silver lining number two. Even if you can't contribute to a Roth, you can take an old IRA and convert it. Let's go back to silver lining number one, where you now have that IRA, you can still put $5,000 per year to that IRA. If you have a Roth, even if you can't contribute to a Roth, you can always convert rollover standard, traditional IRA money into a Roth if you pay the taxes upfront. Silver lining number three, and this is where it comes into the private lending, is once you have that IRA and a Roth IRA, you can open an account with self-directed IRA custodian to get on the road to becoming a private lender. In turn, expand your network and the number and types of projects in which you invest.
I mentioned the former Mrs. Baker was laid off due to the pandemic, right in the middle of a divorce. My heart goes out to everyone who's dealing with it, especially her. We are in this together one way or the other, but life happens whether you want it to or not. She came to me and told me she was upset. I said, “Nothing changes.” I'm not going to leave her out in the street. It means things are going to be tight because we're still a two household until the courts can open back up. As unemotionally as possible, I sat down and we spitballed things. Unemployment insurance, she was explaining how difficult it is to get through five million people a week. I imagine that call center is overwhelmed, but nonetheless, keep trying to get through the automatic stimulus check. That helps. It isn't going to make anybody's year, but it can put some food on the table or pay a bill.
[caption id="attachment_2889" align="aligncenter" width="600"] Silver Linings Private Lending Silver Lining: The only thing worse than having a job you don't like is looking for the job you don't like.[/caption]

There's the CARES Act, EIDL, Paycheck Protection. If you're an entrepreneur or self-employed, that doesn't apply to her but I'm spitballing, I've tried to get some relief for asset REI with my partner because we're having a hard time putting some tenants into some properties. I figured the worst they can say is, “No, you don't need it. You don't qualify, so move on.” It didn't take very long. Back to the former Mrs. Baker, she's negotiating with her landlord about terminating the lease. She has a letter from her former employer stating that her termination was due to the pandemic, which is mind-boggling, but they've already furloughed some of the rent payments and given her a Rent Payment Program without her requesting it.
Nonetheless, we suggested that she look at all the options, look at all the cards that are out on the table. Fortunately, for us, we don't need to establish any payment plans for any bills or any loans or anything like that. It is a possibility and one that I wanted to put down. It's an option that we have if she's not able to find work quickly. God forbid, the kids were playing sports until all this happened. Unfortunately, we've paid all the medical bills and emergency room visits and all that stuff. None of that is going on. The next thing after we spitballed with that was we need to create a pandemic budget. What does this all look like? A lot of things are in the air, especially as to where she's going to be living. She's looking to downsize but also looking at other facilities. One way or another, it looks like a move is coming. I will be hiring strapping young men to help with that because I'm not lifting anything.
I also said, "Immediately, initiate a rollover for your 401(k) into an IRA." Since she had only been there for a few months, it didn't contribute much. There's not a whole lot in there, but roll it into the traditional IRA, then we'll convert it into the Roth. I'm basing this on the assumption that her income is going to be down significantly. If you're going to pay taxes on some money to put into a Roth, now is the time to do it. It's one of those silver linings. She's very much agreed with that. We're moving onward for her. With me, I still try to convert as much as I can when I can to my Roth IRA. However, that's been put on hold for obvious reasons. One of the things that I've noticed in talking with friends and neighbors, with a little social interaction I'm having with people outside of my own family is a lot of people trying to learn how to network electronically online and use things like social media which they absolutely despise.
[bctt tweet="Life happens whether you want it to or not." username=""]
Whether we like it or not, it is the situation and reality that we find ourselves in. Now is the time to update those profiles, your contact info, get on LinkedIn and all that fun. The only thing worse than having a job you don't like is looking for the job you don't like. There's going to be a lot of gloom and doom all around us, but there are going to be opportunities on the horizon held down the road. We want to be on the forefront with our ear to the street and try to put our finger on the pulse of our local markets and this job markets, but definitely real estate markets from a private lending perspective. One of the things that I’ve suggested to some of my friends that have lost their jobs is there's a lot of uncertainty.
I go back to a book I read. It was a very depressing book, but a guy suffered a very bad tragedy in his life. He kept talking about he was on his motorcycle road, kept riding his motorcycle to keep moving because it soothes him much like when you put a baby in a car and taking for a drive when they won't sleep at night. I've always tried to adopt that mindset of I need to keep my body moving. You should go to the gym and all that but I don't. I'm not going to be a hypocrite, but I do try to walk, stay active and do projects where my body is moving. Also, do the same thing with mind and emotions. I do meditation like I do antibiotics, only when I need it. When I started feeling better, great. These are some of the suggestions that I threw out to the ex because she was listening to some friends at first that got furloughed and then let go altogether. The other businesses will probably not return at least not as they knew them.
Keep moving. Another quote I like to throw, some Bob Dylan who said, "You don't need a weatherman to know which way the wind blows." That's going to do it for this episode 101 with the Private Lender Podcast. I do want to thank you for sharing your time with me. I do appreciate it. Here's the part where I beg for ratings and reviews over at iTunes, Google Podcast or whatever platform you're using. Thanks for reading the blog. I do hope that you and your loved ones stay safe and healthy and that we all get through this crap as quick as possible. We'd all be good if we had high self-awareness. Besides that, I wish you safe and prosperous private lending. I'll catch you on the next episode. Take care.
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Checking In on ya'all!

Keith Baker — Mon, 20 Apr 2020 04:20:00 -0600

Hey Lender Nation!
I just wanted to pop in your ears and say that I hope you and yours are well, safe and keeping sane!
I don't have a full episode ready for this week, but I hope you enjoyed last week's Episode 100 with Dr. Steven Kaufman.
When I started out, I had only sketched out enough topic material for roughly 45 episodes, and now I have released 100. Not every episode has been a classic but that is my goal with each future episode. I have made it this far and I want to go a lot further. Because you listen and connect with me I want to thank you for letting me achieve 100+ episodes - I greatly appreciate it!
I'll see you on the other side of this pandemic!
-Keith

PLP 100: A Mindset Milestone: An Interview With Dr. Steven Kaufman

Keith Baker — Mon, 13 Apr 2020 03:00:00 -0600

Many people underestimate the true importance of the correct mindset in achieving the things they want to be able to achieve in their lives. This so-called "mindset for success," contrary to most people's thinking, influences so much of what you do, and it all begins with making sure you're taking care of yourself. Dr. Steven Kaufman is the Founder and Chief Acceleration Officer of ZeusLending.com. Steven joins Keith Baker in diving into what makes a good, strong mindset for success. In discussing faith, fear, and integrity, Steven breaks down what you need to develop the mindset for success because it truly starts within you.
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A Mindset Milestone: An Interview With Dr. Steven Kaufman
If You Only Listen To One Episode Of This Podcast, This Better Be It...
Greetings from the energy capital of the world inside the Corona versus Earth. Welcome to episode 100. I'd like to thank you for celebrating 100 episodes with me. Thank you for reading. I appreciate you sharing your time with me. We are dedicated to teaching everyday people just like you and me, how to prosper with the most passive form of real estate investing known to mankind. Not a job, not hard money lending, investing, while giving you tips and ideas that can help and will keep your money safe. It's simple. If you're looking for practical tips and advice on being a successful private lender or on how to create wealth without banks on Wall Street, then you are in the right place. If you want to learn from my mistakes so that you can avoid them and therefore shorten your own learning curve, which is what you should do, pull up a chair and pour yourself a dram of the best because this is made just for you.
In honor of the 100 episodes milestone, I bring back my first ever guest all the way back from episode number one, Mr. Steven Kaufman. This interview was several weeks before the Coronavirus became a pandemic and a fixture of reality in everyone's mind. As you're reading, I know you will find an extreme amount of value out of what Steven discusses particularly these three topics: faith, fear and integrity. I can't think of anyone outside of my own family who has had a bigger impact on changing my mindset for the better than Steven. That's why I brought him back here to help me work on my mindset as you get to read to give me a bit of perspective in order to achieve the next level, whatever that may be, especially during the challenging times in which we find ourselves. I'm very fortunate that I was delayed in this. This is perfect timing for episode 100.
I asked Steven to speak about a couple of concepts that may be providing a lot of negative thoughts in your own mind and hopes that his words will cut through the noise and give you some ammunition to change and improve yourself, because I know Steven has done the same for me. For the record, to my knowledge, Steven Kaufman does not have a drug problem. It's a colloquialism, but it is. I asked him to tell the story of how he developed a drug problem, which is my favorite story of achievement. The making up of one's mind, committing to a cause and taking action. The action is necessary to achieve goals whether they be financial, personal, spiritual or any related to any pursuit for which you feel it's worthy. Maybe you want to communicate more effectively, you want to have better relationships with your children or your spouse, or you want to have a retirement that allows you to travel. Whatever makes you tick, it doesn't matter. Let's go ahead and cut to the chase. Let's get to this interview with Dr. Steven Kaufman on this 100th episode.
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This is my distinct honor to introduce to you once again, Mr. Steven Kaufman of Zeus Mortgage. Welcome back, Steven.
Thanks so much for having me, Keith.
First I should say, I mis-introduce you there because you are Steven Kaufman the last time we spoke on the show here and now you are Dr. Steven Kaufman. Congratulations. Tell me a little bit about your PhD.
[bctt tweet="Fear and faith are both imaginary." username=""]
It’s five and a half years in the making. I finally made it through the gauntlet of dissertation and research. I completed my Psychology PhD in the first quarter or second quarter of 2019. I got my research published. I'm happy to be done with that and now moving on to bigger and better things. That was a passion of mine. It wasn't something I had to do or needed to do, but I want to do it. Learning is my number one hobby. One of my bucket list items, I think I may have told you, is to spend more in education in a year that all my other expenses combined because I love learning and applying what I've learned. It's been a great adventure. I am going by Dr., I earned that degree. I spent five and a half years and a lot of money. I'm still using it.
A teaser on Steven a little bit, years ago, he said when he got his PhD and he would go by Dr., he's going to change his name legally to Dr. Pepper. I'm going to hold you to that. It's out there in the worldwide webs.
I'm going to change my name to Steven Pepper, so people will have to call me Dr. Pepper.
You honored me the first time by coming on for episode one and kickstart in this thing. At that time, I didn't know if I was going to hit 50 or 20 shows, let alone coming up on 100. It's an honor for me to have you. It's been bumps and bruises and ups and downs and everything in between, but it's been a hell of a learning experience to touch back on your hobby. I don't regret it at all. In fact, we're here because of the Mastermind of yours that I participated in all those years ago. I remember sitting in that room thinking, “I don't know if I want to go for single-family houses anymore, but I know that there's this lending thing.” I distilled it out of that Mastermind and knew that I'd go down this path, so here I am, I followed it. Oddly enough, it is real estate-related but it wasn't the “get ten houses with $10,000 quick.”
I thought everybody's taking me down this completely unexpected and wonderfully brilliant path. Thank you for that again. Part of that Mastermind, some of the things that I picked up were getting people over the hump. I quit my job and now I'm a consultant. No more W-2 and it was such a hard thing to do, but looking back, it's like stepping over a little creek. The chasm is never as wide once we're on the other side of. It's always bigger when it's in front of you. The first thing I wanted to get to, and these are topics I had written down for our last interview that we didn't get to, that's why I'm hammering these home. You had a saying along the lines that faith and fear are the same emotion or the same thing but the distinction between the two. If you could elaborate on that.
Fear and faith are both imaginary. They're both in your head. Faith is fear directed towards something that's positive. Fear is thoughts and emotions that are directed towards something that you think are negative. I know this is the Private Lenders Podcast, but I speak a lot about commercial investing, mainly what I do for a living outside of my debt company ZeusLending.com. I do speaking once or twice a year. When I'm speaking to people, almost always when I get down to it, their biggest issue with starting in commercial investing is that they're afraid. It takes a lot to get them to say that, but once they do, we realize that's the crux of what the issue is. It isn't that they don't have money, deals, credit or they don't know what they're doing. All those things can be solved. It's that they're afraid that chasm, gap, leap and their faith is fear redirected.
People who aren't afraid, either go bankrupt or die. People who are too afraid, either don't take action, they stay in the status quo, they have lots of regrets and they wish life was different. Both life is different, maybe they take a lot of courses, they've been listening to a lot of podcasts, but nothing ever happens. There's a certain amount of fear that once channeled into faith that this will work and that you have to trust the universe that this is going to work, you've prepared yourself as much as you can. Those people make magic out of their lives. Once they realize that, they get to experience a whole new life that wasn't going to happen otherwise.
I remember sitting in that room in the Houstonian Hotel that day and you're going through that and I was like, "I need to let this marinade and digest this a little more." What holds most of us back at the end of the day is some people say, "Is that negative thought my parents put in my head?" That's part of it, but it's going beyond it. As you said, putting faith in the universe. In my case, whether it be private lending or my first horrible landlord deal, it was keep pushing until I got to the other side and say, "I've done it."
Fear is a roadblock. It’s negative fear as bullies that helped direct you. It's very powerful. You want to have some fear. A healthy amount of fear keeps you making good decisions. It's the fear that's a roadblock in front of you that doesn't let you move forward. That's what I would call a very dangerous type of fear. It's almost as dangerous as having no fear at all because it keeps you in a life that you don't want to live. It keeps you regretting or wanting things that you could or should have but you don't because you won't take action.
You made the distinction of commercial or your debt company, which is how I met you with the Zeus Mortgage way back when. One thing that I've noticed in engaging with people is that everyone still thinks that I private lend to everybody. I'm like, "A private lender was someone that you know is in your circle that you borrow from." I'm not a hard money lender. That's a business and that's fine. If you want to be in the business of hard money and lending, I would suggest people follow your example in Zeus Mortgage. However, with the private lending, I don't loan to strangers, so I have to be conscious of my brand and telling people what it is that the Private Lenders Podcast is about. I like that distinction that you made. I'm glad you brought that up because this is what realtors called pocket deals. I got a lender over here. This guy wants to get into some multifamily or whatever.
That's the whole process of it and then to educate people. With the 100 episodes, fortunately for me, they share their horror stories of what went wrong. For example, loaning all the money without holding anything in escrow for repairs. You essentially paid retail for a house that still needs a rehab at that point but pushing people into that first lending. Most of these people are going to have day jobs, they're commuting, reading this or if they're smart, they're probably on a treadmill. I would be in the car, not on the treadmill, unfortunately. I've seen you doing the pushup or handstand things, so I know you're in good shape. We're going to zoom into someone whoever's reading to get them over their hump and to take action. What can you offer in your own words before we talk about that drug problem of yours? How do we get over the hump?
First of all, that's how bad rumors get started. The answer to get over the hump to taking action, this is going to sound a little too simple, but if you're a person of integrity and if we define integrity as honoring your word, success overall is simple. This is going to land in a way that will sound overly simplistic and just because it's simple, it doesn't mean it's easy. If integrity is honoring your word, then success is simply making commitments in the direction you want your life to go and honoring your word or having integrity about what you said. I love listening to podcasts while I'm walking, on a treadmill or exercising. I felt like cheating the universe. I'm getting two things at once. I'm hacking universe, I'm doing stuff that. I encourage that. For someone who's driving, on the trip and they're struggling on making their first private loan or doing their first commercial investment, their first investment period, the answer is make an agreement or commitment to do something in some area. Go find a certain amount of prospects that you can lend to, perfect your underwriting, ask someone how they should underwrite the loan or tune into some of your calls.
[bctt tweet="Make commitments in the direction that you want to be able to go." username=""]
Make commitments in the direction that they want to go and then honor their commitments. It's simple. If you want to get a commercial deal, I'll speak to a commercial transaction. There's more to talk about. If you want to invest in apartment complex, which everyone says they want to do, but most don’t. If you want to invest in a commercial multifamily deal, set commitments in the direction of doing that and honor your commitments, have some integrity with what you said. We all cheat integrity to ourselves the most. A lot of people were more likely to be on time to a meeting with somebody else than they are to be on time to a meeting to go work out to go do this or that or take care of themselves. This is the one area where if you're asking what's that first step to get people from moving beyond their fear? Honor your word to yourself.
It does come off as simplistic, but I was listening to a podcast, as you say, and what they found was people were not being accountable to themselves. They had integrity to say to other people. They were there for their parents or their sister or whoever needed help, they were there. Yet when it came to fulfilling their dreams or their desires, they completely took a back seat and did not show that same integrity, devotion and accountability to themselves.
You said it better than I did. A circus and a zoo both have animals. The difference between a circus and a zoo is a ringleader. In your life, you're the ringleader. If you honor your word to yourself and your commitments to yourself and take care of the ringleader, your life looks like a zoo.
This is why I get these guys here. Steven, break it down. As you said, just because it's simple, it may not be easy to take action. Case in point, it's not easy to get your butt up at 5:00 AM and get into the gym. I can tell you how easy it is to stay in bed. I like that touching on the integrity to yourself and keeping your word. Now that we've started a vicious rumor over the internet that you have a drug problem, would you please go back to the story? For those of you who don't know, Dr. Steven Kaufman was born in New York City but came down to Texas at an early age.
I'll tell this succinctly. I was born in Brooklyn, New York, not New York City. My grandmother, my bubby, she had cancer when I was five years old. My parents loaded up five kids and two adults in a Malibu classic car, a mid-sized sedan, with all of our belongings in the trunk. We thought we would be in Houston for only about six months to a year while my grandmother was having chemo for stomach cancer. After being here a few months, my grandmother passed away. My parents couldn't afford to drive back to New York to get our belongings, which were then lost. We ended up having to find rent as cheap as possible. We did in a trailer park in a city that no one had ever heard of in my family called Baytown, Texas, where we paid $125 a month for rent because it was all my parents could afford. I grew up there.
I'm one of five siblings, I'm the youngest of five. My four older siblings all dropped out of high school. When I was in the ninth grade, I did what they did, which was I dropped out of high school in the ninth grade to go to work. That's what everyone in my family did, that's what I did. It wasn't a big deal. My mother didn't even think twice about doing it because that was what we did in our trailer park. It was time to go to work, and so I went to work. Two or three years later, I was seventeen years old. I was sitting in a trailer with a bunch of guys in the middle of the day, I just happened to be off. I'll never forget the day that sometimes I get emotional about it, so I could get emotional about it now.

I'll never forget the day because everyone was smoking cigarettes and weed. The air was so thick. I can feel it right out my mouth, it was super dry. There's a guy over my left shoulder who was coughing so badly because he had been smoking so much. You can smell the stale beer that was everywhere in this trailer. I can still feel the crushed beer cans underneath my feet where they'd been left there inside someone's house or trailer. I looked around and I realized that my life was probably never going to change this trajectory, that I'm going to live like my siblings, my parents, all of these guys, young and older living, and I'm not going to be able to outwork them. I was working hard.
I'd saved up some money. I was never going to leave this place unless I did something nobody else here was willing to do. It wasn't going to be the military because a lot of them were in the military, including my family members. What could I do that would change the structure of my life? That is when I say I became addicted to drugs. I started dragging myself to school immediately and getting an education. I dragged myself to work, to the gym and I started having this certain amount of discipline knowing that if I'm going to change the trajectory of my life, it's going to have to start with education. To me, education is freedom. I believe that people are fighting mostly for freedom. If I ask people why they're going to lend money on a private loan, why they're in business or why they're doing anything they're doing, it comes down first.
What they'll probably say if we go a couple of levels deeper will be that they want to make themselves proud. They want to make their kids proud or give their kids a better life and make their parents proud, alive or dead. When you dig it below that a deeper level, you realize that what people are after is freedom from those feelings. Freedom of knowing that they don't have to make anybody else proud, that they have done it. Almost a peace of mind is what people are after. I believe that education, knowing what you're doing. If you know all the answers, you'll never will. If you have no fear about making macaroni and cheese and you have total peace of mind about making it, that's what people are about in life and that starts with education. Listening to podcasts, getting a formal education and paying people to train them, all of those things, I've been doing that for my entire adult life. I equate education with security and success. There are people who take classes after classes. That's not wrong to talk to you about. Being addicted to drugs meaning I drag myself to do things.
We don't want to do them. That's the key part. You can drag yourself to a class, but if you don't drag yourself to ever implement and you learned...

PLP-099: Creating A Lending Criteria During The COVID-19 Pandemic

Keith Baker — Mon, 06 Apr 2020 03:00:00 -0600

We are in the midst of a global crisis. While we're all grappling to win over against its effects, it helps to gather a couple of lessons that we could take to aid us in these uncertain times. In this episode, Keith Baker guides us in creating our lending criteria moving forward. He talks about how to lend in preparation of price fluctuation for when the world becomes unhinged. Giving some context, Keith also talks about the effects of the COVID-19 Pandemic to Houston and to the rest of the world. Don't miss out on learning some important advice that might just help you stay safe in an unsafe market.
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Creating A Lending Criteria During The COVID-19 Pandemic
How To Stay Safe In An Unsafe Market
I'd like to thank you for sharing your time with me. We are dedicated to teaching everyday people like you and me how to participate in the most passive form of real estate investing known to mankind. That is private mortgage investing while giving tips and advice on how to keep their money safe. It’s simple. If you're looking for practical tips and advice on being a successful private lender on how to create wealth without banks or Wall Street, then you're in the right place. If you want to learn from my mistakes and my screw-ups so that you avoid them and therefore shorten your own learning curve, then pull up a chair and you might as well go ahead and pour yourself a stiff drink or two because this is made for you.
I want to invite everyone reading to join me on Monday, April 6 at 8:30 PM Central Standard Time for Ask A Private Lender on Facebook Live. I will go live for hopefully 30 minutes minimum to answer any questions you may have regarding private lending, both from the lender’s perspective and for the borrower's benefit. I'm hoping everyone will find it helpful whether they want to lend or they want to borrow. I'm going to try to make Ask A Private Lender the place that gives the straight scoop. Please let other investors know that I will be going live and they can ask me anything they want about private lending. I hope to see you on Ask A Private Lender Facebook Live.
When episode 98 went live, I was in the great country of Scotland along the River Spey. I took my iPhone out and I recorded the sound of the water. I'm either one, completely off my rocker or two, an insane scotch alcoholic or three, all of the above. I’m getting high tech and fancy. When the last one dropped, I was canceling. I had planned to go to the Macallan and the Glenlivet distilleries and that's my thing when I get over there. Unfortunately, the conference was canceled so I had to go back to London and found myself literally 36 hours later on a plane flying back home to Houston with five days of unscheduled vacation ahead of me, which was great. It wasn't all that jet lag, but it allowed me to accomplish a few nagging chores around the house and get a billable hour or two here and there. After that full weekend, all hell broke loose and all of a sudden, I couldn't find a store to find any toilet paper in it or at least long enough to stay on the shelf for me to buy it.
It's been a while since I came home. I don't know where the time has gone. It's a complete blur and I haven't felt like I’ve been able to produce any content that that seemed worthwhile. I’ve tried, but it seems like it's crap and there's a lot of noise on the interwebs. I want to make sure that my content is relevant and has some value or not something that has value to two private lenders and not be a soapbox so that I can preach to the choir. Episode 99, how to lend in preparation of price fluctuation when the world goes to hell in a handbasket aka what your lending criteria should be moving forward.

Like many of you, I’ve been watching a lot more CNBC and Bloomberg than usual, probably more than I would like to admit. I’ve made a few moves into the market and I like to see stuff like that. When stuff drops like this, this is where fortunes can be made. Honestly, I'm trying to figure out how much money do I want to take out of the old 401(k) and put into real estate and how much I want to continue playing within the market. I don't know how long this is going to last or how long these whipsaws are going to happen.
Three Things To Think About
Basically, I want to talk about three things that have got my mind, trying to wrap my head around with this whole coronavirus and where we're going.
The first thing is I do think we're coming into some recession. That's probably a safe bet. I think we'll bounce out of this a bit, but maybe we don't know a whole lot. There are three things that I'm mulling over in my head. Number one is that during a mastermind several years ago, blog 100’s guest, he eerily predicted that the next economic recession would come out of China, but he predicted that it would be in February of 2018. There was no biological component that I'm aware of. He simply thought it would be a financial recession that would be triggered by the Chinese economy. If this turns out to be the Kickstarter of a world recession, then how interesting is that? That's why I put in the qualifying word eerily.
It is a bit eerie if it comes out to be true, but that has yet to be seen. That's the thing. That's one thing that's going to irk me a little bit. I did the next blog so long ago that we didn't even mention it about the world recession or the coronavirus or anything like the situation that we're in. Moving on to number two, doing a little research. The Great Recession back in 2008 to ‘12 was caused by the real estate of the mortgage bubble. I don't see real estate being the pied piper this time around. It most likely will be affected but will it be affected as much as last time? Who knows? Given the circumstances going into ‘08 and going into 2020, they are a bit different. There will be some similarities, but I'm hoping that the price drops and the fluctuations don't go as deep as they did years ago, so we'll see. Three, from my position here in Houston, oil price and the oil price war, it has my attention for several reasons.
One, I derive my steady paycheck, my W-2 so to speak, through the oil field insurance industry, but I'm also in Houston. I specifically remember the 1980s when oil went to complete crap. There were brand new strip shopping malls that sat vacant for months and years with leasing agent phone numbers in the windows and for lease signs. Houston's economy is not as dependent upon oil and gas as it wasn't the ‘80s, but it is still a major and significant influence. Every upstream news source that I follow and I’ve read does not have any positive forecast or news for the upstream industry, the E&P, Exploration and Production, whether that'd be onshore or offshore. Nonetheless, that's the energy capital of the world. It’s Houston, Texas.
[bctt tweet="The more that borrower has to lose, the harder they're going to fight to make that project a success." via="no"]
When oil goes to crap, we're going to feel it. How bad? I don't know. I'm not saying this is going to be the ‘80s by a long shot, but we're going to feel it. The layoffs are coming. Coronavirus came at a crappy time. This may upset the Houston market a little more than other markets in the country that aren't so dependent upon the oil and gas or in the petrochemical industry. If you're in another area, you’ll find out what sensitivities to industries that your area has. I go into the oil and gas because there's a good reason why the west side of Interstate 10 in Houston is called the energy corridor.
Lending Criteria
Anyway, what does all this mean for you and your lending criteria or for me? If I'm making loans, I can tell you this. My personal criteria got a little tighter and I'm not even talking about points or anything like that. On a flip, I'm talking about simple LTV, ARV, what I'm willing to go to, and I'm at 45% to 50% of the current ARV.
That's all in, 45% to 50%. That's purchased, rehab, the whole shebang. This way I have a lot of room for error going in if we experience short-term price drops and I have to, unfortunately, foreclose on the property at an inopportune time. I'd like to run through an example, give you an illustration that I look into the method in my madness. I do say madness with the pun fully intended because such the tightening of these lending criteria will no doubt anger borrowers as it will force them to either, A, find or negotiate deals with larger margins. It's getting tight now. Everyone wants to get into the real estate game.
The LTVs are going up, wholesalers. They're not deals to me. It's still a functioning sub-economy, but it’s not a deal. That brings the forces, either they can go to get hard money, which is suited for this risk, or they can bring in a deal that's a true deal to me. It has lots of room for their error and mine or B, this requires that borrower to put more of their own skin in the game, which further buffers your security there. The more that borrower has to lose, the harder they're going to fight to make that project a success and to return your funds to you. Let's take an example. For simple math, we're going to use a home property that has an After Repair Value, ARV, of $100,000 and that is retail, MLS ARV. It’s got all the bells and whistles and has been updated, it's got the right colors and all that and neutral stuff.
I'm talking about a listing agent who gets happy to see a house like that because it will move quickly at $100,000 because it's good. It's nice. If you’re talking about putting money on a rental, you know me, that $100,000 is not true. ARV, I like to come down to maybe 90%, maybe 85%. It depends because landlords do not maintain houses. A lot of them maintain the bare minimum. I could say that because I slumlorded it a little bit and I tried it. The point being is I'd spend as little money on the house as possible so that it would cashflow. Hence, I assume everyone else is going to be a landlord and is going to do the same thing. Why buy someone else's headache?
If it's a rental, cashflow property, it's not a true $100,000 ARV unless you look at the comps and say, “That is apples to apples, dollars to donuts.” That's good. Nonetheless, my little caveat, let me get back to my example. If you go to PrivateLenderPodcast.com, there will be an Excel sheet spreadsheet. The bad loan matrix that I have created from you after all my years in dealing with other people's safety and insurance. I’ve found a few matrices to be helpful. I’ve provided one here for you. I'm going to tell you about it. It's a matrix of $100,000 loan. There's the LTV, so at 80%, the next to that would be the corresponding loan amount.

For example, 80% LTV would be $80,000. 50% LTV would be $50,000 loan on $100,000 property. Across the top, I start with 5% or 10% market hit. Let's say the sales price, if I get in a pinch, you have to foreclose and I want to get my money back soon. The values are $95,000, $90,000, $85,000, $80,000, and then $75,000, which represents a 25% loss in the market. This doesn't mean anything if you don't have to sell the house and you can hold onto it in cashflows for a while. This is how I look at underwriting a loan in case I need to bail out quickly. Let's look at 70% LTV. That's the max most people will go. In this example, a 5% hit brings you already up to 74% LTV value. If that same price drops to $90,000 or it takes 10%, now you're at 78%. A 15% market shift price fluctuation downwards puts you at 82%. God forbid, if it hit 25%, you are now at 93%. If you had to sell the house at $75,000, you are now at 93% LTV. There's no room for you, there's no room for closing costs. There's little room for closing costs and that's about only room for realtor fees. That's on 70% now. If you increase your lending criteria, you lower your LTV by tightening up. Let's say you get to that magic 50%, that's a good number.
[caption id="attachment_2772" align="aligncenter" width="600"] Lending Criteria: Coronavirus came at a crappy time. This may upset the Houston market a little more than other markets in the country that are aren't so dependent upon the petrochemical industry.[/caption]

You'll see on the matrix, that's where the dark green starts. The light green is in the 60%s but the dark green, that's the nice part. Obviously, you can go all the way. If this thing drops 25% and you had to sell it, you're still at 60% LTV. If you did 50% going into it, you had to sell the house at $75,000, 25% loss. You’ve still got plenty of room to get your money back and to cover the expenses. If you're good and you do the 40% LTV, if you can find those deals, and they do come around not often. About as often as a blue moon. Even if you dropped at 25%, if it went from $100,000 to $75,000, if you loaned on it at 40% LTV, you would still be at 53% well in the green and a good comfortable position if you had to foreclose and get that money back.
Macro Data And Microdata
When it comes to looking at this matrix and looking into how I'm going to lend on a particular deal, I like to take a two-pronged approach. I like to look at macro data and I like to look at microdata. When it comes to the macro, the first I like to use is the good old Case-Shiller Index, which is curated by this Standard and Poor's Company. It not only tracks overall, it gives you a view of the overall national average, but it specifically indexes the following twenty markets in the United States. The Phoenix area, greater Los Angeles, San Diego, San Francisco, Denver, Washington, DC area, Southern Florida so Miami, Fort Lauderdale, Tampa Bay area, etc. The Atlanta metropolitan area, Chicago, Boston, Detroit, Minneapolis, St. Paul, Charlotte, North, South Carolina area, Las Vegas metropolitan area, New York, greater Cleveland, Portland metropolitan area, and our backyard, the Dallas Fort Worth metroplex. I’m always saying this is a great place to start because it also gives you this national angle.
I’ll have an article in PDF from 2009 where the index posted 2018 and 24% price drops in certain markets and where it had declined 27 months in a row. When you go into thinking I want to make this loan, this might not be the best time for you to do it, especially if you need to have the money within the next few years. These are factors that could play into it. The Case-Shiller index is a great, nice, round number that I like to look at when I start off when I want to start off underwriting a loan. For the microdata or if you don't live or invest anywhere near the cities I mentioned, the best thing to do is go to your local MLS website, multiple listing service, and find what's trending in your market.
In the Houston area, it's HAR.com. I believe it stands for Houston Area Realtors or simply google what happened to the house prices in your market in the last downturn, in the Great Recession. Look for historical data. A lot of local newspapers will keep that stuff. You may have to do a little research, but this will give you an idea of the last three cycles, what caused them, what their influences were and how bad were they. It gives you an idea here. We've never seen a pandemic before. Humankind has, but we haven't seen it. This generation, I mean. I'm going off on another tangent there, but MLS is the best place to keep it local. MLS will take into account the oil and gas markets, commodities, and whatnot that affect Houston.
Other markets that you may live in, maybe it's a university, maybe it's agriculture, or some cases in Texas, prison system or whatever. Maybe it is government contracting, who knows? Your local MLS will take in this by default, taking those factors into account on a local basis. What if someone said, “What am I looking at?” I'm preparing for a 25% drop in housing prices in Houston. I'm looking at loans and I haven't done a whole lot of loans. I'm working on to come and get paid off so I can put them into other places. I committed to commercial syndication that I wanted to put some money in. The private loans on the properties were single-family residents or some of them come. Some of them are getting renewed. I renewed one with Landon, my partner. I’m playing with all of that, but trying to find out on the loans going forward, when I renew them, where do they fall from an LTV standpoint.
Most of those loans that I have out aren’t for flips or rentals. These are owner-financed deals and also trying to accumulate a little cash so that when crap hits the fan, there will be money for flips and doing all that stuff. Look at that matrix I put on the PrivateLenderPodcast.com because that's what I'm looking for. I'm building in a 25% drop. I hope it doesn't go that much, but at least when I'm looking at my loans, I'm stress testing that 25% drop. Who knows what's going to happen with this coronavirus? Maybe everything I said gets turned upside down in a week or a month or two. I hope not. I hope you found value in this blog. If you did, even a little, please help me out and spread the word, increase awareness by leaving an honest rating and review over at iTunes, Google Podcast. That is the best way you can help contribute. Your review helps not only feed my ego, but it helps other people find this.

If you're trying to develop your own private lenders for your own deals, then by all means, please share this and drop me a line. Say, “I'm sending it to so-and-so. I'm trying to make him or her into one of my private lenders.” I'd love to get into the conversation, see what of investing you do and what your private lender would or may not be expecting. I'd love to help out in any way that I can, especially that I'm on day whatever of the self-isolation or quarantine and we're all having such a lovely time. Anyway, pass the word. Please remember, Monday evening, 8:30 Central Standard Time, April 6, 2020. Ask A Private Lender on Facebook Live. Go to the PrivateLenderPodcast.com for more information and to connect with me, and also on social media. I hope everyone stays healthy and gets through this crazy time and we're all in it together. Besides self-awareness, I wish everyone out there a safe and prosperous private lending. I’ll catch you on the next blog. Take care.
Important Links:

Ask a Private Lender tonight at 8:30pm CST

Keith Baker — Mon, 30 Mar 2020 01:00:00 -0600

https://www.facebook.com/capn.baker
Join Keith Baker as he takes to FaceBook live this Monday night at 8:30pm CST. Keith will be answering questions about Private Lending both FROM the perspective of the lender and TO the perspective of the borrower.
Don't miss out on this amazingly free session with the THE Private Lender himself!
Stay safe and let's get to the other side of this crap ASAP!
-k

PLP-098: 6 Warning Signs Your Borrower May Be In Trouble

Keith Baker — Mon, 02 Mar 2020 09:00:00 -0600

6 Signs your borrower may be in trouble
1.     Sudden lack or stoppage of regular communication
2.     Late payments/returned
3.     They ask you if you can lend them “just a little more”
4.     You have to chase them for an update
5.     They don’t want you visiting the property
6.     Talk about changing exit strategies that require you to “stay in a little longer” (ask their previous lenders because shit does happen, but if they make such biz practices a habit, then you might want to pass on their loan if the numbers are getting thin.

PLP-097 10,000 Miles To The American Dream With Reed Goossens

Keith Baker — Mon, 17 Feb 2020 03:00:00 -0600

The American investing industry can be a little bit confusing to get into at first because it's very much its own thing with plenty of unique quirks that require a good amount of study. Despite this, it's certainly not impossible to make sure that you're able to understand what you're doing and all the best ways to go about things. Reed Goossens is a real estate entrepreneur and investor who moved to the USA from Australia. Reed shares his experience with Keith Baker of investing in the US and navigating the industry from what was initially an outsider's perspective. Reed's story is an empowering story of finding success after finally being able to adapt, and it's certainly not to be missed!
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10,000 Miles To The American Dream With Reed Goossens
Investing In The US With Reed Goossens
The Private Lenders Podcast is the only podcast teaching people how to become passive real estate investors while helping them keeping the money safe in investing in private mortgages to other investors. If you’re looking for practical tips and advice on being a successful private lender and how to successfully build wealth without banks in Wall Street, then you are in the right place. If you are looking to learn from my mistakes and shorten your learning curve, then pull up a chair and pour yourself a few fingers of Scotland’s finest and add a few drops of water, because this podcast is for you.
Several years ago, I began listening to podcasts along with NPR and BiggerPockets. Investing in the US Podcast was one of the few real estate podcasts that I had in constant rotation. Joe McCall was another one, Kevin Bupp as well. I found the story of the host of this podcast, coming from The United States and from Australia, and living off his version of The American Dream, I find it inspiring. I’m happy to have the man himself on the show, all the way from Down Under, Mr. Reed Goossens. I think you’re going to find Reed’s story quite compelling. I hope that you find it as fascinating and valuable as I did. There’s a lot of info that we go into. There are a lot of rabbit holes that we could have gone down, and looking back, perhaps we should have gone down a few of those. In the end, I hope you find the extreme value in this interview. Without any further ado, let’s get down to the brass tacks and straight into the interview with Reed Goossens.
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I want to welcome Reed Goossens to the show. Reed, welcome.
Thank you so much for having me.
You're from Southwest, Texas.
Southwest all the way up near Amarillo.
I've already given them a little bit of background, but as we were talking in the pre-interview, your podcast is one of the first that I listened to many years ago when I was kicking around the idea of this show. The reason why I wanted you on is because the older I get, I'm a firm believer that there are two types of people: people that get it done or make progress and people that make excuses. When I look at somebody like you and hear your story, it makes me feel like a slacker. It gives me lots of motivation. For the people in the US that don't know who you are in the real estate investing world, can you give us a little bit of your background? How did you get to Amarillo from Australia?

I live in Los Angeles. The whole premise is that I moved to the United States in 2012 to chase two things. It was both for love. It was to live in New York City. I fell in love with New York City and to chase a girl. I'm married. That was coming over here back in 2012 on a whim to say, “Screw it.” I fear regret and I'd hate to wake up when I'm 70 years of age and go, “I wish I'd lived in the United States for a period of time.” On a whim, I quit my job. I knew there was an awesome visa here for Aussies and rocked up in New York City. My background is in Structural Engineering and I knocked on engineering companies’ doors until someone said yes.
I pounded the pavement in New York City and got a job within two months. I got the visa and then started investing pretty much soon thereafter. That was back in 2012. I've quit the job. I’m the Cofounder of Wildhorn Capital. I control about $175 million worth of a multifamily real estate. I’m a bestselling author and also a podcast host. I don't say it to boast. I say it more to inspire that I, an Aussie, grew up with blue-collar means, my parents both teach. I moved to the United States with a mission to give it a go. If I can do it with limited funds, no established network, no family and give it a crack and achieve financial freedom through US real estate in seven years, then why can't you? I had visa issues, so there's no excuse. If people are reading out there going, “I wish I should get started,” get started because my perspective is that the United States is awesome when it comes to real estate investing, both cashflow and appreciation. You don't realize what you're sitting on. Get off the fence and get going.
I can speak for myself that I'm an American, why isn't everything easy for me? I've then started traveling the world. The last time I went to New York City, I had two Uber drivers. One was from Pakistan and the other one was from The Horn of Africa. I’m like, “What brought you here?" “Opportunity.” They wanted the chance. They didn't want the guarantee to succeed. They wanted the chance to succeed.
It’s the chance for a lot of ex-pats. I didn't come from a war-torn country like The Horn of Africa or anything like that, but it was still a mission for me. I'm sure a lot of people that you meet when you travel are like, “Aussies are everywhere.” They call us JAFAs, Just Another Freaking Aussie. The reason is because we were very isolated down there. We all speak, talk and look the same. It costs a lot of money to get out of Australia. When you go, you want to travel the world and experience it. It's built in our DNA to get at it and give it a crack. A lot of Aussies that do make it to the United States who I've met in my travels and doing business are pretty top-shelf type of people. They’re here and they've got their back against the wall and all they want to do is succeed. It's that ex-pat mentality of the only other option is to move home or you're all in. All the chips are on the table and let's give it a go.
You were an engineer back in Australia. You came to New York for the love of the city.
I’m a structural engineer. I worked pretty much up until 2000 to halfway through 2017 when I got married. I was working a full-time job. The premise was I came to the United States and found an engineering job. I pounded the pavement until someone said yes. I realized in 2012, putting your resume on Indeed.com was not going to cut it. I'd done the suit and knocked, “Who are you?” I've got an interesting story. I'd worked in London for the 2012 Olympic Games back in ‘08 and ‘09. I had some worldly experience that I could offer some people, but I knew that if a company had more than 30 people and don't have an HR, if they see my resume and saw that I was educated in Australia, they’ll chuck it in the bin.
I needed to do something different and that was knocking on doors and eventually, someone said yes. I ended up working for a Russian guy who had a structural engineering firm and half of the people working there were ex-pats as well. New York City is a boiling pot of ex-pats and my whole mindset is like, “I'm not going to get a job because I'm Australian.” That was washed away very quickly because New York City is the boiling pot. I then moved to Los Angeles in 2014, and at that time I had to make a decision, “If I have to stay in a W-2 because I needed a visa to stay in the country, let's use the skills that I have and transition into working for a real estate developer.”
I emailed out a bunch of people that I happened to be working with from the structural engineering firm as a consultant. I was like, “I'm sick of engineering and I want to get into real estate development. Would you have me as a project manager?” I knew I have to surround myself with real estate 24/7. In 2014, I made that transition to a big developer down at Long Beach and work with them for about three and a half years building high-end luxury multifamily apartments. I've come through not only in engineering but through the tools into creating my own business. All of that being said, I was also doing deals on the side the entire way. I started my podcast. I was doing deals in New York. I was doing deals when I moved to LA and started buying multifamily co-syndicating. I was spinning all the plates and pumping. It’s a lot of hard work. It wasn't until I got married in 2017 that I was allowed to legally quit and be my boss.
I’ve got a funny story to tell you. I graduated from university with a degree in German Philosophy. I wanted to teach German Philosophy. I was a research assistant for post-Holocaust literature. I was going to be academic. If you've ever seen Animal House, I wanted to be Donald Sutherland's character who got high with the young coeds and stayed over. In my early twenties, that was the extent of my intellect. I heard a story that Socrates was a bricklayer. One of my philosophy professors said he had a job that paid the bills and took care of his family, and then he had the side hustle, which was philosophy. It turns out twenty years later, I can't find that and I can't prove it, but I believe fervently in having the support system base and then busting your butt and go do something else. There are some parallels here.
I didn't move twelve time zones away. After I finished uni, it was about 90 miles. I love the fact that you had that drive to do it. You found and created a way. Anyone who put a resume out on Indeed or the last time I did, it was Monster, you know you're getting hit by the algorithm. You get to New York, the love of your life and the city you love. You said you started doing deals. Tell me about that. Was that with a single-family or did you jump on to commercial?
Before moving to the United States, in the two years I spent after 2008 when I graduated as a structural engineer, I went to London and worked in the 2012 Olympic Games. In the middle of 2009, I moved to the South of France to be a deckhand. If you've seen the show Below Deck on Bravo, it was exactly that, but I worked for a Russian billionaire. It was in that time when I was in Spain on a weekend trip after running the bulls that I met Erica, who is the American girl that I fell in love with and who's my wife. I say that because I have to put it in context. There's a lot that goes on in this story before moving to the United States in 2012. After those two years of being abroad, I moved back to Australia in 2010. I’m back in an engineering job. I’m back in a cubicle going, “What am I going to do with the rest of my life?”
Like you, I enjoyed studying engineering. I enjoyed the academic side of it and the problem solving but being in the workforce, I was like, “This is crap. This is not what I signed up for.” I felt like a basketball player on the bench watching my life or the game go on in front of me. I was like, “I'm not going to sit in this cubicle for the next 40 years of my life.” That was the desire and that was in 2010. I picked up the book, Rich Dad Poor Dad. That was where it started. It was the a-ha moment that I needed to create financial freedom for myself. How do I go do that? You can do it through real estate. You can go through investing in businesses. You can go through stocks and bonds. I chose real estate because I was like, “I'm a structural engineer. I'd rub shoulders with developers all day long. I should pay more attention to my day job.” It’s like the blinkers came off.
I was educating myself in Australia doing the equivalent of a REIA in Australia, but there was only one of them in the whole country. It happened to be in Brisbane where I was from. I was going to do something in Aussie at the end of 2011 like a flip or a lease option but then decided to move to New York City. Some of the money I did save from my day job was lost moving halfway across the world. It was funny that I was like, “I can spend $38,000 and buy a triplex in Upstate New York and Syracuse. This is crazy.” Moving to New York City from Australia was like taking on information out of a fire hose. It's the Big Apple. It's networking on steroids. In Australia, we didn't have the established network over the REIA associations, which are around the country, which are incredible. Things that are available for $20, $30 door fee, you can get so much great information that I would have had to pay thousands of dollars in Australia or guru too because we don't have the same established education that you do here in the United States. Instantly, I was like a pig at a trough trying to consume all the information I could, nose in a book on the subway to and from work.
Within six months, I had chosen the market in Upstate New York because that's all I could afford. The barriers to entry here in the United States are much lower than they are in Australia. You could not find a property for $38,000. You could have anything. You can find a piece of dirt for $38,000. It was this whole revelation of like, “This is exactly what Rich Dad Poor Dad said, “Buy an asset and cashflow.”” I didn't have a car at the time. I was jumping on the Greyhound bus going to and from Syracuse on the weekends. The brokers would pick me up and go for a little cruise around. Eventually, I bought my first property for $38,000. The reason I had to use all my cash was because the banks weren't lending to me at the beginning. I didn't even know what a credit score was when I first arrived here. I didn't even know what an LLC was. I was learning all this stuff but still wanting to do a deal.
[bctt tweet="If you want to go and scale your business, you need to get into syndication. " username=""]
What it came to in 2010, I picked up Rich Dad Poor Dad and would come to the end of 2012. It’s two and a half years of self-education. It was like, “Come on, Reed, get off the pot. You've got to do something. You can only read so much about doing it. You’ve got to go and get your feet wet.” That's what I did and you don't get to deal number ten without doing that first deal. It was my own money. I was willing to risk it and it was a lot of learning curves along the way. That's the easy light way of saying it, but I'm sure we'll dive into what they were. I've done some flipping and all that good stuff.
I'm curious what was your response the first time you were looking to get some credit and somebody asks you for your Social Security number?
The Social Security number came six months after I even came to the country. It was like, “What?” The credit was like, “You can open up a credit card with your own money. You can put $1,000 down.” I was like, “This is a cool credit card, $1,000 and it was my money.” That was my interaction with the banks when I first got here.
You're close to a decade in and hopefully, you've got your credit score perfect. You're not a true American unless you've got a crappy credit score.
It’s coming through the border security like, “Be prepared, you’re not one of us until you do the rollercoaster ride.”
You get so far in debt and not knowing what you’re going to do. As long as that debt is paying for itself, that's the key. I like your limitations by being illegal or an alien.
That’s true, I'm an illegal alien. That's how exactly it was classified by the border agency. When you come through, “Are you a registered alien or illegal alien?” I said, “Yes. I am.”
It sounds like in a conventional way, you get into the single-family. You already went into more than one door on your first property, even though FHA considers that the 1 to 4 is still a single-family residence. You started there. You've done some flipping. You've been into this since in Australia. Once you got over using your own money and establishing some credit, who funded your deals for you when you're still in the single-family realm?
The first deal was all cash, $38,000. I partnered up with another bloke who brought in $10,000 and we split whatever cashflow is coming through. There was no hard money or private loans at that point. We're 50/50 on this one crappy little deal. From there, I was able to get a line of credit for $28,000, plus I was saving some more money from a day job. I bought deal number two for $45,000 and then started looking to do a flip in Philadelphia. Those first two deals, one was all cash. I proved to a local bank after 3 to 6 months of depositing rental checks that like, “These things are working. Can I please pull some money out or give me some line of credit?” They gave me a business line of credit for $28,000. From there, I was able to buy deal number two. From there, I was able to go and look at a flip in Philadelphia.
That was the extent before I realized my tether was going to be tight. There was a ceiling there. I wasn't probably going to get any more than those two or three deals in Upstate New York plus a flip in Philly with the modest income that I had in New York City. We can talk about the scale of syndication, how I've used that to power the business. That's how I got started in the first couple of deals. It was through my money and through friends and family. For the flip deal, we used construction hard money loans.

How did you get to Los Angeles? Was that your choice or hers?
My wife is originally from here. She was like, “I'll give you a year in New York.” I ended up staying for eighteen months. It’s a little bit under two years. We had a bit of time apart and realized, “She's the love of my life. I better shut up and move to LA,” plus I love stuffing, so this is the place to be.
You said your tether was going to be tight. What was your next move? How did you level up from there?
The big level up was a meeting that I had with a good friend of mine who had studied engineering in Australia. He was a Canadian fellow. He came down at the end of 2013. At this time, I have a couple of little deals. I was looking at this flip that I was about to start doing. I was about to move to LA. I was like, “I’ve got all these cool deals and I'm crushing it and there's $1,000 of cashflow coming in a month, but I’m still working...

PLP-096 Four things to consider when selecting a note servicing company

Keith Baker — Mon, 10 Feb 2020 03:00:00 -0600

We've already discussed why you should use a note servicing company in Episode 55. but today I thought I would shed some light on the things you should consider when you are in the process of selecting one to be added to your team of professionals.
Reasons to use a note servicing company
Reason #1: they make life easier for the lender, because they handle the tedious stuff like sending late notices
Reason #2: Collect and keep track of all the payments
Reason #3: they deposit the money into your account and give you a monthly statement
Reason #4: (And the very best of all) Remember, I am lazy by nature, and don’t want to spend a lot of time tracking the loans I make or chasing borrowers. They have people who will do it for you and the borrower pays the fees! You pass along the cost to your borrower. They pay for you not to be inconvenienced by your own investment. Sounds good to me – I really like it that idea!
"Note all companies are not the same" ? Nobody is going to call me out onto the carpet for that one? That has to be the worst subtitle I've ever created for any episode. Well, I'll give you that it is the most dad-like joke I've crafted (I hope)!
Things to consider when selecting a note servicing company
1 -Do they service your type of loan?
Installment sale: Owner Finance notes/Wraps
Mobile Home/Manufactured Housing loans?
Multi-Investor Loans (aka Fractionated Loans)

2 - Do they provide additional services that your loan instrument may require?
Impound/Escrow services for repair draw payments (not just taxes and insurance)
Do they report to any credit bureaus?

3 - What is included with the standard or basic servicing fee?
Welcome Letter to Borrower
Payment coupons / online payments accepted?
How often are payments processed?
How long is the clearing period before disbursement of my funds?
How are funds transferred?
How far into the late notice period before additional fees will be charged?
How are payments applied towards an account? Interest first, then additional principle, or any extra to be kept in escrow account?
Reporting mortgage interest to the IRS (1098, etc.)

4 - BONUS - Here's a million dollar idea for you:
Establish a relationship with your serving company and let them know you want to buy partials to first-lien notes, and/or discounted notes (perhaps non-performing). If they have a customer or associate
Also, let them know you want to sell notes and partials to re-capitalize your funds more quickly. You may be able to use the servicing company to help you find not just prospects but real leads, and also sell to their customers or associates.
Basically, what I’m saying is do a little legwork and networking. Make an effort to establish relationships and watch the leads come in.
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PLP 095-Getting On The Same Financial Page With Your Partner

Keith Baker — Mon, 03 Feb 2020 03:00:00 -0600

Choosing someone to spend the rest of your life with must not only be about the spark and connection you feel with each other. Beyond that, you must ensure that you are on the same page when it comes to finances. In this brief and very personal episode, host, Keith Baker, imparts this advice in light of the things he is going through with his own relationship. More than anything, we want our relationships to be happy and long-lasting. What Keith is going to share may just be the key to make it yours.
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Getting On The Same Financial Page With Your Partner
Advice For A Lasting Relationship
If you're looking for practical tips and advice on being a successful private lender and building wealth without banks or Wall Street, then you're in the right place. If you want to learn from my mistakes so that you can avoid them, then pull up a chair and pull yourself a stiff drink because this is for you. This is a bit of a Sunday sermon. I totally stole that from Andy Frisella, The MFCEO Project and now he's got a new podcast called Real AF. Do the math. Great podcasts, though. I do enjoy it. However, this Sunday sermon or it's a confession or confessional. I'm not even Catholic. While I have been driven, but also extremely fortunate to have learned how to generate a decent amount of money of income and how to play off offense in the money game fairly well. I'm not rich by any means, but I’ve done better than I thought I would with a philosophy degree. Let me put it to you that way. One area that I have completely lacked, and there are two areas. One is money defense, financial defense.
I can't seem to put all my fingers in the holes in the dike. The water keeps coming out. I’ve got to say, this divorce thing has been a jacked-up blessing in disguise, but it's gotten me to look around and go, “I need to get my head out of my ass and get things going.” I previously admitted that my truck was repossessed while my ex-wife was three months pregnant with our first child. Now, as we move towards the future with this divorce, we often talk about the past and try to figure out where things went wrong, so to speak. From these conversations that we've been having, I want to provide you some unsolicited advice, to say the least.
[bctt tweet="It is vital you get on the same page with your significant other when it comes to finances. Absolutely vital." username=""]
Whatever your significant other is or beyond the binary thing I think, I'm not here to make any political statements. Whoever it is that you decide to spend your life with or to spend your time with, above all else, the only thing that I can beg and ask of you out there is please make sure that you and your significant other are aligned on the subject of money. It goes beyond spending less than you earn. Do both of you tithe? Do you both save for a potentially bleak future? Do you have an emergency fund ready to go? Can you both afford to drive a BMW, but choose to drive a Mazda or a Honda for the economic benefits and then take the savings by driving the lesser status symbol car? Can you take those savings and put them into income-generating assets to where you can buy a Mercedes or BMW for cash in the future?
Unfortunately, my ex and I never got on the same page. That is one of the true and great regrets that I do have is that we couldn't seem to get there. I don't think I have to tell you how that turned out for us. All joking aside, what I would ask you to do is to stop whatever you're doing. Reach out to your partner or your significant other and tell them that you want to be on the same page. It's important to you for the longevity and the survival of the relationship. You want to be on the same page with them when it comes to finances. I'm not saying it's to agree on every point but come to some agreement. One spends a little too much money and the other one is more cautious and is a saver.
[caption id="attachment_2729" align="aligncenter" width="600"] Relationship Financial Advice: Whoever it is that you decide to spend your life with, please make sure that you and your significant other are aligned on the subject of money.[/caption]

Come to an agreement that anything under $100 once a week doesn't require the notice of the other one or whatever your criteria in your life allow for. Get on the same page with your partner when it comes to money. That is tremendously crucial in my estimation. Please track down your partner and say, “It's important.” You don't have to figure it out right now, but let them know what's important. You want to get it done and make it a smart goal. Make it specific. Make it time-bound and make sure that you both do it quickly and can at least start moving towards that same page. You don't have to get on it right away, but at least move towards it. You'll be much happier in the long run. Trust me on that.
I mention all this because I am a firm believer that when it comes to money, people get funny. I'm not here to tell you how to make $1 million or become rich or do little work. This is a show to try to educate how to invest, how to make your money work for you. However, because I’ve been fortunate enough to have been able to have a decent offense and my defense sucks, I have joined the Dave Ramsey Baby Steppers Facebook group. Let's be honest, it's time to put the big boy pants on and do what needs to be done, whether I like it or not. I bring this up here, which has nothing to do with private lending, but everything to do with taking responsibility for where it is that you are. I'm taking responsibility for where it is that I am at this moment. Divorce be damned. Excuses be damned.
[bctt tweet="When it comes to money, people get real funny." username=""]
I’ve listed out all my debts in order of balance and monthly payment. We’ll knock that down, baby step-wise. My mom taught me this years ago before I even knew about who Dave Ramsey was. It's funny how eerily similar their methodologies are, but that's what I'm doing. I'm not pointing any fingers at anybody who put me here, but it's up to me to get out of it, the situation. If it's meant to be, it's up to me. I relish this challenge and I want to thank you for hanging in there while I babble all this nonsense. I have full disclosure and forget vulnerability and everything else when it comes to people's money. I can't BS you. I can't be a politician. I can't be a shady preacher. This is where I'm at. I’ve been here before. I’ll get out of it again, but I don't want anyone out there thinking that I'm rich and making tons of money by doing this private lending thing. It’s quite the contrary, which is a good way to invest. There's my full disclosure, there's my Sunday sermon.
I’ll bring this down to a close and I'm going to beg you. Please go over to iTunes, go to Google Podcasts, please leave a rating and review and an honest one. I'd love five stars and a raving review, but give me your honest opinion. This is not the greatest. I don't need five stars. Give me an honest opinion so I can get it out there, put it in front of other people like you and me. People who want to make money without banks or Wall Street and don't want to give those guys those huge bonuses. Invest in our backyard and help one property at a time. Please go to PrivateLenderPodcast.com for more information and links to my social media, Facebook, Twitter, Instagram, LinkedIn and my new favorite TikTok because it embarrasses the crap out of my kids. I’ll be doing probably some more of that here. Anyway, I'm going to wish you all the best, prosperous and safe and happy private lending. I’ll catch you next time. Take care.
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PLP 094 -Four Universal Traits Successful Private Lenders Have

Keith Baker — Mon, 27 Jan 2020 03:00:00 -0600

Successful people are not as unique as we would like to think they are. They possess in them shared qualities that propel them to the top. Much is true when it comes to the private lending space. In this episode, host Keith Baker lets you in on these qualities of successful private lenders that you can easily have. In fact, they are very universal. He lists four key traits that you can take to your practice and rise among them. So pull up a chair and pour yourself a nice drink. This insightful episode is for you.
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Four Universal Traits Successful Private Lenders Have
If you're looking for practical tips and advice on being a successful private lender and building wealth without banks or Wall Street, then you're in the right place. If you want to learn from my mistakes so that you can avoid them, pull up a chair and pour yourself a nice stiff drink because this is for you. This topic was made possible from one of the free coaching calls I conducted. I want to thank everyone who took the time to email me with their questions and taking the time to set up an interview and web meeting and letting me help them define their lending criteria and answer questions or put some fears that they had at bay.
I want to give a big thank you to Steve, who made this episode possible. This was one of his questions that he asked me towards the end of the call. I thought it was a good topic to discuss. What Steve asked me was, “What are the three key traits of a successful private lender?” I, fortunately, was able to write down and go back to my responses and I refined them a little bit so that I could provide them to you. As I was prepping, I came up with a fourth trait but it is not specific to private lenders, but I think the human condition in general, so I figured let's get started with that.
[bctt tweet="My money, my terms" username=""]
Self-Awareness
Our topic is the four key traits of successful private lenders. That first universal trait is self-awareness. I know that seems hokey and some gurus pounded on that, but it is very true. Learn who you are. It's good to know your strengths and your weaknesses. It's good to know where you excel in situations. Is it the analysis of looking at a deal? Is your weakness dealing with people? It used to be one of mine. That's why I joined Toastmasters to be able to speak to sellers ideally. It's helped me immensely with private lending. Being able to sit down and be honest and say, “I'm not so good at this.” I am not so good at record-keeping and that's why I love using escrow services or loan servicing companies because they take care of all that stuff for me.
If you do everything yourself, you need to go ahead and file your 1098 mortgage statements, get the statements with the IRS and provide those to your borrowers if you haven't done that already. Knowing where are your strengths, your weakness, what makes you comfortable and what makes you uncomfortable is also a very good thing to know about yourself and how you respond in those situations. Usually, for me, something that is uncomfortable, I try to push forward a little. Not necessarily loan on that, but if I'm in some due diligence and I feel a little worried, I note that I stop, but at the same time I go back and re-evaluate and say, “What is it about this that gives me a bad feeling?”
That's one example of using self-awareness to know where you're going to be. Are you comfortable with lending to people? Are you comfortable putting your money out there? Are you comfortable with learning the process and getting your hands dirty? Would you rather have more of a franchise model? They show you how to make the sandwiches, provide you everything to make the sandwiches and then help you sell the sandwiches. That's not just for private lending. I'm using private lending and real estate investment examples, but it's a good place to start with who you are as a foundation and as a person. What are your qualities? Are you disciplined? Because that's going to be key coming up next. Are you lazy like me? It's okay to admit it. Own it.
[caption id="attachment_2720" align="aligncenter" width="600"] Successful Privat: When you have a question or are uncertain about a potential loan, the discipline focus will help you keep your money safe.[/caption]

Disciplines Focus
The first key trait of a successful private lender is self-awareness. The second key trait is what I like to call a disciplined focus. It’s not just discipline and focus but a disciplined focus. Those two things together are a very powerful tool. An example is you want to define your lending parameters and stay true to them. Whether that be you loan on the loan-to-value of the finished product of the house or you only loan on the purchase price. Do you only loan on three-bedroom, two-bath brick homes, the typical ranch that is so popular with landlords and a lot of buyers and renters? The reason I stress disciplined focus is once you've set your rules, you've got to be able to stick by them. Otherwise, you can get into some serious trouble.
Discipline is like your touchstone or your source rock through the Ten Commandments because the disciplined focus will help you make it through the long haul. When you have a question or you are uncertain about a potential loan, that disciplined focus will help you keep your money safe. I learned this from an attorney who was presenting me in a deposition. It’s not a criminal case, just good old insurance stuff. What was taught in this touchstone concept was to help me when an attorney had asked the same questions eight different ways from Sunday and is trying to trip you up to get you to answer differently.
[bctt tweet="It's not personal, it’s strictly business. " username=""]
Karen said, “Put your hand on your touchstone.” There’s a table in front of me to help me remember, maintain and use disciplined focus. These are my parameters. I do not lend outside of this. I do not make concessions outside of this. If a clause in the paperwork is triggered and default becomes my remedy, push forward. It's not a question to give them a chance. If the numbers can work out in the situation and the borrower can come back into the game and not put your money at risk, then by all means, consider that. I was looking at it like if they're not going to honor the first agreement, they're probably not going to honor the second one or the chances are even less.
Having that disciplined focus of knowing what you lend on or back it up into self-awareness, knowing who you are, what you like to do and what lender you are. Defining your terms and sticking to those terms and escorting your funds with those guidelines through disciplined focus is the second key trait. There are a few things I'd like to keep in mind when I'm analyzing a loan and in the order of importance is, why am I making this loan? Is it going to be a cash loan? Is it money that should be in the stock market or that I'm pulling out of the stock market? Is it retirement money? Is it play money? Is it some fun money? Where's it coming from? Is it going to be a short-term investment? Is it going to be a long-term investment?
[bctt tweet="Never Trust. Always Verify. " username=""]
Always remember what I like to say is rule number one is the return of investment. Finally, when you're looking at a deal, ask yourself, would you want to own and potentially operate that property if the borrower defaulted and you took it back over? Because if you don't like the property and you don't want to have it in your portfolio as a rental or you got to call a wholesaler to take it off your hands, would you want that property? I'm not saying that in all cases where you have to call a wholesaler is bad. You can still make money, but do your due diligence, be disciplined and stick to your guns. I'm from the undiagnosed ADD generation. Growing up, we got beat. We didn't get doses of Ritalin.
Using disciplined focus as a mantra has helped me avoid several lending disasters when something diverted my attention away from the fundamentals of the loan. Real estate investors are very charming and very persuasive. A lot of these people, they're not doing anything shady, but they are convincing people to move out of their properties at a discount because unfortunately, there's not a whole lot of options left for those people. Real estate investors are usually the last resort before the bank takes up the property back. You have to be very careful and this is why I say disciplined focus. You might have to kiss a few frogs before you get that good deal and that good loan.
Capable Of Dealing Tough Love/ Separating Emotion From Money
Trait number three goes back to parenting. That's being capable of dealing and dishing out tough love. It’s separating emotion from money. Can you look at the numbers on a spreadsheet or a piece of paper and easily tell someone no right in their face? Can you stand up for your agreed rights in case things don't go smoothly and that the borrower doesn't pay? Can you live with foreclosing on somebody when they do not honor the contract that they have agreed to? Even if that person is a good friend or a family member? Can you let others blame you for their lack of planning, organization or leadership on failed real estate deals and still foreclose?
[caption id="attachment_2721" align="aligncenter" width="600"] Successful Private Lender Traits: You've got to be able to dish out and handle some tough love to your borrowers when they do not honor the agreed contract.[/caption]

Oftentimes when I hear a delinquent borrower’s sob story, I always think back to that scene in Goodfellas. Ray Liotta has the voiceover talking about once you go into business with Paulie. I look at the same way if you go into business with me and you sign that legal document giving me the right to foreclose and take that property back. To me, it's the same thing. That voiceover from Ray Liotta says if you went into business with Paulie, then you had to come up with his money every week, no matter what. “Business is a little slow? Pay me. Your place burned down? Pay me.” That's the mentality. Yes, it's a gangster and it's a bit romanticized, but it's in truth what goes through my head as I prepped to foreclose. I only had to do it once, but that's the mindset that I take.
I also like to think of the movie The Godfather in the scene after Officer McCluskey punches Mike and breaks his jaw. Pacino convinces his brother Sonny that he should be the one to kill Sollozzo and McCluskey at the restaurant. He says, “It's not personal, Sonny. It's strictly business.” Persuasive real estate investors will take your money down to the road of hell and they won't have a problem with it. That's human nature. That's why I say this is trait number three. You've got to be able to dish out and handle some tough love to your borrowers when they do not honor the agreed contract.
Creative, Inquisitive, And Willing To Try New Things
The fourth key trait of a successful private lender is creativity, inquisitiveness and willingness to try new things. Creative financing starts in a creative mind. As long as the deal is moral, legal and ethical, then why not try to find a way to make it happen. Of course, all the while, you still protect your money or your capital. Demanding your borrowers have skin in the game but offer some flexibility. You can either take points upfront. Sometimes I take points on the back end after the deal is done. My LTV provisions are very low. I'm not doing this at 75% LTV. 45% and 50%, I will certainly consider not taking points upfront and taking them on the back end of the loan.
[bctt tweet="Creative financing starts in a creative mind. " username=""]
Another way to get creative is you can lower your interest rate not only to get around usury, but you could also take an equity position of the net sale. Your borrower gets the benefit of low payment, monthly interest-only payments. When that deal closes, you get a nice lump sum piece of the equity at the end on top of that interest-only payments. Those low interest-only payments or borrower has been paying. You can cross collateralize. You can use other properties or other real estates. I’ve seen boats, cars, jewels and watches. Anything that has a title or anything that has equity or value and it can be tied to a document, the Deed of Trust, a promissory note can be used.
Another thing, you can think outside of the box. That old cliché, “I'm multitasking,” that's the big HR. Back when I was interviewing years ago, right out of college, everybody wanted multitaskers, people who think outside of the box. That runs true a little here too. Let's say you get a deal and you don't have the money or you can't figure out a way to make it work, go partner with under other lenders. If you're utilizing your self-directed IRA, find some other account holders at your custodian. Talk to them, see if they want to partner. Try to find a way to make the deal happen, legal, moral, ethical, keep your money safe and protected and figure it out.
In recap, the four key traits of a successful private lender. Number one, self-awareness. Number two, disciplined focus. Number three, tough love. Separating emotion from money. Number four, being creative, inquisitive, and willing to try new things. Have a can-do attitude. I would like to ask you to help me get the word out there and increase awareness for this show by sharing this on Facebook or Twitter, Instagram, any social media you're onto. Telling friends directly, “This is an episode I thought you might find interesting.” Maybe it's someone that you're trying to cultivate into a private lender for your deals. Provide it to them and say, “Don't take my word for it, read this.” You can connect with me on social media, Facebook, Instagram, Twitter, LinkedIn and much to my children's chagrin, TikTok. I don’t use it that much, but I'm playing with it.
This is the point where I need to beg you. Please leave me an honest rating and review over at iTunes, Google Podcast or whatever platform. I would greatly appreciate it. It helps me fight the algorithms and get more attention. A friendly reminder that you needed to file with the IRS and provide your borrowers with 1098 mortgage interest statements before January 31. As always, I wish you safe and prosperous private lending. Also, I wish you all the best and I’ll catch you in the next episode.
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PLP 093-Subject 2 Investing And Lending In The 2nd Position

Keith Baker — Mon, 20 Jan 2020 03:00:00 -0600

On today’s show, Keith Baker is joined by Ray Sasser and Landon Rothstein to discuss a niche topic that always seem to have a perceived risk - Subject 2 investing. What does it mean to purchase a property subject 2? Ray is known throughout the investor community as an expert rehabber as well as an expert transaction engineer. Landon is a full-time real estate investor and has teamed up with some amazing partners. Together they host one of the fastest growing real estate meetups in Houston. Don’t miss this episode as they explain Subject 2 investing and lending in the 2^nd position.
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Subject 2 Investing And Lending In The 2nd Position
Ray Sasser & Landon Rothstein Explain Sub2 Investing
I’m going to bring on two guests that have been on the show before. They’re both full-time real estate investors in the Greater Houston area. They are my friends, Ray Sasser and Landon Rothstein. I always tell people to avoid second liens until they are very seasoned and confident in what they’re doing in private lending. However, this topic on subject-to, buying a property subject-to and possibly lending on what money the investor needs to get the seller out of the house. I’ve wanted to talk about this on the show, but I haven’t figured out the best way to do that because I want to learn about it from all angles, not just from the lending perspective but something to incorporate into my investing portfolio. Make no mistake, I’m neither endorsing nor recommending you incorporate junior liens into lending any sub-to deals. It’s a possibility. You can make money and you can lose a lot of money. It's just like any other thing, you’ve got to know what you’re doing and navigate through tricky waters. I want to shed some light on this topic from two people who utilize this strategy in their real estate every day and they’re not out on the circuit trying to sell a book.
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I'd like to welcome back two previous guests. Please help me welcome, Mr. Ray Sasser and Mr. Landon Rothstein.
This is Ray. I'm honored that you put me on the upper billing of the marquee.
You're very welcome. Thanks for coming back on because we are going to discuss a niche topic that I have stayed away lending on these types of deals because of perceived risk. I understand that you are one of the masters of creating a subject-to deal with and then getting private lenders to fund the down payment to the seller. Let's go ahead and back it all up and explain in case nobody knows what it is. What does it mean to purchase a property subject-to?
In a nutshell, subject-to is you're taking over the note, the existing financing that's already in place from the seller. A lot of people get involved with subject-to but they don't seem to know the difference between a real subject-to and an assumption. What we're doing is not an assumption. We are leaving the financing in the original seller's name and then we're making the payments for that person. To get there, we have to do some catching up over arrears. I might have to make a payment to a wholesaler. The wholesaler is bringing me the deal and sometimes the seller will want some money. There will be some money that'll take to get into that position. Once you're there, you usually have a nice low-interest rate. I'm getting interest rates. I've had one as low as 2.8%. They're generally around 3% to 4.5%, maybe 5%, which is a whole lot lower than I pay my private lenders. You know this for a fact, Keith, because you're one of them. The subject-to is pretty powerful once you get into them.
I charge a lot more than 3% to 5%, don’t I?
The main thing I was saying here with the difference between the assumption and taking over the position of the original seller is we're not putting anything in our name, which is critical. You don't want these things in your name. You don't want to have to go through all the hurdles the banks are going to make you go through and get approved for a loan. With the subject-to, that loan is staying in the original seller's name.
Landon, I was even told that because you're not personally liable for that, you don't even have to show it as a debt on your income and debt statements. In reality, it looks at income, but you don't have the debt obligation. It makes your P&L look a lot better.
That's true because you're not tied to it. Your Social Security is never coming up in that situation. It doesn't get recorded on your credit. It's obviously recorded on the previous seller's credit. That's why you've got to be consistent with making the payments. Another question that I get a lot with the sellers, they'll ask me, “How do I know you're going to make the payment?” Part of what I was saying before is, “If I gave you $10,000 in arrears and gave you another $3,000 and walk away, I don't want to lose that money. I've got to make my monthly payments. Otherwise, the bank is going to foreclose on me.”
[bctt tweet="Let time work for you and let the money be your soldier." username=""]
If the seller is motivated, this is not near as bigger an issue as people conjure it up to be in their head as potential buyers. The one thing that Landon's said, the arrears, if you're not active out there, you may not understand, but the arrears that almost all these subject-tos that are going to have passed to the payments that are owed. I'm seeing anywhere from $0 to $35,000 or $40,000. If the number gets too big, then it might not make sense to do the sub-to, but you’ve got the arrears and then you’ve got to solve their problem. Their problem might take $5,000 or $10,000 or $20,000 or $30,000. In sub-to, you could literally be in it anywhere. We've been anywhere from $0 to about $50,000 and under the right numbers, they can now make sense.
It's not an assumption. You're going to be paying the note for the seller, keeping it in their name. It is not just a great accounting tip from you, Ray, but that's great because it doesn't much hit your credit, it does not reflect it. It doesn't limit up or eat up one of your many mortgages that Fannie Mae will allow. I could see the benefits of that. When you say $50,000 in arrears, I picture a Ray Sasser house, which means that's about 100 Landon houses.
One of the things that the subject-to has done for me, I'm getting into a whole lot of nicer houses. I'm getting houses that are over $300,000 or $400,000. I'm getting into them at a low bar. I don't need to jump through all the hoops to get approved for a loan. It may have come up with anywhere from zero to $50,000 to get in. I'm not having these little rinky-dink Landon houses. With the subject-to, it's opening up a whole new, bigger, better world for me.
The house that I did the drive-by on out here near me, I was impressed. I had a little tear in my eye for you. I am like, “He's growing up. That's a nice house.”
The house he checked out for me in Katy, that's what I'm talking about. That's right in that ballpark that was around a $400,000 house.
The arrears, I would assume and correct me if I'm wrong, it's not just payments and late fees to the mortgage, the bank. There’s maybe not a property tax, but the HOA is for sure. What are the hidden fees?
A lot of times, there are not really hidden fees because most of the sub-tos come when you do foreclosures or it's pre-foreclosures. A lot of times, we're dealing with a seller and the bank. The bank has what they call suspense accounts. They're accounting for the taxes and the escrows, it does get complicated. Every one of these, you've got to look at how the fees are broken down because you're going to have a foreclosure. You're going to have a payoff amount and a reinstatement amount. The payoff amount might be $90,000 and the reinstatement might be $20,000. The question is, “If I pay the $20,000, does that mean the balance of $70,000?” The answer is no. You have to get the reinstatement amount. You have to get the payoff amount. You have to put the two forms side by side and see which ones you get credit for and which ones you don't. It's very possible that the reinstatement might be $20,000 and the payoff is $90,000, then when you reinstate it, the payoff real balance is $75,000.
You have to figure out how they're doing their math because each mortgage company does it differently. You have to make a decision to reinstate. It's not uncommon on a sub-to, for example, the same scenario, $20,000 reinstatement, a $90,000 pay off. Once you reinstate it, the payoff is $75,000. You’ve got to say, “I'm in this for $95,000.” If the seller wants to stay 5%, which is not unusual, then you're in it for $100,000. If it's got after-repair value, ARV, $170,000 or $180,000, you do those deals all day long. If you're a wholesaler, you set it up like that so that when you turn around and sell it to, hopefully, me or Landon or anybody else, then you set that sub-to up, we're much more excited about doing that deal. We'll look at that deal a lot sooner than we might look at some other deal where it's all cash.
Landon has asked on several occasions if I'd be willing to give a private loan on a sub-to deal in order to cover the arrears or get the loan reinstated, get the borrower happy, and take a second position behind the existing note. I've also learned from Landon, I'm very conservative and I tell them no politely. I let them down gently. Landon, I understand you've found somebody, a private lender who is taking the second position liens and providing the arrears and let's call it the ketchup money.
[caption id="attachment_2706" align="aligncenter" width="600"] Subject 2 Investing: Most of the Sub 2 come when you do foreclosures or pre-foreclosures, you’re dealing with a seller and the bank.[/caption]

Let's talk about the technical aspect. The reason why people would say no is because that underlying lien is a first lien. It is putting that lender in the second lien position. As long as there’s a second lender, there are a couple of ways you can offset that is you want to verify the values there. In our scenario, if it's $90,000 or you're in it for $105,000 and the worth is $180,000 and you're bringing that $15,000 or $20,000 as a second lender, you've got an underlying of $75,000. You've got about $20,000 on top of that as a second lender. You've got about $60,000 equity in it. Your top loan-to-value for both loans is probably around 60%. As long as your LTV is low, as long as you can control that first, in other words, let's say Landon gets hit by a bus, do you have the right to come in and make those underlying payments? I think you're relatively safe. Everything else, as a lender, you've got to do your due diligence. Have somebody else put eyes on the property, make sure it's a house. It has four walls, a roof and it's not sitting over a sinkhole. You’ve got to make sure that there's real equity there and do real comps. I think that second liens are never as good as first. As far as second liens go, it's probably a pretty safe bet for the right people.
Let me tell you how to negotiate with Landon. He said, “I don't like that. What if you die?” Someone gives you some collateral on something else. I do a blanket mortgage for these collaterals.
That was my next point is if you can collateralize that second appropriately, then you eliminate and mitigate a lot of risks if you cross collateralize to protect that second. I like that idea. This is a true private lender. This is someone you had a relationship with before. You didn't pick them out of the phone book. You told him, “I'm doing real estate investing, it is a big deal what I'm doing.”
I knew him before my real estate investing days.
This is not a private lender thing. It's understanding the process. If you don't understand it, then it's worth learning because there are banks out there that do nothing but loan car dealers money to buy cars with. To me, how can a bank prosper and grow and go from one branch to the seven branches and work with that market segment with all the shenanigans that are going on? It's knowing who you're dealing with, knowing that you're properly collateralized and making sure that the properties are what you think they are. If you checked the boxes that need to be checked, that it's very doable.
This is why I wanted to have you both on the show to not only explain it to me but also to the audience because to me, the second lien is a bad word. I call it the Dave Ramsey effect. He says, don't use credit because he screwed up his credit. I tell people don't do second liens.
Dave Ramsey also said that we're having a depression in the real estate market because the number of houses reduced. It wasn't because we were having a depression. It was because the inventory dropped. People were buying houses as fast as they can be produced. I don't know about Dave Ramsey. I like a lot of what he says, but the devil's in the details. You have to figure out what the details are. Second liens get a bad name because, for example, there are people out there that go and get hard money loans. There are $30,000 or $40,000 short. They can't get to the first draw, so they bring in somebody else. To me, that's a high-risk loan. That's a product that's not performing. You're relying on the first borrower, the person borrowing on the first lien. You're requiring for that guy to produce a product that's not existing. If the house is not performing, he's going to turn it into something, but you've got to make up, $40,000 or $50,000 he's short because he can't afford the down payment. He can't afford the first draw.
Those people are doing those second liens. That scares the hell out of me. There are too many things that can't work. In this case, you've got a property that's probably already mature, that's in a reasonable subdivision. A lot of times, these houses are built from 2005 to 2009 when the interest rates were low. They don't need any major improvement. I would be more concerned with a major rehabber borrowing money because he doesn't have enough money holding capital to get through the first stages of the deal. Second liens can be very dangerous. That's called gap funding and I've never understood why anybody would be a lender in gap funding. I don’t know if you have people that come on and talk about that.
No, in that scenario. I get approached a lot. I've got this hard money lender who will do the loan. I just need to come up with this cash and it's no, because I'm not investing in a property so much at that point. I'm investing in a process, that guy's work product, whether he or she is able to perform much riskier, than a properly collateralized second lien.
[bctt tweet="Everything in real estate can be complicated. You need to educate yourself." username=""]
I've been in the leadership role in the REIA for quite a few years. We hear a lot of the horror stories that people don't talk about. We had our REIA here in San Antonio. We had people that had about fifteen rehabs going and they were getting gap funding for every one of them. Their days on market extended and they started holding the houses a little bit longer and all their loans started collapsing. We didn't even know it was going on. A couple of our members came to us and literally said, “This is what we're dealing with. What can we do?” We gave them the best advice and gave them names of the attorneys that specialize in that. Almost all those people lost their gap funding because they were being second lien holders on projects that people were working on.
They weren't even qualified to get them done. If you're going to be a gap funder, you better be like a JV partner. You better have a way to buy that person out. It’s better to be with somebody that's got a real track record. Not somebody who's been doing it for 2 or 3 years, but somebody doing it for a long time and has done a lot of transactions. I got in front of the room in San Antonio and said, “If you're a gap funder and you're not a professional lender, you're probably going to lose money.” We'd stop.
I’ve got to keep you away from one of my lenders. I have a bridge loan set up with one of my lenders. He gave me a $600,000 line of credit that I'm using as a temporary place and hold it until I get long-term financing in place. I've got a company that will let me do long-term wraps. I'm using my private lender’s money to get the deals because time is of the essence. You’ve got to have your cash ready to go and he has as good as cash. I literally get it sometimes the same day or usually the latest the next day. I've got the money instantly. We process them off with this company that's letting me do the long-term loans.
What interest rate are you getting?
For the long-term money, its 8.5%.
That's pretty good.
It is because they're the only people in the whole world that seemed to let me do a wrap.
Are you doing a sub-to or a wrap? Before you get into that, Landon may have told you that we're doing a webinar and we’re going to talk more about this and then we're doing a whole day class on sub-to on how to negotiate for the sub-tos, how to do and talk about what the extra strategies will be, which will include either renting or doing a wrap. Even for flippers, it’s good because for a flipper, instead of bringing in $100,000 to the table, you might be bringing $20,000. The point that people miss is that if you're the wholesaler and you have options sending this up and say, “I'm going to sell this to my potential buyers. I'm going to negotiate an all-cash transaction.” If you were to say, “Try for the sub-to first as a wholesaler, then structure that.” When you go to sell it to the marketplace, somebody like me or Landon or people that are really active, if you say, “You only have to bring $20,000 to the table because $70,000 or $80,000 can be done a subject-to,” even as a flipper, that's a good thing. I might not have to bring in a hard money lender. If I don't have to bring in a hard money or private lender for that first because I'm taking it over as a sub-to, that deal gets to be a lot more attractive. I might be able to do it out of my IRA and my bank account and I don't have to pay those extra costs. If you don't mind, can you tell them what the wrap is and what that means and how you're doing it?
The wrap means that there's already an underlying lien in place. When I sell, I sell to my end buyer on owner finance. These are perfectly fine. You’ve got to disclose that you have an underlying lien. You can’t not tell the end buyer that there's an underlying lien there. My lender is okay with it. My borrower is okay with it. As long as all your documents are signed, you're fine. Some of the other things I would've added there with the classes that we're going to have is a checklist for the subject-to process. We have a separate checklist for documents that I need...

PLP-092 Death, Taxes & Determination: a tribute to Neil Peart

Keith Baker — Mon, 13 Jan 2020 01:00:00 -0600

Neil Elwood Peart
12 September 1952 - 07 January 2020

Suddenly you were gone from all the fans' lives you left your mark upon.
[caption id="attachment_2696" align="aligncenter" width="300"] [/caption]

Neil, thank you and goodbye

PLP-091 8 Questions To Ask And Consider When Hiring An Attorney

Keith Baker — Tue, 31 Dec 2019 03:00:00 -0600

We all need to hire an attorney at some point in our lives. This is especially necessary when you’re in the private lending business. Today, host Keith Baker lists down the eight questions you need to ask yourself when hiring an attorney to do either your foreclosures or draft the documents. You don’t want to miss this episode because, at the end of the day, if your documents aren't right, it can cause a lot of headaches and can expose you rather than protect you.
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8 Questions To Ask And Consider When Hiring An Attorney
Selecting An Attorney For Drafting Documents
If you're looking for practical tips and advice on being a successful private lender and building wealth without banks on Wall Street then you're in the right place. If you want to learn from my mistakes so that you can avoid them and not repeat them, pull up a chair and pour yourself a drink because this show is for you. This is episode number 91, almost up to 100. I'm getting excited about that. One of the things that I get asked a lot is how do I choose attorneys to do either my foreclosures or draft documents. Fortunately, I only got one foreclosure and went with the recommendation of a friend.
When it comes to having an attorney draft my documents, I like to have a slate or panel of them. Figured I'd go through that with you and hopefully share some insight into how my process is for doing this. Being a private lender, I want to mitigate as much risk and stay as secure as possible. That's when I want to convey over to you and especially if you're starting out. Even if it's your home state, I would not recommend lending in a state that had a lengthy judicial foreclosure process and low usury rates. That's a given. I wish we could dig a little more into that, but you don't want to lend in a state where there's a redemption period after foreclosure where the borrower can come back and make everything whole again and get the note going.
The odds that they can't do it the first time, they’re not going to be able to even if they reinstated the adds. They’re not going to do it the second time. That's the reason I would suggest staying away from the redemption period states. Stay away from states that heavily favor the borrower or at least they have a very lengthy process to give the borrower a lot of time to make amends or do whatever they can to keep the note going. Since it's like New York, they have a very long foreclosure and lengthy process. It could take a couple of years to get somebody out and to get the collateral back to you. Not to pick on New York, but that is one example of a state that I won't lend in. Lend to a state whose laws are either the same or similar to Texas. It varies from state to state.
What that basically means is you want a state that has non-judicial foreclosures, no redemption periods after the foreclosure is complete. That's one good thing about New York. They don't have a redemption period, but they might as well if it can take 2 to 3 years to get people out. They have a relatively short default period of 90 days, which I believe that's a federal law, not a state law. The acceleration notice period in Texas is relatively short, 21 days, from the time you file until the auction on the first Tuesday every month. That's how quick it can go down. Once the 90 days have been documented to fall to the notice accelerates gone out, all that fun stuff is gone.
[bctt tweet="My money, my terms." username=""]
Twenty-one days from the time you noticed the borrower until when you can get the house back or get your collateral back. Those are the states that I recommend you lend in and do your own due diligence, as always as the biggest caveat. There are 50 states and I only deal with the laws of one of those. That means 49 out there, at least 51 states out there that I don't know the laws. The eight questions and the things you want to consider when you're adding or looking for an attorney, especially for doc prep. This is where the rubber meets the road because if your documents aren't right, then it can cause a lot of headaches. It can expose you rather than protect you.
How Long Has The Attorney Been Practicing Law
Not to get used as a fear tactic, but that's why I always insist that I use my attorney or my attorneys will draft the documents to borrow or pay for it. I give them options for the various attorneys that I like. Right now, I'm down to two. I give options like, “This is who I'd like.” I always want to use the title company attorney that I have done before. You can use the title company's attorney to draft documents and they're usually the cheapest. You get what you pay for. You are not the attorney's client. The attorney's client is the title company. You want somebody drafting documents for you or your IRA or your wife's IRA and with their best interest at heart. Here we get down to it. Number one, I want to know how long that attorney has been practicing the law in general. I like to see a lot of gray hair.
Is The Attorney Board Certified With Legal Specialization
I'm being an ageist or some “ist” with that, but I like to see someone who's got a lot of experience and has done a lot of the work that I'm going to be paying them to do. One of the things that you can ask is if they are board-certified with the legal specialization in a bar in their state. In Texas terms, roughly 10% of all attorneys are board-certified of legal specialization. According to the website, there are 256 board-certified residential real estate attorneys. You can check your state government, your state bar to get information on where you are. I bring this up because it's a good way to vet attorneys. However, I’ve never used an attorney that was certified by the board.
How Many Deeds Of Trust Have They Drafted In The Last Week, Month, Or Year
That might be a little project that I’ve got to work on as I look into this because, in one way, it is a way that you're getting a good quality of attorneys. The other way is it's okay, they've paid the work. They have to do X. They have to do many hours of continuing education every year and have to pass an exam. Their work has to be 30% or 40% specifically real estate related or whatever specialization they're going for. There are only 256 in the whole state. That's another episode and I'll look into that. That's a place where you can start, check your local bar in your local state. Number three, how many deeds of trust have they drafted? I want to know how many they've done in the last week, in the last month, in the last year.
[caption id="attachment_2681" align="aligncenter" width="600"] Attorney For Drafting Documents: If your documents aren't right, it can cause a lot of headaches and expose you rather than protect you.[/caption]

What Percentage Of Their Work Is Not Deed Of Trust-Related
This will hopefully give you a better level of assurance that they work in this area of drafting trust documents and notes. I'm going to know how many they've done. The idea is to give you a broad example, paint with a very wide brush. You don't want to use the attorney that sets up your LLC, handling your uncle's divorce and once you're writing your deed of trust and your promissory note unless he's good at promissory notes and real estate. Be careful with jack-of-all-trades. That's my advice and consider that. The follow-up question to that would be, what percentage of their work is note-related or deed of trust-related? That goes back into the board of legal specialization, but ask them how much they do? How much of that work is constant? How much did the paralegals do?
Have Any Of Their Deed Of Trust Mortgages Been Found Unenforceable In Court
The lawyer is going to sign off on it, but most likely a cheaper laborer is going to do the work upfront. That is one question that I like to ask them. Another question I'd like to ask is, have any of their deed of trust and mortgages been found unenforceable in court? If they have, why? My understanding is that attorneys are bound by strict code. If you ask them specifically if they've had an unenforceable document, they have to tell you the truth and you can go back and look and see. You can always do a quick legal check and see if your attorney's name has ever showed up in a filing or a motion or somebody getting sued to try to get out of a foreclosure.
What Is The Attorney’s Policy For Errors
That's why I bring that up is if they tell you, "What happened?" The dates got crossed or a lot of times that's it or there's a typo. There's some technical issue, something in the grammar or something in the information provided that will make a document null and void, especially if it's signed the day before the debt existed. There’s a new case out of one of the Carolina's where they found the lose a deed of trust. He mentioned the debt that was created, but the debt wasn't funded until the next day. I’ll make a case study on that. I'll say, “How many have been unenforceable?” I'd like to know what their policy for errors are, both my errors and their errors. I have had an attorney I still use. I gave him the information. The documents came back. They have errors.
I’ve raised the question, they went back to the information I provided and said, "No problem, no charge. Here you go." That's the way it should be. That's the way I recommend you work with other people. If it's my mistake, I don't have a problem. If I give somebody bogus information even if it's the best available legal description at the time that we have, but it's going to change. You’ve got to know that if it's wrong, it's going to cost you a set fee, rightfully so that you provide bad information. That's what you're going to get. If it's got to be corrected, it's not the attorney's fault. That's what I would ask them for their policy on their errors and the cost. What's it going to be?
[bctt tweet="It's great to have third party advice and education when you're using someone else's money. " username=""]
Can They Represent You In A Foreclosure On The Particular Document They Are Drafting Now
I ask them if they can represent you in foreclosure on that particular loan or that document that they are drafting. Not always but if they do, then they always have a copy or they should have a copy of the originals so that they would be able to file in a foreclosure setting. Sometimes they're not willing to travel so far. I like to say that I lived in different counties down here in Southeast Texas. I know some attorneys who won't leave Harris where Houston is at all. They will not go outside of it. I've hired an attorney for foreclosure and he was extremely reasonable. I believe he lives in San Antonio. Anyway, it’s money well spent. It’s always good to have a panel.
In that way, when you give somebody the loan documents or say, "I'm going to loan to you." Give them 2 or 3 choices of which attorneys they want to use and to show them that this guy charges this much so on and so forth. It's going to be specific what type of loan it's going to be. If it's a straight flip or maybe if it's an owner finance deal that requires something else a little different, but you want to find out what they can do, whether they're willing to go and give your borrower's options by having a panel. When I get the documents, I keep that panel on the front page so that if there is a problem, I know who drafted the documents and I know who I can call to process a foreclosure.
Do They Ask You To Provide Them With Your Document Preparation Sheet
The number eight and the final, this one is a no brainer. This ought to be yes immediately out of every attorney's mouth. You ask them, "Can you provide me with your document requests prep sheet?" They'll be glad to do it because it's going to be a word document that's going to ask for the borrower's name, legal entity name, all the T’s and I’s of the borrower, of the lender, of the property in question that's being held as collateral. Provide the document preparation sheet and that's going to have everything that they need in order to make your documents for your loan. Make sure you fill it out correctly and completely. In my case, when there was a typo, I could prove that it's not mine, so I didn't get charged for it. If I can't prove that it's mine, then the odds are I'm going to get charged for it.
Any reputable attorney, no problem, they'll do that. It should be the case and it most likely is. I digress again. If you can get that loan doc prep sheet, what you can do is hand it over to the borrower and say, "You want the loan. This is what the information that I'm going to need from you." They know exactly what the attorneys are going to be dealing with upfront. What type of personal information they're going to have. If they want anything that’s taken from the recorded record such as Social Security number. That's rarely ever included in documents, but the driver's license number, Social Security is very personal information. They can remove before it's recorded at the county level. My understanding in Texas anyway, I assume it's like that with a lot of the states across the land.
[caption id="attachment_2682" align="aligncenter" width="600"] Attorney For Drafting Documents: Any reputable attorney will request for the document preparation sheet that's going to have everything they need in order to make your documents for your loan.[/caption]

This is why I like private lending. It seems very cumbersome and a lot of work upfront, but the borrower pays all these legal fees. If I need an inspection, they're going to pay. The borrower was going to pay that. They're going to pay for the appraisal, which I don't usually do an inspection. I either do my own appraisal myself or I have somebody perform it. If I'm uncomfortable with the property, I always get an appraisal and the borrower pays for it. They’ll pay for the lawyer doc preps and even my IRA custodian fees. You want to make sure your attorney puts that into the note and the documents that the borrower is going to be responsible for everything and, “Here's the interest rate. It's my money, my terms,” that's my new hashtag. I'm going to start trying to pump it out.
I might even try to get one of those hip hop hooks made. We'll see how much money they got and see how much they required and see if Santa is good to me this year. We'll see. That's it for now. This will be marking the end of the second year of the podcast. I am going to ask you if you could help me get the word out. Increase awareness for this show by sharing or forwarding or even direct messaging this episode to someone who you think could benefit or someone who you believe may be interested in becoming a private lender for one of your deals. It's great to have third party advice and education that doesn't come from you when you're using someone else's money. That’s another way you could help build trust. Please connect with me at Facebook.com/capn.baker or over on Instagram Private Lender Podcast, and Twitter is Private Lender Podcast.
I'm also getting on TikTok. I've completely embarrassed my daughters with it. It's been great. I'm learning it. It's a different type of social media, but it's been great. That's going to be coming up, maybe even Snapchat, who knows? I'll get back to you on that. Please do connect with me on social media and always please leave me an honest rating and review over at iTunes and Google Podcast. It is the best thing you can do to help me out to get that stuff running out there and getting some more awareness for the show. It has been years and I'd like to see the numbers starting to creep up and not so much the cost to produce this thing. I'm getting some headway. I want to wish you a Happy New Year, Happy Holidays. As always, I wish you safe and prosperous private lending. I'll catch on the next episode.
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PLP-090 Redefining Private Lending: Does Your Money Work For You?

Keith Baker — Tue, 24 Dec 2019 03:00:00 -0600

The term "private lending" has, for too long, been misused and misunderstood to the point where misconceptions are almost as prevalent as the truth. This is why defining private lending is so important in the first place. Host, Keith Baker, reclaims the use of private lending by redefining how it should be viewed. Private lending, at its core, is an investment and should be treated as such. Get back to basics with Keith, and see why and how private lending is for you.
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Redefining Private Lending: Does Your Money Work For You?
Are You Wanting An Investment Or A Job?
If you are looking for practical old-world wealth building principles and techniques to be discussed, you're in the right place. If you want to learn from my mistakes in investing in real estate as a private lender, pull up a chair and pour yourself a drink because this show is for you. Before I get too far along, there is a nice little freebie at the end of this. Now that I've shamelessly attempted to pique your curiosity with the cheap marketing tactic, let's get down to the brass tacks and right to the heart of the matter.
Taking some time off and switching jobs has been a very good exercise for me. It's gotten me some clarity about this show and where I want to take it. I just want to stop talking about it and start doing it. That's part of the trick at the end is getting moving, taking some action and getting a lot more clarity in my message, in my marketing and all that fun stuff. I'm hoping that I can shape and modify some mindsets for both of us and we'll see how it goes.
We are in a rapidly changing world. The notion of 5G and what it's going to be able to do boggles my mind. I'm still hung up on nanotechnology from decades ago. There's so much out there, so much is changing. I'm just a guy, who am I? There's a lot of noise out there. There's a lot of people out there online and saying this, saying that. Some of them are ripping people off. I know some of these people. I don't like to admit it, but I do.
During the hiatus, I was able to sit down and think about where I want to take this thing and what the mission is. I decided the first thing to do is to make some distinctions publicly on the show, in Facebook and everything else. The first misconception people have is they think that private lending is a way to get rich. It can be if you lend in an unethical, immoral or illegal way. It's like anything else. You can make as much money as fast as you can. If that is your intention, then this show is not for you.
[bctt tweet="My money, my terms." username=""]
If you are reading this, go ahead and stop it or unsubscribe because you'd be doing both of us a big favor if you did. That's the biggest thing I wanted to get out first. Distinction number two, I am not or nor is this show a hard money lender or a broker. Hard money lenders work for their money and so do brokers. I do not have any interest in taking somebody else's money at a lower interest rate and arbitrage it back out at a higher to somebody else. It's just too much work. I also don't loan to strangers off the street. That's what hard money lenders do.
Plain and simple, my goal is to educate people and provide a little bit of help, some education and some avoidance techniques of how to be able to lend to real estate investors that you know and on projects that you understand. It's an education thing. I always wanted to be a teacher. With that distinction, I want to clarify that the mission is to help motivate people just like ourselves. Learn how to diversify their investments into the most passive form of real estate investing there is, that is being a private lender.
[caption id="attachment_2665" align="aligncenter" width="600"] Defining Private Lending: Unless you hire a money manager to handle your funds, every investment requires some level of action from the person making it.[/caption]

Also, seek alternatives to Wall Street, banks and brokers. It still bothers me that even when people know that the market is going to crash or it is crashing, it's on the down, huge bonuses are paid out for not losing as much money as the next guy. It’s one of those weird things. It’s to help motivate people and take more control over our financial situation, not just for private lending, but the daily family profit and loss statements. This is another way to gain knowledge and to grow a network.
This online world is even getting crazy. The mission here is to help people mitigate risk and confidently invest in private mortgages and keep their investments as safe as possible. No investment is 100% safe, but private lending is one of the few investment strategies that you can get insurance policies to help protect your investment. You're not going to get that on stocks, that's for sure. I jokingly say this, but one of missions is I want to help people realize the truth of the gold rule. That’s who has the gold makes the rules. It's my money, my terms.
[bctt tweet="If it's done properly, private lending can help build wealth in the long-term." username=""]
When it comes to these private lending, I don't like going outside of my comfort zone and I want to help people define what is their comfort zone, which isn't as hard as you think, but it can take a while. It’s eliminating the needs of banks with real estate and private lending. There’s no better way to nourish a new economy than between people. That's the goal. The mission is to educate the public or at least those who want to learn through me.
Full disclosure, I'm not an expert's expert. I don't have degrees in finance. I’m just a guy who took some old 401(k)s and turned them into IRAs and started making investments in real estate. I've been doing it for a while so I have some experience there. This is not the fast money of private lending or real estate investing. It’s not going to be that, but it is for people that want to avoid mistakes because you can make some pretty big ones early on. It’s my goal to help you stay safe and not make loans that will get you in trouble. That's the mission of the show. That was very long-winded and not very concise. I wanted to get that out there.
[caption id="attachment_2666" align="aligncenter" width="600"] Defining Private Lending: Private lending is something like a retelling of the story of the Tortoise and the Hare. It's for the long-term.[/caption]

The third distinction I wanted to bring up is private lending is investing. There's a huge difference between investing and laboring for your money and laboring after it. It’s still laboring in that scenario. Being a private lender is not a full-time job, unless you have a ton of your own money and all you do is loan people money and make interest. God bless you if you do because that's great. Aside from that, private lending is investing. It's not investing in no money down properties. A lot of people get out of Corporate America to get into real estate. They worked themselves into another frenzy job because real estate gets popular and the deals are harder to find.
The next thing you know, they've got to flip 3, 4 houses to keep going and pay the bills. No, this is not that. I looked up the definition of investing. If you ask Dictionary.com, investing is to expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares or property or by using it to develop a commercial venture. I like Investopedia.com’s definition, which says it's the act of allocating funds to an asset or committing capital to an endeavor, a business project or real estate with the expectation of generating an income or profit. In colloquial terms, investing can also mean putting time or effort, not just money, into something with a long-term benefit such as education.
[bctt tweet="Private lending is not a get-rich-quick scheme." username=""]
Unless you hire a professional money manager to handle all your funds, every investment requires some level of action from the person doing the investment. If not, it's not investing, but more like gambling. You're putting your money up on something in hopes of gaining more if the cards fall the right way. I would like to equate learning how to be a successful private lender with learning fundamental analysis with stock investing. It's the same principles of selecting stocks and companies that were used by Benjamin Graham and Warren Buffett. It's not sexy because it's long-term in focus. It doesn't dwell on the short-term like CNBC and all the talking heads and everybody out there.
If it's done properly, it certainly will help you build wealth over the long-term. I like to say that private lending is a classic retelling of the old story of the tortoise and the hare. It's for the long-term. If you want the flash and the glitz, go to the casino. Take up an illicit scheme. It's for the long haul. You're not going to get rich overnight. It's not going to flow fast and it is truly investing. All the work is done upfront. After that, I can let it go and trust in the project or the loan or the note. I like to build the old school way. I still have my TD Ameritrade or whoever bought the account that I keep a little bit of money to play my eight-ball account.
If I lose at a pool hall, I got some money but not put it in speculative stocks, to say the least. It satisfies my itch to do some gambling on the stock market. Fortunately, I'm not losing a whole lot of money. I’m not making any but I'm not losing much either. Thank you for hanging in there this long. The three things I wanted to cover is private lending is not a get rich quick scheme or make money fast. I'm a private lender, I'm not a hard money lender. I don't have a job. I don't do this for my day job. I do it as an investment. This is truly an investment. This is not something you're going to do until you can fire your boss and quit your job.
Think of this as buying bond funds because it's about the closest thing. There's a set time. There's a set interest rate. In private lending, there's collateral. There's property. I'm going to throw out some free twenty-minute calls. Just get on Zoom and chitchat, bring a deal to me. If you got a question about private lending or how to do something, how to get going, how to get started or how to select an attorney to get your documents, I’m happy to do that.
All you have to do is send an email to Info@PrivateLenderPodcast.com with the subject line Coaching Call. In the body of the email, tell me the biggest obstacle that you face and I'll send you a link to my calendar so we can schedule a call. That's convenient for both of us. I would like to learn what would help you be more successful or to mitigate your risks. That's going to do it for now. Please check me out on Facebook and all social media, Instagram, Twitter, Keith Baker on LinkedIn. Please if you can go over to iTunes, leave a rating and review, I'd appreciate it because it will help to get this into more people just like you and I. I like to wish you safe and prosperous private lending. I’ll catch you on the next episode.
Important Links:
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PLP-089 the PLP’s 10 Secrets to Success

Keith Baker — Mon, 16 Dec 2019 00:15:00 -0600

This list of 10 Secrets to Success was originally published in Investor's Business Daily in the early 200's. It has been hidden for years, only found a little while ago in the mess of my office.

1 - How you think is everything:
Always be positive. Think success, not failure. Beware of negative environments.
2 - Decide upon you true dreams and goals:
Write down your specific goals and develop a plan to reach them.
3 - TAKE ACTION - NOW!:
Goals are nothing without action. Don't be afraid to get started. Just do it.
4 - Never stop learning:
Go back to school or read books. Get training and acquire skills
5 - Be persistent and work hard:
Success is a marathon, not a sprint. Never give up.
6 - Learn to analyze details:
Get all the facts, all the input. Learn from your mistakes.
7 - Focus your time and money:
Don't let other people or things distract you
8 - Don't be afraid to innovate:
Following the herd is a sure way to mediocrity
9 - Deal and communicate with people effectively:
No person is an island. Lean to understand and motivate others
10 - Be honest and dependable; Take responsibility:
Otherwise, number 1 through 9 won't matter at all

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PLP-088 Never Trust, Always Verify

Keith Baker — Fri, 29 Nov 2019 00:01:00 -0600

I'm running a little behind schedule so show notes are a few weeks away.
Sorry for any inconvenience
-k

Best Of PLP-066 – Private Lending & the SEC with Attorney Amy Wan

Keith Baker — Mon, 21 Oct 2019 00:59:23 -0600

Not all are mindful of the laws that go along with private lending since some lenders base their transaction on relationships and trust. Although it all boils down to trust, being well-informed of the legal aspects of private lending will not harm anyone. In today’s time, there is a practical reality that people trying to raise a small amount of capital have limited ability to be compliant with securities laws, and this is what Attorney Amy Wan delves into. Founder and CEO of Bootstrap Legal, Amy breaks down the types of rules, regulations, and securities in private lending. As she explains when an investment loan becomes security, Amy reveals that lenders are much less regulated when you lend your own money to another investor. She goes in-depth on the event when you need to have a license when making loans, the legal documents required with investors, the process she does that make legal matters and paperwork less stressful to clients, and how she has brought digital and legal to smaller investors. On the side, she shares details about her podcast show, Law and Blockchain.

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Listen to the podcast here:

Private Lending And The SEC with Attorney Amy Wan

Syndicating, Private Lending And SEC Compliance

I’d like to welcome you to this episode. I’m very grateful to have the pleasure of speaking with an attorney who happens to specialize in helping investors handling the paperwork and the filings required by the SEC, Securities Exchange Commission. My guest, Amy Wan, has an impressive resume to say the least. She lives on the leading edge of the financial and legal tech world and was named one of the Ten Women to Watch in Legal Tech by the ABA Journal, that’s the American Bar Association. I’m honored and grateful to have her on the show. I have a new slogan that I actually put on a Private Lender Podcast t-shirt. The back says, “Never trust, always verify.” Nonetheless, never trust, always verify is a perfect segue into an interview with an SEC attorney. Let’s go ahead and get down to the brass tacks and let’s get to the interview with Amy Wan.

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I’ve got a special treat for you. Our guest is Amy Wan, Founder and CEO of Bootstrap Legal. I am excited to have her on the show. Amy, welcome to the show.

Thank you for having me.

Thank you for coming out and being interviewed. You deal in an area of expertise of the law that’s beyond my scope of understanding. You’re bringing it down to where people like me can participate, and I definitely want to get into that part of it. I promise we’ll keep this about 30,000 feet as much as possible and we’ll drill down when we need to because I know the law. You can go down some rabbit holes. Tell us a little bit about yourself and how you became the securities and syndication guru that you are.

I actually started my career in the federal government. We were doing interesting things in DC, international trade and international regulatory affairs. When I moved back to LA, there’s not much of an international trade law industry out in LA except for import-export compliance paperwork which was very different from negotiating free trade agreements. I started over. I became general counsel of an early stage real estate crowdfunding platform at that time. The interesting thing about that crowdfunding platform is that I had to deal with two different areas of law, one on the real estate lending side and then one on the actual security side. We did private lending. We would make hard money, private money loans to folks flipping houses and then we would fractionalize those loans and turn it into a security and sell it to accredited investors through our marketplace.

I spent a couple of years there and I learned the ins and outs of both of those different sides of the industry. I went on to become a partner at a boutique law firm that focused pretty much exclusively on a real estate syndication, more so the equity side and then it got interesting. I got to a point in my practice where I was spending every day writing the same fund documents over and over again. I thought this is inefficient. I befriended someone who was beginning in the syndication industry at the time. He’s now a large real estate syndication influencer. Back then, he came to me and said, “I want to raise $300,000 through syndication. How much will it cost?” I told him, “I’ll tell you the price. I know you’re not going to use me because the transaction cost doesn’t make sense.” Sure enough, I told him the price. He fled the other direction and I thought, “This is interesting. Folks trying to raise a small amount of capital have very limited ability to actually be compliant with securities laws.”

The SEC doesn’t care about that. I had dinner with a couple of folks from the SEC. I brought this up to them and they were like, “You still have to follow all of the securities laws anyway. I’m like, “I get that, but there’s this practical reality.” Given that I had worked at a tech startup, I thought I could do better. I whipped up some software. It’s like the TurboTax of real estate syndication and it actually automates the first draft of a lot of the paperwork that you need to sell a security. For me as an attorney, it’s great because I cut off twenty hours off of drafting, but it’s great for my clients because I can get them the documents faster. My prices tend to be a little bit lower because I’m so much more efficient. I’m not one of those attorneys who bills by the hour. I do flat fees and it makes so much more sense.

I heard you first on Kevin Bupp’s podcast a while ago. I was commuting to work and I was thinking, “I’ve got to get Amy on to talk about this. A lot of our audience will call or email and they’ll talk about the security side of things, the SEC and what investors or borrowers would have to do.” As I understand is that they issue the certificates or they issue the security. The SEC is concerned with them. On the private lending side, what type of rules and regulations do we have? I’ll back it up. Let’s look at it from, “I’m going to make a loan on the single-family house versus my best friend is going to get into an apartment complex and he’s syndicating twenty people together to get the equity stake so that we can go get the funds.” From a federal perspective, how do the investors and the lenders look?

When it comes to lending law itself, although there are some federal regulations and laws around lending generally, most of those are in the consumer context. When it comes to private money, a lot of this is done from a state regulation perspective. When you get into state lending laws, it varies state by state. Some states require you to have a license to do this. Some states don’t care. Some states, for example California, you can make a small number of loans and then after you reached that limit, then you have to have that license. There are different types of licenses you need. It’s all over the map. Generally, there are a couple of things that folks should keep in mind.

One of these things is usury rates. A loan that is usurious is when you’re charging too much for interest. Every state has a different usury rate. You generally do not want to go over it because the states and the regulators do not take kindly upon that, although in this market, it’s not much of a problem because the rates are significantly lower than they were a couple of years ago. Usury is one. Another thing to keep in mind is securities. If it’s one person lending to another person, that’s usually fine. When it’s multiple people banding together to lend to one person or even multiple people, then we have to think about a different set of laws. That’s securities laws.

At the end of the day, it all comes down to trust.
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The last thing is it depends on what you’re lending on. If we’re talking about single-family residential, lending to owner-occupied is different from lending to non-owner occupied. When it’s non-owner occupied, generally you’re lending to some LLC. There is a business entity. They’re a business bank account. The person is not supposed to live in it. There is a language in the actual loan documents that say, “This is a business purpose loan. I won’t use any of this for personal or household expenses.” Contrast that with when you’re lending in the owner-occupied context, suddenly that becomes a consumer loan. It’s not a commercial loan and that is very heavily regulated.

I do a lot of loans to people who do seller financing. It’s Dodd-Frank. There are lots of hoops we go through. We have it originated and there’s the test to make sure that that person can pay the mortgage and you’re not dodging them. You said it perfectly, once it becomes a consumer loan, then the regulators and the judges are not going to look favorably upon you. I don’t care if it is out of your Roth IRA. If you’re doing something wrong, they’re going to get you.

Not only that, it’s not just a whole different set of rules, but a different philosophy or mentality applies. If you’re lending to non-owner occupied, people are like, “It’s a business loan. It’s all for business.” You’re presumed to be sophisticated and all that stuff. When you’re doing a consumer loan and you end up going to court or something like that, then suddenly it’s not like, “A business loan deal went south.” It is, “You’re kicking someone out of their home.” It’s suddenly a much bigger deal. The states where they tend to be blue states or places where it’s a large metropolitan area, the judges in those jurisdictions are going to scrutinize this a lot more in favor of the borrower than the lenders. Be aware of all of that.

I tell people who want to be private lenders is to don’t go owner-occupied, not until you get a lot of experience and you get a legal team built behind you that can handle all this for you. The lawyers are there for their help. They’re there to keep us compliant and also to say, “I see you put this language in here, this can happen,” or “This is your worst-case scenario. Why don’t you try this?” It’s funny you mentioned usury laws because Quincy Long at Quest IRA always says, “What’s a little usury amongst friends? We all know each other here.” The way I understand it is there are no usury police out there. However, in Texas, 18% is our usury law. Let’s say I make a loan for 20% and I anger that borrower somehow, in some way. That borrower can go to court, take it to a judge and the judge says, “This is a usurious contract. It’s null and void and you don’t even have to pay that guy back his money.”

It’s not exactly the same, but I liken it to landlord-tenant law. There are many places where just because the tenant complains, everyone bends over backward for a tenant as opposed to the landlord. It sucks, it’s business and you don’t want to be in that situation.

From a securities perspective on the federal level, everyone’s got to check your own state. It would be worthwhile saying we’re not offering to sell any securities or anything like that. This does not constitute an attorney-client contract with you or anybody else. From the federal level, as long as a lender is making it person to person, it’s a business loan from me to a real estate investor to do a flip or a landlord wants to hold it for three years or whatever. There’s very little regulation on that. There may be some. Check with your state. From the federal level, the SEC, they’re pretty cool with it.

The SEC doesn’t deal with this whole lot, except to the extent that you get multiple investors involved. This tends to be on a very state level and it tends to be a very commercial discussion. The other big issue is licensing. Do you need a license to be making these loans, to be brokering them? That’s a state by state discussion. In most states, for non-owner occupied lending, you usually don’t need a license. There’s a handful of states where you do. There are several states that offer several different types of licensure. You could be a regular real estate broker, you can be a mortgage broker, you can be a loan broker or things of that sort. It’s a state by state discussion.

I do actually like that. The feds are like, “We’re going to make sure that you’re not taking advantage of anybody and then we’ll let everything else fall to the state.” You talked about brokering. I wanted to bring that up because in Texas, we’re a red state, but we’re pretty liberal when it comes to things like oilfields and guns. We’re awesome. We have a very short foreclosure process. I love to lend here. I’ll give you a scenario of maybe something I’ve thought about doing here, or maybe it’s something I’ve done. Let’s say that I find a deal, but I’ve already tapped out all my money out of my self-directed IRA and I don’t have any cash. I negotiate a loan to an investor and then I have somebody else fund it. Can I get a couple of points? Can they get the points off of the loan at closing or would I be considered a broker in the eyes of the feds?

The feds don’t care, but your state regulators are going to care. That’s one of those situations where you are going to have to figure out whether you need a loan brokering or a mortgage brokering license from your specific state.

We don’t have security in Texas until you get 30 people. It leads me to my next question. I want to get in your expertise because I don’t want to let you go and listen. Let’s say I’m making this step up. I’m going from my single-family. I’m an investor now, not just a private lender, but I want to become an active investor. I’m not going to go run out and sponsor syndication for a 200-unit apartment complex. As someone who is a single-family investor and lender, walk us through. A friend of mine is going to sponsor this deal. He’s putting it all together. He’s getting legal. He’s got his memorandum together and everything. Walk us through what you would suggest I look for as I go through my first syndication.

Private Lending: When one person’s making a loan to another person, it is just a straight up loan. When we get ten investors to invest in a fund and make a lot of private loans to flippers, that’s security.

The first thing I’ll mention is that notes or debt instruments can be considered a security. When I said when one person’s making a loan to another person, that’s not a security, that’s just a straight up loan. When we get into fancier things where it’s like, “I’m going to get ten investors to invest in a fund which is going to make a lot of private loans to flippers or something like that,” suddenly, that’s security. In terms of what is and is not a security, there’s a very well-defined test on that. It’s called the Howey Test and it’s named after a dude named Howey. It’s a four-part test. What people are looking for to figure out whether or not you’re selling security is generally there’s an investment of money. It’s a common enterprise of people. It’s not one person to one person, but a group of people. The folks who are putting their money in are expecting some profit or possibly a loss.

Lastly and very importantly is that it’s based off the efforts of another or a third party. What that means is if you have all active investors, if you have some investor club where everyone says, “We’re all going to source deals together and whoever finds a good deal, we might all invest in it.” That’s not a security because it’s more like an educational group. If it’s something like, “I’m due diligencing all these deals that come in through the pipeline. I’ve determined that this one’s good. I may be putting some of my money in it or I don’t have to, but you guys are all going to invest money. I’m going to organize everything, package it all together and make the loan. I would do all the investor relations, all of that and check foreclosure. You guys don’t have to be involved. I will take care of that. Whatever profits come back, I’m going to distribute them to you.” Instead of an active investor situation, you’ve got a passive investor situation. There’s one person or a couple of people who are part of the sponsoring team where they’re handling the day-to-day operations.

All the people who are putting the money in, they are passive. They don’t want to deal with it. They are paying you to deal with it. You’re looking at situations where it’s the doctor that’s investing or the dentist who’s investing. They don’t want to be active investors themselves. They just want to invest money somewhere and then hopefully it makes them money. That’s when we’re talking about securities laws. Securities in the private lending context, it comes in a couple of different forms. The most popular form I see is someone wants to start some fund that makes hard money or private money loans all day long. They

Best of PLP-004 Chris Funk (part 2) – Mitigating Risk and My First Commercial Loan

Keith Baker — Mon, 14 Oct 2019 00:59:15 -0600

WHAT YOU’LL LEARN ON EPISODE 004:

How you can lose money and the ways to prevent that from happening

LTV = Loan to Value, the amount of the loan compared to the value of the property

ARV = After Repaired Value – the perceived sales price (based on recent comparable sales {comps}) for a reconditioned property

Listen and learn what Chris includes in his credibility book that he shows to prospective lenders and sellers of distressed properties.

I made my first commercial property loan to Chris on a deal he found in Texas City. Chris used my money for the acquisition of a distressed corner property (from an out of state owner) that was previously a Mexican restaurant and a convenience store. There were two small units in the back that were occupied by a barber whose rent just covered the mortgage payment, insurance and taxes (PITI). Chris refinanced the property to cash me out after 6 months and wrapped his commercial bank loan (bank approved) when he sold the property via owner financing to the end buyer. The end buyer recently defaulted on Chris’ note and he foreclosed on the property, taking it back with a ton of equity: a $60,000 loan on a property that appraised for $305,000!!!

And much more. . . .

Best of PLP-003 Chris Funk (part 1) Determining Value for Lenders and Investors

Keith Baker — Mon, 07 Oct 2019 00:30:15 -0600

WHAT YOU’LL LEARN ON EPISODE 003:

How to evaluate property condition and “as is” value

How to analyze and fine tune comparable sales (comps)

How to find comps without MLS access

The biggest value mistake both lenders and borrowers are making in the current market

How flexibility and being easy to deal with can benefit the lender

Sage advice from one of the Houston area’s heavy hitting real estate investors

And so much more!!

Who is Chris Funk?

Contact: Facebook.com/funkmadelic

Chris Funk is a 36 year old real estate investor from Houston, TX. He dropped out of college at the age of 23 and began working hands on in the construction industry renovating homes for clients who were investors and landlords to learn the renovation business from the inside out with the ultimate goal of owning enough real estate that he could quit his job for good.

Chris had the dream of becoming a landlord and set out to learn wholesaling as a strategy to find good deals he could eventually hold as rentals. Chris networked at the local real estate clubs and made friends with some of the top local area wholesalers but was for the most part self-taught.

In 2010 Chris Joined the Houston Apartment Association (HAA) and earned the Certified Apartment Manager, Certified Apartment Portfolio Supervisor, and Independent Rental Owner Professional (CAM, CAPS, & IROP) Designations. Having the goal of owning a rental real estate portfolio Chris wanted to know as much about operating investment properties at his employee’s that he would eventually hire.

With a solid foundation laid, learning to renovate homes from the ground up, taking classes at HAA and finding below market deals as a wholesaler, Chris made contacts with several seasoned investors who owned rental properties and formed partnerships to take down the deals he was finding and keep them in house with his partners rather than wholesaling them to outside investors. Chris had the great deals and the renovation experience, and the partners had the money and the credit.

Fast forward, 6 years later, Chris owned 92 rental units at the age of 29 he officially was “retired” with enough rental income to live comfortably. He has done wholesale, owner finance, rehab flips, single family rentals and apartment complexes. He currently owns 115 units consisting of 2 apartment complexes, 2 four-plexes, 1 six-plex, and 9 single family rent houses and several owner financed notes.

Chris still operates a full time property management business and a full time wholesaling business with 3 full time employees and 1 part time employee. The majority of the properties he puts under contract now are acquired with private money or bank lines and then sold with owner financing or held as rentals.

Chris has been honored as a guest speaker at MyHouseDeals.com, Lifestyles Unlimited, Rich Club, Wealth Club, various podcasts, and several live radio shows over the years. Chris currently teaches real estate investing at Su-Casa University.

Best Of: PLP-001 Mindset & Lending Criteria with Steven Kaufman

Keith Baker — Mon, 30 Sep 2019 00:01:31 -0600

Steven Kaufman - Finance Enthusiast

WHAT YOU'LL LEARN ON EPISODE 001:

CIAE =
Credit
Income
Assets
Equity

LTV = Loan to value

Steven’s prediction for the start of the next correction or recession and how his lending criteria will change

Companies that are not making money are trading as if they do

The Ben Franklin Close

[35:25] -80/20 Principle - 10% marketing, 10% underwriting

[36:00] – Use fear as a guide not a roadblock

“can I go get the resources I need to be successful in this?”

PLP-087 The Private Lender Podcast will be right back after a short break

Keith Baker — Tue, 24 Sep 2019 20:58:08 -0600

Get your copy of the Quest EXPO by clicking HERE

It’s hard to say good bye, so I won’t. But I will say, I’ll be back!

If you’re looking for practical tips and advice on mitigating risks in your private lending, then you are in the right place. But if you want to learn from my mistakes so that you avoid them and don’t repeat what I’ve done then pull up a chair and pour yourself a drink, my friend, because this is the podcast is created for those just like you and me, who are looking to take control of their finances and passively diversify into real estate backed investments without banks, without Wall Street, toilets, tenants or termites. Ultimately, it’s my goal to create a tribe of lenders that act as the bank to active real estate investors in good times and bad, eliminate that the need for banks, to provide funding and, and, but, but not just the funding, but also the education for our kids.

I really do think it’s time to think about money a little differently. I don’t know what that means yet, but I’ll get there and we’ll figure it out. But definitely want to teach you, you know, talk about teaching kids about saving and utilizing money and it’s a tool. And how, you know, if we do this the right way, for example, the next downturn, we don’t know when it’s gonna happen, but you know, markets are cyclical stock markets, real estate markets. We’ve had a hell of a good run here, and at some point the market’s going to tighten up. I’m not saying win, I’m just saying, I think it looks, you know, pretty frothy. Some people that I admire and respect think the same thing, so we’ll, we’ll see what happens. But when the real estate market went, it goes down.

What happens? Generally speaking, banks don’t lend as much. What happened in 2008, the mortgage crisis, that was extreme, but thinking more of a normal, normal cyclical downturn, not a cataclysmic, a world financial crisis that we had. But that’s, I’m just getting long winded. Apologize there. But what I’m trying to say is the banks are going to stop lending or they’re going to tighten up their requirements to, to, they’re only going to lend to people who don’t need money. That is the, that is the reality of it. If you look as a private lender, that’s why I look at it too. If someone, if I smell desperation, you’re not getting my money at all. So I get it. The banks are there to make money. They’re a business. They, a lot of times they have boards and some have stockholders they have to to answer to, but you as a private lender do not.

Get your copy of the Quest EXPO by clicking HERE

And that’s the beauty. When that downturn comes in, those bank stop, stop lending so freely. It’s the private lenders who come in, we’ll give those real estate investors the cash that they need to keep the housing market churning and chugging ahead. And that’s why I’m building the Tribe of Lenders. And I want to thank you for being part of that tribe by listening today. And I’m assuming you’re a, a lifelong listener now that we’re in 87 episodes in. But let me go ahead and get down to the brass tacks. I need a break!

I want to thank you for hanging in there and listening to the last eight minutes and being a listener of the show and as I say goodbye for a little while, the Germans say auf wieder sehen! So until the next time we see each other I would ask if you could do me a favor and, and leave an honest rating and review over at iTunes, stitcher, soundcloud, Google podcasts, Spotify, or whatever platform you use to, to hear my, my nasally voice.

The more ratings and reviews this podcast receives, it helps put the ears or helps put it into the ears of more people just like you and me. Those of us want to take control of our, our, you know, our own future financial future on our terms. I don’t know who set up it as a great quote. The only way to accurately predict the future is to create it. Yeah. I don’t know. I can’t remember who did that. Anyway. so please connect with me on social media during my hiatus, Facebook, Instagram, Twitter, LinkedIn, bigger, bigger pockets, all those social channels and links can be found at the private lender, podcast.com. I want to thank you again for listening and thank you for your time and consideration and I promise you I’ll be back around in about six weeks. So besides health and happiness and that ever elusive self-awareness, I wish you all safe and prosperous private lending.

All the best,

Keith Baker

Go Astros!!!

PLP-086 REI Lead Flow Redefined with Gary Boomershine

Keith Baker — Mon, 09 Sep 2019 03:00:47 -0600

If you are not a beginner at investing, then this episode is for you. Gary Boomershine, the Founder of RealEstateInvestor.com, gives some tips on how to scale and grow your real estate investing and home buying business through REI lead flow. For investors in an ever-changing real estate industry, Gary talks about his REIvault system and offers some advice on the strategic areas where he is lending. He also talks about the benefit of learning how to control sellers if you are the type who is always looking for deals. Whether you are a wholesaler, rehabber, conventional real estate investor, landlord, or just someone looking to get some deal flow, you will surely want to learn more of Gary’s tactics.

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Listen to the podcast here:

REI Lead Flow Redefined with Gary Boomershine

Automate Lead Generation And Setting Appointments With Sellers

This episode is going to be a bit of a departure. It’s not for everyone. In fact, it’s not even for private lenders per se. This episode is for the conventional real estate investor, the wholesaler, the rehabber or the landlord. It’s not limited to those, but anyone who’s looking to get some deal flow. This is what this episode’s for. Unfortunately, this episode is not for beginners unless you happen to have a fat bankroll for marketing, a few months of marketing right out of the gate to prime the system. This interview is for the serious, seasoned and active real estate investors.

Those who are looking not just to get leads and then look for deal flow, lead flow, lead gen, but to close as many deals and have it done and brought to you on a plate. My new friend, Gary Boomershine joins us to talk about his REIvault system. That doesn’t just give you a list of leads that you have to go then work and find the sellers or skip trace. His company puts appointments with the sellers in your calendar for you. It’s a pretty cool service and Gary explains it best. Let’s go ahead and get to the brass tacks into the interview with Gary Boomershine.

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Lender Nation, I have a special guest. Somebody who has a service or provides a service that any real estate investor could use. If you are a serious investor, you’d definitely want to read what this man has to say. Please welcome to the show, Gary Boomershine.

I’m happy to be here and I’m looking forward to being able to interact with you and your audience and deliver some good value to everybody that follows you.

I’m excited because, at first, I’ll be straight up with you and the audience. When I saw this, I was like, “Here’s a good chance to give someone some exposure but also bring the value to my show.” You have an affiliation with The Banker’s Code. You know all about lending and everything that I’m talking about, but you also have the REIvault, which is what I want you to talk about. Before we do that, I do have one-off curveball question. With a name like Boomershine, where are your people from?

It is a Mennonite name, Pennsylvania Dutch. I didn’t even know until I was in my twenties about that because we’re the only Boomershine family west of the Mississippi. My grandfather came out of Minnesota, a little area called Hutchinson. He was one of eleven kids, the youngest and snuck away. His mother said, “You’re going to stay on the farm but you should go to California.” My grandfather came out a total entrepreneur. He had a logging company and a gold mining company. He started a paper plant in San Francisco. The building’s still there. I come from a long lineage of entrepreneur families. In fact, we had a real estate brokerage in the San Francisco Bay area and all of us kids were part of that business.

I was a licensed real estate agent in 1987. I paid for college by holding open houses, door knocking and doing listings. We had a bunch of rental properties. Painting, hanging doors and all that stuff was my background. I went down the technology path because it was Silicon Valley. I got a computer engineering degree. It was years later where finally I’d been so burnt out of traveling, working 90-hour weeks and being on the treadmill of being a technology guy and then an enterprise software sales guy. My wife and I are like, “Let’s go back into what we know, which is real estate.” It was May 17th, 2004. It was a Napoleon experience for us because we had two babies. We have two kids, a two-month-old. We still had a $700,000 mortgage. My wife had quit her job and I quit to do real estate full-time. I look back, I’m like, “We were stupid.”

We were incredibly blessed because we ended up a deal. The first deal, I ended up making us $181,000. I screwed up everything except the negotiation. That was in 2004. I never looked back. It’s been a great journey. I love this business. I love lending. You and I were talking before. Lending is probably my passion of being the bank. I started with a guy, George Antone, and we started The Banker’s Code. We built the largest private lending network in the country. We trained over 1,000 people primarily around rehab lending. The lending is great now, I still do it, but it’s going to get even better when the market turns. I run a company called RealEstateInvestor.com. A lot of real estate operators and CEOs are around REIvault. We’re driving seller leads, off-market deals because where’s all the deal flow for real estate investors?

You can’t find anything on the MLS. There are no HUD properties. There are no bank-owned foreclosures. It’s like bones. It’s crazy competitive. Whoever can control the deal flow going direct to the seller wins. We’ve sent out over 34 million pieces of direct mail for a handful of us. We’ve done over a million outbound cold calls to sellers driving leads. I have a service that does that for about 250 top producing investors and agents around the country. Usually, people are trying to scale their business. They’ll come to us and they get marketing and a sales team for the cost of one $10 an hour resource. That’s what I’m doing now. I land and I flip houses on the side with a small team.

Needless to say, you know a thing or two about real estate.

I was at Warren Buffett’s shareholder meeting. There are 35,000 other people. Warren Buffett, who is 88, and then the real powerhouse, the guy that runs Berkshire Hathaway is 96, Charlie Munger. They said, “The rules of real estate,” because Berkshire Hathaway made billions. He’s like, “Buy low, sell high, don’t lose investor money and follow the laws.” When you do that, you win. The other thing Charlie said that is relevant to all of us in this business because there are many rabbit holes. There are many ways to go. We make things way too complicated. Real estate’s simple. Lending is simple if done right, but he said, “KISS, Keep It Simple Stupid,” that’s the Berkshire Hathaway model. There are many investors, I call them real estate business owners. I don’t even think most people call themselves investors in this market.

Warren Buffett said, “A real estate investor is somebody that has money. They buy a real estate asset, a physical property, they hold it and take all the benefits of real estate cashflow, on the spread, depreciation, appreciation and tax benefits. Most people who are flipping, wholesaling and rehabbing, which I do too now, it’s not investing. It’s real estate business ownership. It’s a CEO. If you’re a CEO you’re doing $10-an-hour work, you’re going to have a $10 bank account. You’ve got to operate as a CEO. That’s what our service does saying, “Here’s a simple service to drive you appointments to get in front of motivated sellers.” A lot of people are like, “I want to do it myself.” It’s like, “Go for it,” but that’s $10-an-hour work.

It’s one of the things I need to be more vocal about is when people come to the show. Flippers, landlords want to show you how to create a business. I don’t. I want to create investors to loan money to people who want to do that. I’m a horrible landlord. Fortunately, I have enough self-awareness to realize that now. I was stubborn. I fought it and I’m like, “Why am I doing this? Why am I doing the $10 an hour work?” That’s what led me into lending. Did I hear you say 34 million pieces of direct mail that you’ve sent out?”

It was the largest marketer in the real estate niche. We’re probably closer to 36 million. We’re sending out about a million pieces a month for a small group of us. How do you get ahold of the seller? How do you get to the seller? There are three of the best-proven methods. It’s direct mail done right, cold calling done right and then what’s called RVM, which is the Ringless Voice Mail. It’s where you’re loading up and going directly to the cell phone voice mail done right. I say done right because there are a lot of moving parts and formula to get that. We do that for our members. The reason I like those three, there are probably 100 other ways to market. You could be door knocking, bandit signs and the whole thing.

The guys and gals that are making the most amount of money, they’re doing those three or at least one or two of the three. The reason it’s proven is it’s repeatable, it’s scalable and it provides a measurable ROI. You spend $1 you know you’re going to make $4 if you’re a wholesaling. If you’re in Dallas, $3.50 for every $1 you spend, if you’re in some markets as much as $10. There’s a formula of how you’ve got to pull the right list. You got to have the right copy. You’ve got to have a fulfillment house that gets it out and it has to go out weekly. It’s got repetition to it. You’ve got to have a phone team that’s kissing the frogs. There’s a massive amount of kissing frogs. I call it kissing frogs because people will do marketing for sellers and they expect sellers to be super motivated. All the leads suck.

The people that understand that make a ton of money. The leads suck until you get on the phone multiple times with the seller and then interact. We get them on the phone. We have a phone team. It’s literally $500 a month for a full-time, somebody that’s calling daily and scheduling appointments. They’ll spend six minutes with the seller on the phone. They’ll ask them the right questions at the right time. If they say the right things and they’re motivated, then we’ll schedule an appointment and then pass that over to our client or our member. I did it and everybody thinks I’m a marketing guy. It’s like, “No.” Put me in front of a seller and I know what to do. The marketing, I want it to have that done for me. My background was in technology. I did that and a bunch of people said, “Gary, can you do that for me too?” and that’s how it all started.

You put all the infrastructure in for lead gen. I apply to you. I’m accepted. I pay your team some money and you get me appointments.

We turn you up in seven days. We’re able to drop marketing in seven days. The turn-up process from the time that you sign up with us, there’s a fifteen-minute questionnaire that you fill out called our FastTrack Questionnaire. We give you about two and a half hours of training. We build marketing plan or like, “You’re in Texas. You’re in Houston.” We pretty much can predict what your cost per deal is going to be in your market. If you’re in Kansas City, you’re going to have a different cost per deal than if you’re in California versus Texas. We’ll say, “Here’s what we would recommend that we do. Do you want to buy three houses a month? Here’s what we would recommend.” We build a plan for you.

Kissing frogs means people will do marketing for sellers and they expect sellers to be super motivated.
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We’ll tell you, “This is the amount of money you’ll spend. This is the number of calls we would think that you’re going to get, the number that is unique, that turn into good leads. It’s what we call net leads in this business viable, quality leads. That’ll turn into appointments, into contracts, into deals, into profits.” We come up with that plan together. We do it for you as a member and then you sign off and say, “Yes, let’s do it,” and then we execute the plan. In a month, we get back on the phone saying, “Let’s review how you’ve done against the plan and then let’s make any adjustments and scale.” We could do that for about 250 people.

We’ve got the number one in agents and investors. We got the number one Berkshire Hathaway team in the country, the number one who is in Omaha, Nebraska. Jeff Cohn has got a huge podcast, good guys. I’ve spoken on his stage multiple times and his business partner, Clint Bartlett, those guys use our service. They did over 700 listing brokerage transactions and then their goal is over 1,000 houses over the next couple of years. We’re driving leads for them. We got the number 43 guy at Keller Williams in the country that’s using our service.

About 20% of our members are real estate agents and about 80% are investors that are business owners that are flipping houses, mostly wholesaling. I could do this for lenders too. How would it work for lenders? If you’re not working with a broker and you want to find the borrowers, it’s called a cash buyer list and then you do the same thing. You pull the cash buyer list. You send them a text message, a Ringless Voice Mail and possibly a letter that, “I’ve got money to lend. I’m looking for a few good people in your market. Do you know of anybody that’s looking for a little bit of money?” and real estate investors are like, “Please.”

REIvault.com/VIP, that’s where I would go because I’ve got some free tools on there. There’s a funnel that is the entire how to drive deal flow if you’re an investor. I was part of CG, which is a big mastermind. There were 120 of us, but Sean Terry on a napkin drew the funnel, this is 2013. He drew a funnel of like, “There’s pulling the list, sending out the right postcards, having the right system like Podio, CallRail and Slybroadcast and then the phone team and how it all needed to work from start to finish.” I got my graphics guy and we drew it up. If you do all those pieces well, then you’re going to make a lot of money doing this business and finding leads. It happens that we do it for people if they want.

Somebody has to do the work. I’ve got a team of over 80 people here in the US and overseas. It’s like you’re tapping into the equivalent of a marketing team of 40 for the cost of one $10 an hour resource. We guarantee the lowest cost of the mail because our volumes are high. It’s been pretty cool. We’ve got a private community. Behind the scene all of our members are interacting and sharing what’s working. As the market is turning, people are flipping deals to one another. We got a guy, Clay Manship, in Indianapolis. He did over $2.3 million in wholesale flips in 2018. Over half of that came from us in terms of the deal flow. $1.3 million is what he made off of direct mail off of the mail that we sent for him. I see people flip deals to him in the group. I see a gal, Sarah, she’s in Florida and she finds a seller that’s got a property in Ohio. She’ll post it saying, “I got this property. Anybody interested in it?” It’s pretty cool.

You bring up an interesting point because I wanted to ask you, for example, you’re in the San Francisco Bay area. I’m in Houston. They’re two completely different real estate markets either way you slice it. What if you’re in Denver, New York or Omaha? Are you effective in those big markets as well?

It all comes down to the cost and the average profit per deal. What the spread is on a return on investment. Let’s say you spend $1 and you make $4, that’s 400x return on your marketing dollar. That’s phenomenal. This is the only industry or one of the few industries that make that return, which is why a lot of us love real estate. The ROI is almost the same across the entire country. For a wholesaler, it’s going to range from about $3.50 to $1. You spend $1, you make $3.50 to as much as about $10, $1 to $10. If...

PLP-085 Creative Investing And Why Reputation Is Everything

Keith Baker — Mon, 02 Sep 2019 03:00:53 -0600

Quest Trust Expo is one of the biggest gathering of self-directed IRA investors in the country where they learn what is needed in an ever-changing economy. Keith Baker shares his thoughts and takeaways from the Quest Self-Directed Expo – the biggest of which are creative investing and why reputation is everything. He also talks about some tales of woe he heard from fellow investors and meeting some people who are looking to deploy their capital or looking to fund and find deals.

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Listen to the podcast here:

Creative Investing And Why Reputation Is Everything

Thoughts And Ideas Taken From The Quest EXPO 2019

I don’t know about you but I, for one, am getting ready for the next downturn. I’m not doing anything drastic, but mentally getting prepared and going to start collecting the acorns and the cash. Because when there’s blood in the streets and the banks tighten up, it will be a private lenders’ paradise. It will be private lenders who provide the capital to keep the real estate market turning ahead. That’s why I want to build this tribe of lenders. I want to thank you for being a part of that tribe and for reading. Let’s go ahead and get down into the brass tacks on this episode. I wanted to give you my thoughts on the Quest Trust Company Self-Directed IRA Expo.

Quest Trust Company Self-Directed IRA Expo

The gang over at Quest stepped up and outdid themselves again this 2019. I’d like to thank everyone over there at Quest from Quincy, Nathan, Nate, Juan, Rebecca, Haley, Keaton. Most of all I want to send a big thank you to Anne Marie for having me speak on the Private Money Panel and for letting me be a part of such a truly great and wonderful event. Thank you. I’m already looking forward to the 2020’s Expo and that’s why I wanted to break my programming schedule and go ahead and talk about it. It was still on my mind and I’m still a little giddy about conferences and the expos. I’m giddy about it in what I learned, who I met and a lot of cool stuff.

Let me go ahead and dive right into that and I’ve met a lot of very interesting people. I call it brand newbies all the way to who barely have any capital or starting off and they’re investing in real estate investing career. I met a few newly-made millionaires looking for options, where to park some money and very interesting people from all over the country. They’re hard money lenders, lawyers and IRA specialists. Everyone at Quest is pretty much a specialist and they specialize in a certain area so that your questions can get answered very quickly. There were also gurus and coaches, typical seminar expo stuff, but there are a ton of people like you and me.

It was about a thousand attendees. I’m not sure how many vendors, sponsors and speakers, but it was another great expo. I spent as much time as I could watching it at the table and at the booth. Probably much to my detriment or the podcast’s detriment, but it was that how good it was. It was as long as the three-day weekend, but it was cool. There were a ton of people like you and me and those of us who are looking for more from our investments and retirement accounts. You’ve got to see that you could extrapolate that to life in general for we are the seekers and hopefully one day we’ll be the knowers.

Some of the classic mistakes of investors is trusting the borrower with the value of the property.
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Tales Of Woe

I did feel like there were a lot of kindred spirits there with many of the attendees and the vendors. This is why we drag our hungover sales down to the ballroom to listen, to learn, to meet, and to increase our network and therefore our net worth with these types of events. There is no disappointment there. I unfortunately did hear several tales of woe from people who knew enough but didn’t know what they were doing. They made some mistakes that I rail against and preach against because I’ve made those same mistakes too. Hopefully, I was able to give these people a little bit of comfort and some empathy for their mistakes. You don’t need to beat yourself up too much, just enough to where you don’t do it again, but after that you should stop it.

Some of the classic mistakes were trusting the borrower in regards to the value of the property. Looking at only the comps that they have cherry-picked and not running their own or getting their own CMA, Competitive Market Analysis or having them get some type of comp from the MLS, active or not active, sold within the last few months, preferably in the last month is even better. They trusted. They got burned. Some people didn’t use their attorney to draft the documents and in some cases, they recycled documents, which I rail against and because I’ve made a mistake and it’s one you feel pretty dumb when it happens. That’s why I say don’t do it. Set that in your head.

It’s not negotiable and some of the other telltale mistakes are the ones you see a lot. They didn’t get a lender’s policy title, insurance policy and there was somebody contested. An heir came out of the woodwork or in some cases people rather than using the title company and sending money only to a title company, they sent wires or checks or certified checks, cashier’s checks directly to the borrower, which you never want to do. Heard some of those stories and hopefully the people that told them to me, I want to thank you for sharing your stories with me and don’t feel too bad. You’re going to be better the next time. Shoot me an email before you do a loan and let me have a quick once over because I can spend five minutes and save a lot of heartaches.

Tales of woe, you get them and everyone thinks the sky is falling, the recession is in the bag, which it seems logical that that’s where we’re going. I made the joke of the next recession starting in the next many months and everyone agreed. Everyone knows it’s coming, we just don’t know when. The signs start to show up. I thought that was very interesting. This makes flippers nervous, landlords a little nervous sometimes and newbies nervous, but it makes private lenders like me very excited. I’m gathering my acorns and getting ready for that. Another takeaway was that opportunity still exists. There’s still very much opportunity out there.

Talks From Great Speakers

I’ve met a lot of people looking to deploy their capital and met a lot of people looking to fund their deals or finding deals or projects. People from your typical single-family flipper to people that do commercial land development or buy old buildings and convert them into a new use. There was plenty of deals and plenty of cash out there for it, you’ve got to go to these events and network for it and meet people. One of the talks that Quincy Long gave was on the inherited Roth IRA, which I told Nate, I said, “I’m going to grab that audio and that’s going to be a full episode on the show because Quincy’s a very smart man and he’s a big fan of this. There’s a good reason why,” but I’m going to let him explain why.

You can get extremely creative and several panels with the attorneys that were mixing self-directed IRA accounts with entities and not only 401(k)s, IRAs, LLCs and it was over my pay grade to say the least. The big takeaway was you can get very creative, legally, ethically, morally, and you can give your grandkids a start in their financial life with the inherited Roth IRA. Pay attention, that’ll be coming soon. There are a lot of opportunities out there, go find it and sniff it out. Not everything’s going to work out. Kids coming up to the huge takeaways, do the due diligence and do the due right there.

That’s the new phrase, do the due, and it came out on every panel. It came out on every talk and I understand there were a couple of a few sales pitches from the stage, but you’ve got to do the due diligence. That comes back into pillar number one for the show, never trust, always verify and that made me feel good. In fact, one guy stopped and asked if he could take a picture of the back of my shirt where it says, “Never trust, always verify, PrivateLenderPodcast.com.” I was happy to oblige him and let him have a photo and it was weird. Maybe a little uncomfortable, but it’s cool at the same time. There were fifteen seconds of fame for the weekend.

There were amazing speakers up there with Quincy, John Hyre and Jeff Watson. Those three lawyers right there you want to listen to. Quincy doesn’t practice, John and Jeff do. It’s a wealth of knowledge and experience from those two gentlemen. One of the things Jeff said, he kept pounding, “Make consistent contributions to your retirement accounts every month, every paycheck consistent because that consistency will pay you dividends in the long run.” There’s nothing new with that, but it is true that we often forget why we open up the accounts, we start working with them, and we stopped contributing to it. The government allows either $5,000, $6,000 or $7,000 a year, depending on your age and your income status and that benefits Quest because of the more accounts that they get, the more fees. I’m totally okay with that. There are some interesting and creative things out there that you can do and Quest is at the forefront of teaching people how to do it. Contribute, but also do plant seeds now so that you can let them grow and you’ll have a shade tree in a few years and do the work now, put in the effort now to make sure your future is secure.

Reputation is everything. It takes a lifetime to earn and only a second to burn and to lose it.
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There was a lot of talk about planting your seeds but the real big takeaway for me and not just on the education side but more on the speaker side is that reputation is everything. It takes a lifetime to earn and only a second to burn and to lose it. I’ve heard this and known this my whole life, but it really struck me over the weekend and it hit me in between the eyes because I met and saw the remains of people who had been taken advantage of and it’s demoralizing these people. They should have known better, whatever. You can make arguments for both sides. I hate seeing people getting taken advantage although they don’t know any better.

Reputation Is Everything

In fact, I’m not going to name any names and I’m not pointing any fingers. I want to take a nice 30,000-foot view with this because I feel like I need to go on the record with this. I don’t want to bring anybody down. I understand this is a bummer, but I do want to go on the record. I’ve heard a ton of rumors during the expo from people, vendors, operators, investors, lenders, and events involving human beings. There are a ton of rumors floating about. Some of it was about the stock market and, “This is going to happen. That’s going to happen.” There were some rumors about someone basically that I’ve had on the show. They apparently had an investment that did not turn out as anticipated or I’m not sure what the chain of events is, but the bottom line is the rumors are this person is now being sued. He has lawsuits against him.

This is somebody I’ve had on the show. Somebody I looked up to. I still do, I think, but immediately I’m saddened by that, but also at the same time sadness is an emotion. Take the emotion out of it was the logical thing. There are three sides to every story and in the case of a husband and wife, there’s his, hers, and the truth. We’re going somewhere in between as the truth. I like to look at it like that. I’m not condemning this person. I haven’t seen, I haven’t researched to confirm whether or not these lawsuits have actually been filed in the county courthouse. I can neither confirm nor dispel these rumors. I’m not saying anyone’s name because I don’t want to further them on because it doesn’t matter if the horror stories are true or they’re not.

Reputation is everything and that’s the lesson here because you don’t screw people over. It always comes back to bite you in the ass, but rumors are already out there doing the damage regardless of what happened. Let’s say something bad did happen, but it has nothing to do with lawsuits or it doesn’t matter. There’s tarnish on the act, on the person, on their credibility, on the personality, and on their integrity. As someone who I aspired, I made no bones about it to be an online educator and I take this to heart because I have to be mindful about who I bring onto the show. I want to bring people on that have something that’s interesting to say or perhaps a product or service that the Private Lender Nation could actually find useful. I have to keep what I call the crispy clean reputation.

I sure don’t want to bring a fox into the henhouse to get all the eggs but it’s apparent that I felt prior to myself on verifying things. Not even I can keep things like this from happening or being affected by it and this is happening, but no matter how much verification I do, sometimes things do happen, things go south. It’s things like that ruin reputations or at least they become roadblocks. They knock you off-course for a little time. I don’t know what happened, but it’s my opinion that when things like this do happen that immediate insincere communication is the only thing that can stop bad feelings and the rumor mill, especially from starting up. That communication has to come in real-time and long before any crap goes down.

If you borrow somebody’s money, whether it be mine or friends, relatives, a bank or from a hard money lender, it’s my belief that immediate, accurate, real-time and sincere communication is the only way to deal with mistakes and losses or downturns or unfortunate events. I’ll tell you this because over the next few episodes I’ll be having guests and providing some affiliate links to some of those guests. What this means is I will have links to other people’s products or services and I will receive compensation, a commission, or an affiliate fee for the purchase that you make. I want to put it out there and tell you out first, this is how it works. If you click on a link, you’re either going to buy something, you’re going to give up your money, or perhaps some information, an email address and name or number or whatever. That’s how this online world works and it’s taken me the last year-and-a-half to come to the table and start to learn the rules that are set out so I can play the game.

I don’t want to be one of those cheesy people that send out an email every day with other different affiliate links. Don’t worry, you’re not going to get that. I only want to bring people on that actually help. I have a service that may help the Lender Nation. I’m probably going to start at an email address so that I can get some feedback about that as we move forward. I want to tell you that, “Yes, of course.” To me, it goes without saying, “You have my word that I’m going to do everything I can.” The people that come onto the show and not allow a scammer or charlatan to get in front of the Lender Nation so that they can feel safe about the people I bring around. You can feel like I’m not bringing some Joe Shmoe off the streets and saying, “I can make you rich and sell my product.” I’m not doing that. However, at the same time, I can’t beg you, ask you, and require you to please do the due diligence. Do your own due diligence on anybody that I promote or allow to pitch or sell their wares. This goes from when you’re looking at members for your lending team, like attorneys, appraisers, brokers, inspectors, note servicing companies, borrowers, operators, fund managers and so on and so forth. I’m going to try to bring people on that I believe are out doing the right thing and doing the good thing.

Unfortunately, sometimes crap happens and there’s a risk in every investment. There’s risk in driving down the freeway to go to your office or home every day. What I’m asking is, can we agree and let’s both do our part for both our sakes and do the due diligence? Never trust, always verify. I’m going to have to do a whole episode on that as...

PLP-084 Deficiency Judgments And Why You Should Use Them

Keith Baker — Mon, 26 Aug 2019 03:00:31 -0600

Have you ever had your lien wiped out when the first lien foreclosed? In this episode, Keith Baker shows you a way to recover your loss. He talks about a tool you can use as a private lender – your right to sue for a deficiency judgment. Sharing from his own experience of having to get a ruling and suing a borrower, Keith also names a couple of things you need to check and prepare when getting a deficiency judgment.

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Listen to the podcast here:

Deficiency Judgments And Why You Should Use Them

If you’re looking for practical tips and advice on mitigating risk in private mortgage lending, then you are in the right place. If you also want to learn from my mistakes so that you can avoid them, then have a seat because this show is created for those who are looking to take control of their financial future and diversify their investments without banks and Wall Street or toilets, tenants and termites. I’d like to create a tribe of private lenders that act as the bank to active real estate investors and change not only the lending landscape but also the landscape and the landscape and the methods in which we teach our children about money. Together we can all prosper without the too big to fail banking systems.

When The World Is In Flux For Private Lenders

Let’s face it, the world is in flux and it’s time for some radical acceptance of some alternative ways of making money, legal, ethical and moral. I want you to think about this for a second. When economies go into recession, the money supply gets tight. Banks aren’t as willing to loan as much or they’re not willing to loan to risky borrowers. One thing that banks have over private lenders is the multiplier. If a private lender has $100,000 in an account, that’s all that private lender, he or she, can lend. It’s this $100,000. However, if a bank gets $100,000 in deposits, the federal government allows it to loan in some cases up to $1 million or more and that’s a multiplier. If you have $100,000, the federal government will allow you to loan $1 million. That’s a ten times multiplier.

In recessions, those multipliers are reduced. When they reduce, the money supply gets tight and banks stop lending to people who have no business. First off, the first people are the ones that have no business borrowing money on properties they can’t afford. It trickles down. It tightens up all around. In deep recessions, they will only loan you money if you don’t need it. That’s the best position to be in credit-wise. It’s to not need money because banks will be coming after you left and right with all types of offers. When the banks won’t lend to real estate investors, I will and this is something I should clarify a little bit. I will loan in my backyard market and others if I’m comfortable with my level of knowledge in that particular market. Because when everyone’s running for cover, CNBC, CNN, NBC, Fox and all the faux news and everybody else, it says, “Run for the exits.”

When there is blood in the streets, that is the moment when you want to lend. As a private lender, that’s when you’re ready to go because that’s when the sweet deals will be created. Those are the deals that I want to lend on. Because a good and well-seasoned active investor with private lenders on speed dial will be able to close fast. When the economy sucks and your borrower can close within two weeks on a property, they usually get a good deal. What I’m saying is it lowers the loan-to-value. Let’s say if the house after it’s fixed up, the after repaired value is $100,000. In tight economic times, a $100,000 house that needs $10,000 in repairs to get it up to $100,000, that investor can get it for $50,000 or $40,000 all-in.

A good and well-seasoned active investor with private lenders on speed will be able to close fast.
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The amount of money that you’re loaning, your loan to the ARV goes down. That is what helps mitigate the risk of the investment because all investments have risks. The lower the LTV, the more room for error you’re allowing your investor to maybe over-improve the property just a little or if it takes a little longer to sell. Because in recessions, houses don’t sell very fast. Instead of a three to four-month flip, maybe you’re looking at eight to twelve months. That lower LTV gives you that room for error. It gives you that risk mitigation and allows and forgives a lot of sins. That’s why when the recession does come and banks aren’t going to lend, that’s why I’m trying to build this tribe of lenders. I want to thank you for being a part of that tribe because when it hits the fan, we’re all going to be ready and we’re all going to make some money.

I wanted to speak to you on deficiency judgments, which goes hand in hand with your due diligence.

Using Deficiency Judgments: A judgment is a kiss of death on a real estate investor.

Deficiency Judgments

I published that I lost $18,000 on a second lien because I did not perform my due diligence. I trusted a friend. Never trust, always verify. A lot of people say, “You’re very forgiving,” but the truth be told is I didn’t do my due diligence. It’s on me. It’s my fault and it’s a lesson learned. It’s a lesson I hope I shared with you and that you guys take to heart. In Texas where I lend mostly, we have the notion of deficiency judgments. What that means is that since my second position lien was never paid and the first position foreclosed and wiped me out, I can now sue that borrower for that $18,000 and get a judgment, which is not that difficult to get.

It’s straight forward. I have the promissory note, I have the deed of trust and I have the court documents where my lien was wiped out when the first lien foreclosed. Let’s say that I’ve learned my lesson and I should have done better. However, I inquired. I found the attorney who foreclosed on the first lien and I reached out to that attorney and I said, “I have the second lien.” They were unaware, which tells me they didn’t do a proper title search, but they don’t need to when you’re foreclosing. All I need to do is go file your paperwork with the county clerk. However, it was my fault.

A lot of landlords get sued by tenants who know how to game the system.
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I reached out to this attorney. I have an $18,000 second position lien on a house that has now been wiped out because I didn’t do my due diligence and trusted a friend. I reached out to this attorney. He emailed me later in that same afternoon saying he was very busy. I’ve got the email and I’m going to include it here to give you an idea of what we’re talking about. The deficiency judgment is this. I lost my second position lien when the first lien foreclosed. I can go to court and sue that borrower and get a deficiency judgment against them saying, “You owe me $18,000.” Usually, the court will attach it to a piece of property or something else. Check your local jurisdictions, but it’s good for seven to ten years. After that second to ten years, I can refile to have a judgment. A judgment is a kiss of death on a real estate investor because I won’t loan to anyone who has a judgment against them except for landlords. If the tenant is the landlord, I pretty much forgive that.

I’m not saying it’s right or wrong; it’s just the way I operate. A lot of landlords get sued by tenants who know how to game the system. You can either have a crappy landlord if they have judgments against them or you can have a very good one whose tenants are trying to game the system. You got to figure it out. Nonetheless, this deficiency judgment, I have the option to file this lawsuit against the borrower individually for the $18,000 plus interest and court costs. I’m thinking about doing that. Even though as a friend and they said they’ll pay me back, they said that when they signed the promissory note. For me, in a business situation, I’m thinking about going ahead.

However, this is the email from the attorney that handled the foreclosure on the first lien. If there are any attorneys out there who work pro bono or on the cheap in Texas, let me know. I’ll be more than happy to throw this your way and maybe even invite you on the show. It says, “Mr. Baker, I apologize for the delay. It was a very busy lien deadline.” I emailed him around the 15th of the month, which in Texas is the deadline for filing lawsuits on liens. He also needed to get some input from his client to see whether the lender for the first position wanted to go after and pursue a deficiency judgment, in which case he could not represent me because I’d be a conflict of interest. However, that borrower has said, “No, I’m not going to pursue a deficiency judgment. There’s nothing preventing this attorney from representing me. That leaves that attorney free to help me.”

He states that his client mentioned that, “My borrower has no assets from which to recover a deficiency,” which is legal code for, “If you pay me the money, I’ll fight this for you, but I’m not doing it on contingency,” which means attorneys will work either on retainer. You pay the money upfront to handle a case. On contingency, they’ll get 35%, 50% of any judgment or anything that’s awarded to that attorney’s clients. What he’s telling me is that my borrower doesn’t have any assets in their name from which I can recover a deficiency. He goes on, “I do not have any personal knowledge of the matter, but I figured I would relay the information.” What he’s telling me is “I’ll take your money, but don’t expect great results.” That’s what I take from this.

The two cheapest people you can have on your team as a private lender are a good attorney and a good CPA.
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It says, “If you would still like to proceed, please send me a copy of the promissory note and deed of trust.” I have a copy of the recorded deed of trust but has been redacted to remove account numbers because I loaned out of my self-directed IRA, “Also, please send me a copy of any notice of default intent to accelerate and acceleration if notices have not been sent pursuant to the note. There may be some pre-lawsuit notices which should be sent.” That’s standard. You got to let the borrower you’re going to accelerate the loan. They haven’t satisfied the conditions of the loan. Therefore, as a lender, you have the right to accelerate the loan, call the loan due, foreclose, get my money or take the property back.

“I would still like to send a demand letter before filing suit. I will need to know the balance owing to the extent. The information is not included in any notices to the borrower. In addition, I will need a current address for the borrower to send any notices and have the citation served once the lawsuit is filed.” That’s pretty straightforward. In a normal legalese, we need the documents by which the borrower agreed to repay. I will have to show the record where the borrower failed to repay and every payment that was made. “Here’s the deficiency, here’s where they’ve not held up to their end of the bargain so I can foreclose.” This is where it gets interesting because remember I lost $18,000 principal plus interest and legal fees in general.

Using Deficiency Judgments: Once we humans get backed into a corner, we’re just like any other animal. We lose all rationality.

The lawyer goes on to say, “To proceed with filing the lawsuit for the balance due on the note, I will need to get a $2,000 retainer from you.” When I spoke to this attorney on the phone, it was $1,000. In all fairness, that the attorney was shooting from the hip, because I put that attorney on the spot and said, “You’re handling the first foreclosure. Why don’t you do a deficiency judgment for me? I want to file for deficiency.” This attorney was like, “I’ve come to them.” They shoot him from $1,000, and now it’s $2,000 and I haven’t shopped this around yet. Maybe I will, I’m going to bring it back on. I should shop it around a little bit to a few attorneys and then come back with some prices. However, this particular law firm, all they do is real estate. That’s it. They’re very specialized. The two cheapest people you can have on your team are a good attorney and a good CPA. I know everyone hates attorneys, myself included. I’ve got some friends that are attorneys, but when you need them, you need them. You need a good one and you pay for good work. I’m considering it on an $18,000 loss.

I don’t know if I’m going to do it. Let me continue reading from this note. “Our hourly rates are $200 to $250 per hour and everything is billed on that hourly basis.” The court filing and service costs for the lawsuit will between be between $400 and $500. I’m looking at about $2,500 to file this deficiency judgment. Continuing on from the email, “There will be attorney’s fees to prepare the lawsuit and send any pre-lawsuit notices.” That $2,000 does not include any demand letters, notice to accelerate or acceleration letters. If you are a private lender who does not have a whole lot of money, I would suggest getting with somebody, figuring out, sending demand letters and doing that on your own before the attorney files.

Never trust, always verify.
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What I am doing is also trying to figure out if I can do this on my own. Unfortunately, $18,000 is too much to sue somebody in small claims court in Texas. I’ll have to do it at the county level and most likely get an attorney. Right out of the gate, we’re at $2,500 plus additional fees. Let’s call it $3,000 to file this lawsuit, a deficiency judgment of which I’ll never see again. Let me go back to the reading. “In the event there is no answer to the lawsuit, I will hopefully be able to get a default judgment with relatively minimal fees. We can discuss what to expect if you would like to proceed. Please contact me at your convenience so we can discuss your claim.”

It’s a straightforward letter from an attorney. It’s rare but that’s where I’m at. I’m trying to decide if I’m going to sue a friend of mine for a deficiency judgment. I am well within my rights to do so. I have loaned money to a borrower with conditions. Those conditions were not met and I have the right to file a deficiency judgment or sue for that. I could go against the personal residence, perhaps a vehicle. Most real estate investors, this particular borrower was very frugal that they don’t pay the loans back. I’m torn. On one side, the liberal on me is like, “Give this person a chance. They’ve made a mistake.” The conservative side is saying, “You do what’s within your rights.” The middle road is and a very cerebral fashion of thinking, “I loaned money. I stood up to my end of the bargain. I provided the money for the loan and the borrower has not repaid.”

Never Trust, Verify

This has been a great therapy session for me. I wish it was free, but I think I will proceed even if it does cost me $3,000 or my IRA, $3,000. There’s one thing I do want to say about deficiency judgments. They’re not allowed in every state in the United States. This is my understanding. Check with your local attorneys, check with your local ordinances or jurisdictions. Never trust, always verify. I’m going to tell you something. You need to go verify. That’s your job. I won’t tell you; you got to go figure this stuff out. I’m not saying you shouldn’t loan in these states, I’m just letting you know that this is not available to everyone who’s reading this. Those states that do not allow deficiency judgments, to my understanding are Alaska, Arizona, California, Connecticut, Hawaii, Iowa, Minnesota, Montana, Nevada, New Mexico, North Carolina, North Dakota, Oregon, Washington and Wisconsin.

This is not a deterrent against private lending in these states. Just know that you can’t go get a deficiency judgment. I will relay this with more information as this process goes, but my understanding is once I do have a court declared judgment, I could then sell that judgment for pennies on the dollar to some collections agency and they can go

PLP-083 Investing And Private Lending with Corey Peterson

Keith Baker — Mon, 19 Aug 2019 03:00:27 -0600

Sometimes it’s in the things that go wrong where we get the best lessons in life. In this episode, let Corey Peterson, the owner of Kahuna Investments, inspire you with his rags-to-riches story. When a day of disappointing his son made him realize that he was not living life on his terms, Corey set out on a bold journey to learn how to raise capital to achieve financial freedom. This once car salesman went on to become a real estate expert, raising capital in the millions and finally getting his piece of “sunsets and palm trees.” He talks about how his eagerness to learn and to adapt to changing trends led him to investing and private lending and to the success he is today.

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Listen to the podcast here:

Investing And Private Lending with Corey Peterson

I’d like to thank you for stopping by. The other thing I’d like to thank you for is lending me your time. If you’re looking for practical tips and advice on mitigating and eliminating risks with your private mortgage lending, then you are in the right place. If you’re going to learn from my mistakes so that you can avoid them, then pull up a chair because I created this show for those select individuals who are looking to take control of their financial future by doing what it takes to create wealth in the marathon of life with old-world techniques and values.

I’m looking to create a tribe of lenders that will disrupt the way we think about money and how we can grow wealth. I also want to change the way we teach our kids about money. I think it’s antiquated to say the least. Before I get in our episode, I wanted to invite you out to the Quest Trust Company Self-Directed IRA Expo, which is going to happen in August 23rd through the 25th, 2019 at the Royal Sonesta Hotel in Houston. I believe there are tickets still available. I know the VIPs have sold out, but the general admission, which are still a good deal are available. Go to PrivateLenderPodcast.com/expo for the link there for tickets and use the promo code, PLPodcast, for your 25% discount.

For this show, I had a gentleman reached out to me and said, “I’d like to be on your show.” I said, “What do you do?” “I do apartments.” I was like, “Perfect,” because my idea for the show, the first year it would be all single-family. The second year, we would move into some multifamily. However, this is a fluid dynamic podcast as all things in this life. I’ll have some multifamily experts to come on. Our guest, Corey Peterson, I believe he’s out in Arizona. He reached out and I got in contact with him. I like him enough. I’ll put him on the show because I want someone to start scratching the surface on multifamily.

I’m not saying I’ll do it every month, but I would definitely at least a couple of times a year in 2019 to touch on multifamily and how private lenders can fit into the syndications and other things. I like Corey. He’s letting people know what he does and they can reach out to him, which is the right way to do it. He can explain and build that rapport, build that relationship so he can invest under the auspices of the SEC. I want to put it out there for the Lender Nation because I know some of you have inquired about multifamily and other things besides just single-family. This is my first foray into multifamily. Let’s go ahead and get down to the brass tacks and to the interview with Corey Peterson.

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I am honored to have Corey Peterson on the show. Corey is the Owner of Kahuna Investments and he strives to provide his investors with stable cashflow returns and long-term capital appreciation by buying multifamily apartments. Corey has managed to acquire over $95 million in real estate across the country and he’s the first multifamily investor on the show. Corey, welcome. Thanks for coming on.

Thanks for having me.

Let’s hear the hero story. Let’s hear the origin story. How did you fall into real estate?

The truth is you fall into real estate. I grew up as a small-town country farm boy, and let’s say that I didn’t get the download from the mothership until I was 32. I barely made it out of high school. I didn’t have a degree. When you don’t have a degree, you’ve got to manage some crap or you’ve got to sell some crap. I sold used cars until I met my wife or my girlfriend, and she became my wife for seventeen years by the way. She told me that she couldn’t marry a car salesman. I became a restaurant manager and then she didn’t see me, because I worked a lot of hours in the car business. Almost eighteen years ago, something radically happened that changed my life. I went to Hawaii. My mom was married to this guy. His name is Bruce. I call him Bruce Wayne. He wasn’t Batman, but he was loaded.

He had a house right on the beach in Hawaii. My girlfriend, now my wife of several years, we got to go there for a vacation and it was magical. I remember waking up early in the morning going across the barn with toes in the water. The waves were crashing, it’s on a cove. We walk the cove and all of a sudden, the sun decides to start rising. As it was rising, the mist from the waves was creating a magical light. My wife and I, we stood hand in hand, transfixed for about fifteen or twenty minutes and watched it all happened. It was like a rebirth had happened. I remember looking over on the other side of Bruce’s house and I’m like, “What does this guy do? He’s got time, he’s got money, he’s got fine art, nice cars.” He has it going on and his phone was not ringing. I finally got the guts to ask him. He owns apartments and he’s in real estate. I wish the story got better because Bruce was a prick.

He was a grumpy, old man. He wasn’t going to help teach me real estate, but he did give me what I call the perfect vision of what I call now as the cashflow life should look like, sunsets and palm trees on your terms. He gave me what it should look like. About six months later, I read that book, Rich Dad, Poor Dad. When I read it, I was like, “That’s Bruce.” It made it very real for me. I started my company in 2005. I named it Kahuna Investments because I looked at Bruce and Bruce was the big Kahuna and I wanted to be the same thing.

I went on a journey as everybody else does. I started off as a wholesaler because I had no money, no credit, no idea what to do. I went to the local REIAs. I’m a smart cat. I barely made it out of high school, but I’m resourceful as hell and I got a lot of common sense. I would ask the guy that runs the REIA, “Who are the guys that are doing deals?” He’d be like, “This guy.” I sat next to all the guys that were doing the deals. I’d be like, “What does your deal look like? Where do you find them? What’s your average profit?” I’m just taking orders. I’m like, “I’ll find deals like that.” Whether I did or not it didn’t matter.

I started wholesaling to these guys and then something that I got good at, it happened by accident. I learned how to raise private money. These are for single-family deals because you always make a $3,000 $4,000 wholesaling fee. This is back when you found these on the MLS, REO’s and short-sales. I was making $3,000, $4,000. The guys that I was trying the rehabs for, they were obviously investors who were making $25,000 or $30,000. I was like, “I’ve got to flip the script.” I was asking a retired guy that I played racquetball with for his help because he lived in a retirement community and I didn’t think he had any extra money. As long as I was asking him as a friend, I’m like, “Carl, you’re watching what I’m doing, wholesaling. I’m making $3,000. The guys are making $25,000. Surely, I can just pay an interest, give someone a note, deed and trust. Let me know if you know anybody in that neighborhood.”

The next day, Carl called me, “Corey, you don’t know this but my home is totally paid for. I can borrow money at 3% and give you 12%. I can make a spread. How much money do you need?” This is when I got to breathe deep for a couple of minutes. I was like, “Carl, I need $85,000.” He was like, “When do you want me to send it?” It was just like that. My chin hit the floor. I equate it to this. I went into a telephone booth as Clark Kent and I came out of that thing as Superman.

Investing And Private Lending: Identify your limiting beliefs and break them.

That is your superhero story.

Once I figured out private money and seen a lot of people out there, you probably have a lot of limiting beliefs. I know I did. I bought myself. Was I good enough for private money? Would people give it to me? What if they knew that I had filed bankruptcy? What if they knew? All the things, all the baggage that I had? What I found is it doesn’t matter. When I raised that first piece, it broke every limiting belief that I had. My eyes were wide open and I realized that there’s a process to raising money. I mastered the process and I found good mentors. I’m averaging $3 million to $4 million free within a year to do single-family fix and flips. In 2011, I was running probably about $4 million or $5 million of capital doing single-family fix and flips.

The market started to change. It was getting harder to find deals. I am the person of the least resistance. All I knew how to do at this point in time was find deals on the MLS, short sales and REO’s. I have $4 million behind me saying, “Corey, put me to work.” I stumbled on apartments. I was like, “I’ve got to figure out a place to put this money.” It’s actually a longer pain story, honestly, because I was really screwing up and the epitome of doing all these fix and flips, I actually was becoming a bad debt. What happened is my son looks at me one day and he said, “Dad, are you going to be at my game tomorrow?” I’m like, “Yeah, no problem, son. You tell me.” Inside I was like, “I’ve got to look at three properties. I hadn’t sold those up.”

I woke up early in the morning and I’m going to get to these properties and I’ll be back in time for the game. Long story short, I got at the end of the game and did my son came off the soccer field and cried and just said, “Dad, you promised.” I’m telling you, it broke me, the pursuit of money and all that because out to the world, I would look super successful. I was dying inside because I didn’t have a fold in my business. I wasn’t living Bruce’s cashflow life. I was a damn train wreck. Kids are resilient and even though I’m hurting him, he still wants to get in my truck and drive home.

That was even worse because as I’m driving, he was crying the whole time and it’s killing me. I dropped him off and my wife gives me this look like, “You better fix this.” I get in my car, I go drive and I’m beating myself like, “You’re an idiot, Corey. Why would you think about putting everything first besides your family?” I’m crying out to God for forgiveness and in that solitude, I finally forgive myself and asked God for forgiveness. I’m driving in a very empty state of mind. I drive by an apartment complex and I’ve driven by it a million times. I used to say, I wish I can order an apartment complex, but that day and that moment I said, “How can I own an apartment complex?” That changed everything.

My life totally went on a different fork. It took about a year and a half to figure out how to buy apartments and how to underwrite them and all that stuff. I bought my first apartment complex in 2011. I sold it a couple of years ago. I bought it for $3.2 million. I sold it for $8.8 million. That’s a pretty good payday. That’s a good catch for a long way. Now we own $95 million worth of capital. We closed $25 million last year, raised $12 million. I am now living that life that Bruce talks about. I have tranquility in my business.

That’s my rags to riches story. It’s a journey. It still is, but what I would say the one thing that I’ve learned how to do more than the other guys that started at the same time that were doing single-family, fix and flip or wholesale or any of that is the ability to raise capital. That one thing, me being able to talk with people and get people’s money and then direct it to where I tell them they need to give it to or spend it or give to me so I can spend it. That one thing is why I’m a multi-millionaire and some of my friends are still just trying and stuck in that hustle and grind mode. Learning how to raise capital is the key if you asked me.

There are two things I want to touch on. One is raising capital. The whole reason I have this show is to help people. You can become a private lender, you can do this. It’s legal, it’s allowed by the IRS, it’s all these things. Most of us, we start with single-family and we move in and I took into the multifamily. I’m trying to switch my gears slowly but surely out of that single-family. I’m not doing as many deals going into apartments, but also being mindful that places like Dallas Fort Worth are just on fire and at some point, they’re not going to be.

I’m putting my toes in the water and slowly finding everything out about multifamily. I had a mentor at a mastermind actually. It’s episode one, Steven Kaufman who owns the Zeus Mortgage Bank. I took his mastermind and he did this great example of a $200,000 home. You’re going to buy it for this, you’re going to put this much into it. At the end of it, you’re going to rent for this or you’re going to sell it. He drew a line down the side and on the right side of that number he goes, “Just add another zero.” That’s it. That’s all you have to do for commercial. There’s environmental, there are a few tweaks of due diligence that are obviously different. By and large, you’re talking about that mindset and limiting beliefs. Don’t let the extra zero run away.

In a world of constant change, be a person of the least resistance.
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My net worth grew substantially when I was not afraid to add another zero. It’s the same amount of work. Actually, it’s a lot less work. Last year we did three projects, three deals, that’s it. Not 120, not 50, just three. It’s $25 million worth of deals though. You look at that scaling of that process, and the truth is there is so much money out there and it’s looking for people like me, for dealmakers. What you’re teaching us is great because we compete. Let’s talk about money. When I’m raising capital for my projects, I say, “What’s my avatar?” Who am I looking to get money from and who am I not? I typically am not looking for what I call the smart money. It’s Wall Street, hedge funds, all that stuff because they want a ridiculous amount of a return for their money. What I focused on is the main street, my main street investor. It’s not Wall Street. These are the guys that have money, million dollars or accredited and non-accredited. We do both, but these are the typical people that are in the stock market and they have mutual funds and bonds or a 401(k) or something like that.

When I compete against the stock market, I can win 90% of the time. I really can because what we offer in our product gives a better return than most alternatives without the craziness, the rollercoaster ride that most people aren’t currently on. That’s the avatar. What I focus on is how do I talk to you more mom and pops, normal people that are looking for alternatives to the stock market? There is a crazy number of people that are out there and a lot of them don’t even know they can do real estate in their retirement accounts. Our biggest thing is educating people because most people don’t have lots of money in cash. It’s in their IRAs. Once you can educate them on that process, then they’re like, “I can use my retirement money to fund an apartment. Syndication, how does that work?”

Once you say the word syndication, that’s a goal. “What’s going up?” It’s not as difficult as most people think. What is syndication? When Corey does a deal, he hires a syndication lawyer. He puts together this a hundred-page document that costs about $10,000 to $15,000 we’re not wired to do. In that document, it gives all the risks of my deal, the waterflow, who gets paid first, who gets paid second. It really becomes my operating bible on how I’m supposed to work. Because it’s federally mandated, if I don’t follow the rules, I can go, I don’t look good in stripes. Do you think I’m going to follow the rules? Yes. It gives me how I’m supposed to pay what I’m supposed to pay.

In my...

PLP-082 Nathan Long on Self-Directed IRA Expo, Private Lending, And More

Keith Baker — Mon, 12 Aug 2019 03:00:06 -0600

Finding success alone in real estate is not how it works, most especially in this time and age of connectivity. That is why coming together in one place to network and, at the same time, learn is a beneficial opportunity to grab. One great example of that is an expo, and Nathan Long, the President of Quest Trust Company, shares in this episode their Self-Directed IRA Expo. Bringing in investors, lenders, and borrowers in this event, Nathan talks about the value of having a venue to separate your obligations and duties and just build relationships with others in the industry. He shares some great investing, laying down the problem most people do in self-directing. Don’t miss out on more wealth-building insights and stories about private leading and cross-collateralization as Keith Baker and Nathan start you up on some education.

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Listen to the podcast here:

Nathan Long on Self-Directed IRA Expo, Private Lending, And More

I have the distinct pleasure of interviewing the President of Quest Trust Company, Mr. Nathan Long. Speaking of the Quest Trust Company, they are the sponsor of this episode and we’re a few days away from their Self-Directed IRA Expo. It’s an extravaganza. 2018 was a top-notch event held in Dallas, about 500 attendees came in and attended two days. This 2019, they’re going to do three days and they’re expecting about 1,000 if not more. I know tickets are going fast. If you do want to get your tickets and get a 25% discount, go to PrivateLenderPodcast.com/expo. There will be a promo code and a link that you can get a 25% off your ticket, your admission, if they still have them. Go check that out. I know they were selling like hotcakes. Back to Nathan Long. He’s the President of Quest Trust and has put on a great expo. We’re going to talk about that here. I do want to forewarn warn you that I had this great interview already mapped out and bullet-pointed and all this stuff that I was going to talk to Nathan about. All of that went out the window and we ended up shooting the breeze so to speak. Let’s get down to the brass tacks and get to the interview with Nathan Long.

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I’m honored to have Nathan Long. He’s the President of Quest Trust Company. Nathan, welcome to the Private Lender Podcast. Thanks for coming on.

I appreciate you having me.

You’re going to be the last interview episode before the big Quest Expo. Let’s go ahead and talk about the 800-pound gorilla in the room and what a great event the Self-Directed IRA Expo is.

It’s so cool to hear that. When the girls came to me and said, “We want to hold one of these expos.” I told them, “No. We’re not doing that. We’re not in the expo business. That’s not what we do. We help other educators. I don’t want to feel like I’m in competition with people that are selling coaching or education.” They looked at me and said, “We’re doing it.” I said, “If you want to do this, then I have one rule. Every ticket you get, every vendor money that you get goes back into the expo. It’s a zero-profit point for Quest,” and then so many people showed up. They’re so happy. I think it’s because it got this momentum and the speakers got better and they got so excited. More people come and then they would add another thing or add this, they’ve constantly kept it exciting right up to the end. I know they had a little app that people were still on that app communicating months afterwards about deals and stuff and making deals on it. It was cool. I’m proud of them.

They did a bang-up job last 2018. I consider myself lucky having had a table and being on a panel and being able to talk. That was fun. It was a lot bigger than I expected. I got a little nervous when I went up on stage. It’s like, “I could talk to you about private lending,” then there are more people than I expected. I’m like, “We can switch gears. That’s fine.” It’s not just also for private lending and real estate. There are other aspects to a self-directed IRA, but it’s heavily geared towards the real estate side of things.

Quincy and I, we’ve done lending personally for so long. We talked about it. Quest is ideal in the private lending area. It’s mirrored perfectly.

You hold about 90% of the money that I lend. It goes through Quest because of the speed and the ease. I love the fact that I can slowly but surely transfer some of that traditional IRA money into Roth IRA money before the government decides that they’re going to get their hands on it. In case the NSA is reads this, this is all over. I said the government will take our 401(k)s one day but hopefully, not while we’re alive. There’s my doomsday speech. I’m sure you have your own opinions on it.

I’ve heard it from the beginning of time.

Since they were invented in the ‘70s.

“They’re going to take them away.” It’s a political suicide to do it. Now, the atmosphere is the opposite. You’ve got to you have to understand from a political standpoint, IRAs are not much jeopardy. They’re going to expand it more. Why? Because they’re doing these Roth conversions. That’s not necessarily great for America, but it’s great for Americans. What’s good for the politicians who are in office is it creates taxation money for them to spend right now while they’re creating tax-free income for Americans in the future, therefore stifling what they’re going to receive in the future.

I’m glad you explained it that way. That’s a very succinct and easy way but very bipartisan. You convert now, you get some tax money so the politicians can spend it now. Then you make yourselves better for not having the tax hit later on in life when you need the money.

Honestly, you should take advantage of them being stupid right now and take a look at the tax falls. Never be frightened by, “This might happen.” A lot of things might happen, but we shouldn’t operate inside the rules of an organization as it exists now, with the eyes towards the future but let’s not be frightened of it.

Finding a lender is building a relationship; finding a deal is a different skill set.
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I like that too because a lot of people say, “I would love to lend on my IRA, but I’m afraid of paying UBIT tax or I’m going to get taxed on it.” Would you rather have 100% of nothing or 90% of a good deal or whatever that comes out to be? I agree with you. Don’t be afraid of what could happen. Play within the rules. You do a great job helping with that, like what I told Quincy, the reason I am a private lender is because I started going to this place called Quest that had this little triangle room with about thirteen seats and a projector. That’s how I started. That was over a decade ago when you were getting going. That was how everything started for me and listening to your stories on what you had done with private lending or some of the good, the bad and the ugly of your clients. That’s where I want to steer right now. I like gory stories. The sexier and the scarier, the better.

We’ve done a lot of lending over the years to qualify being allowed to talk about it. Quincy and I privately loaned money to real estate investors for a long time. In addition to that, we grew up working for Forrest Clark. He was a closing attorney. He’s also my cousin. He’s tried to retire a bunch of times, but he doesn’t like retirement very much, so he comes up and helps us with Quest as an advisor. He and his side of the family also loaned for a long time. My mom would lend for a long time and that’s what led us into the Quest many years ago or how we developed that.

Quest develops for self-directed IRA company so people use retirement accounts, rolled 401(k)s, do private assets. The big private asset is buying loans or creating a new loan if you want to say it that way, either way but buying the asset or lending money out of your IRA is a big function of that. We’ve been able to see hundreds of thousands of deals as Quest has grown and people have done this. Finally, my final piece of qualification is my wife is a real estate attorney. Her primary income is drafting documents for lenders. I get to hear all of her stories when it goes bad from an attorney’s side of view. We’ve had a lot of experience in it, but it’s been good to us.

You are the originals in Houston as far as private lending is concerned. You’re the ones that brought self-directed IRAs to the Houston market, the real estate market. It’s you, Quincy and everyone that’s been there for any length of time. You see them every Saturday at their REIAs. You see them in the evenings. You are putting in the hustle and the effort and making the experience for not only the lender but also the borrowers very seamless.

That’s the whole idea. We make money when someone borrows or loans at Quest. That’s how we get charged a fee was when someone does a transaction. There’s certainly self-preservation to it but truthfully, Quest isn’t as empty all by itself. It was created because I and Quincy enjoyed lending as we got into it. We enjoyed what it did for our family and our wealth building and understanding of it. At this point in my life, one of the greatest things about working here at Quest is I hear it all the time people saying, “This information changed my life. We live a different lifestyle now before and after Quest.” They said, “I wish I had opened an account for $100 years and years ago or had I had this information years ago.” It’s very complimentary. It’s a phenomenal way to go to work and earn a living and I’m very blessed to be doing that.

It took me a few years to open an account. I kept going to the free education. One of the things I do want to touch on is the aspect that Quest puts these education and networking opportunities together all the time, free of charge. I can’t tell you the value of who you meet there. Not from a vendor’s perspective but other borrowers, other real estate investors and lenders. I like for you to talk about the value of a network when building your team as a lender.

I think that’s important. It’s also important if you’re a real estate investor that you understand that you’ve got to separate a little bit out your duties and obligations and things that you need to do. You should always be looking for two things if you’re a real estate investor in my opinion: deals and money. There’s a dramatic difference between those two things. With a deal, as soon as you get a deal under contract, what do you better do? You better go get another one because when you get done doing that deal, you’ll be unemployed unless you have one in the shoe.

What are the skills that get you a good deal? You’ve got to negotiate good. You’ve got to get the best bargain on contractors and suppliers in the house itself, etc. When you find a private money lender, when you have somebody that’s willing to lend you that money secured by real estate and is used to doing that or you’re getting them used to doing that and they loan you money. When the deal is done, what are they going to do again?

They’re going to put the money back to work.

“That worked out pretty well. Can you do that again? I might have a little money I didn’t tell you about the first time.” There’s always more money on the second deal than there was on the first. Whether it was, “My mom has some or my brother has something,” there’s always more. You almost got to treat those things completely different. Finding a lender is building a relationship and finding a deal is a different skill set. I think sometimes husband and wife works well. You have one that’s developing relationships and one that’s finding deals. You’ve got to make sure that you don’t grind on your lender, especially the first time that you see them. The best way to do it with lenders is maybe to be generous a little bit on the first time that you meet them, then you squeeze them down once they get to you. I know I have borrowers that do that to me. I used to pay that money all the time, but I’ve got a lot more borrowers and a little bit more things. They got a lot more equity. I’m paying a little bit less interest now. Do you know what I do? I can let that money sit around every time. It’s the truth. It’s me. I even know better.

You see it coming and you’re like, “I’d rather have my money working for me.”

I’d rather have my money working and I liked this guy. He’s funny and we’ve been doing this a long time. I want to keep doing it. It’s about developing those relationships and we figured that out. We always have to be a neutral third party. The best thing to do is to have people come and meet each other. When my clients have cash sitting in their accounts who feel like they need to go find an investment, where they go is to those meetings.

It doesn’t hurt that Quest usually has a bar there as well is.

Self Directed IRA Expo: You should always be looking for two things if you’re a real estate investor – deals and money.

Sometimes and I don’t think it’s coffee.

No, it’s not. I can attest to the quality of the merchandise behind the bar. You do a bang-up job. I was talking to Quincy about Fright Night. I alluded to a story that you told long time ago, somebody in a class stood up and said, “What asset class does your most successful Quest client deal in?” Without hesitation you said, “Horse’s semen.” You shot a story about how this guy works around horses. He purchased the feedstock so to speak and then parsed it out to various farms and from what I understand, his retirement is looking much brighter.

If you invest in things that you know and understand, you’ll do better. The problem with most people investing is they’re like buying this blanket mutual fund or they’re doing these very archaic type of financial planning that works well for your great grandfather, but this is different times. There are a lot of different things and you have to be more actively involved if you want to have any type of reasonable returns from your retirement. Therefore, there is a good field for self-direction. It doesn’t mean that everybody should self-direct their IRA or buy notes. You have to have some knowledge, you have to have some self-responsibility and when it goes wrong, you better be able to take some action and know what to do. If that’s not you, you should probably stay out of the field. It’s been so good to my family in building wealth and for so many people, I’ve got to say that there are more people that it’s better for than the opposite if they’d had a little bit of education and know what to do.

I’m inspired by Quest to create this podcast to help most people go from, “I’ve got all this training at Quest. How do I make that?” At some point, you’ve got to make a leap. If you’re going to be a landlord, at some point you’ve got to buy a house. You’ve got to make that leap into it. If you’re going to be a flipper, you’ve got to go get something under contract. You need to go to a closing. That’s where I came in because that leap is not very wide. It’s not the huge chasm that you see before you, once you get to the other side, you look back and it’s like, “It’s just a little bump in the road that I had to step over. It’s no big deal,” and then build your confidence from there. Let’s talk about confidence. Lending has been great for you and your family. Give me some examples of where it wasn’t for the person. If things went bad, the person probably shouldn’t have been a lender, didn’t do their due diligence.

I’ve seen that category plenty of times before. It’s like, “Nathan, how did you get so smart?” “We did a lot of dumb things.” I always have these rules and each one of those rules came with a painful story. I don’t learn my lessons easily. One of the best lessons I learned is you better understand what to do in the event that you do have to default. I remember that we did a loan to this couple. They were so cute. They were dancers. They were from Australia and they had a cute accent and had this great business plan. They found this property in North Houston. They had some money themselves, but because they were foreign-born, they couldn’t borrow to buy purchase property here so private money made sense. What they did is they bought this odd-shaped piece of property. It had a little rundown house on it, but it was pretty big. It was right there at the very north part off of 45 towards the woodlands.

They said, “We’re going to fix up the little house, we’ll live in it and we’re going to get these modular houses that are completely stripped out, nothing in them. We’re going to...

PLP-081 Interest Only, Amortization, And Balloons

Keith Baker — Mon, 05 Aug 2019 03:00:07 -0600

Keith Baker gets down on the basics of private loans. The three rudimentary loan concepts upon which creative lending and private lending are built are the interest-only loan, the amortized loan, the balloon payment. Learn more about these types of payments as Keith dives into each one, and prepare to get your tickets to the Quest Trust Company Self-Directed IRA Expo in Houston this August 23rd through the 25th, 2019. You can go get a 25% discount off of those tickets at PrivateLenderPodcast.com./Expo by using the promo code “PLPodcast.”

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Listen to the podcast here:

Interest Only, Amortization, And Balloons

The Basics Of Loans – Part 1

I’ll be talking about the three basic or rudimentary concepts of promissory notes, lending money and structuring loans. The beauty of private lending is that you can be very creative in the way that you construct a note. I consider these productivity building blocks for the private loan that we’re going to talk about. It’s basic math accounting stuff, but I figured that I get enough questions from time to time at REIAs that it’s worth addressing. First, time is running out to get your tickets to the Quest Trust Company Self-Directed IRA Expo in Houston this August 23rd through the 25th, 2019. You can get a 25% discount off of those tickets at PrivateLenderPodcast.com/expo. Use promo code PLPodcast. I also want to tell you that the Private Lender Podcast is teamed up with Quest Trust Company and we’re going to coordinate a happy hour/meetup at The Axis Lounge in the Royal Sonesta Galleria the evening of August 22nd, 2019. That’s when after all the vendors are finished setting up, there will be vendors, speakers, sponsors of the expo. There will be attendees, VIP, general admission attendees.

This is going to be a pretty dense group of people. The Quest Expo draws in people from all over the US. Because of that, we decided we’re not going to get sponsors and have email lists and chicken wings and pizza. We were trying to minimize the tire kicking and if you want to come and hobnob with these people, you don’t have to pay. You can just come on out. The food and drink will not be free. You can go to my Facebook page for more information. I highly recommend that you come out. Let’s go ahead and get down to the brass tacks in our topic, which is the three rudimentary loan concepts upon which creative lending and private lending is built.

These are quite simply the interest-only loan, my favorite. There’s amortization or the amortized loan, and as our trusty old friend, the balloon payment. I’m a big fan of the balloon payment. It’s a nice trigger for default in case you’ve got to get your money back through the property. It can be quite useful and you don’t see it too much on residential, but you do see a lot of balloon payments in a commercial. Let me dive into number one, and that’s the interest-only loan. There’s a supplement to this. I have an amortization schedule. It’s a basic investor-friendly amortization schedule and it has an option for interest-only. You just get your monthly payment.

With the interest-only loan, you don't have to worry about how much is going to principal and how much has gone to interest.
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The beautiful thing about an interest-only payment is if you loan somebody, say $100,000 at 12% for a year, then basically you’re just going to get $1,000 a month. That’s the interest that accrues. Your payment is $1,000 a month, but at the end of that note, you still have to pay back the original $100,000 or that balloon because it’s a huge chunk. Where amortization comes in is more in your retail mortgages. Part of that payment is going to pay off the interest first and then a little bit of it will go towards paying down the principal of that loan such that after X amount of time you don’t owe the full $100,000 at the end.

That’s good with 30-year mortgages for your retail buyer or normal home buyers, not investors. There is a place for it and it comes in with the commercial and sometimes with the residential as well. You can have a 30 or 20-year amortization that will be based on that amortization schedule. However, in say five years, there will be a balloon payment that note will be due. You have to pay back all of whatever’s left on your principle. Whatever interest is owed and you don’t have to pay back your interest as well. That is the basic concept of the three ways that private loans are structured. I like the interest-only because you don’t have to worry about how much is going to principal and how much has gone to interest.

You can figure out how much interest somebody paid for their 1098 at the end of the year. It’s very simple with some simple math, pencil and paper. You don’t need a big calculator. I’m not all that smart and I don’t like math that much. That’s why I liked the interest-only. It just keeps it easy for me. Even when I loan to owner finance deals, like my friend Mitch Stephen or Landon, those are interest-only loans. At the end of those three years, all that money has to be back or they have to refinance me out or I’ll do another loan for them at an agreed rate for usually three years on those type of deals. Those guys need at least three years to get the cash moving.

If you’ve got any questions, hit me up at Keith@PrivateLenderPodcast.com. I know I’ve rushed through this a little bit and we’ll get into it a little bit more. This is part one and we’ll put a little bit more detail on part two. Those are the three things you need to get your head around in the word amortization, interest-only and then the balloon payment. That’s all I’m going to have for you. I want to say thanks for reading. Remember, go to PrivateLenderPodcast.com/expo to get 25% off your ticket to the Quest Self-Directed IRA Expo.

Come by the kickoff happy hour at The Axis Lounge at the Royal Sonesta Hotel in Houston, Thursday, August 22nd, starting at 6:30 PM. The only thing I ask for reading to this episode is please help spread the word about it and leave an honest rating and review over at iTunes because it’s the 400-pound gorilla in the room. I would appreciate a rating and review, whether it’s on Google, Stitcher, SoundCloud or many other various platforms out there. It helps get the podcast into the minds of more and more people. For that means more and more successful lenders without banks for Wall Street. It’s more without banks because once the money tightens up, it’s the private lenders that are going to keep the economy going on the housing market and the less than desirable unlisted properties.

I’d love to give them my best Satchmo what a wonderful world. That’s the goal here at the show is to create as many private lenders so we don’t need banks to facilitate our investing. Remember, I don’t show on Wall Street. This is just a part of good diversification. Most of these economies are round up because of it. Also, if you could please connect with me on social media, like many of you have already. I’ve got a little audience. I’m on Facebook, Instagram, Twitter, LinkedIn and BiggerPockets. It’s time to say goodbye. Besides health, wealth and happiness, I do wish for your self-awareness and of course, much successful and profitable private lending. I hope you take care and we’ll see you in the next episode.

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PLP-080 Due Diligence & Lending Out Of State with H. Quincy Long

Keith Baker — Mon, 29 Jul 2019 03:00:39 -0600

When looking at a private loan or lending to somebody, doing due diligence is of utmost importance. You need to keep yourself safe and keep your money even safer. H. Quincy Long, the Chief Executive Officer of Quest Trust Company, talks about his due diligence process when he makes a private loan. He also talks a little bit about lending across state lines, some of the good and the bad there, and what he does to help mitigate risk and make himself feel comfortable with making that loan across state lines. Quincy has been a licensed Texas attorney since 1991 specializing in real estate, and has been a fee attorney for American Title Company. He is also the author of numerous articles on self-directed IRAs and other real estate related topics.

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Listen to the podcast here:

Due Diligence & Lending Out Of State with H. Quincy Long

A Conversation With My first Private Lending Mentor

I have a very special guest, Quincy Long, the Founder and Creator of Quest Trust Company. As many of you know, that is the self-directed IRA custodian that I use because they’re in my hometown. The whole reason why I am a private lender is because of Quest Trust Company and all the great education and networking that they have provided their clients over more than a decade now, a lot longer than that. I’m going to have Quincy talk about his due diligence process when he makes a private loan. We also get to ask him a little bit about when he lends across state lines. What are some of the good and the bad there? What he does to help mitigate risk and make himself feel comfortable with making that loan across state lines. This episode is sponsored by Quest Trust Company and their Self-Directed IRA Expo, which will be held in my hometown, Houston, this August 23rd through 25th, 2019. You can go to PrivateLenderPodcast.com/expo to get the links to the ticket and use PLPodcast as your discount code. You will receive 25% off of your tickets. I’m excited to have one of the smartest people that I know in the real estate investing world and probably on the planet in general. Let’s go ahead and get to the brass tacks and the interview with Quincy Long.

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I’m honored to have Quincy Long from Quest Trust Company on the show. Quincy, welcome to the show.

Thank you for having me.

Normally I would ask for your origin story, your comic book story or where you came from. I know you used to be a title attorney. You probably tell your story best. Tell us how you got to where you are now.

It’s an interesting thing. I’m a serial entrepreneur. When I first started the company or the predecessor to the company, what I did is I was a fee attorney for American Title Company. I closed lots of real estate transactions and had a self-directed IRA. The guy that says I’m not only the president of a hair club for men, whatever he says, I’m a customer. I had a self-directed IRA and I had all these real estate contacts. One day my third-party administrator at the time said, “We wanted to sign affiliate offices throughout the country.” I said, “Sign me up. I’m bored with what I’m doing.” I had no idea that was my interview. Fast forward, here I am after many long years and lots of twists and turns with Quest Trust Company at Texas Trust Company in direct custodian.

I fault you for getting me into private lending because it was at the predecessor company, it was in ‘08 or ‘09. I came to the free education that you were putting on in that little triangle room that held about twelve people.

That was a while ago. We got most of the first floor of the building now.

I know Quest Trust is pretty much the first floor. Your education room is huge with lots of IT and everything. It was those classes that I went to and took my wife to and say, “We need to do this self-directed thing. It got me going and here we are over a decade later.

Better than the bank, right?

That’s it. I always like to ask people, “Who is the bigger crook, the man who robs the bank or the man who owns it?”

I’m going to say the man who robs.

The man who robs because what he does is illegal and what the owner does is completely legal. Why not as normal citizens, people out there, we can run the same game with the same rules that the banks do?

Due Diligence: A far more important due diligence task is to do due diligence on the person you’re interacting with.

Once I figured out how the banks made money, I said, “That sounds like a good plan.”

It’s a pretty good business model. I wanted to bring you on because one of the facets that I like to talk about is the due diligence when looking at a private loan or lending to somebody. I always give credit to Quest for shaping my criteria, which came from getting the return of your investment first before you get the return on it. If you don’t mind, I would like the Lender Nation to hear from my mentor about due diligence and where you start.

The first thing you said is correct. You’ve got to do due diligence or as I put it, you’ve got to do the due. What a lot of people miss and including me, I’m talking from the school of hard knocks here, is that you’ve got to do two different kinds of due diligence when you’re talking about lending. The first should be obvious for the audience, which is you do due diligence on the property, on the repairs to be done with the property and the deal itself. The second and far more important due diligence task is to do due diligence on the person you’re interacting with, whether that’s a loan or a real estate transaction or a private entity investment or whatever.

Your most critical due diligence is the person. A lot of people miss that. I’ll give you one example without berating the point. I had a deal that didn’t go quite according to plan. This guy kept pushing me to loan him money and I kept saying no because he would give me these stupid deals. He finally came up with a nice house in Kingwood, northeast of Houston. He wanted $215,000 and I said, “No, I will loan you $200,000.” That was fine. We did the deal and my deed of trust was recorded. Unbeknownst to me, four days later, he went to a different title company and using the gap in recording, borrowed another $215,000 from somebody else.

Ten days later, he sold it to homeowners with 30-year financing saying he was going to pay me off and forgetting to mention the other $215,000, plus I later found he co-ventured the transaction with another bidder at the foreclosure sale and took $100,000 from him. All in all, he took $465,000 from people for $100,000 investment. I knew that there are other incidences, but that reinforced for me the need to do due diligence. What happens, especially when you’re new in investing, you meet these guys and you think, “They’re great. They’re wonderful. I can lend my money to them.” They don’t do the checking and the due diligence that they should do, then it leads to some unpleasant circumstances.

I love that example. I’d like to key in on that one that you gave. In terms of looking back, looking forward, what steps could you or would you have taken knowing what you know now?

You can always stop something once you start it, but you can't finish something until you begin it.
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I always advocate doing a little checking. For example, you want to check for lawsuits in the county where you’re doing the deal and if the person or entity is somewhere else, also the county there. That’s one thing you do. In this case, he had one lawsuit that I did find. I was like, “People can get sued and it was dismissed or settled.” By the time I checked them out, I had found criminal cases against him and found more than one civil lawsuit. Mind you, I foreclosed on the property. My lien was first. I got the property and the title company defended me. It turned out fine for me but thought about if you’d have been that second hard money lender. You check out of your IRA for $215,000 that didn’t have title insurance, that would be a little bit of a problem because you would lose. They’ve got their money back because of the title insurance. That’s one thing. When I was checking out after all this blew up, I started calling around people and they go, “That guy’s a crook. He did this to me or he did that.” I thought, “What?” That’s another thing you should do is you check around. We live in a small world and if you start screwing people, then it will get around.

Another thing that I like to talk about when we’re talking about due diligence on the person is I always type in their name, followed by scam, fraud or terms like that. You’d be amazed what comes up when you do that. It’s a small world and Google can figure out what you’re doing. You take everything with a grain of salt because anybody can say anything about anybody. The old phrase, “Where there’s smoke, there’s usually fire,” is true. That’s my take on the personal due diligence. The property due diligence is obvious, in my mind. You check the comps and don’t rely on somebody else to give you the comps. I’ve found a lot of private lender or borrowers, they run these ridiculous comps. I’m not an appraiser, don’t get me wrong, but I can tell if you have a subdivision and they’re using comps from the subdivision across the freeway, that’s not a comp. You also have to check whatever the comps are. When I say comps, you’ve got to verify if this house over here has marble and your house has laminated countertop.

You’ve got to be careful. I’ve had a lot of people try to pull the ball over my eyes on comps and repairs. That’s my weak link to be fair are repairs because I don’t know the value of the repairs. Generally, I am going to get somebody to do the comps or the appraisal that is at least familiar with repairs to the property. That’s all I can do because the most important thing that I go for are two things. I don’t ever lend to somebody that I have never met and don’t know. I don’t have to. I have plenty of deal flow. Although I lend all over the country, I don’t lend where I don’t have boots on the ground. When I say boots on the ground, I don’t just mean the borrower. There has to be some other person that I know and trust in the area. If something goes wrong, then I can at least send them over and take a look at the property and see what’s going on.

One of the things that I’m gearing up towards in future episodes is lending out of state when you’re not physically there. One of your friends, Scott Carson, invested in notes all over the country and he has teams that he uses like you would in Houston. If you’re doing a deal in Houston, you know some appraisers because of your affiliation with the real estate community. You’re going to know some contractors. You’re going to know some people who can guide you along the way or give you some advice or at least some counsel. Let’s walk through when you loan out of state and talk about that person or that team that you have, those boots on the ground as you said.

I’ve got two different ways, one where I screwed it up and then one where it succeeded much better. In the situation where I screwed it up, this is many years ago, so forgive me for this. I shouldn’t be on a podcast telling people how I messed up.

I did a couple of episodes ago where I talked about how I lost $18,000 on a second position lien. It got completely wiped out with a friend. I fully express my goof-ups, my mistakes and what you were thinking and hope that the audience doesn’t repeat it.

Due Diligence: Don’t ever do a deal without knowing that there’s somebody else there that can check on it.

This would fall in the category of what were you thinking? I did a loan. At the time, I had nobody in South Carolina or maybe it was North Carolina, I don’t even remember at this point. I did a deal with a guy who is supposedly arranging hard money loans and supposedly had all this experience and everything. He set up this hard money loan. He said that he would hold the escrow funds for repairs and if something went wrong, he would take care of it. All the typical stuff. Something went wrong. He dispersed the repairs and the repairs were not completely done. The sink wasn’t even hooked up. The borrower defaulted and I was like, “Take care of it.” He said, “Don’t you need to send the notice of default?” I said, “You said you would take care of it so to take care of it.” He said, “Okay.” He calls legal aid, the one where you hire lawyers and pay them monthly.

Legal Shield or some other ones.

It’s one of those. They assigned me to a lawyer who it turns out has never done a foreclosure ever. This was not a good experience. This was many years ago. Long story short, I ended up having to manage the repairs from a distance myself. I took a deed in lieu of foreclosure because the attorney was worthless. I sold it for $8,000 or $9,000 loss, which is one of my few losses in the 401(k) plan. That was not the right way to do it. On other times, I haven’t had to take much property back out of state simply because I’ve learned my lessons. Some areas that I have invested in are Richmond, Virginia. It comes to mind where we have the Jim Ingersoll and the Richmond mafia as we call them. I’ve done some wonderful deals there but I never do a deal without knowing that there is somebody else there that can check on it. I’ve done a couple of deals with a real estate investor up there and everything was good. I always call my buddy, Jim, or somebody else I know and trust and say, “What do you think of this area?” I did that and rejected a small deal in Richmond, not because I thought the guy was a crook but because I didn’t like the report on the area. It’s critical that you check out these deals and learn to verify then trust, not trust and verify.

Never trust, always verify. That’s my motto.

Not too bad of an experience. I don’t think I’ve ever taken one back myself out of state because I’m more careful in that way.

Is this an investor friend that you rely on in the Richmond area to give you that information?

Your network is everything. It’s the most important aspect you can have as a real estate investor.
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I have probably 20 to 30 people in the Richmond, Virginia area that would do me the favor of driving by the house and at least assessing it or doing whatever. I find that to be critical. Going back to the due diligence. The most important aspect of any private hard money loan is not the property, even though you think it would be. It’s the person that you’re loaning the money to. If you’ve got somebody that has particularly survived the downturn and did not defrauded everybody and walked away from stuff, that’s the borrower you need.

I want a borrower who will cut their throat to make me whole because they know as soon as I get stitched up, I will loan them money again.

Integrity is everything.

Integrity not only to other people but integrity to oneself because that’s where it all starts and flows out. I like the fact that you said you Google people’s names. That’s one of the tricks that I do as well. One of the first websites that come up is the Ripoff Report. You will see the coaches or the consultants that people were upset against. If someone asked me, I don’t normally require background checks because like you, I loan mostly local in my backyard to people I know. In a

PLP-079 Rashaad Rasberry: Looking At Comps From A Realtor’s Perspective

Keith Baker — Mon, 22 Jul 2019 03:00:00 -0600

Like most of those who get into this industry, Rashaad Rasberry saw real estate as a way to generate wealth. He did just that working as a real estate agent helping clients in their buying and selling experience. In today’s episode, Keith Baker talks with Rashaad about single-family comps and ARV, as he shares his thoughts on Houston pre- and post-Harvey. Having worked with investors and cash buyers, Rashaad walks us through the differences between the two. He also goes deep into his area and talks about comps from a realtor’s point of view – from what to look for in a property to the kinds of buyer behavior.

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Listen to the podcast here:

Rashaad Rasberry: Looking At Comps From A Realtor’s Perspective

How To Comp An SFR Property

You’re going to get some bombs dropped on you. I’m excited about this episode, our interview with Rashaad Rasberry. If you’re looking for practical tips and advice on mitigating and eliminating risks with the investment vehicle known as private mortgage lending, then you’re in the right place. If you also want to learn from my mistakes that you can avoid them and the mistakes of others, then have a seat. This is the show that is created for those who are looking to take control of their financial future by doing what it takes to create wealth in the marathon of life with old-world techniques and values. I’m looking to create a tribe of lenders that will disrupt the way we think about money, not only the way we think about money, but especially the way that we teach our kids about money.

Together, we can all prosper without the too big to fail banks and brokers. This episode is sponsored by Quest Trust Company and their Self-Directed IRA EXPO being held in Houston, my backyard, from August 23rd to 25th, 2019. I attended in 2018. I was a vendor and I’m excited to take part in the second annual Quest EXPO. Quest does go out of the way to create these wonderful networking and education opportunities that benefit all types of investors. If you’re within earshot, I highly recommend you make the trip to attend. When you do, stop by and say hi to me. I love to meet my audience. I’d love to meet other investors. I love to hear how people get creative in financing. Sometimes it’s stuff that I haven’t thought about or haven’t heard about. Go to PrivateLenderPodcast.com/expo for the link to purchase your ticket. That’s not an affiliate link. I don’t get any money. As everyone knows, I want to beat Scott Carson over at We Close Notes. He won in 2018. He got the most tickets sold. I’d like to beat him. He’s a great guy, but I love a little friendly competition. When you go to that website, use promo code, PLPodcast, for 25% off the already low-ticket price. The bills have been paid and now it’s time to get down to the brass tax. In this episode, I have the pleasure of speaking to a new friend in the real estate investing world. I’m excited that he accepted my invitation and took time to come on the show. Let’s go ahead and start talking about single-family comps with Rashaad Rasberry.

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Lender Nation, I’d like to welcome Rashaad Rasberry to the show. Thank you for coming on and agreeing to come on and allow me to abuse you with some questions.

Thank you, Keith. I’m happy to be here. Hopefully, the abuse is minimized but we’ll see how we fare towards the end of the show.

A little background, Rashaad and I met not through real estate, but through soccer. Our daughters played on the same team together. I see him wearing a realtor shirt. I’m like, “Real estate.” One thing led to another, one decent season of soccer with some kids. Now, here we are. I’d like you to give us a little background about yourself. Let the Lender Nation know how you got into real estate and how you became a realtor.

My venture into real estate was not your typical journey. We try to give all praises to our wives. My wife got into real estate when we lived in Georgia back in 2010 to 2011. She was doing more property management and the idea was more how do we become entrepreneurs with some of the things that we enjoy doing. When we moved to Texas a few years ago, she got licensed and we got into residential real estate sales. It took me a couple of years after her to join that venture officially. I always helped her with contracts and working through deals because I love numbers and I’m data-driven, it was not a natural progression for me there.

I saw real estate as a way to generate wealth like most of us who get into this industry. It’s also a way to create some autonomy with decisions as an entrepreneur. I’ve been at it for a few years. We target the Katy, Spring and Cypress markets, but we serve all of greater Houston. We work under our brokerage, Keller Williams Realty, but we brand and operate as cornerstone property group specifically. Trying to think through what are some other good nuggets there, but I don’t want to bore the audience with my background.

I like getting the background. It’s like your origin story in the comic books. We all fall into whatever it is that we do, whether it be real estate or my day job with the insurance adjusting. I had no desire to go into insurance. It’s boring, but there I go, then here I am now with private lending, talking about it and trying to help keep people safe. You brought up a good point that your numbers are driven and that’s exactly why I wanted you to come on the show because we can talk about comps and ARV. We’ll definitely get into that. One of the other interesting things is that not only do you do residential retail buyers and sellers, you also work with some investors and cash buyers. Walk us through the obvious differences and maybe the not so obvious differences. Cash buyers get emotional in the negotiation, but they don’t get emotional on the property, by and large. Walk us through in your line of work what you see and what the differences are with the cash buyers for you.

Cash buyers are definitely unique. You make a great point. A lot of the emotion tied to a specific property or multiple properties is typically not there. It’s more about a return on investment. That’s the beauty of working with cash buyers or investors in general. We tend to help them with multiple deals. The work that I do with them is more in volume versus a singular approach to a transaction. They have more leverage more often than not, meaning the Houston market has been strong for years in terms of being a buyer. With all of the new construction that we have going on, it seems like there’s a new development in every suburban area popping up every quarter.

It makes it difficult for those who are trying to sell the property to compete with new construction or regentrification and things like that. With our cash buyers, our experience took off post-Harvey. A couple of years ago was a unique position for all realtors, all investors and all homeowners in general. Not to diminish the impact of Harvey, but to keep it more real estate focused. We saw a huge surge with our business with cash buyers. For Kim and me, it was a unique opportunity to get more involved in that side of the deal. Most of our market has been generated around first-time home buyers. It’s completely different. We took on a handful of investors and we loved it.

The closing dates were reduced at twenty-plus days with a cash buyer. The experience we got from learning about rehabs and working with general construction teams, to understand what material and labor costs are. Ultimately, what can we do to get that house relisted for that investor and help them get some return? We’re shooting for the win-win in our business at all times. The most interesting part as I think back on the investment side of it is the amount of work that it requires from a real estate agent to help a cash investor. Harvey, we looked on average, I was going back through some of our data. Per client, we must have visited and touched on average ten to twenty homes. That’s not normal, but at that time it was a learning experience.

We saw from the Memorial area all the way to Katy different price points and we had to help them how can I gauge a good ARV, but ultimately how can I gauge profit and revenue. The cash buyer, the investor nowadays completely has leverage just about in any market, particularly here in Houston because of our landmass and how much more we have available to do new construction. That resale property or that distressed property out there that they may be targeting, the sky’s the limit.

Cash buyers get emotional in the negotiation, but they don't get emotional on the property by and large.
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You brought up an interesting point because Harvey shuffled the deck. Everyone was worried about property values. This was the pre-Harvey ARV, and now people started talking about a post-Harvey ARV and. To give some people some perspective, because I know exactly what you’re talking about, but I realized if someone’s not in the Houston area that the Katy, Spring, Cypress areas the northwestern quadrant up to the North Memorial is a nice collection of neighborhoods south of I-10 that runs basically from downtown all the way out to Katy. That’s a pretty nice little swat there. Buffalo Bayou runs right through it as well. There was a lot of houses that got affected by the flooding with Harvey down the bayou.

You did a lot of volume with them. Hopefully, your work paid off and all the properties paid off. We’re coming up a couple of years post-Harvey. My flood premium went up about $50 a year. I’m happy because we were fortunate we didn’t get touched. Speak a little more to the Houston market. If this was a nine-inning baseball game, how many innings? I’m not going to hold you to it, but what is your gut telling us at Houston? Houston is special. We have a lot of rice fields that are getting converted into subdivisions. There are tons of lands all around. It’s build, build, build. That makes us unique outside of say the West Coast or the East Coast. Where are we? How many substitutions have you made? Are we into the extra minutes yet in the soccer game?

I’ll speak in terms of inventory touching that because I think that’s important. A couple of years post-Harvey, we’re still creeping into the second quarter or second half of the soccer game. We’re post-halftime at this point, meaning a lot of the good buys or good investments where someone could come in and get a property for relatively next to nothing. There’s an oversaturation of investors flooding in for this market. I’m not talking about local investors. We’re looking at foreign investments, companies coming in trying to look and purchasing that volume.

You have people from out-of-state looking at this market. The competition certainly has increased and intensified like any game would right in the second half. There’s still inventory out there. It takes a little bit more of a creative approach to identifying it. Your investors, looking back early 2018, maybe even late 2017 as everyone was trying to wrap their head around what happened. There were a lot of homeowners looking to walk away. They were done. They were part of the Tax Day flood earlier that year. Harvey was not their first rodeo. They were looking to be done with it.

On the investing side, that’s like a Yellow Brick Road. Here you can come in and save the day and it’s a win-win for everyone. Now, we’re at a place where the road’s not so yellow. You have to go in. Your bids have to come in a little bit higher. You have to take some risk on your ARV. You have to take some risk on the materials that you’re putting into the house and what it’s going to cost you. Sometimes you can use spec one materials that would be great for a home buyer. Depending on what the community looks like and the comps for the homes around it, if they have nice marble and granite, you’re not going to be able to come in as an investor and keep the material and labor costs relatively low like you would in the first half. There’s a lot that has changed. Is there still opportunity out there? Absolutely, but the time is ticking.

I try to dabble and do some wholesaling and some owner financing and whatnot. I’ve literally gone to houses and there’s our postcard and there are five, six other ones. They’re all lined out. I’ve got six investors to come. What’s the best you can do? I’m on the spot. I’ve done my research and I’m like, “These are the numbers I’m going to come in with.” I was out here in Katy near Cimarron. I came in and needed some work. Unfortunately, she had been divorced and the upkeep was not what it should have been. She didn’t hire the most qualified people. There were some brothers and some cousins that came over to help here, put a little duct tape on this and whatnot.

Single Family Comps: Opportunity is still out there in Houston, but the time is ticking.

I came in and I said, “Let me give you a range. I’m going to say $115,000 to $120,000 because it’s going to need this.” She says, “I’ve already gotten better bids in that.” I said, “Thank you,” because I’m not risking overpay it and get caught holding the bag. I want to go on the record and say I’m not trying to predict or get you to say that some big crash is imminent. Markets have corrections and bumps. We saw it in the stock market, a nice little 10% correction. Things need to get leveled out. I’m not trying to predict like Nostradamus here like, “The next 2008 will occur again.”

When are we going to hit that next bubble? Let’s hit on that. From a real estate perspective and the general rule of thumb that I’ve always followed. Even as a homeowner myself and I’m looking at making my own investments as well. What I can always tell you that has been true, tried and tested as it relates to investments in the Houston market is what does the economy look like? What does our employment look like? Not what does it look like the current state? How has it fared over the last decade? If you study, and I’m not an economist by any means, but the key thing that I want to look at is do we have job growth? Is it accelerated? Is our unemployment rate in the hole? As long as those things and conditions are not set the correct way, real estate will be fine.

That’s the one thing that we can all follow in our market is that over the last decade or two, even though everyone who works in oil and gas will tell you there’s a huge ebb and flow to that. Over the course of time, it’s been pretty steady. I don’t see many trends going like this as it relates to unemployment in Houston. That tells me there’s always going to be a qualified buyer and a qualified seller as it relates to real estate transactions. If people are gainfully employed and our economy is growing from a commercial standpoint, that’s a key indicator to me that we’re fine. As it relates to the next bubble and predicting that, I would get some concerns when I see our unemployment rate spike or something like that. Outside of those conditions, I personally tend to not get emotionally caught up in all of the other market conditions that could occur.

We are unique in the sense that Texas tends to be business-friendly, certainly lender-friendly. That’s why I’m happy in Texas because I can foreclose relatively quickly. We’re a deficiency judgment state. If a house is sold, and let’s say I talked about how I lost my whole investment on the second lien, I have as a recourse I can file a lawsuit for the deficiency. Not every state does that. That’s why Texas is lender-friendly. Houston is the energy capital of the world. We live and die by oil. I remember growing up here in the ‘80s and interest rates were 12%, 16%, 15% on starter homes. They built this neighborhood in this field behind my house. I was devastated. They came and bulldozed it. They built houses. Within a couple of years, this was about ‘84, somewhere in there, there were the white foreclosure signs in the windows that had this little heading from the county court and everything. What does that mean? Foreclosure, what is that? Most people can’t afford the house.

They lost the job or whatever. I interviewed a successful real estate investor and a now private lender who’s basically wanting to ride off into the sunset. He came to Houston from Montreal in the early ‘80s. He’ll tell you to this day, because there was blood in the streets. There was an opportunity and he packed up, came on down and invested his way through it all. If anyone remembers the ‘80s in Houston, it was bad. Even ‘08 weren’t that bad for us. Overall, compared to the Coasts, but the ‘80s were bad. ’82 to ’83, that’s like our ’08 for Houston. My dad was in the oil field as well. I remember him sitting on the couch for a couple of months and going to every...

PLP-078 Loan Application Guide & Checklist

Keith Baker — Mon, 15 Jul 2019 06:01:37 -0600

Today’s episode is going to be geared for newbies or people who might be unsure how to start or where to kind of start the conversation with a potential borrower and it goes hand in hand with a sort of an announcement, I’m proud to announce. Happy to announce, relieved to announce that you can finally now get your copy of the private lenders loan application Guide and checklist over at the website, privatelenderpodcast.com and I’m going to kind of walk you through it a little bit today. So, if you have don’t have it yet. I would, you know, go get it and save this episode for later when you can sit down at a desk and kind of look through it. So if you’re running, driving to work, obviously you’re not going to be able to do those things or at the gym.

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GET TO A SAFE SPOT

So if you have to then go ahead and pause it and come back later. You can go to the Private Lender Podcast.com and just sign up anywhere, any sign up form that you see, name an email, fill that out and you will get the private lenders loan application Guide and checklist. And I put it together to kind of walk through a couple of ideas or themes and notions. And I’m going to go through those with you here today. I’ve always said that when it comes to a loan, I like to look at the person a their process and then the property. And that’s what I lay out in this, in this checklist, you want to know how much real estate investing experience they have if they’re just starting off or if they’re new, politely send them over to hard money lenders. That’s what they’re there for is to really help new people, new people, newbies, first-timers, be successful and let them do it with hard money, not yours.

LOOK FOR GRAY HAIR

That’s, that’s my suggestion. Look for what you’re, you know, if you have a borrow who’s been doing this for 20 years and they’re a flipper and they continue to flip, that’s great. That’s someone you might be comfortable with, especially if you have a good relationship with them. If you have a flipper or let’s say, let’s say you have a landlord who wants to go into flipping that process, I’m not too comfortable with because here’s somebody who has succeeded as or succeeded as a flipper, rehabber and now it’s to switch gears. I’m sorry, I just messed that up. Didn’t I? Someone who’s successful as a landlord, but now they want to switch gears and get some quick cash again. I would send them over to the hard money folks until they get a few flips under their belt. It’s a, it’s a little bit different game and I like to invest with people who know what they’re doing and stay in their lane.

So that is a touch on the person you want to know if do they have, what’s the record like in not just a criminal record or any, what was their record as a person do that? Have they been arrested a lot? You know, one or two times. Okay. Or not. I’m saying, okay, but what was the, what were the circumstances behind, do they have judgments against them? Have they been sued? Because here’s it. This is where it gets tricky because I, I’m trying to think of someone who’s landlord for a very long time who at least wasn’t threatened to be sued or contacted by attorneys, by tenants that know how to game the system so to speak. Uh, and I’m not trying to condone slumlords or anything like that. It’s just I know some good people who have been sued, uh, as landlords frivolously, but, um, unfortunately sued nonetheless.

BE JUDGMENTAL

So if they do have judgments or they have been sued, find out why. You know, are they behind on child support? Uh, you know, what, find out the reason. Do they have lousy credit cause they just got divorced or you know, have they had gone through a really crappy life event? Like, uh, someone getting sick or they themselves getting sick, but also want to note if the person that I’m loaning to has a reputation to uphold in their investing or their real estate investing community, that the, those things kind of help up help you mitigate risk so that when you go into the loan, it’s pretty much a no brainer, but that person is at the end of the day, you’re lending to a person. Yes, there’s a deal, there’s a property, but at the end of the day there’s a person and that’s where I think you should, you should start with at least that’s where I do and their process, like I said, what do they do?

Are they, you know, is this their 100th rehab flip or is this their 32nd rental property? Then you know, I have a comfort level with that. And then you look at the property and is it a, is it a property class that you’re comfortable? Is it single family is a multi, as a small multi, what is the deal? Most of this is going to be geared towards single family. This checklist that I’ve provided and the guide is loans towards single family. In the future I will have other property classes, but for now this is where I’m trying to follow the, the, the model of most people get into single family and then move on up. I’m trying to do the same thing with this podcast and with the checklist and guides and stuff like that. So, um, this is all going to be geared towards a single family flip or it could be an owner finance deal or it could be a landlord, a buy and hold, but you get to the last page and there’s basically the checklist.

WHO IS THE BORROWER?

Who’s the borrow? Who are they, what’s their experience? I like to see some type of portfolio of what they’ve done in a, an an investor profile. So basically what that means in what type of portfolio do they have, how can they demonstrate their experience? Can they show me some HUD statements, a loan application, a loan request applicant fill up, fill out an application, get the basics from them. If you’re lending to an entity, you definitely want to get the formation documents for the entity. Articles of incorporation, uh, another to DBA organization. Who are the players who’s involved under that name of, you know, real estate investor LLC. And for every individual that’s a member of the LLC or for every individual that I loan to, I asked for a copy of the driver’s license and social security card just in case. That’s kind of my little insurance policy.

I wouldn’t want a loan without knowing exactly having a state number or a federal number to attract these people down in case the worst does ultimately end up happening that way it’s, you know, you don’t run, you don’t necessarily have to run credit right off the bat. I like to let them do it through, uh, something that doesn’t Ding them on their credit, like Credit Karma or one of those sites. However, if things do go south, I’m going to be ready to act quick. And if I have a social security card and a driver’s license, I can do so.

The other option or let’s the [inaudible] option when I’m looking. The other thing, when it comes to the borrowers, can they repay the loan as agreed? You know, do they have enough reserves? Are they a full time real estate investor? If they’re not, if they’re, you know, if they have a full time job, then let’s, if they say, look, I like to request pay stubs just to see if the people are telling the truth. Most recent tax return as well helps out. It gets complicated with when people leave corporate world and can become a real estate investor because now they’re on bankable. So I want to see why they’re unbankable. I want to see that to prove that they’re in bankable. Uh, that helps me feel a little, you know, a little better with a person, especially if I don’t know them that well. But I tend to loan to people I know.

Not always, but I tend to. So you can also look for bank statements. I look for business and personal as well. I want to see if, if the cost, if the cost of the loan is going to cost, the price of the loan is going to cost them $5,000 for let’s say for a rehab flip. I want to make sure they’ve got the five grand ready to go and you know, and they can pay some draws up front. I love to see that brick construction draws. They’re ready to go. They’ve got money, so they’ll pay the contractors. Then they request a draw from me, so I’ll send out the inspector. They check it off, boom. We can wire the money, uh, usually within 24 hours to replenish the borrower’s bank account and to continue the, the Rehab of the property. I like to see additional personal assets, investments in investment properties. Again, back to the portfolio of the real estate investment experience. They have 401k’s four oh three bs pension stocks, bonds, mutual funds, whatever. Fidelity, Schwab, do they have cash if, if something goes south, do they have cash to make their lender whole? In the meantime, that’s what I want to see.

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I also want to have them execute a business loan disclosure, which basically says this loan is for a non owner occupant. This is a business loan to an investor. That investor cannot spend any time habitate the occupier habitate that property other than to fix it up, sell it or to lease it out to someone else. But that person, the person I’m loaning the money to cannot use that house as a residence because now that becomes a retail loan or a consumer loan and the rules change and the consumer’s protected much more than the business folks because the government and the laws basically assume if you’re doing business and you should know what you’re doing. And we all know that predatory lending does exist to certain folks and we saw it in the last downturn. So I always want to make sure they get, and I get an executed business loan disclosure so they know that they’re not allowed to live in the property.

BEWARE OF OWNER OCCUPANTS – THERE ARE DIFFERENT RULES!

If they do want to live in a property, that’s fine, but there’s a whole other avenue to go down, which this checklist doesn’t cover. So just want to tell you about them. Now on the property, I want to see the earnest money contract with all addendums and or assignments. I like to get local neighborhood statistics and I don’t necessarily require that from the the borrower. I hope that they have some of that in their due diligence in their package that they present and some of the documentation that they present to me. But you know you can make money in and high crime areas, you can make money in low crime areas. It just depends on what you like. I know people who buy houses for $20,000 lease them out and don’t have any contracts with people. It’s month to month and they pretty much know that at some point they’re going to, they’re going to have to evict and so they, they plan for it.

It’s not type of investing I want to do, but maybe it is something that maybe your one of your bars want to do and they’re comfortable with that and they know that there’s good money, there’s good cashflow in those types of properties if you know how to manage them. And if you get someone who can manage, operate, and manage them good, that are well then for the lender you’ll never even know as long as they make their payments and your pain is agreed to. Everything is fine. I like to see a scope of repair and or the bids, I want to see it all. I want to see who’s coming out to the property. Who’s, you know, is it their cousin who lays tile just throwing out some random numbers or is it, do they have a contractor that’s come out and said, okay, you want to flip or whatever.

PRIVATE LENDER’S LOAN APPLICATION AND CHECKLIST

This is what we’re going to do to get it to a habitable condition. This is what it’s going to cost. Does the scope of repairs do the repairs? Are they, are they appropriate for the neighborhood? That’s why I was allowed to look at the comps a as well, but don’t get, don’t get your comps from the borrower because they’re gonna, they’re gonna put lipstick on that pig. You go get your own comps or rely on the the appraiser. I also want to have permission to visit or inspect the property and access lockbox code or whatever that’s for local. Like I said, I start off, um, if you’re new, I suggest you start local before you cross county lines or state lines, but be able to go touch and see, smell the property that you’re, you’re investing in and putting money on first. So I want permission.

Just because I’m the lender doesn’t mean I can go to the property whenever I want. So I like to get permission. I also like to see a recent survey, the subject property I want to, I didn’t know that something is, is recent. When I say like, you know, five years is a, what I would consider fairly recent. As long as nothing has been constructed, torn down or anything else like that. Uh, I mentioned appraisal. You want to get your appraisal, you want to get an or a CMA, broker price opinion, something. I like to do my own comps. I’d like to dig into them. And usually appraisers will give links into your mls system that you can drill down into the photos and look at the, the furnishings and the treatments or the, sorry, the finishes on the property so that you’re, you’re not providing a, a retail loan or providing a loan to somebody who’s going to go into a house and put four mica or laminate countertops when the rest of the neighborhood is marvel. Vice versa. You don’t want to put marble in a neighborhood that everything else is going to be laminated. Do you want to know what’s around and make sure that your investor, your borrower is keen on that and that they’re not going to over or under serve the property.

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Yeah.

And it goes without saying. You’re going to get a copy of clear title commitment and the closer contact info. And then there’s the insurance policies. And what happens is you get binders a so the policies won’t incept until the day of closing. So you yourself won’t have the policy. But they insurance companies give what’s called a binder where they will say, okay, a upon closing this property insurance will be in place. Same thing. You definitely going to get a lender’s title policy for the full amount of your loan to make sure that you’re made whole in case, God forbid something happens.

Okay.

I want to see that evidence of property hazard insurance or the binder and the limits must be no less than 100% of the ARV and or anticipated listing price. And if it’s going to be a short term, I like, I like to see where it is going to be at least a six month policy put in place or some type of short term policy. I don’t mind lenders only getting a few, sorry. Borrowers only getting a few months of insurance when they’re going to be flipping a house and turning it fairly quickly. But while they do own it and while my money’s on that house, I want to make damn sure that they’ve got some, some property insurance hazard insurance there. And because I live in the Houston area now, I require um, flood insurance through FEMA, a national flood insurance program. It’s still dirt cheap, cheapest insurance there is out there. And a lot of people don’t understand that homeowner’s or landlord policies, dwelling policies do not cover flood from a hurricane or a river. They don’t cover flood at all.

INSURANCE IS NON-NEGOTIABLE

I like to see, like I said, I want to see those binders ready to go. I want to see what those limits of the policies are gonna be. Just so that, you know, they’ll say simple math and ARV of a house is going to be a hundred grand and I’m loaning 50 on it. I want to make sure that if anything I think burns down that

I like to see the a hundred grand there because the limit of a hundred grand for the ARV, not including the property because what I’ll probably should do an old episode on this, but there’s something called the Co insurance clause, which I believe I spoke about last episode.

Okay.

But if you don’t ensure at least 80 or 90% of the ARV or what the true property value is, if there is a claim, then the insurance companies will deduct, or you only get, say, let’s say if you insure $100,000 house for 50,000 and you completely get wiped out. Let’s say a hurricane comes through or a tornado and that hundred thousand is out, but you’ve put limits on for 50 all you get is 50 so if you’re the lender, maybe you get paid back. If you put 50 if you’re down, you know, if you’re only in there for fit 50 50 grand. Where it really bites is, let’s say that $100,000 home has a, and the borrower has only put a $50,000 limit or 50% of the value on insurance. Then there’s a $50,000 claim. Half of that house is damaged and has to be rebuilt. It’ll insurance is only going to pay for half of it.

That will pay according to the percentage of value that you insured. So that’s why I say, you know, get 100% of the ARV value, protects you, protects the borrower, and it’s just the next room, a little, a little cushion, so to speak in a, and we’re trying to keep the, trying to keep your money safe. So if you want to go get your private lenders loan application Guide and checklist, again, go to private Leonard, podcast.com and I’ve, um, I’m, I’m experimenting with this little pop up so that when it looks like you’re gonna leave the page, it’ll pop up and it’s a, it’s got all the wrong copy and everything on it, but I, uh, I’m going to try to change it here shortly, uh, but I just wanted to get it out there and get it into people’s hands and I like to know what you think about it.

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BiggerPockets – Keith...

PLP-077 Property Insurance And The Concept Of Indemnity

Keith Baker — Mon, 01 Jul 2019 03:00:30 -0600

Indemnity is an insurance term that is often misunderstood. The word indemnity comes from the Latin indemnis, which means unhurt, undamaged, or without loss. That is at the heart and soul of every insurance policy. Essentially, if something bad happens, that policy will get you back to the position you were in at the moment before the loss. Learn more about property insurance and the concept of indemnity as Host Keith Baker gets into the heart of the whole principle – from the reimbursement to the claims process and conditions for closing.

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Listen to the podcast here:

Property Insurance And The Concept Of Indemnity

We’re going to talk about insurance, everyone’s favorite subject. Probably one of the most boring things in the world to talk about is insurance. However, as a private lender, insurance policies keep those properties that we invest in and we put liens upon. It keeps them safe and keeps us safe and our borrower safe. They’re a good thing. We want to talk to you about property insurance and the concept of indemnity, but before we get into all that fun stuff, I’d like to direct you over to the PrivateLenderPodcast.com/expo. This will be a link to take you to get tickets to the Quest Trust Company Self-Directed IRA Expo that’s happening in Houston. You get a 25% discount with the promo code PLPODCASTS. I don’t get any money from the tickets, but I get pride. Whether it’s realistic or not, my goal is to drive as many people more than any other sponsor at this event because it’s a cool thing to do. August 22nd, the night before the expo, there’s going to be a happy hour at the Royal Sonesta Bar. Come on out if you’re going to be in Houston. You can meet the vendors, a lot of VIPs and other people from Quest. I look forward to seeing everybody.

Let’s get into the heart and matter of the episode. Let’s talk about property insurance and the concept of indemnity. It is an insurance term that is often misunderstood. I want to walk you through a couple of terms and this is one of them. The word indemnity, to put you completely back in school though, it’s a Latin root, indemnis meaning unhurt, undamaged or without loss. That is at the heart and soul of every insurance policy. If something bad happens, then that policy will pay you back to get you to the position that you were in right before the incident occurred. To get back to where you were at the moment before the loss, that’s the whole idea. You’re not supposed to profit from insurance even though I think a lot of people do when it comes to claims, especially I’ve seen on houses. You can do some of the work yourself, save some money. You can make some money. The whole principle of the insurance is to put your property back to where it was right before whatever that incident was. That peril that occurred, whether it would be a hurricane, tornado, fire.

Indemnity insurance is a contractual agreement or an insurance policy in which one party guarantees compensation for the actual or potential losses that are sustained by another party. The insurance company promises to compensate or to pay for the cost of the insured. These policies indemnify or reimburse the assured against claims. That is where the big hang-up gets is with reimbursing. Reimburse is to pay a sum the money that has been spent or lost. The moral of that story is you must spend money in order to get the insurance money. That is the principle behind insurance policies. You’ll say, “Keith, State Farm cut me a check to get started and told me how much I was going to get for my whole claim and I hadn’t even spent a dime.” That often happens with consumer insurance because they’re afraid of bad faith. They don’t want to be seen as not handling claims properly. They’ll come in and a lot of times they’ll go ahead and put down what’s called the actual cash value. Let’s say for example, you have $100 widget that’s five or ten-years-old. The replacement cost is $100. It may only cost you $20 ten years ago, but now it’s $100. The actual cash value would be that replacement cost minus any depreciation and loss of value. You can think of this with your car is a good example.

Indemnity comes from the Latin indemnis, meaning unhurt, undamaged, or without loss.
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To replace your car’s $10,000 but it’s ten years old, the insurance might give you $1,000 for it. That’s actual cash value. What they’ll do is that a lot of times they’ll provide actual cash value up front to let you start the repairs to get the new roof or to get the flood handled, knowing all along they’re going to give you replacement costs. The insurance company wants to see that you’ve actually done the work. They’ll give you an actual cash value to get started in some cases. As the repair work is completed, they will make up the difference from the actual cash value what they’ve already given you what the replacement cost is. That’s a caveat in the rules when it comes to consumer insurance, which is basically what we as lenders demand. It’s a consumer product and consumers as you know, are usually treated better than businesses in this regard or at least consumers, they get the benefit of the doubt of not knowing any different or better. Whereas someone who’s in business should have the wherewithal to make a better decision. From that standpoint, the consumer is generally more protected by the Department of Insurance and the insurance laws of whatever your state is.

What does all of this mean? It means that property insurance should be a mandatory condition of the loan. The borrower must maintain property insurance for the life of the loan on the subject property. This way, if the property upon which you have at first lien is damaged somehow, and if any of you have gone through a homeowner’s claim or flood claim, this is very similar. The insurance company will send the check to the insured. In this case, it’s your borrower, but they have to endorse it and send it to the mortgagee or, in this case, the private lender for their signature endorsement. The lender can demand inspections to verify that the work has been performed and the damage has been repaired in an acceptable condition.

If you haven’t had a significant property claim, you may not be familiar with this and that’s okay. That’s not a bad thing not to be familiar with the claims process. As a lender, I like to let people know what the indemnity and reimbursement process is up front. There will be a draw in an inspection schedule that’s going to coordinate with the number of repairs that need to be enacted on the property to bring it back to either a rentable or sellable condition. To the lender, mandatory, non-negotiable. You get title insurance and you get property insurance. When I say property insurance, I’m coming to you from the Gulf Coast of Texas. That means property, what we call a fire policy, windstorm and flood.

Indemnity Insurance: Property insurance should be a mandatory condition of the loan.

If the borrower doesn’t want to do all that, then you want to put your money out on a property that’s not protected but your duties as a lender once you enforced, don’t loan without a property policy. You need to verify that your name as the lender is listed as the mortgagee and loss payee on the insurance policy. This is a condition before they can even close on the loan and your money is released out of escrow or wired. In demand that your borrower has provided the declaration page of every policy every time it usually renews in six or twelve months. As a lender, you also want to look at the insurance claim to see how much has been damaged. The adjuster will go through and calculate the damage as well until you get that from the insurance claim forms. There’s usually a schedule or a list involved. You can also look at the scope of work from the contractor.

Usually, there’s going to be a general contractor that’ll come through and oversee the job. In my case with my claims, I was the general contractor. I’ve got all my subs lined up. It was a little bit different, but it was the same for me at that time Wells Fargo held my mortgage. I got the check, they signed it. I had to sign it over to them, then they send an inspector out. They saw how much work had been completed and then they released the funds accordingly based upon how much repair work had been completed. That’s the beauty, they send inspectors to verify that these repairs have been completed and up to code. If it’s a city code, for example. Anybody who wants to make sure that the property is brought up in an appropriate condition and a safe condition. If anything were to happen and that borrower was to lose the property, it can give you some headaches if they were to get into some legal disputes on the quality of workmanship. You don’t want to put money on a property that’s going to be tied up in a liability claim.

As a lender, you need to act and inspect quickly so as not to harm borrower’s condition anymore. They’ve already suffered and you’re taking a hit, they’re not getting rent or they’re further behind on the schedule. As a lender, it’s up to you. Once the borrower is ready for an inspection, have that inspection done as quickly as possible. Release those funds on the draw schedule so that the borrower can go back to work and can continue repairing the property. One of the interesting things that you may or may not know that I found out when I was getting my adjusters license. A couple of things actually, if the borrower, let’s say an insurance policy lapse, the insurance company is supposed to let the mortgagee know that the insurance policy is lapsing. The only way you can have an insurance policy is if you have a financial interest on the said property. As the lender, you certainly do have an economic interest in the well-being of that property. You can step in, get a policy on that property. It can do a short-term. Sometimes you can do a month, six months, twelve months. Check with your agent for guidance on that for your area in your state. The lender can get the premium and then add that amount of the premium for the policy added to the loan until they can get right back up.

You must spend money in order to get the insurance money.
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That’s also an indication of trouble for the borrower. Not only is it something that you can remedy with a few $100 for a month, give or take. Check with your agent. I don’t know numbers across the US but it is a solution to a problem and it can also be the canary in the coal mine so to speak. The neat thing about being a lender is let’s say, God forbid your borrower gets into a tight and shady situation and thinks it’s a good idea to burn down the house and collect on the insurance money. That way he pays the lender, no harm, no foul. Everything’s cool and it gets them out of a jam. The fire department does their job and they say, “No, this is definitely arson.” Your borrower is a suspect to say the least and can be prosecuted if believed to have performed insurance fraud. Most property policies arson is excluded or harming the property intentionally is strictly excluded under property policies. You can’t do intentional damage to the property at all. An arson would be intentional damage, therefore it’s excluded. However, as long as the lender would that be you personally, your self-directed IRA, your LLC entity, trust or whatever. As long as it is listed as a mortgagee and a loss payee, the lender can be made whole.

The policy will pay the lender because the lender is a loss payee. They have an economic interest in the policy. They’ve suffered damage, they’ve suffered harm and the policy’s there to make sure that the lender is made whole. That’s my two favorite things about property insurance and I don’t know of another investment where you get insurance policies for it. I always demand property insurance, whether that’s a landlord policy, dwelling policy, flood and wind storm for the Texas Gulf Coast where I live. If you’re out in California, you might want to add seismic or earthquake. It’s a consideration. I don’t live out there, but it’s something that you may want to look at. My personal belief is that all occupants in the property if they don’t own it, they need renter’s insurance just in case something bad happens. When I was in college, my friends’ apartment, the water pipe broke above his living room while he was on Christmas vacation. He had hundreds of classic vinyl albums where a lot of them were ruined from the water. It was a very sad day. As my personal bit, but yes, do not make a loan without it. This is one way that tools like insurance help keep your private money safe, your loans safe, and it’s a great tool. It’s something that isn’t talked about very often and it’s one of those things that I like about private lending.

In recap as a lender, you want to make sure you don’t lend on the property unless you have property insurance. Verify that your name, the lender, is the mortgagee and loss payee on the policy. It’s a condition for closing and demand that your borrower keeps you updated and make sure that, “I’ve got a new policy for the new year.” Review the scope of work or the insurance claim forms. That way you as a lender from away can look at a desktop version of the claim or what the damage is, and they usually have some photos and whatnot in there. You get an idea of the level of damage and what it’s going to take to repair it back to where it was. It puts you back in that position where you were right before the storm, the fire or whatever happened. Send your inspectors out to make sure that the work is done properly and up to local code before you release any funds to the borrower. That’s a good way to protect yourself. They spend the money, you indemnify them. Once the work is satisfactorily completed and you as the lender need to act quickly once a claim has occurred and your receiving money because you don’t want to slow down the borrower at all.

Indemnity Insurance: As a lender, make sure you don’t lend on the property unless you have property insurance.

I can’t tell you how frustrating it is to wait for a bank to send an inspector out especially after a big natural disaster like a hurricane or a large flood where thousands of people are affected. It stresses the personnel resources of the insurance company to get enough adjusters out there and to get the claims process going. Remember, even if the issuer does something to the property, check with your agent in your local state laws. You as the lender are still protected even though your borrower is not you as the lender. The mortgagee can still be made whole even if the borrower caused the damage. Thank you and please connect. You can go to the Private Lender Podcast page. I’m also on BiggerPockets, Instagram. Go to the website for everything else and also PrivateLenderPodcast.com/expo for tickets to the expo and 25% off your ticket price. I understand the VIP tickets are going fast. It’s a pretty good value for what you get. I wish the audience in internet land happy and safe, prosperous and fun private lending. We’ll see you later.

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PLP-076 Reaping More From Your Self-Directed IRA with Nate Hare

Keith Baker — Mon, 24 Jun 2019 03:00:25 -0600

Nate Hare from the Quest Trust Company shares his knowledge about self-directed IRA. Quest Trust Company is a premier self-directed IRA company that enables clients to use IRAs/401k(s) to purchase real estate, notes, private entities, and other non-traditional investments. Nate talks about what their company does, how they started out, and the aspects that make them special among many other similar companies. He also gets down on their Quest Expo and gives us a brief walk through what investors can reap from simply attending it. Learn more about self-directed IRAs and how you can invest it in this episode. Get educated to empower yourself to make good investments happen.

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Listen to the podcast here:

Reaping More From Your Self-Directed IRA with Nate Hare

Nate Hare describes the Two Most Powerful Accounts to Grow Your Wealth

My goal is to create private lenders and to show them how to help keep their money safe while building wealth with old world pragmatism and without banks or Wall Street. If you’re looking for a way to learn how to build wealth by utilizing time-tested methods in this ever-changing world and digital world, then you are in the right place. This episode is yet another first on the show as I have the honor of interviewing Nate Hare from the Quest Trust Company, formerly Quest IRA. He is the first repeat victim on this show.

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We have the first ever two-time guest or repeat guest on the show. Please help me welcome Mr. Nate Hare from Quest Trust Company. Nate, welcome.

Thank you very much.

Nate, welcome back to the show. Thank you so much for coming on and we’re going to get into some cool topics related to private lending and not only self-directed IRAs but other accounts that are just as if not more powerful than a self-directed IRA. A real quick refresher, if you want to go back and listen to Nate, it’s episode seven. With that, I’d like to turn it over to you and tell us all about the wonderful world of self-directed IRAs and other accounts.

Self-directed IRA is the business that we’re in. It’s funny how I ended up in this business. I never had any idea of self-directed IRAs and I never had a plan to get into the business because I was a lender like you. I worked for big banks and small banks. I was always interested in lending, numbers and real estate and then I found this great company, Quest Trust Company. It taught me about doing those same type of investments, lending, buying real estate and all the things that we’d like to talk about but do it completely tax-free within retirement accounts. That’s what we call a self-directed IRA. Self-direct is a marketing term. Most people don’t realize it has no legal meaning behind it. We allow people at Quest Trust Company to use their IRAs or old 401(k)s or other retirement accounts to buy notes, buy real estate or buy non-traditional assets within the retirement account and reap all the tax-free benefits that the IRAs have given.

Thank you for doing that. Without Quest Trust, this show wouldn’t be here. You were the ones that got me started down this road many years ago and Quincy was holding small classes on Tuesday nights.

What a lot of people don’t realize is that Quest Trust Company is a company with 100 employees and managed $2 billion in assets, but the grassroots start of the company was through a private lending meetup that Quincy started way back in the day. He had a self-directed IRA and he was looking for new investment opportunities and he liked being a lender, but he found out when you’re a private lender, you’ve got to go out there and network and find some off-market deals. The best way to do that is he formed his own little local meetup group. All of these people have retirement accounts and they basically met once a month. They found out if they had some investments that they wanted to share with each other and bought them with their retirement accounts. That’s how Quest started was through a private lending meetup. The meetup consisted of probably eight people at the time. Now, we have our classes on Tuesdays and it’s jampacked with almost a hundred people.

Self Directed IRA: Self-direct is a marketing term. There is no legal meaning behind it.

You have definitely come a long way in a short amount of time. When you consider, you not only have to make your potential client aware of your existence, but you’ve got to show them, “This is a good thing,” because very few people know outside of Wall Street, Schwab or Fidelity what you can do. That’s why every moment, every chance I get to help promote Quest, I do and likewise with you because you have a big party coming up, don’t you?

Are we talking about the Expo?

Yeah.

One thing that makes Quest Trust Company special is that even though we manage retirement accounts, we don’t sell investments like your Fidelity and Charles Schwab. We don’t have investments to sell our clients. It’s a truly self-directed IRA where the self is the client. The client has to find their own investments. However, our account agreement with our client says, “We’ll hold anything the IRS allows, you just have to find the investment. We’ll hold it as your administrator and your custodian, but you find the investment.” Most people as you mentioned have no idea that IRAs can hold real estate investments into private companies, not publicly-traded companies, startup companies and oil and gas interests. Investments in private entities that might own apartment buildings or commercial property.

Our biggest investment that we hold is promissory notes. A lot of people find that they can make above average return in their retirement account by holding promissory notes secured by real estate. They used their IRA like a bank. Once they find out they can use their retirement, like banks use your money anyways and make above average return without doing any of the work, it’s like a light bulb lights off in their head. The thing is most people don’t understand how it works or that it even exists. I always say the first investment for our clients is always the one that’s a little bit uneasy for them but once they find out how the process works and they see that return come in based on an investment that they picked, it’s life-changing for a lot of our clients. They continue to stay clients with us for a long time.

We’re excited about the growth and we’re excited about teaching more people about self-directed IRAs. What I was trying to get to is that since we don’t sell investments, we grow as fast as our clients invest. If we had a bunch of clients that didn’t understand what they were investing in, Quest Trust Company wouldn’t get very far. Our whole thing is a long-term approach where we will want to have educated and experienced investors. The best way for us to have educated and experienced investors are to add some education to our calendar and our format. We’re probably the education leaders in the self-directed IRA space. We’re always doing things that are free to clients, but we do this expo once a year. It’s our annual expo. You were at the first one. I’ll let you give the third-party endorsement. I’m pretty biased in my opinion but I thought it was one of the best events that I personally had ever been to or a part of. We’re hoping to make it even bigger. What was your experience?

Most people don't understand how self-directed IRA works or that it even exists.
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I normally go to these things as an attendee. I get my ticket, get my bag with my goodies and go sit down and many people coming up, “What’s your podcast about?” It was probably the coolest and fastest two days I’ve ever spent in Dallas. My network grew so much from being there and I need to go back and count the number of interviews I got from being at the Expo. Your sponsors are some of the top-notch in the real estate industry. The presentations were amazing, especially the panel that I sat in on. I thought that was the best part of the show.

I immediately went to the marketing folks afterward I said, “I’m in next year.” They’re like, “We’re going to try to make it bigger and better.” I’m like, “I’m sold. Please send me the information when it’s available.” I’m looking forward to doing it again. I’m trying to work with Anne Marie to get some different ideas of even more interaction with people who just opened an account. It’s like the first time they go to Vegas. Their eyes are big. They don’t know what to do. I bring them in and do some Q&A. If they want to come on the podcast, that’s fine. If not, how do we help people get moving in and facilitated into other direction quickly with the podcast branding. Because Quest is in an interesting position where you can’t sell anything. I know that first step, that first investment and that first loan were so difficult for me. That’s why I started the podcast. If you take one step over a line and you think you’ve crossed the river, but you need to look back and it’s a little line but when you’re on the other side of that river, it’s huge.

I’m anticipating doubling the attendance this time. It’s going to be over a thousand people. If you’re borrowers and real estate investors, pay attention because there’s going to be a lot of available money at the Quest Expo and you got to go. That’s why I love private lending. It’s a personal relationship that you build. You can loan to strangers if you want and I’ve done both, but I personally like to loan to people that I know and that earn my backyard. Quest Expo is a phenomenal place to start meeting those people and get connections. The little things that I learned that you don’t even expect. It’s these little things that stick in your head later on.

I’ll piggyback off what you said really quickly. For the audience that have no idea what we’re talking about, let me talk about what this expo is because regardless of what type of investor you are, this is not an expo that is only for private lenders or private borrowers. This is an expo for any investor regardless of what type of investment strategy you are in or investments that you’re interested in or whether or not you have a retirement account or not. That has nothing to do with going to the Quest Expo because how the Quest Expo works are it’s not an expo where you’re going to go and people are selling you things. We forbid any sales of any type at the expo. We don’t sell investments and all of our speakers we tell them there’s no selling. It’s strictly education-based.

You have a lot of people there that have different programs that can help you in your investing or coaching or something like that. You could talk to them at their booth and stuff but when you’re in the room, you’re not being sold anything. That adds an interesting dynamic because I felt like the energy at the expo was all about getting to know people and networking because people didn’t feel pressured to do anything. You’re there to absorb all the information and education that you’re getting from the speakers. We have speakers that talk about fix and flip strategies. We have speakers that talk about buying multifamily, commercial property and storage units. Different types of note strategies, whether it’s partial notes or being a lender, buying existing notes from tapes from a bank and buying nonperforming notes.

We have about 30 different speakers that give you all sorts of education and to soak that information up is a value in itself. Quest Trust company is not in the business to grow the expo. We don’t even make money on the expo. We try to break even. That’s why the price of the expo is so cheap for what you get out of it. If you go to the expo and you don’t walk away with some golden nugget that helps you double the value of your personal funds or retirement accounts, I would say you probably were sleeping at the event or some case. The education’s great and networking is second to none. Regardless of what type of investor you are, whether you have a retirement account or not, if you are interested in investing, if you’re interested in growing your money and growing other people’s money or you’re looking for private money for some of your investments, there’s no better place than the Quest Expo.

Self Directed IRA: The ESA and HSA are accounts that you can use that not only benefit yourself but also your children and family.

You mentioned that the Expo isn’t just for private lending. Everyone reading this knows that I do the bulk of my private lending with my self-directed IRAs. I’ve got to start switching my strategy because there’s the HSA, I understand and it’s even more powerful than a Roth IRA.

Depending on how you look at it. For the audience who aren’t familiar with Quest, not only do we throw big bad expos, but our main function is we administrate self-directed retirement accounts. I say retirement accounts but some of them are not for retirement. We have seven types of accounts at Quest that you can open up and self-direct, which would include your traditional IRAs and Roth IRAs, which are what most people are familiar with and what most people have. If you have, say an old rollover IRA from an old company that you worked at. It might be a traditional IRA or you might have a Roth IRA, know that you can use that bucket of money. If you’re unsatisfied with your current returns at your traditional custodian, you can transfer or move those to Quest and you could start investing in the things that Keith teaches about with his lending or whatever it is that you find that you want to invest in. We have traditional as a Roth.

For self-employed individuals, we have more accounts for you which are the SEP IRA, simple IRA and the individual 401(k). Again, another page on the menu if you have some self-employment income and then we have the last category of plans that we have here are the specialty plans, which would include the ESA, the Coverdell Education Savings Account and the Health Savings Account. These are a little bit different than retirement accounts because usually, your retirement account is for your benefit after 59 and a half or whatever you decide to take distributions to yourself. You get a lot of tax benefits by delaying it until 59 and a half. This ESA and this HSA are accounts that you can use that not only benefit yourself but benefit your children and benefit your family, which would be spouse and children when it comes to paying education expenses for your children and health expenses for your entire family.

Those are expenses that any parent has and I’m not talking college expenses with that ESA. I’m talking about paying tuition, uniform, books or computers. Anything that you have to pay that would be a qualified education expense from kindergarten all the way through college, you can pay with tax-free dollars or tax-free profits out of your investments held in the child’s ESA. It can be for your daughter or son or you can have a couple for each of them. What you mentioned was the HSA, which is some people will say the best account on the planet because it’s different than all the other six accounts. Because not only do you get tax deductions when you make contributions to your Health Savings Account, but you get tax-deferred growth on the investments. Not only that, you get tax-free distributions to pay for out of pocket health expenses that your insurance doesn’t cover. Things like your copays, dental, vision, your prescriptions, all the things that most Americans are paying with your national money and your back-pocket money based on your earnings. I would say that’s the wrong way to pay those expenses because you got to earn so much more money to pay taxes to even be left with enough money to pay those expenses.

If you can switch your mindset as an investor and understand that there are buckets out there that you can use, that grow completely tax-free to consume current expenses, then you get Uncle Sam out of your pocket. One of the greatest things that you can do with all of these accounts is not only to use them individually but use them partnered together. The best clients that maximize the ability and the tax benefits of these self-directed IRAs are the ones that say, I’ll give you a hypothetical, “If I’m going to do a loan to a real estate investor, I’m going to create a promissory note but on that...

PLP-075 How a second lien wiped out my entire investment

Keith Baker — Mon, 17 Jun 2019 06:00:13 -0600

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Greetings lender nation, and welcome to episode 75 of the private lender podcast. I’m your host, Keith Baker. And I’d like to thank you for sharing your time with me today. I’ve got an interesting episode for you today – I look, I’ll just get to the point I’m going to tell you about probably the biggest mistake I made as a lender and how I lost money on a second lien and I’m hoping it’s gonna be a little cathartic. Hopefully no tears, not too many, but I do hope that you can learn from my mistake and protect yourself a hell of a lot better than I did. But before I get into that sob story, I do implore everyone listening. If you can hear my voice, please go to privatelenderpodcast.com/expo that’s EXPO and there you can get the link and the Promo code to the Quests Trust Co.’s Self-Directed Ira Expo in Houston this August 23rd through the 25th and if you use the Promo Code PLPodcast, you can get 25% off your ticket.

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And it’s our, it’s already a pretty low ticket price. I think it’s like 100 bucks for three days. General admission. If you want to do the VIP, I think it’s around three but a 300 that is, but definitely worth it. I went to the first one last year. I loved every minute of it and in fact I’m going to try to bring the kids out so that they can man the booth so I can go see more of the uh, of the speakers because it’s quite interesting to see how other, you know, it’s not just real estate, but it’s interesting to see how people use their self directed Iras and uh, you know, just the many aspects that are available to you. It’s actually a pretty cool thing. So again, privately to podcast.com/expo for your link and 25% off Promo code p l podcast. Okay, so let’s get into the sob story and I haven’t even prepared any notes for this. I might fumble through a little bit because, uh, I’m not gonna, I’m not sure if I want to get everything down that I want to get down, but here we go.

I always stress to people, especially when you’re starting off, never ever lend outside of the first position. Don’t take a junior position lien, don’t take a second lien and not because you can’t do it safely, but for starting off. A lot of people come to investors and say, oh, I already have the money for this. I need a second lien to basically fun there. Their costs through the, through the deal. It’s the pay for the primary lender. And I know guys that do that and they pay 8% and no more. And they are successful in this, they are pretty good businessmen – they’re not your casual real estate investor and it works in that case. In this case it doesn’t. And I’ll have to explain the background a little bit. A friend of mine wanted to do a rehab on a house that had been flooded after hurricane Ike and not Harvey, but I Ike and uh, it was a friend and then I was going to be charge a lower interest rate and we were basically going to kind of help each other out – trading consulting services.

There is huge mistake. Keep, keep the loan a loan – only money, interest points, keep it simple and don’t try to get, you know, services or consulting or education or anything like that. Except when you know, I mean it’s for the terms of the loan, it just the money, the points and time.

So when I agree to make a loan, I’d never made, cause I dropped my interest rate down to like 6% and no payments for 6 months in exchange for business consulting that never came through and it was never agreed to, which is my mistake right there.

I’m done and I’m not blaming my friend. That’s my problem. That’s my fault for, for doing that. I thought it was going to be cool. And I, you know, basically I invested into their vision and their excitement and their enthusiasm for the deal in a second position. And I trusted their comps that were provided to me. I know these are rookie mistakes. This was a while ago. Um, but it’s still kind of, it’s still kind of raw. And if I’m going to put my voice out there on the airwaves that, uh, about private lending, I think it’s a, it needs to be in full disclosure when I tell you not to do a second lien. There’s a good reason. There’s a pretty damn good reason why I advocate against it. But anyway, let me get back to the story. The consulting never happened. I drove by the house, and no work had been done about six months into it and hey, what’s going on? Yeah, yeah, yeah. Blah, blah, blah. “Excuses and no worries. Everything’s going to be on, you know, we’re going to have it listed in, you know, two months.”

Four months go by. I don’t hear anything. Try to contact the friend. Nothing. Okay. Now, now my feelings are getting hurt a little bit, you know, be honest with you. This is a friend, somebody that I had, admired some aspects of their life. And here they are not paying as agreed and not only giving me bs excuses, but I’m having to chase them to find out what, what’s going on. And that’s like the trifecta right there.I’m lazy. So when you, when I have to chase you or foreclose on you or, you know, find, you know, do work, I don’t like it. It doesn’t put me into a very empathetic mood. Let’s just say that. But the real, the real kicker is when I found out that the property, the subject property that my second Lien Position Lien was on, was going up for foreclosure and I contacted said friend and asked what’s going on? “Yeah, I’m will try to pull a rabbit out of the hat. It’ll be okay. “

Okay, I said- trusting the friend. They were able to have the foreclosure postponed – Great!

However, if the borrower is not going to make the obligations or meet the obligations the first time, the odds of them not meeting the obligation for the second time or even third time. And that’s exactly what happened. And so it goes back to foreclosure. I call up the trustee and said, I have a second position Lien. Were you aware? No, we were not. Do you want to make this loan, this loan, the loan whole? You know, bring it up to payment, bring the payments current which basically needs to be done. Do you want to pay off the loan? And it was a heck of a lot more than I had loaned my friend. It was about 50,000 and I had loaned at my friend 15 and actually no, 18, sorry, 18 and it’s gone. It was foreclosed, the house is no longer mine or I never was mine, but my money is gone, disappeared and vanished.

well, some of you might be thinking, oh, you know, you be angry at your friend, which is certainly an understandable emotion. I felt like a complete idiot. I still do and I don’t know, it’s not something I actually want to admit, but I figure in this internet age and, and, and just everything like, you know, transparency is huge. And so, yeah, I’ve, I’ve screwed up, I’ve made some pretty bad mistakes. I’ve also gotten lucky on a lot of them. I’m not going to sit here and tell you I’ve done thousands and thousands of private loans. I haven’t, but I’ve done enough to where when I look back, I can see my mistakes, I was so lucky there, you know, that, that, that could have, that really could have come back to haunt me. And this is the, I guess one of the biggest ones. And I should have, I feel like now I should have put this, you know, much earlier in the episode count and not wait until the 70s.

This is very the very reason I decided to come up with the private lending pillars of which I have four right now.

PILLAR 1 – Number one, never loan money to a friend or family, but rather give them the money without the expectation they’re going to pay you back.

And if they do pay you back, then great. It all works out well. But if you loaned the money to the friend or family, and this doesn’t have to necessarily be for, you know, private loan to a real estate investor just in general, don’t loan to that friend, give, give him the money, you know, maybe it’s a payday loan or whatever. If you have the money to give and you don’t get it back, that’s fine. Give it, give it away, move on.

However, in this case, because the friendship and tangled things up. The services portion of the loan wer never agreed. I should’ve never wired the money without that agreement in place. You know, and just, that’s just a big case of dumb ass right there. But you know, I was, I’ll say I was young, it wasn’t that young, but I was younger and dumb and I had bought into the enthusiasm of the borrower and that is a death trap or can be. Fortunately it was only 18,000 that amount. But, um, what are you going to do? You know, that’s a loan I shouldn’t have made. Yes. My friend should pay me back. That goes without saying, but you know, this is a lesson I learned. So hopefully you can, you know, carry on and say, yeah, Keith, you were, you’re an idiot. That was stupid. Hope you learned your lesson. Because I have, trust me, I have, but maybe you can take that with you and you know, just learn from my mistakes. Don’t do what I did. I did “do as I say, not as I do”, or not as I did. How about that? Uh, so with, uh, I can happily say I have no second liens out there.

These days, all my loans are in the order in the first position. So yes, I have definitely learned learn from that mistake. So yeah, never lend to your friends. Another, pillar is return. Care about Roi is the most, is the most important thing you should think about first, the return of your investment.

PILLAR 2 – As a Private Lender, your primary concern is ROI: the return OF your investment first, then the return on investment.

Because here in my case, I did not put that as a priority and there you go. Lost the money. I also think of a great pillar to have is that it must be a win win for everybody and everybody has to know the situation.

PILLAR 3 – The deal and loan must be a Win-Win-Win situation for all parties before I agree to participate and lend.

And the reason I bring that up as let’s say in the case of owner financing where somebody like Mitch Stephen or I’m a partner, Landon and I will, will purchase a house through with private money and in turn around and sell it with owner financing. And our buyer covers the note back to the private lender. I won’t do those deals unless they’re vetted through a residential mortgage loan officer or loan originator, sorry. And that the buyer, the end buyer is aware that his lien with the owner is sec a second lien. Uh, and I’ve, we’ve had them a tour and they, a buyer’s said, nope, I don’t want that.

Um, there’s, you know, anyway, I’m getting ahead of myself there, but it’s got to be win, win, win is what I’m trying to say. And I’m babbling again. I’m sorry, folks. And then of course in the lesson in all of this second lien, was not doing my due diligence, buying into the enthusiasm of the borrower, not believing a friend could do that kind of thing.

PILLAR 4 – Never Trust, Always Verify.

Especially comps, especially low activity in the area. Always verify, never trust him. And if you do that, they’ll follow those four pillars. You’re got a really good step down the road and into the private lending world. So that’s what I’m going to leave you with after this episode. Please remember to go to PrivateLenderPodcast.com/expo and we don’t, I don’t get any money for that link that is on the expo page. It just tracks who came through me basically. Because Quest, can’t share funds and you know, anything like that. I can’t monetize that at all. But what I can do, and um, this is an episode of full transparency. Scott Carson is going to be there and last year he was the vendor who had the most ticket sales are coming through his channels. And I like Scott, he’s a friend, he’s a great guy, but I’m also very competitive and I, it, I just, I want to beat him. Okay. I do. I, you know, I want friendly competition. But I, I want to beat him. So if you go, please, please put that link out there. Put it on your social media, you get it out there to everyone you know, it doesn’t matter who uses it and they get 25% off.

That’s a, that’s a, that’s a great deal. I mean, you can’t beat it. But yeah, that’s the reason I am, I really, uh, really pushing the quest expo this year cause I want to be, uh, I want to be number one, but I definitely want to, I want to rank, let’s put it that way. I want to rank and get as many people out there as possible because it really is a cool event and I’m going to be there. Uh, the kids would probably be there for at least some of the days. I might let them skip school. Anyway, it’s a lot of fun. So that’s it. I think I’m done rambling now. I’ve got about a quarter hour in, you’ve got my sob story. What do I say you shouldn’t do? Second Liens and why you should stick to the Private Lender Pillars.

Now, I always have a touchstone to come back to, to guide you, especially when people tempt you with all types of things. “I’ll pay you higher interest”, you know, they’ll, they’ll will want to structure the deal this way in their favor. So it’s good to have a touchstone or something. I have those, those pillars, you know, those commandments for lack of a better term, uh, and have those in and don’t do second liens. So there, all right. That is all for today. I wish all you guys out there, positive self awareness, happy thoughts. Uh, uh, I just had a Bill Burr moment. I was about to tell you where “to go”. But anyway, I do wish you happy and prosperous private lending, and I’ll see you on the next episode.

Important Links:

Quest IRA Expo

Keith Baker Interview – 7 Rules for Real Estate Investing with Nick Raithel Podcast

Private Lender Podcast on iTunes

Facebook – Private Lender Podcast

Instagram – Private Lender Podcast

LinkedIn – Keith Baker

BiggerPockets – Keith Baker

PLP-074 How Just 7 Hours Can Transform Your Investor Brand

Keith Baker — Mon, 10 Jun 2019 03:00:31 -0600

One of the best ways to build authority, transform your investor brand, give value, and get more opportunities is by writing a book and publishing it. The only factor that stops you as an entrepreneur or investor is lack of time. Nick Raithel, the creator of the 7-Hour Book, turns unmanageable to manageable as he reveals how you can write a book in just seven hours. Find out the secret formula as he gives a high-level overview of those hours and learn how to create book ambassadors who will help you scale your business.

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Listen to the podcast here:

How Just 7 Hours Can Transform Your Investor Brand

Nick Raithel Unlocks Your Power To Become An Author

If you’re looking for practical tips and advice on mitigating and eliminating risk with the investment vehicle known as private mortgage lending, then you’re in the right place. If you want to learn from my mistakes so that you can avoid them, then pull up a chair. This show is created for those who are looking to take control of their financial future by doing what it takes to create wealth in the marathon of life with old world techniques and values. I’m looking to create a tribe of lenders that will disrupt the way we think about and teach our kids about money. Speaking of money, this episode will be geared more towards the borrowers out there and a few lenders as well.

I would imagine those who would want to borrow from a private lender would find an interest in our guest as I have the pleasure of speaking to Nick Raithel. He has a very impressive business model that holds your hands and walks you into becoming your own author of your own book in a very short amount of time. It’s a cool idea from an interesting individual. I want to introduce him to Lender Nation. Before we get into the interview with Nick and learn how he does his magic, I have some news to share. There’s going to be a big piece of humble pie coming my way because not too long ago I said I was going to give up sponsors and focus on other things, content and whatnot, which I have done.

At the same time, these opportunities come to take on a sponsor, which is Quest Trust Company. They can’t pay me. It’s a symbiotic relationship where I’m able to teach classes with them. I sponsor their events and they in turn are sponsoring the podcast leading up into their expo. They’re having their big self-directed IRA Expo, the second one ever. The promo code is PLPodcast for a 25% discount. I’m bringing back sponsorships for the Quest IRA Expo on August 23. I’ll also be there hosting a happy hour the night before it starts in the hotel bar. When I say hosting, I don’t know how many cocktails I’m going to buy but at least, we’ll be there. We’re going to have a cool event organized with a lot of the vendors and VIPs that will be showing up at the conference.

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You’re in for a treat because I have Nick Raithel on with us. He has an interesting business model that can help perhaps lenders and investors alike. He has an interesting story. I can’t wait to get into it. Let’s go ahead and welcome Nick Raithel. Nick, welcome to the show.

Thank you very much for having me. I look forward to contributing.

For the audience, give us an idea. I understand you’re relatively new in your actual deal-making with the real estate game. We’re going to talk about the real reason why I wanted you on. Go ahead and give us a little background, origin, how you got into real estate and how you got into having your podcast and this business of creating books for investors.

My background is the creator of a system that helps real estate investors and private lenders, people throughout the entire space, related spaces to create their own professionally published book. For building their authority, building their investor database and promoting themselves and their businesses in the span of seven hours. What leads to that was an interest in content creation, the use of content and content marketing and then that transitioned into books. Realizing that of all the forms of content that a person could use to build their credibility, books are really one of the most tangible and most effective forms. Having worked with a variety of clients, helping them to get a book and use that book build their authority, build their businesses, I myself had to fall in love so to speak with real estate. I was hearing about it from our clients who are investors. They were doing syndications. They were doing flips. It’s one that could be feasible for anyone, not just people who’ve been doing it their whole lives. Let’s say a doctor or an attorney is beginning to think about their retirement, but the average person or someone from a content marketing perspective is looking at what deals can bring you.

We’ll get back into the real estate side of it. How do I create a book in seven hours or how do you help me create a book in seven hours?

That’s the key part that you are not creating a book in seven hours. All of the people we work with, our clients, they only have to spend a total of seven hours of their time on the process. We, on our side, are spending a whole lot more than seven hours. What they’re doing though is they’re talking to us on seven one-hour calls over Zoom or Skype or phone even. In that process with the calls, they’re going through a set of questions and a framework to get the ideas for the book out of their head and give those ideas to us as we’re doing the calls and questioning them to then on our side create the book. That’s the gist of the 7-Hour Book.

Seven hours for the “author” or your client, how many hours are you running behind the scenes? Do you have some prolific writers on staff or are you doing this yourself or do you have people to help you with this?

I’m fortunate to have a very talented team that has taken quite a while to assemble. In terms of how long we as a team are spending on it, it’s too long. The short way of answering that is too long, but in a good way though. Some of our writers tend to be a little bit more obsessive in terms of how much time they spent on a particular chapter or on a particular section of the book from the quality perspective, but too long.

You want good quality, but from an operations perspective, that can bog you down. If you don’t mind, walk me through a high-level overview of the seven calls. What are you helping me with? Let’s say I’m a real estate investor and I want to be a flipper.

Let’s say you’re a flipper. The very first step in that process of even doing a book is to determine should you have one in the first place. The reason I say that is because sometimes you might find that your goals don’t necessarily need a book in order to be accomplished. If in the case of being a flipper, if your goal is simply to flip more houses or to attract more deals to you, there are a variety of ways that you could do that. You might, for example, need to send out more mail. Hook up with a direct mail powerhouse company and send more mail pieces or maybe you need to go on the attack with bandit signs, put out more bandit signs. Maybe those are the means by which you’re going to achieve your goals. You could find out that your goals are achieved through a book and that’s where someone like myself would come in with the 7-Hour Book. I would encourage everyone to think for a moment before the book enters the picture about what their goals are and what are all of the ways to achieve those goals.

That’s a great first step. It’s extremely pragmatic and practical. Looking at other options to say, “Is a book going to be a fit for me?” You said it’s geared to build credibility. If I wanted to flip, I see where I just amp up the marketing. However, if I want to start teaching how to flip, if I wanted to ramp up a coaching business, I could see where that would be. You worked with people who are doing syndications. I could see where a book would be a great way to basically open doors for somebody.

Especially in the syndication sense, a book does open doors and we’ve seen this with clients we’re working with, who are syndicators. You’re looking to build the number of email subscribers or build the number of contacts in your database. One of the best ways to have people coming into your database is to give them something of value to stay in contact with you. If you’re giving them a book, not only does it show them that you know what you’re doing, which is important in the area of syndications. You don’t want to go into syndication with someone who they’re not sure, does he even know how to refi these properties or do a five-year turnaround? You want to make sure you’re educating them on that, but you also want a logical way to stay in touch with them. A way that isn’t continually pitching them but is giving them something of value. That’s what a book would do.

I myself have entered the fray of online eCommerce content marketing. It’s a great way to stay in touch with them without pitching. Anyone who’s on my email list knows that I email extremely infrequently, hardly ever. For every guru out there, I know I’m doing it wrong. I want to build a brand more than I want to pitch somebody. You’re doing a sales pitch here in this interview. I’m sitting here looking like, “I could totally use this myself,” but I want to get it back into the audience. I’m still hung up on that. It’s a great way without pitching. I got on Grant Cardone’s list. I got tired of ten emails a day. I had to get off of it. This is a great way. It’s portable. The more I talk to you, the more I love this idea. Walk us through with syndications. Let’s get out of the single-family. Let’s go in with apartment buildings or commercial. We’re getting ten or twelve investors together. A sponsor comes to you and says, “Nick, can you put a book together for me?” You guys sit down and establish the goals are in alignment. A book will help him. Is there a lot of paperwork or is it all chatting on the phone to get the information to your company?

7-Hour Book: The very first step in the process of doing a book is to determine if you should have one in the first place.

In terms of the paperwork itself, what you were saying is we try to keep that to a minimum and focus it on talking over the phone. If you’re a real estate investor, especially as we’re saying, syndicators, flippers can be quite busy too. If you’re in that position, you already have enough stuff to worry about. We’re trying to take as much of the paperwork and as much of the headache out of it through simplifying it to talking with us on the phone. In doing many of these calls, we will often send questions and outlines for the calls to people ahead of time, but we don’t expect them necessarily to spend hours on their end preparing. It is designed to be taking the information out of their head as soon as possible for us to then turn it into a book. Given that structure, you have a fair amount of mental bandwidth and the amount of brain space to a minimum so they do not have to think too much.

I hate the word hack, but I can’t think of one. To me, a hack has a negative connotation, an easy short step or a shortcut, but you’ve taken the heavy lifting out of the “author’s hands.” Do you consider yourself ghost authors or co-authors or how does that work?

No, we’re definitely not ghostwriters or ghost authors or anything of that sort. The reason for that is that ghostwriters typically are English majors or people who are focused on making something sound pretty. While there’s nothing wrong with words that sound clever or smart, that’s not our goal. Our goal is specifically ROI in getting a result. If that result can be achieved through writing something that makes people laugh or chuckle, okay but we’re not looking at it from that perspective. We’re looking at it from the perspective of how do we craft this book and put it together in such a way that’s going to get that result. We’re also looking beyond the book coming out to what we can do to market this. How we can make this book go viral within your target demographic so it does start bringing in a flood of interested investors or a flood of other people to help you achieve your goal.

Not only do you put the book together, but you help market it?

Absolutely and part of marketing that we focus on too is building it into of the book itself. That’s something that a lot of ghostwriters and other people who focus on writing miss. It’s the idea that when you’re creating a book you can build it in, for example book ambassadors. What I mean by a book ambassador is someone who has a vested interest in it. How would you do that? One of the ways would be to ask people you’ve worked with. If you’re a deal sponsor, you’ve worked with them the past, write them into the book, whether that’s a direct story of how they’ve been involved with you or if they’ve done real estate investments of their own, feature their stories from those investments in the book too. By doing that, you’re giving them a reason to praise the book and to promote the book once it comes out because they’re in it. Who wouldn’t want to promote a book that they’re in? You’re creating book ambassadors through writing a book.

How did you come up with this idea? Not the secret sauce but what was happening when this idea hit you?

Are you talking about the book ambassador?

It’s for the whole business. I understand the book ambassador, you’re basically laying the groundwork for someone to speak well of the book. The whole idea of the 7-Hour Book, how did that come about?

A book is a way that isn't continually pitching clients but is giving them something of value.
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It was a fusion of a couple of different things. One of them being people who wanted to do books. The issue always or nearly almost always seems to be that they don’t have time. You can’t blame them if they’re doing syndications, if they’re flipping houses, if they’re doing wholesale deals, there’s not any time leftover. Yet people know at the same time too that a book can be tremendously powerful in attracting speaking opportunities or in building your authority or in accomplishing various other goals. Recognize that time is the issue and try to figure out how to mitigate and ultimately eliminate that issue standing between them. I find it fascinating to think about life hacking and trying to be a little bit better than you were yesterday through various productivity kicks. All of those together, the result was the 7-Hour Book.

You’ve identified a problem and you solved it. That makes it sound like it’s like an ultra-simple thing, but that’s what all good businesses do. Especially now in the Alexa world that we live in, the drive-through Alexa world, time is our most precious commodity. You’re basically giving an author time. How long have you been going at this?

I would say long enough to get gray hairs, putting it like that. We’ve been doing it for quite some time. It ends up getting pretty stressful thinking about all the books.

Do you get a lot of single-family people to come in for your services or is it more of a sophisticated investor or both? How is it mixed?

It is both, although we have seen that there are a lot more multifamily guys. This is probably due to the surging popularity right now of multifamily. We’re in the midst of what I would term the multifamily gold rush in the sense that everyone wants to be in it right now. With so many people wanting to be in it, that’s creating a need for people to try to position themselves and stand out. We’re seeing them do that whether it’s through books on my side or even starting podcasts. It seems like people have latched on to this formula. If you raise capital, what do you do? You start a podcast and you podcast all about multifamily real estate and the benefits of it. That’s one of the ways to do it with a book being another.

I can vouch for a personal experience that I’ve put a lot more than seven hours into this podcast. You’re the giver and taker of time. There is the multifamily gold rush. That’s a very apt way of saying it especially more so in the Dallas-Fort Worth area in my home state. It’s definitely going on. I remember sitting in a mastermind years ago and the guy said, “What’s the difference between investing in $100,000 house or a $1 million commercial property?” The answer was a comma and some zeros. That’s it. I am not surprised that there’s been a natural...

PLP-073 Private Lending For Profit: Keith’s Interview On The Accelerated Investor Podcast with Josh Cantwell

Keith Baker — Mon, 03 Jun 2019 03:00:30 -0600

In real estate, private lending is a necessary field especially for those who want to invest but are short in cash. However, Keith Baker says the power of private lending isn’t the money or the debt that you’re getting, but the education and the network. Keith is a real estate investor and the host of Private Lender Podcast. He talks about the circumstances that led him to become focused on passive investing as a self-directed IRA investor and a private lender, as well as how he got started in podcasting and his passion for private money.

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Listen to the podcast here:

Private Lending For Profit: Keith’s Interview On The Accelerated Investor Podcast with Josh Cantwell

I’m going to throw up the format. I’m going to change it up a little bit. I’m going to throw something a little new at you and let me explain why. First off, if you’re looking to get rich quick, if you want to make $1 million overnight, then stop reading this blog because that’s not what this is about. This is here to help people like myself, like you, normal everyday working people trying to live the American nightmare in suburbia. We have a fairly decent job. We also like real estate but we’re not going to go quit and become the next Chip and Joanna or Than Merrill. This way we can still participate. We can still be investors. We just do it with our funds, private money, private lending, private mortgages to other real estate investors.

I believe this is going to be episode number 73 and the topic is I ran out of finished episodes. While I’m putting something together and getting interviews recorded, I did an interview with Josh Cantwell who has a very interesting story. I highly recommend you go seek him out and learn. He does coaching and education. He also uses private money. I figured it would be great to do an interview swap with him, which we have done. However, I have miscommunicated with his tech team and I’m still trying to get my side of it. I do have a copy of my interview on Josh’s podcast, which is called Accelerated Investor Podcast and you can find it at AcceleratedInvestorPodcast.com. My episode happened to be called Private Lending for Profit: Part 1. I had a good time and enjoyed my time with Josh before, during and after we interviewed swapped.

At some point, I will post the interview that he did for this show but for the time being, I’m trying to get ahead in my scheduling. My time is getting a little more cramped than usual. I figured this is a great way to buy a week. I’m doing some more solocast. I’m going to start drilling down into different aspects and I’ve got some interesting interviews coming up. The Private Lender Podcast will be sponsoring the Quest Expo. It was Quest IRA, but they changed their name to Quest Trust. This is their second year. It’s going to be in Houston this 2019, August 23rd through 25th. I’m proud to be sponsoring that again.

Even though I’ve canceled sponsors from this show, I will be bringing back Quest Trust as a sponsor. I will have discount codes for tickets and I will have some interviews from some Quest Trust employees. There will be a lot of interesting things about different accounts that you can use for self-direction and for private lending in notes and real estate. That’s going to be fun. I’m going to let that cat out of the bag. I want to get to my interview on the Accelerated Investor Podcast with Josh Cantwell.

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I am particularly excited to be with you to talk about private lending with a relatively new friend. His name is Keith Baker and he has an amazing podcast of his own called the Private Lender Podcast. Keith, welcome to the show.

Thank you, Josh. I’m glad to be here.

Tell us a little bit about the Private Lender Podcast. You have a passion for money. You’ve done a bunch of real estate deals, but you also have a full-time job with an amazing opportunity as an owner or shareholder in your existing company. That’s led you to become focused on passive investing as a self-directed IRA investor and a private lender. Tell us about the podcast and your passion for private money.

The podcast was born when I was on vacation with the family. My whole family loves the beach. I don’t. We were sitting down in Florida one day in August. I live in Houston. Heat and humidity are around me all the time. I don’t see why I need to pay extra money to go and feel it on the beach. It all came together that I wanted to tell people about private money. It’s passive. Every time I talk to a real estate investor, “What are your needs?” “I’d love to get more private money. I’d love to have more funding.” More private money, easy, quick, inexpensive, forget the banks, hard money, all that stuff. I said, “I’ve always been told that I have the face for radio, why not go ahead and start a podcast?” I launched on January 1 and have been fumbling my way through it ever since and I love it. I do have a great day job where I bounced around. I did construction. I did the oil field and worked on the rigs. I’ve always enjoyed real estate and the construction aspect of it. For a while, I was a contractor and did a lot of flips for other rehabbers, but I quickly found that I was doing all the work. I’m the one that was getting the hangnails, bleeding fingers and everything.

I have a 9 to 5 and we have a family. I wasn’t the type of person to quit. When I got out of the oil field and went into insurance adjusting, which is what I do now, but I still do it for the oil field. It’s a high-dollar, high-ticket item but I travel at the last minute. I literally have a bag in the closet next to the front door. If something goes boom, I’m on a plane to go. It prohibits me from meeting contractors or future tenants. This was a decade ago. It’s not like what it is now where you can walk up with a smartphone and gain access to a house. I focused on private lending and I had some old 401(k)s because like somebody born in the ‘70s, I’ve bounced around from job to job until I finally landed on the one I’m at now.

Private Lending: Private lending is just not about the money but it’s about the education and network.

I had a bunch of old 401(k)s. I converted them. Fortunately for us here in Houston, there’s a wonderful company called Quest IRA. They gave free education and started walking down that path and became known as a lender. I would loan only to whales in the Houston area, the big names. I often would do at ridiculously low interest rates, but the caveat was that borrower had to walk me through the deal so I could see their business from start to finish on that property. That’s when I saw the power of private lending. It isn’t the money or the debt that you’re getting. It’s the education and the network. It’s the knowledge and seeing things and how people do things. That for me is where the golden nuggets are, not the payments.

I recruit capital often from people that think they want to be active investors. When I educate them about self-directed IRAs, they’re like, “I have this old 401(k) with $300,000 in there, $250,000,” or whatever. They’re like, “Can I actively flip money using this self-directed IRA cash?” I’m like, “You can but all the profit has to go back in your IRA.” They’re like, “Forget it. I don’t want to do, it’s so much work.” I’m like, “You could lend to us. You could lend to these other borrowers and you could follow along the process and learn while you’re getting interest on your money.” It’s very similar to what you’re talking about. Keith, you handle millions of dollars of other people’s money every day. That’s why you become comfortable as a private lender with your own cash. Tell us a little bit about that. You’re managing money in these and take off on planes. You’re used to looking at risk. You’re used to looking and trying to mitigate that risk. How was your day job permeated into your private lending business and managing that risk?

What happens is my background was drilling, usually the upstream stuff. If anytime there’s a good blow-out, there’s a fire or let’s say a refinery or something go boom, that’s when I get to go to work. I’m a loss adjuster. When these things happen, I get on the plane and I go look at them quickly. If it’s an oil well fire, I will write a report. If it’s a refinery, that gets a little more involved. You have to get engineers and accountants. You get into some very complicated financial calculations for things like business interruption where something goes bad. There’s an insurance policy that will pay your monthly revenue or at least the profit side of it. I don’t get to it until I get the accountants into it.

The point being is the people I work for are mostly Lloyd’s of London, syndicates at Lloyd’s of London. It’s their money that’s being paid out to these oil companies. It’s up to me to pour through all the invoices to make sure that everything is relevant to repair. If widget A blows up, then I look at the whole repair process. I will liaise with the engineers on what the cause was, so on and so forth. At the end of the day, it’s all about what is that going to cost the insurance company to reimburse the oil company. I’ve hand-delivered checks for $5,000 to small oil companies in Houston. I also negotiated settlements in excess of $100 million for some famous hurricane claims.

It took me a few years to get over the fact that this isn’t my money and to lose that awe of if I make a mistake, this does cost some money. Fortunately, it doesn’t cost a life at the end of the day. I deal with dumb iron and property. I don’t deal with feelings or soft tissue. Still, people get funny when it comes to money, especially if they feel like they’re losing it. It was a natural fissile because of my adjusting career and jumping on planes at the last minute to go look at things that are burning into, “I can do this passively.” I remember being in a small town in Pennsylvania and getting a call from a property manager about how we’re going to have to evict. I’m like, “Just send me the bill, get it done. I don’t need to be in this process.” If the metrics aren’t met, get rid of them. That’s how I like the passive thing. It’s other people’s money, although it’s my money that I loaned. It naturally progressed from me of looking after someone else’s money and doing it with the oil field to doing the same thing with real estate.

Get your feet wet but learn how to do things safely.
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Are there any criteria specifically that you look at in your real estate private lending practice that you talk about on your podcast? Is there a checklist or a go for flights check off plan before you lend money out?

I am coming up with that. I speak about my criteria. I will give you one of my pillars. Pillar number one is there are two types of ROI. The first is I want to know if I’m going to get the return of my investment back. That’s number one. If I am going to get it back, once I’ve established that it’s going to come back or I’m relatively comfortable with it coming back, then how much am I going to make on that? That’s the first pillar. The second pillar is never lend to family or friends. If you have the money to give, give it with the expectation that it won’t come back. If it does come         back to you and they pay it back, great. Thanksgiving and Christmas get odd when people commingle money with friends and family.

Those are the two big pillars. The third pillar is I tell people unequivocally if you’re starting out as a private lender, Josh, not someone like yourself with years of experience, but someone new to the private lending game, stay away from subordinate liens. Don’t loan on seconds, thirds, etc. Stay in the first position lien. It’s the best way to secure yourself until you can get comfortable with somebody’s business model and how they lent. I tell people never to take a second position. I have two seconds in an unsecured note out that I do because I know this based on the people. It is based on their work history and also their investment history. That’s my go-to, stay away from that early on. Get your feet wet and learn how to do it safely. When you are in a second position, you’re not sitting there with your handout because you’ve given up all control over your money at that point.

It’s an unsecured note just handing somebody some money. That’s my hard and fast. Never lend to newbies. That’s what hard money lenders are for. That’s why they charge 15% to 18% and all those points because they look at it the same way I do, but they’re in the business of making money. I’m in the business of investing with money. It’s more passive. It’s different but I look at it the same way as only go to whales, people who have a proven track record. Another thing is in local markets, lend to people who will take a reputation hit if they didn’t pay you back. You put more of their skin in the game. Skin doesn’t have to mean money necessarily.

Obviously, it does. If somebody comes to me and goes, “This is at 72% of after-repair-value all in,” I will say, “We will put it into the 6% or 7%. Get me down to about 65%,” and we will talk all day.” That’s one way you can put skin in the game. The other is if somebody is a whale in a market and let’s say they’re starting off, they’re coaching, or they’re getting students in the area. I will loan to a newbie if they have a coach that I know and trust and I’ve seen them work. It’s not to say that people don’t make mistakes. People with experience make mistakes, but a whale in the market can’t just walk away and go, “I messed up. I’m not going to pay it back. I’m just going to walk away from this.” They’ve got reputation on the line. That is a whole other level of protection and mitigation that a lot of people don’t think of.

Private Lending: In local markets, lend only to people who will take a reputation hit if they didn’t pay you back.

Those are some great ones that I haven’t thought about, reputation damage. We don’t talk about that too much but it’s so true.

In your business, if you make a mistake, it’s better to fess up and say, “It’s going to cost X. I need two months to give you the money back. You will be made whole.” If people can go, “This investment didn’t go through but I got made whole. Josh kept his word. He did what he said.” That’s huge. That goes a long way, especially in this day and age.

We’ve got to make people whole, not only get them their principal but their interests at all costs. Not that we’re going to do anything wrong or fraudulent or anything at all costs. In my mindset, it’s getting people when they invest with us, the first thing on our list of things to do in our business and values is making sure we protect our investor’s principal. That’s number one. They’re our number one priority. Before I take any money out of business, before my partners get paid, my staff knows, everybody is on the line to make sure that the private lender gets their money back or their principal at least and their interests too. Rule number one is never lose principal. Rule number two refers back to rule number one.

Keith, you’ve lent out a number of different deals and you’ve given us some amazing pillars of what to look for. What is the traditional type of loan that you like to make? Is it always a first mortgage lien like a private lender loan? Do you invest equity in deals? Are you looking at longer-term equity plays where you can get your principal back and be an owner in perpetuity? Give us a flavor for some of the different deal flow that you’ve looked at.

All the above. There’s a guy I’ve interviewed. His name is Tom Berry from

PLP-072 Where To Find Value: Comping Properties

Keith Baker — Mon, 27 May 2019 03:00:53 -0600

Running comps is not as easy as it seems. Finding value from a long list of properties can be challenging. As Keith teaches us how to run comps, he gets down on looking at MLS and who you should transact with. He also shares the importance of getting an MLS access, paying an aggregator, realtor, or broker for a comparative market analysis. Keith stresses the need to makes sure that you are getting a true comparable by using a BPO. It is ideal to keep some appraisers at arm’s length to help you out when you are not busy, and suggests using some websites that has good valuator calculator.

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Listen to the podcast here:

Where To Find Value: Comping Properties

If you’re looking to build wealth without banks and outside of Wall Street by utilizing time-tested methods in an ever-changing world like the one that we live in, then you are in the right place. I’m going to be speaking about running comparables on other properties when you’re trying to formulate the after repair value or your loan-to-value of a particular deal. I want to run through the best ways and the worst way. You don’t have to be a realtor necessarily, but there are certain ways you can run comps and comparables. There are third parties you can reach out to have that done for you. I’m going to run through those lists and give you a couple of ideas at the end as the last case scenario or last resort, but also to get practice and to start looking at things to train your eye on properties. There are a lot of great free web resources out there.

Real estate is a relationship business.
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Before we get into all that, I want to mention that for those of us in the United States, it’s Memorial Day. I’d like to honor the men and women who have given their lives for this country. I’m taking a moment and mentioning the significance of Memorial Day. Whether I agree with a war, a president or a reason for the wars has always been irrelevant in my mind. It’s all about honoring those people who sacrificed their lives for this country. While I’m on that subject, I’d like to acknowledge those who served and lived and those who are currently serving in the military. My friends like Leon and Scotty Mac because people like you guys served. I was never drafted or forced to serve. For that, I want to say thank you.

Let’s get into the nuts and bolts of this episode. How to comp a property? The best way to do it is through the Multiple Listing Service, the MLS. That’s the database that all the realtors and real estate brokers have access to. That’s how they determine values when they come and get a listing. They use that and it’s the best database out there. I wish I owned it because it’s updated fairly quickly and you can get a good snapshot. You can drill down into various variables, lot size, square footage, year built, bedrooms, baths, garage and all the stuff. There are a lot of bells and whistles. When you’re trying to determine an after repair value for a flip or trying to come up with your loan-to-value on what you feel like the house is worth right now. For example, if it’s a rental and it’s got a builder-grade carpet and Home Depot finishings, light fixtures, faucets and whatnot. If it’s got that contractor feel, if it’s got that rental house feel, I would comp that lower than somebody who’s had the custom woodwork done, the built-ins and the nicer finishings, treatments, crown molding and these things.

MLS is the best way to look at that to get comps and comparables. If you don’t have MLS access, you better get a realtor friend. That’s all I can say or go get your license. I decided I was going to get my realty license and pay some online. It was $400. However, I found that it was quickly a waste of my time and money because I didn’t have the deal flow. I wasn’t doing multiple loans a week. I wasn’t loaning money to put bread on the table. For me to go and spend all that time and effort, not to say that a realty license is not worth it. In my case, it wasn’t. I got too many other things going on. I didn’t dedicate the time that was needed to get that license. That was my example in my case. It might be different for you. If you’ve got a ton of money, you want to do a ton of loans or if you want to have a real estate license in general, it’s a great license to have. The last thing I need to do is add that onto my list. If you don’t do that, then you need a realtor friend.

Let me dive down onto that. This is a relationship business so you should already have the relationship. Don’t walk up to a realtor and give an empty promise of, “I’ll give you the listing if you help me purchase this property.” They go run, spend time, you don’t get the house and it’s wasted. I totally get it from there because time is money and you don’t want to waste it. If you want to go with a realtor friend route, I would suggest you pay it forward. Connect them with a legit and bona fide lead buyer-seller and let them get a listing. Let them get something and hit them up for that CMA or that Comparative Market Analysis or whatever.

One time I had a realtor friend that would provide me comps and whatnot. A fairly quick turnaround from her office. She got married and moved out of town. I don’t have my connection to the Houston area MLS anymore. That’s number one is get that MLS access. Number two is you can pay an aggregator. There are services out there on the web where you can pay a membership fee per month and are allowed so many or unlimited searches. This is one way instead of having to deal with giving a realtor a lot of work or getting your license and all that, you can just pay an aggregator monthly. It’s all tapped into the MLS. You can do a Google search. There will be plenty that comes up. I don’t have any affiliation with any of them, although I am looking to put some of them on. Interview them and talk about it because comps are such a vital way of keeping your money as a private lender safe.

The third way is you could always pay the realtor or broker for a CMA, a Comparative Market Analysis. Anything that you have to pay for the borrower, you want to pass that onto the borrower in the closing docs. It’s hard to get a borrower to pay for a CMA upfront. You might be able to get it, but let them know that it’s part of the fees. Put it in your fee schedule, let them know and fully disclose it upfront. I found that if the realtor themselves run the CMA, I’m comfortable with it. I’ve seen somewhere they have their assistant or their secretaries run it. All they do is run off of square footage and maybe the number of bedrooms. That’s it. They don’t search for an apples to apples comparison. A lot of the beauty of the MLS is you don’t necessarily have to. However, if you do that and if it’s going into the back office, kicked out and emailed to you later in the day, I would dig into the pictures and make sure those properties are truly comparable. If it’s a rental house or if it’s a nice luxury home. If it’s a $500,000 home here in Houston, that’s a nice house. I understand in California, that’s a hovel.

You want to make sure that you’re getting a true comparable. There’s always the BPO or the Broker Price Opinion. Make sure the borrower pays that fee or pass it on to them. The BPOs are more expensive. I’m not going to give numbers because I don’t know what the going rate is in your particular area. In my area, the BPOs are more expensive. However, they may include a quick drive-by inspection if not a full-blown property visit. I’ve seen it where they paid some good money. I’ve got a good report. It was almost an appraisal in a way, which is the fifth way. You can check your ARV and your LTVs as hiring an appraiser. With this one, I would say have the borrower pay the appraiser directly because you don’t want to deal with credit cards unless you’re set up and have a storefront or Square or have those PayPal things. I would even mess with it. You let the borrower pay the appraiser and the appraiser provides their product to you and you can make your decision based on that. Use only a licensed appraiser if you’re going to charge somebody to do it as you should across the board when you’re dealing with real estate. The more licenses, the better. The bigger the headaches, but the better.

However, I’ve always tried to keep a few appraisers in arm’s length and throw them some work when possible if I’m not busy. It’s a referral business. Keep things going, let them know that you’re thinking about them and try to put some money in their pocket. If you’re down to the last resort and you’ve let your borrower talk you out of an appraisal, don’t ever do that. Let’s say you want to get a quick down and dirty measure. What I call the last resort if you’re looking, or something has caught your eye and you want to do a real quick asset test to see if this might be in the ballpark or not, there are a ton of free online resources out there that you can use. We can start with the worst offender Zillow. Years ago, Zillow wasn’t all that accurate. I don’t think in anybody’s neighborhood. In my experience, I’ve seen things tighten up over there. They do run off of MLS data now. I’m not quite sure. There are also sites such as Trulia, Redfin, Realtor.com, Real Estate ABC, Eppraisal, and HomeGain.com.

Chase Mortgage Services has a handy property evaluator. Way back when, Bank of America had one that I would use quite often because I found that their values are more accurate when compared against the MLS. That was Chase. Check your bank. Maybe they have their own valuator calculator. Also, places like RE/MAX. I’m not sure if Keller Williams does or not for sale by owner. The latest one is Opendoor. You’ve seen those ads on TV. It looks like hedge fund money coming in and trying to corner the market. We’ll see how it goes. There’s also TheHomeEstimator.com and HomeValues.io. There is a place I want to check out is called NerdWallet. I saw them in a search. I want to check them out. I haven’t heard of them. There’s always HomeLight and ZipRealty.

The only thing I want to say about that is I wouldn’t bet my life on those values, but they will get you in the ballpark. They should let you know if there’s a green light or red light. When I say green light or red light, that warrants further investigation. Maybe it needs an appraiser, maybe it needs a BPO or a CMA. If it’s a relatively new subdivision and it’s all cookie cutter houses and it’s all on a very tight area, you’re going to be okay with a CMA. That’s up to you. I’ll have other episodes, hopefully talking about setting your temperature on all of this, should you require an appraiser all the time, so on and so forth. I don’t necessarily, but I’ve also been burned. I’ll bring up that in future episodes.

The more licenses, the better. The bigger the headaches, the better.
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I want to ask that if you gained anything or if you think you gained something and you got something out of this, would you please go to iTunes and leave an honest rating and review. If it’s a one star and it sucks, let me know but it would mean the world to me if you could stop by and do a rating and review. Provide one because it helps get this show into the ears of more people. You also can connect with me on social media. I’m over at Facebook, Instagram, Twitter, LinkedIn. I say BiggerPockets, but I’m bad about my social. I’m trying to keep up. It’s difficult. LinkedIn and BiggerPockets are the same. You can connect with me there. I want to say thank you for reading this. I do appreciate your time and consideration. For those of you who are reaching out, please reach out to me. Keep reaching out to me, Keith@PrivateLenderPodcast.com. I do appreciate all the feedback. Besides health, happiness and self-awareness, I wish you all safe and prosperous private lending.

Important Links:

MLS

Square

PayPal

Zillow

Trulia

Redfin

Realtor.com

Using Visualization to Overcome Fear & Self-Limiting Thoughts as a Private Lender

I recently traveled to Dallas for a small business marketing seminar and got more than I bargained for, which is a good thing! One of the exercises we did was to visualize the most elite version of yourself. While I was driving back home the next day, I decided I would incorporate the exercise into an episode to help anyone who was still looking to make their first Private Mortgage loan.

I don’t believe you should limit the use of this exercise to just investing – this can be useful in pretty much every facet of life.

Important Links:

Private Lender Academy

Keith@PrivateLenderPodcast.com

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PLP-070 First Private Lender Academy event – Title Class

Keith Baker — Mon, 13 May 2019 06:01:25 -0600

Listen to the first Private Lender Master Class in its entirety for FREE!

On March 27^th, 2019 the first event sponsored by the Private Lender Pocast and the Private Lender Academy was held at Quest Trust Company in Houston, TX. Wendy Bryan from WFG Title was the keynote speaker as she dropped a ton of title insurance knowledge in a very short amount of time! I even learned a few new things that I am incorporating into my underwriting demands and title policy conditions.

Make sure you sign up to find out when and where the next Private Lender Academy will take place!

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PLP-069 Background Checks And Why You Should Use Them

Keith Baker — Mon, 06 May 2019 03:00:02 -0600

Lending money can be difficult. Any good investor should understand the importance of doing background checks prior to finalizing any transaction. Who to loan money to can often be decided through that person’s reputation. No one would want to fall on the empathy trap and end up trusting the wrong person. Predicting and verifying are key to loaning money. The gut is a powerful tool in lending and instinct can make or break and investment.. Verifying is a crucial part of investing. In every aspect of it, one needs to understand the value of doing background checks before putting precious money into jeopardy.

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Listen to the podcast here:

Background Checks And Why You Should Use Them

I’m on a trip to London, England and I’m here to give a presentation on the claims that we’ve had, what we see are the common causes, the amounts of these claims and how much they’re going to cost underwriters and insurance companies. I have been tapped by my company to present at Lloyd’s of London in the Old Library, which for me is quite an honor. I know people in London do it all the time, but to have a Texan come across the pond and the company pay for it, to put on an hour and a half presentation, for me, it’s very much a humble brag. Take that for what it’s worth, but at the same time, I am very happy to be here. This is a huge thing for me. It’s on my bucket list and I’m happy to be sharing some of this with you because as a private lender, I still have a day job. That’s what I’m trying to coach with people. Keep your day job, stay on top of it and private lend on the side to help the old retirement out a little bit.

I jumped on the Heathrow Express at Paddington Station and I decided I’m going to cab it over to my hotel. I did that, got checked in, changed in my suit, hoofed it over to the office, gave a presentation for one of the London brokers on fracking, a preview of what I’m going to do. Thankfully, it went very well. For that, I am grateful and very happy, but I have not recorded near as much as I had hoped to. I have a composition book full of notes. It’s my first opportunity to put something meaningful on tape. I’ve been here for about five days, I would hope to have five recordings. I jumped off the plane. I was busy and then I had the presentation. The next day I had coffees, lunches, coffees and pints, dinner with my boss, our chairman. Friday, I ate a meal. It did not agree with me and it didn’t show up until late Friday night. Saturday has been a complete wash, just lying in bed, being miserable and drinking lots of water.

I got up at 6:15, London time. It’s 12:15 for Central Houston time. I fumbled my way on the tube, on the subway, because there are four lines that were closed. One of them was the one that I needed. I ended up going to Paddington Station, which is the completely wrong station I needed for the ticket I wanted. After about £20 of cab fare and some looking on my smartphone, I finally got over to King’s Cross Station in London. I took a train up to Cambridge and I’m so glad I did it. It’s nothing out of the ordinary except when you consider that Cambridge University and Trinity College is where both Stephen Hawking and Sir Isaac Newton attended. Newtonian Physics, black holes, A Brief History of Time, all that was figured out in this town.

Background Checks: Always verify before trusting somebody.

Of course, it’s full of tourists. I can’t tell you how many American accents I heard, which normally is disappointing to me when I travel. I’m a snob, I will admit it. I can’t tell you the number of nationalities I heard and saw while I was hoofing it, backpacking it through Cambridge. What an amazing day. Disparagingly, I’m going to say Cambridge is the Oklahoma of the UK. I’ll tell you why. I’ve got family in Oklahoma and every time I go, I’m astonished. There’s a church on every corner in Oklahoma. I know that it’s a hyperbole, but that’s what I feel. Coming over to Cambridge, every college has its own chapel. There are Catholic churches. I thought it was Methodist, but it was non-denominational Church of England, whatever. I did stop into King’s College Chapel and it’s impressive, to say the least. It’s very nice.

If you’re ever over here, I would say Cambridge is a nice day away. It’s an hour from London, north, northeast and just take the train up. It’s about a mile and a half from the train station, not too far. You can hoof it, you can walk it. I know that’s a big thing for us Texans and Americans but you can do it. I highly recommend it. It was a day well spent walking around. In the city right next to the college, there’s The Fitzwilliam Museum and The Fitzwilliam Botanical Gardens. I didn’t go to the botanical gardens. There’s a little bit of rain. The Fitzwilliam Museum is a world-class museum. I highly recommend it. It’s free. They suggest a £5 donation, which is $7. It’s absolutely worth it. If you’re ever in England, check out Cambridge.

Everyone at Cambridge says I made the right choice in not going to Oxford. I had a choice of Oxford, Cambridge or Greenwich. Greenwich is much closer, but I went to Cambridge. There’s a bunch of old gothic architecture buildings and I saw real students. I saw people playing croquet on the yards, on the lawns, inside these colleges. I had a crap lunch. I’m sorry, I love the English. I love London, I love the UK, but not everybody knows how to cook a good steak. That’s my fault for checking a good steak. Before I forget, while I was at the Fitzwilliam Museum, I met a very interesting individual. I saw a very tall white man wearing a jacket that said Cambridge University Baseball. I stopped him and I said, “Excuse me. May I take a photo of the back of your jacket?” He said, “Yes.” He said it in an accent that I recognized. I think this guy is German. I took a photo of the back of his jacket and I struck up a conversation. It turns out I’ve got a new friend and his name is Martine. That’s Martin for us Texans and Americans. Martine is from Bonn, Germany, which is where I spent the entire summer of 1997 doing a study abroad. I got to speak a little German with him.

Background checks can begin in your backyard.
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Thank you to my new friend, Martine, from Cambridge University Baseball. He told me he brought the baseball team to Cambridge. Oxford already had a baseball team and several of the colleges because of the US Military Bases. I can’t verify, never trust, always verify, but this guy told me he started the Cambridge Baseball Team. If that is true, I went ahead and thanked him. If it’s not, I don’t care. I do, but it’s a big story. It made my day. Anyway, a big shout out to Martine.

I was at the open-air market in Cambridge, and there was a bookstore. I see a paperback copy of Fear and Loathing in Las Vegas. I didn’t purchase it because I already have three copies, but I did take a photo of it. Another thing I want to say, Martine from Bonn formed the baseball team at Cambridge and he also studied for a year or two at the University of Texas at Austin. He knew Clear Lake, Sugar Land and Katy. It made me a little uncomfortable when a German knows where I’m from. Anyway, it’s a phenomenal day. I want everyone to know how awesome Cambridge was. You might have a bad time, but I loved Cambridge.

Let’s get to background checks. Should you require a background check when you make a private loan? I have two answers for you. The first one is no, and I’m going to tell you why. The second one is yes. Why no? The real answer is yes, but if you would think about background checks, that’s usually for somebody you don’t know. You’re trying to find out who this person is. You’re trying to gauge their character. The reason I say no is because if you’re a beginner, I don’t want you lending to people whom you don’t know. I want you to start in your backyard, and I mean literally in your backyard. Go to your local REIA. Find people that are investing in your backyard. I want you to look for people that you know personally. You have gripped and grinned. You have shaken their hand, you’ve looked them in the eye, you’ve talked to them and not just once. I’m talking time and time again.

Background Checks: Proximity to people is more powerful when making yourself better.

They’re not your buddy, not your cousin’s wife’s, sister’s friend who cuts hair and found out that someone was going to build this duplex based off of a Philadelphia Eagles lineman’s idea. I’m talking about people in your community. I’m talking about whales, the big people. Go to your local REIAs and start talking. You’ve got to open your mouth. You have two ears and one mouth. That is true. You need to listen twice as much as you speak, but before you listen, a lot of times you’ve got to open your mouth and you’ve got to tell people, “I’m thinking about becoming a private lender. Who are the most successful investors in my community?” Ask and find out. Find the whales. Oftentimes, these whales are people who are coaches or mentors in real estate investing in your community. Those are the people you want to begin lending with.

Why, Keith? Because as a private lender, as an investor, there’s only so much due diligence you can do. I want you to avoid paralysis from analysis. I suffered from it for years and I don’t want you to do that. The way to overcome paralysis by analysis is to seek out the whales, seek out the people who have a reputation to lose in your backyard and in your real estate investing community. Those are the people you want to start lending to. I’m talking to the people who are starting off. I’m talking to the guy, the woman in the cubicle going, “I hate my job.” You know you’re not going to quit and become the next Than Merrill flipping houses or the next Chip and Joanna.

This is why I’m putting all of these out here. I have a corporate job here. I am in London for my corporate job, but I still love to invest. I still want to be involved and as a private lender, I can. That is what I am trying to stress to you. When I say a whale, I’m talking about old people, lots of gray hair. Seek those out. Also seek out the young bucks, the people in their twenties, thirties, and forties. The reason my answer is, “No, you don’t need a background check,” is because you should be lending. If you’re beginning, you should be lending to people with something to lose, a reputation to lose. These are presidents of REIAs. These are people who go up in front of the REIAs in the real estate investing meetings and they’re out there. Does that guarantee anything? Absolutely not, but it helps to mitigate your risk. Now that I’ve told you, “No, don’t run a background check, invest with these people,” let’s look at examples where you want a background check.

People with reputation need more thorough background checks.
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My motto is never trust and always verify and don’t lend to people you don’t know. However, you get a few years into this, you get a few loans into it. You start getting comfortable with real estate cycles and you start to get an itch. Let’s say your home turf is Los Angeles. I’m not going to disparage Los Angeles for real estate investing because there’s a whole lot of people who make good money investing in Los Angeles, but when you’re on the coast like that: LA, San Francisco, New York, Miami and East West, they tend to be in a more volatile market. I’m living in Orange County and for me, I would not want to invest or lend in Orange. I would want to invest, but I don’t want to lend in Orange County necessarily until I have a lot of gray hair and I understand the market cycles and I can predict what’s going to happen. Keep in mind what I just said, “Predict.”

At some point in time, I understand complacency is going to kick in and you’re going to start to get this itch. You’re probably going to want to go to another city or across state lines, because that’s where I’m at. I’m totally happy with my loans in and around the greater Houston area but I also see there are some secondary markets that offer a lot more security or tertiary. I consider Houston a secondary market. San Francisco, LA, San Diego, New York and Miami, to give you an idea. Those to me are primary markets. Those are very volatile markets because when it’s great, it’s flipping great. When it’s bad, it’s bad. There are places that I understand such as Indianapolis. Gustavo, my buddy, who I interviewed earlier, he’s in Iowa and other places. Denver is just boom crazy. It’s like LA, San Francisco, San Diego, New York and Miami all rolled up into one. That’s what I understand from some local people because it’s very hot.

I’m not saying don’t invest or lend in Denver. Just be careful. That’s all I’m trying to get across to you. If you get to the point where you’ve got a lot of water under the bridge, you’ve got a lot of experience and you’re ready to lend to people that you don’t know, I would say reach out to me at Keith@PrivateLenderPodcast.com and let’s talk about it. We’ll get some Skype time together. Let’s hash it out. I’m not going to tell you what to do. I want to be able to give you the opportunity to talk it out. I will play devil’s advocate to you. If you’re still convinced that you want to do it, go for it. The idea that I have is to talk to me about it. We’ll see how it fits in your investing criteria. If you choose to go ahead, I want you to look at a few things.

Background Checks: A good deal is when your guts says yes.

Let’s say you were in Middle America and there’s somebody in Arizona who’s looking for a loan and you want to give it to them. The first thing I’m going to say to you is to never trust and always verify, especially when there’s distance involved. You want to look at this person’s borrower. Let’s look at them. Let’s look at what type of experience do they have. You have to verify it. I’m telling you, put in the extra effort. Do your due diligence and get it done. Look for bankruptcies, evictions, defaults, foreclosures, judgments and liens. If they have any of those, that is a red flag. I’m not saying don’t lend to that person because every person has a past and every person has a story. As long as the past and the story and the present smooth each other out and equate, then you might want to lend to them. If they have a bankruptcy, eviction defaults foreclosures, judgments, and liens, think about it. A lot of real estate investors got their ass handed to them in 2008, 2009 and 2010. That’s why I’m telling you this because my mom always said, “The road to hell is paved with good intentions.” At the end of the day, it’s your money that this person’s borrowing. It’s your retirement.

In my case, most of it is my retirement savings. I’m going to be ultra conservative when I look at these deals. My politics or your politics, you may be conservative or maybe progressive. It doesn’t matter. I don’t care if you’re red or blue or purple. We’re green because we care about money. Why do we care about money? It makes our future that much better. If anyone has a bankruptcy, eviction, default, foreclosure, judgment or a lien on them, that’s a red flag. It doesn’t mean there’s no green light, but it’s a red flag. Look at it. If your gut tells you, “I don’t know,” then don’t do it. I only want you to loan to people when your gut’s like, “Yes, the deal is good.” If this guy has a

PLP-068 Larry Goins on Buying And Selling Using Internet Marketing Techniques

Keith Baker — Mon, 29 Apr 2019 03:00:45 -0600

Keith gets to interview one of his earliest mentors in the real estate game, Larry Goins of The Goins Group and author of Ultimate Buying and Selling Machine and Getting Started in Real Estate Day Trading. Larry takes us into his own life’s journey towards becoming a real estate investor, sharing great nuggets from the things he learned along the way. Getting into the more technical stuff, Larry talks about the different ways to find properties and how he uses internet marketing techniques to real estate. He also gets into day trade real estate, buying and selling houses like HUD, and the latest deals he made.

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Listen to the podcast here:

Larry Goins on Buying And Selling Using Internet Marketing Techniques

I am grateful to have the pleasure of speaking with one of my earliest mentors in the real estate game. He’s one of the first people that I found, began reading and listening to, bought his product and watched him over the years as he tweaked his investing style. I was fortunate enough to run into him at a few industry events and get to talk to him one-on-one. He and I have done some interview swaps for our podcasts. Ladies and Gentlemen, I’m talking about the one and only, Larry Goins. Let’s get right back down to the brass tacks and get straight.

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Lender Nation, I have the very distinct honor to introduce you to Mr. Larry Goins. Larry, welcome to the Private Lender Podcast.

How you’ve been?

I’ve been good. I’ve been having a blessed life, living the dream as they say. How about yourself?

I’m having fun and making money. I’m always on vacation. When I’m doing real estate, I’m on vacation. I’ve already bought two houses.

Let’s jump right into that. What deals are they? What’s your exit strategy? How’d you find them and all that stuff?

These two came from direct mail. I do a lot of direct mail. I do about 25,000 pieces a month. I’m getting ready to bump that up to another 12,500 so 37,500 pieces per month are what I’m going to be mailing. We’re doing five, ten, fifteen deals a month. We took the entire month of December off from direct mail. We did $88,000 in wholesale fees. We do a lot of wholesaling. That’s going to be my exit strategy. That’s primarily what I do. I do some seller financing and some lease option deals. I’m telling everybody stash cash for the crash.

A 100 years ago, I signed up for a gentleman’s newsletter, but this gentleman’s name was Larry Goins. This newsletter came to me in the mailbox once a month. I have my Ultimate Buying and Selling Machine. That’s the first piece of education I ever bought was from Larry Goins.

That was the original course that was based on this book.

It was a soup to nuts of how to bandit signs, direct mail, slap a magnet on your car or talk to everybody.

Have a scrolling name tag.

I remember that scroll. You even gave the website where you can order it. I remember that. There’s a bit of history here. I’m honored to have you on the show and thanks for coming on. You’ve got an encyclopedia’s worth of knowledge. I’m only going to try to keep to a few points because otherwise, this is a six-hour interview. We both lose out on other business and other deals.

I’ll come back anytime you want me.

One of the first lessons in negotiating is always making it seem like it's more important to them than it is to you.
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I remember at a boot camp I went to of yours years ago by a Bush Intercontinental Airport here in Houston. You made the statement that you had a PhD. I remember the public high school diploma.

It’s a South Carolina PhD. You’re not from South Carolina, so you got to say it right. I have a South Carolina PhD, that’s a public high school diploma.

How did you get into real estate? You’re thriving at it, but I’m sure at a time that there was an idea. Take us back.

I saw an infomercial. Do you remember Tom Vu? He had infomercials back in the ‘80s. You can Google it and you can find them on YouTube. He’s this guy who came from Vietnam or somewhere. He had no money. His whole infomercial was him sitting on the deck of a yacht with all these girls around in bikinis saying, “If I can do it, so can you.” I went to the seminar. You know how a seminar business is. I went to the preview. I signed up for the three-day. My mom and I went. This was in the ‘80s. This was right after my dad had passed away. My dad passed away in 1985.

My mom and I got into it a little bit. She did a little bit, but not much. She was doing it for me to help me out. I got into it. I eventually got my real estate license. I eventually got my contractor’s license. I got into the mortgage business. Eventually, the mortgage industry had to be licensed. I had to get my license for my mortgage business. I’m out of that. I don’t do mortgages anymore except for hard money, private money loans. That’s all we do. We used to loan other people’s money, but we don’t even do that. We loan our own money. Not that we have hundreds of millions of dollars, but we’ve got a decent portfolio. My wife manages that. I’m not in it at all. In fact, she loans me money when I need money.

My partner, the first private loan I ever did him, he missed the first payment. It was two weeks later. I said, “What day is it?” He goes, “It’s the third.” I was like, “Yeah, what’s due?” Ever since then he gave it to his wife, she hasn’t missed a payment since. You used to lend out and whatnot. That’s something we briefly discuss and depending upon what state you’re in, you have to look at your laws.

We only lend in the Carolinas.

It’s little disclosure there. It is absolutely something you can do as a private lender. When I run out of money, I’m out of money. That’s it, my account gets tapped out as loaned out. I don’t make it a habit of borrowing other people’s money to loan out simply because of the way I look at it. If I’m going to preach I demand a first position lien, how can I expect someone to loan me money, not take the first position and to go back into it. You showed the day trading book. How do you day trade real estate?

It’s a fancy word for wholesaling. In this book, Getting Started In Real Estate Day Trading. It even says, Proven Techniques for Buying and Selling Houses the Same Day Using The Internet! Back in the ‘90s, I did my first deal. It was a virtual wholesale deal. I did this deal before the term virtual wholesaling was even coined or whatever. My very first deal, I got a call from some marketing, somebody was passing through. They own the house three hours away. They’d inherited it from their grandmother. I ended up offering them $2,500. They were asking $15,000. I’m a firm believer if you’re not embarrassed by your offer, it’s probably too high. You got to know how to say it though, so they don’t hang up on you.

If somebody is asking $15,000 and you offer them $2,500, you need to know a little bit about negotiating so they don’t hang up on you. Not only did she not hang up on me, but she also called me back a few days later. She said, “Larry, I need some money and I need it quick.” She said, “If you can give me my money by Friday, I’ll take $3,000.” This was on a Tuesday. One of the first lessons in negotiating is always making it seem like it’s more important to them than it is to you.

I happened to be at the drive-through at Wendy’s. I answered the phone. This is back whenever I took all the calls from my cell phone. I answered the phone and she said, “Larry, if you could give me $3,000 and I could have it by Friday, I’ll take it.” Now, I’m thinking, how in the world can I make it sound like it’s not important? I said, “Rochelle, hold on for a second.” Her name was Rochelle. I said, “Hold on for a second.” At that point, who was that call more important to? My most important thing was getting lunch. I came back to the phone and I said, “I’ll tell you what I’m going to do. You send me some pictures. If I like it, I’ll take it.” She sent me some pictures. This was way back. She had to get one of those little disposable cameras, send it to the tenant, take it back and get the tenants to take pictures. They mailed it to me. I had to take it over to CVS and get the film developed. That’s how long ago this was. You used to have this little box of a camera. You take it to CVS. This was back before Walgreens.

I ended up buying the property. I sent out some emails to some local realtors and I said, “I’ll take $18,000 for this house and I’ll pay a $3,000 real estate commission.” One realtor emailed me back because everybody else is like, “I’ll list it for you. I’ll send you a six-month listing agreement or a one year.” No, I didn’t want six months. I wanted to own it for six hours. One realtor emailed back and he said, “For $15,000, I’ll buy it myself.” About a week later, I get some paperwork in the mail with a deed, HUD closing state and the sign here. I put it in return FedEx. A couple of days later I’m looking at a check for $15,000. I’m like, “Wait a minute. I bought this house and I sold it.” I never met Rochelle. I never met the attorney. I never met the buyer who was a realtor. I did all my business back then by phone, fax, FedEx, email and internet. We’ve even eliminated FedEx and fax. I put all the details of how to do it. In fact, I updated it. This is the new revised edition where we talk about cold calling. We talk about text blasting, RVM, all the different stuff that you use to market for properties.

I was blown away at all the different options you have to market.

Getting Started in Real Estate Day Trading: Proven Techniques for Buying and Selling Houses The Same Day Using The Internet!

There are so many different ways. In that course that you have, The Ultimate Buying and Selling Machine, we have 67 different ways to find properties.

What blew me away was when I bought it, you said, “Here’s the CD, download this.” It was nothing but bookmarks that you already had for the browsers of, “You want to look at houses in this county, here you go. This state, boom. You need this document and go here.” Because of you, I know Upwork and Fiverr long before anybody even knew what they were. I use them in my day job and people are like, “How are you getting that done?” I said, “It’s my little secret.” You can Google search and in 0.2 seconds, you’re going to have every VA company. Back then you supplied it as part of your course.

Now, it’s common knowledge. What’s funny is what I did was I started getting into internet marketing and learning about internet marketing, all I did was take internet marketing techniques and related it over to real estate before anybody else. Everybody’s doing it.

You even told me like, “You put this big sticker on the back of your car and generated one lead for you.” I forget you put how much it costs, but how much you made for that lead. You had to drive around for three years. It’s $300 for some decals and you pulled $10,000.

I’ve always said I’d much rather have ten ways to find one deal than only one way to have to find ten.

At what point did you get introduced into private lenders and other people’s money?

That’s interesting because I’ve wholesaled a lot of stuff. I have never personally ever used private money other than my father-in-law. He’s got paid too. I’ve never utilized private money besides that. I borrowed hard money. I’ve always either done wholesaling stuff or finance stuff traditionally, either did lease options, wrap or something. I have been a hard money lender since the ‘90s. I started a company called Financial Help Services back in the ‘90s before you had to be licensed as a mortgage company. I would do traditional loans and hard money loans. We were doing a lot of business. I had this lady come to my office. She used to call on other lenders. She said, “There’s an investor group in town called Metrolina REIA.”

She said, “If I can get my foot in the door, I can get some hard money loans, would you like to start a hard money division?” She said, “By the way, have you ever heard of this group, Metrolina REIA?” I said, “It so happens I’m the president.” She came to work with me. After about six months, I gave her half the business because she grew our business so much. She eventually went out on her own. My wife went to work for her. She got out of the business for a while. She went out on her own. My wife went to work for. My wife doesn’t work there anymore. She manages our loans, which is not a full-time job for my wife. It’s not like we have hundreds of millions of dollars in loans. She might have $20,000, $30,000, $40,000 loans out at any given time. Some of them might be $50,000 loans. Some of them might be $500,000 loans.

Your wife does all the servicing on your behalf of the loans that you’ve put out?

She originates and processes the loan, sets up the closings and does all that. She doesn’t even advertise. She doesn’t want to. She doesn’t like it. She doesn’t want to go to any REIA groups, market and advertise. It’s when somebody calls her. I set up her website.

I was about to say this has got Larry Goins written all over it. You’re putting this poor woman through all types of labor and tribulations. It’s funny because when I started private lending, I wanted to know every detail, every nut and bolt of the process. I did everything from A to Z including taking the payments and all that stuff. I’d have no problem looking at borrower in the eye and say, “You’re going to pay $20 a month for a servicer because in January I’m not kicking out any 1098 or 1099. They handle all of it. I suggest people outsource that type of thing. You are bringing it in-house into your family. I love that though, let the wife work.

The good news is, truth be told, my wife doesn’t service it. I have two people in our accounting department. They handle that. They let my wife know what’s going on.

I know you’re a big fan of using people’s self-directed IRA. You’re no stranger to private money at all. You haven’t used it a whole lot.

Whenever you bid, three things can happen - you don't hear back, you get a counter, or you get an accepted offer.
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I bought my first house in 1986. I’m 58 years old. The very first deal that I ever did in 1986, I assumed an FHA non-qualifying assumable loan. They used to be years ago now they stopped those in 1978. There was a few of them around in the ‘80s left before they got paid off. The deal was if you own the house, you had an FHA loan and you wanted to sell that house, your buyer could fill out a one-page document and turn it into FHA. They didn’t pull your credit. They didn’t check your debt ratio. They didn’t do anything. They assumed that loan. You were released of any liability. That was

PLP-067 Admitting My Mistakes And Thoughts On The Current Real Estate Market

Keith Baker — Mon, 22 Apr 2019 03:00:52 -0600

When you are in the spirit of full disclosure, you release everything without any limits or boundaries. Today, I am in the perfect shape to let everything out in the open, and a lot will relate to the topic of financial instability. As I own up and admit that I’ve gotten myself a little behind the eight ball, financially speaking, we will dive into the flipside of credit and why you don’t need to put yourself in that constant worry. On the other side, we review the current real estate market and another podcast you need to check out ASAP.

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Listen to the podcast here:

Admitting My Mistakes And Thoughts On The Current Real Estate Market

How I Became Complacent With Personal Finances Again

I’ve got to own up and admit that I’ve gotten myself a little behind the eight-ball, financially speaking. I tend to do this every few years. Now, I have to go into defense mode and clean things up and get back right again. I’m trying to prevent this from happening again, but I decided to bring it up to share it with you. It’s a little bit of free therapy for me to work through it, but also to put it out there and see if you are guilty of the same thing. Write to me and let me know how you deal with it and what you did to try to prevent these things. The other thing I would like to talk about is because of my situation, I attended a relatively inexpensive marketing seminar in Dallas, which helped turn a switch in my head. It was very transformational in terms of thinking about how marketing and business and etc. It’s very worthwhile. What’s even made it cool was during one of the breaks, there was this real high-end estate agent, you can tell the high-end realtors.

How I Got Myself In A Bad Pickle

Sure enough, that was her niche, it was high-end in Houston, which is like a bungalow in California, price-wise. She and I had a good conversation where we give our opinions on where we thought the market was from a retail side and an investment side. It looks like we might have the April showers, it may bring some glorious May flowers. We’ll see if this market is back on the mend and in bull territory. Before I get on my soapbox and talk about my lack of financial stability. I’m grateful that you’re reading this blog. I do appreciate it. I need to get into the heart of the matter. I’m going to start off by, “What happened? How did I get myself in this pickle, to where I had to go into one of the contingency accounts?” I will answer that quite simply. I committed some very old and rookie mistakes, cardinal sins that I knew better, but these things happen. I counted my chickens before they hatched. I had a few pretty sizable deals that I was trying to put together, some real estate deals and two of them fell apart. It didn’t happen.

That’s part of the game. That occurs, but I thought I could rebound a little bit quicker. I counted on the money I didn’t have in that case. I did it again where I have negotiated some changes in my employment and income. Those plans have had to go on hold for a little while. While I thought January would be a much greener month financially, some of those things have gone on hold and it’s going to be a few more months. I can’t talk too much more about that, other than I made the mistake of counting some chickens before those eggs hatched. Here’s the one that I loved the most. I had done my planning assuming positive cashflow and profitability. Not so much profitability, but near profitability for the podcast. I’m not quite there yet, but I added some more expenses so I could buy some time.

I could get some time back for the kids and whatnot. Let’s say that what started as perseverance became stubbornness. I ended up sticking my head in the sand. I didn’t want to admit that I was wrong. I could do it to myself, but I didn’t want to the wife or anybody else. I figured, “Let’s start by admitting it to the three people who are tuned in. Anyway, that’s why I’m recording and releasing this episode to get it out as fast as I can because of the thing I need to do is to stop. I need to turn and look that fear in the eye and then run straight towards it and admit it to you guys. I’ve realized that with the self-awareness I have, I’ve done a pretty good job of playing offense. I pretty much remove myself from the game of defense for about a year. That will never get the job done. You’ll never get anything accomplished if you do that in the long run.

If you can't afford something now, you can always make payments.
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Why You Don’t Need Credit Cards

It’s a good point for me to say, “Let’s pump the brakes.” I’m not going to lose the house, but I see a trend that I want to reverse. What do I do? The trend is more money is going out than coming in. That’s a pretty quick fix. I go full Dave Ramsey and do the baby steps and start it over again. I’ve done this before. Before I got introduced to Dave Ramsey, I got into a bad pickle where I didn’t have any contingency plans, contingency accounts, any way to absorb things, any insurance policies or anything in place. I had no stable floor back then. That is a big difference now. I took the cheapest debt that I had. It was all credit card debt back then and I started paying it off. I got sued by Chase. My truck was repossessed when my wife was pregnant with our first kid. I can’t recommend that experience and that feeling enough to anyone who thinks that they get their financial crap together so to speak. I worked it.

I started with the smallest debt and paid it off and then took that money. I did the snowball on the compounding effect that Dave talks about and does so well. The sooner I do this, the sooner we’re back on track and the sooner I feel a lot more comfortable about things, particularly the future and the costs that are coming up ahead. I have kids driving in college. As I said, 99 first world problems and I’m grateful for everyone, but this is where my mindset is at. I’m cutting back and I’m not going to any more seminars, big expos or on anything like I did last 2018. I won’t be going to Podcast Movement. I might do a few things digitally for a few hundred bucks, but I’m cutting way back on that stuff for now. I’m still going to spend money, but I want it directed elsewhere. I won’t be sponsoring some of the things that I normally do. I’ll still be sponsoring 713 REIA. I won’t have a booth at the Quest IRA Expo, unfortunately. I intend to sponsor in some form, shape or somehow someway.

I’ve got to chat with them a little bit, but I certainly will be there all three days, so please come on out. That’s going late August, around the 25th. I do the Dave Ramsey thing. I’m currently reviewing the situation. I want to put myself and the family in a better position before the next downturn because I’m not so sure when it’s going to be, when the real good buying opportunities are going to be. What that does mean is I want to put myself into a place where I don’t need credit. I get the mortgage paid off. All the credit cards down, which most of them are just one. I do have one I admit that has a rather high utilization, but the rest of them are there for emergencies. I try to pay the big one off as much as I can and keep a small balance. I’m an American. I was raised by people who said that patience is a virtue, but if you can’t afford it you can always make payments. I don’t want to need credit because that’s when you can get as much credit as you want when you don’t need it. It doesn’t make sense but it’s true. When you need credit, nobody’s going to give you. If you need money on a house and I smell that desperation, I’m not going to loan to you. I want to put myself and my family in a position where we don’t need credit.

That’s a personal goal, which doesn’t have much to do with private lending. I’m putting myself out there so I might as well admit and put the words out there as well from time to time. I don’t know if it’s a challenge or something. It’s pretty idiotic but I got to do what I got to do and get to a position where I don’t need credit. I have such a low personal and business credit utilization score that the bank’s throw themselves at me like gold diggers at a funeral or Homer Simpson man-child when he gets around an attractive lady. The takeaway from this, the number one point ladies and gentlemen is as Keith Baker says, “Do not follow my path to extinction.” For you fans of the B generation, you’re screaming that I stole that from Allen Ginsberg and you are correct.

Where The Real Estate Market Is Nowadays

Let’s get on to point number two. A little marketing seminar I went up to Dallas. It was a great conference by the way. You’ll hear all about it. It was some marketing seminar. It was real how-to hands on. Not like, “Just build your list and then you can solve things.” It was more about building brand, transparency, where social media is going and advertising and whatnot. The realtor I spoke with during break, we found out we were both from Houston and she does the higher-end stuff. I asked her, “What’s her opinion.” I told her what I think about where the market is. I say on the retail side in my neighborhood, I see the days on the market go up. My house is over the median home price for the greater Houston area. It’s not like I’m in an exclusive neighborhood by any means. I’m certainly not in a war zone though, there’s your spectrum. You figured out where I lived there.

I said that’s what I see in my neighborhood. As far as from a retail perspective, I see days on market increase in my neighborhood, which is not gated. It is a masterplan. Before you sneeze and wipe your nose, you’ve got to ask the homeowners association’s permission. They do try to keep the values up, etc. It’s suburban, Westside, exclusive. That’s what I’ve seen from retail and then the houses by my office are older. They’re getting torn down. I got decent size lots that are getting torn down and then mansions are going up. These houses are selling $400,000, as the old ones are selling for $400,000 and they tear them down and build new mansions. They’re on the market for $1.2 million to $1.3 million.

I see a lot of days on the market on that end as well. From the middle to the upper Houston area, I’m not talking River Oaks, Medical Center Museum District or anything like that, but that’s what I see from retail. I see fewer and fewer wholesale leads coming through the mailbox. In full defense, that could be spam filters as well. I have a special account that I use for keeping the emails from wholesalers and whatnot. The deals and margins are getting thinner. At least that’s what I’m seeing. I do not see a whole lot. I’m not that active as I have been in the past from an investing side, more obviously lending and podcasting. That’s what I’ve seen. I felt that Wall Street had that little 10% correction a while back. I felt like I wasn’t so gloomy and doomy anymore thinking that if we are in a correction, I figured it would be a little worse and a little direr, especially as prices are dropping down.

She concurred that at one point, they had bidding wars on every house and that dried up. She says, “Now there are few things that we have seen the correction in Houston real estate market, especially in the higher end.” It’s going to be some sunny skies ahead for a little while, which could be good news for a lot of people, especially if you’re in it for the long haul on the equity side of things. As someone who lends against values of property, I’m all in favor of that. As someone who invests, I do want the occasional correction. I know that seems vicious, but to me, this is all part of the system. It’s a natural cleansing. That’s where the money’s made. I found it very interesting that this lady from an investor, I look at tons of zip codes and this lady works with a handful in the good spots of Houston. She said that her last three listings that closed, that they had bidding wars push the sales price above the asking price. I said if the high end is doing that, maybe that’s a sign of things turning around here in Houston.

Old habits die hard, especially when you get a little bit ahead.
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I don’t call the shots. Unfortunately, I can’t look forward and my crystal ball cracked. There was an article from the Houston Chronicle that came out in January of 2019 talking about how 2018 was a banner year in the Houston area as far as sales. It looks like there’s a stall on with 2019, but hopefully, as the typical regular press is, they are a little bit behind on this. By maybe August we’ll say, “It’s doing pretty good.” We’ll see what the summer sale season and everyone moving for schools and all that. We’ll see what happens. A quick recap. Number one, I got myself in a bit of a pickle and I’m mad at myself because I don’t have more money to loan. In addition to not handling money correctly and thinking, “I can get away with it.”

The problem is and I know my audience know this. I’m not talking to any Millennials, but when I turned sixteen, I grew up. I learned how to float a check until payday. You’re old enough that you learn how to float a check. I’m talking like as soon as I got a job at the movie theater and I got a weekly or biweekly paycheck, I go to the bank and cash it. I pluck all the money out that I could. I go buy things that I needed like, cigarettes, music, drum heads and important things. I got paid every Friday, but I knew I could write a check as late as Tuesday night. I can write that check and my paycheck would be in the account before my check went to the convenience store, to their bank, to my bank, to my account. Unfortunately, old habits die hard, especially when you get a little bit ahead. I’m so bad, I get a little bit ahead and then I party a little too hard. It’s like if you win district, you don’t act like you just won the Super Bowl.

The Monday Morning Podcast

Complacency is something I fought and saw a lot in the oil field. It’s just part of being human, but there are no excuses. I’ve taken it upon myself. Thank you for being here because it’s going to help me in the end with who and what I want to be. The other thing, let’s look at this market. I remember flying back from Philadelphia after Podcast Movement 2018. The guy’s talking about, “We’re going to do just like what this guy did in Philly.” I was like, “I wonder if it’s time,” but we’re in interesting times. It’s another way of saying, “There’s another sign. Maybe it means something, maybe it doesn’t.” I don’t know, but I figured I’d share it with you, especially if you invest, loan or lend in the greater Houston area. A couple of episodes ago, I introduce you to Andy Frisella and the MFCEO Project.

I’ve got another cursing freak for you. It’s a guy who, I don’t know when I got turned on to his work or found out about him. He was always there and to me, he’s earned a spot on the Mount Rushmore of comedy. He’s got a spot firmly not only in my heart but my wife’s as well. It makes it a little more special. It’s something we share together. I love this guy. It’s rare that my wife and I find something because I want to watch Shark Tank and she wants to watch Real Housewives or something. I want to get straight to the hate and there were plenty of reasons for me to have an extraordinary amount of first world white on white hate between this comedian and me.

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Listen to the podcast here:

Private Lending And The SEC with Attorney Amy Wan

Syndicating, Private Lending And SEC Compliance

I’d like to welcome you to this episode. I’m very grateful to have the pleasure of speaking with an attorney who happens to specialize in helping investors handling the paperwork and the filings required by the SEC, Securities Exchange Commission. My guest, Amy Wan, has an impressive resume to say the least. She lives on the leading edge of the financial and legal tech world and was named one of the Ten Women to Watch in Legal Tech by the ABA Journal, that’s the American Bar Association. I’m honored and grateful to have her on the show. I have a new slogan that I actually put on a Private Lender Podcast t-shirt. The back says, “Never trust, always verify.” Nonetheless, never trust, always verify is a perfect segue into an interview with an SEC attorney. Let’s go ahead and get down to the brass tacks and let’s get to the interview with Amy Wan.

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I’ve got a special treat for you. Our guest is Amy Wan, Founder and CEO of Bootstrap Legal. I am excited to have her on the show. Amy, welcome to the show.

Thank you for having me.

Thank you for coming out and being interviewed. You deal in an area of expertise of the law that’s beyond my scope of understanding. You’re bringing it down to where people like me can participate, and I definitely want to get into that part of it. I promise we’ll keep this about 30,000 feet as much as possible and we’ll drill down when we need to because I know the law. You can go down some rabbit holes. Tell us a little bit about yourself and how you became the securities and syndication guru that you are.

I actually started my career in the federal government. We were doing interesting things in DC, international trade and international regulatory affairs. When I moved back to LA, there’s not much of an international trade law industry out in LA except for import-export compliance paperwork which was very different from negotiating free trade agreements. I started over. I became general counsel of an early stage real estate crowdfunding platform at that time. The interesting thing about that crowdfunding platform is that I had to deal with two different areas of law, one on the real estate lending side and then one on the actual security side. We did private lending. We would make hard money, private money loans to folks flipping houses and then we would fractionalize those loans and turn it into a security and sell it to accredited investors through our marketplace.

I spent a couple of years there and I learned the ins and outs of both of those different sides of the industry. I went on to become a partner at a boutique law firm that focused pretty much exclusively on a real estate syndication, more so the equity side and then it got interesting. I got to a point in my practice where I was spending every day writing the same fund documents over and over again. I thought this is inefficient. I befriended someone who was beginning in the syndication industry at the time. He’s now a large real estate syndication influencer. Back then, he came to me and said, “I want to raise $300,000 through syndication. How much will it cost?” I told him, “I’ll tell you the price. I know you’re not going to use me because the transaction cost doesn’t make sense.” Sure enough, I told him the price. He fled the other direction and I thought, “This is interesting. Folks trying to raise a small amount of capital have very limited ability to actually be compliant with securities laws.”

The SEC doesn’t care about that. I had dinner with a couple of folks from the SEC. I brought this up to them and they were like, “You still have to follow all of the securities laws anyway. I’m like, “I get that, but there’s this practical reality.” Given that I had worked at a tech startup, I thought I could do better. I whipped up some software. It’s like the TurboTax of real estate syndication and it actually automates the first draft of a lot of the paperwork that you need to sell a security. For me as an attorney, it’s great because I cut off twenty hours off of drafting, but it’s great for my clients because I can get them the documents faster. My prices tend to be a little bit lower because I’m so much more efficient. I’m not one of those attorneys who bills by the hour. I do flat fees and it makes so much more sense.

I heard you first on Kevin Bupp’s podcast a while ago. I was commuting to work and I was thinking, “I’ve got to get Amy on to talk about this. A lot of our audience will call or email and they’ll talk about the security side of things, the SEC and what investors or borrowers would have to do.” As I understand is that they issue the certificates or they issue the security. The SEC is concerned with them. On the private lending side, what type of rules and regulations do we have? I’ll back it up. Let’s look at it from, “I’m going to make a loan on the single-family house versus my best friend is going to get into an apartment complex and he’s syndicating twenty people together to get the equity stake so that we can go get the funds.” From a federal perspective, how do the investors and the lenders look?

When it comes to lending law itself, although there are some federal regulations and laws around lending generally, most of those are in the consumer context. When it comes to private money, a lot of this is done from a state regulation perspective. When you get into state lending laws, it varies state by state. Some states require you to have a license to do this. Some states don’t care. Some states, for example California, you can make a small number of loans and then after you reached that limit, then you have to have that license. There are different types of licenses you need. It’s all over the map. Generally, there are a couple of things that folks should keep in mind.

One of these things is usury rates. A loan that is usurious is when you’re charging too much for interest. Every state has a different usury rate. You generally do not want to go over it because the states and the regulators do not take kindly upon that, although in this market, it’s not much of a problem because the rates are significantly lower than they were a couple of years ago. Usury is one. Another thing to keep in mind is securities. If it’s one person lending to another person, that’s usually fine. When it’s multiple people banding together to lend to one person or even multiple people, then we have to think about a different set of laws. That’s securities laws.

At the end of the day, it all comes down to trust.
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The last thing is it depends on what you’re lending on. If we’re talking about single-family residential, lending to owner-occupied is different from lending to non-owner occupied. When it’s non-owner occupied, generally you’re lending to some LLC. There is a business entity. They’re a business bank account. The person is not supposed to live in it. There is a language in the actual loan documents that say, “This is a business purpose loan. I won’t use any of this for personal or household expenses.” Contrast that with when you’re lending in the owner-occupied context, suddenly that becomes a consumer loan. It’s not a commercial loan and that is very heavily regulated.

I do a lot of loans to people who do seller financing. It’s Dodd-Frank. There are lots of hoops we go through. We have it originated and there’s the test to make sure that that person can pay the mortgage and you’re not dodging them. You said it perfectly, once it becomes a consumer loan, then the regulators and the judges are not going to look favorably upon you. I don’t care if it is out of your Roth IRA. If you’re doing something wrong, they’re going to get you.

Not only that, it’s not just a whole different set of rules, but a different philosophy or mentality applies. If you’re lending to non-owner occupied, people are like, “It’s a business loan. It’s all for business.” You’re presumed to be sophisticated and all that stuff. When you’re doing a consumer loan and you end up going to court or something like that, then suddenly it’s not like, “A business loan deal went south.” It is, “You’re kicking someone out of their home.” It’s suddenly a much bigger deal. The states where they tend to be blue states or places where it’s a large metropolitan area, the judges in those jurisdictions are going to scrutinize this a lot more in favor of the borrower than the lenders. Be aware of all of that.

I tell people who want to be private lenders is to don’t go owner-occupied, not until you get a lot of experience and you get a legal team built behind you that can handle all this for you. The lawyers are there for their help. They’re there to keep us compliant and also to say, “I see you put this language in here, this can happen,” or “This is your worst-case scenario. Why don’t you try this?” It’s funny you mentioned usury laws because Quincy Long at Quest IRA always says, “What’s a little usury amongst friends? We all know each other here.” The way I understand it is there are no usury police out there. However, in Texas, 18% is our usury law. Let’s say I make a loan for 20% and I anger that borrower somehow, in some way. That borrower can go to court, take it to a judge and the judge says, “This is a usurious contract. It’s null and void and you don’t even have to pay that guy back his money.”

It’s not exactly the same, but I liken it to landlord-tenant law. There are many places where just because the tenant complains, everyone bends over backward for a tenant as opposed to the landlord. It sucks, it’s business and you don’t want to be in that situation.

From a securities perspective on the federal level, everyone’s got to check your own state. It would be worthwhile saying we’re not offering to sell any securities or anything like that. This does not constitute an attorney-client contract with you or anybody else. From the federal level, as long as a lender is making it person to person, it’s a business loan from me to a real estate investor to do a flip or a landlord wants to hold it for three years or whatever. There’s very little regulation on that. There may be some. Check with your state. From the federal level, the SEC, they’re pretty cool with it.

The SEC doesn’t deal with this whole lot, except to the extent that you get multiple investors involved. This tends to be on a very state level and it tends to be a very commercial discussion. The other big issue is licensing. Do you need a license to be making these loans, to be brokering them? That’s a state by state discussion. In most states, for non-owner occupied lending, you usually don’t need a license. There’s a handful of states where you do. There are several states that offer several different types of licensure. You could be a regular real estate broker, you can be a mortgage broker, you can be a loan broker or things of that sort. It’s a state by state discussion.

I do actually like that. The feds are like, “We’re going to make sure that you’re not taking advantage of anybody and then we’ll let everything else fall to the state.” You talked about brokering. I wanted to bring that up because in Texas, we’re a red state, but we’re pretty liberal when it comes to things like oilfields and guns. We’re awesome. We have a very short foreclosure process. I love to lend here. I’ll give you a scenario of maybe something I’ve thought about doing here, or maybe it’s something I’ve done. Let’s say that I find a deal, but I’ve already tapped out all my money out of my self-directed IRA and I don’t have any cash. I negotiate a loan to an investor and then I have somebody else fund it. Can I get a couple of points? Can they get the points off of the loan at closing or would I be considered a broker in the eyes of the feds?

The feds don’t care, but your state regulators are going to care. That’s one of those situations where you are going to have to figure out whether you need a loan brokering or a mortgage brokering license from your specific state.

We don’t have security in Texas until you get 30 people. It leads me to my next question. I want to get in your expertise because I don’t want to let you go and listen. Let’s say I’m making this step up. I’m going from my single-family. I’m an investor now, not just a private lender, but I want to become an active investor. I’m not going to go run out and sponsor syndication for a 200-unit apartment complex. As someone who is a single-family investor and lender, walk us through. A friend of mine is going to sponsor this deal. He’s putting it all together. He’s getting legal. He’s got his memorandum together and everything. Walk us through what you would suggest I look for as I go through my first syndication.

Private Lending: When one person’s making a loan to another person, it is just a straight up loan. When we get ten investors to invest in a fund and make a lot of private loans to flippers, that’s security.

The first thing I’ll mention is that notes or debt instruments can be considered a security. When I said when one person’s making a loan to another person, that’s not a security, that’s just a straight up loan. When we get into fancier things where it’s like, “I’m going to get ten investors to invest in a fund which is going to make a lot of private loans to flippers or something like that,” suddenly, that’s security. In terms of what is and is not a security, there’s a very well-defined test on that. It’s called the Howey Test and it’s named after a dude named Howey. It’s a four-part test. What people are looking for to figure out whether or not you’re selling security is generally there’s an investment of money. It’s a common enterprise of people. It’s not one person to one person, but a group of people. The folks who are putting their money in are expecting some profit or possibly a loss.

Lastly and very importantly is that it’s based off the efforts of another or a third party. What that means is if you have all active investors, if you have some investor club where everyone says, “We’re all going to source deals together and whoever finds a good deal, we might all invest in it.” That’s not a security because it’s more like an educational group. If it’s something like, “I’m due diligencing all these deals that come in through the pipeline. I’ve determined that this one’s good. I may be putting some of my money in it or I don’t have to, but you guys are all going to invest money. I’m going to organize everything, package it all together and make the loan. I would do all the investor relations, all of that and check foreclosure. You guys don’t have to be involved. I will take care of that. Whatever profits come back, I’m going to distribute them to you.” Instead of an active investor situation, you’ve got a passive investor situation. There’s one person or a couple of people who are part of the sponsoring team where they’re handling the day-to-day operations.

All the people who are putting the money in, they are passive. They don’t want to deal with it. They are paying you to deal with it. You’re looking at situations where it’s the doctor that’s investing or the dentist who’s investing. They don’t want to be active investors themselves. They just want to invest money somewhere and then hopefully it makes them money. That’s when we’re talking about securities laws. Securities in the private lending context, it comes in a couple of different forms. The most popular form I see is someone wants to start some fund that makes hard money or private money loans all day long. They...

PLP-065 Late Penalties And Why You Need To Enforce Them

Keith Baker — Mon, 08 Apr 2019 03:00:40 -0600

Many people get struck by the question from private lenders about utilizing their right to charge penalties for late payments and to which extent. Two of the facts to remember are there is a late payment after the grace period legally stated in a signed contract, and the promissory note backed by the deed of trust fully allows the lender to charge a penalty. Today, we dive deeper into defining, utilizing, and threatening penalties for borrowers who are late on their payments. Off the topic, we will also reveal why you should start listening to The MFCEO Project Podcast by Andy Frisella.

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Listen to the podcast here:

Late Penalties And Why You Need To Enforce Them

Penalties For Late Payments Plus Why I Listen To The MFCEO Project Podcast By Andy Frisella

Let’s go ahead and jump right into our topic which is going to be about defining, utilizing and threatening penalties for borrowers who are late on their payments. If most of my payments from my loans are due on the first of the month, there’s going to be a three to five-day grace period after which they haven’t paid, the payment is considered late. There’s normally a percentage of that payment, a penalty like 5% or 10% for example. We’ll get into the legal aspects of it, but to explain what we’re going to do now, I want to put it out there. There’s a late payment after the grace period. Legally by contract, by the documents, the promissory note backed by the deed of trust allows the lender to charge the penalty. There was a question of when to use them and it struck me oddly because my immediate answer was always.

If I miss a payment, I get dinged somehow in some way, whether it is a credit card or mortgage, a car payment or any agreed installment payment. If I don’t make it, I get dinged. I was like, “Why wouldn’t you think about that?” “I’ve made this loan to a friend.” I’m like, “There you go,” it was a friend first and that’s the basis of the loan. What’s the number one pillar? Never lend any money to a friend or family member who is in need, but rather give them the money without the expectation of it being paid back. These are the contingencies you have to plan for and the stresses you can mitigate ahead of time by to rules and not loaning to friends. If it’s a good deal, set them up with somebody that’s willing to lend or someone that it might be a symbiotic relationship. It’s like doctors don’t operate on their own family. I take that same approach with lending because people get funny about money. It certainly can. Oftentimes, we do.

Right there is that rule why the pillar comes into place for me. “Do I always follow it?” “No.” We all got that one family member, that one friend we break the rules for. It’s not a judgment. It’s a reality. If you go into your lending armed with this attitude, then it’s easier not to feel guilty because you’ve set up your parameters. Those parameters are agreed to and then the other party fails to live up to it, you get to do what is allowable by contract. That includes not just a foreclosure but charging for late payments. Let’s go ahead and jump into the legality issue of this. I’ve only done this in the state of Texas. I only am speaking from the state of Texas. Wherever you are, I will defer to an attorney who’s licensed with your state bar who does real estate transactions as their primary mode of earning money. This is why having several attorneys on your team is good.

Penalty Rates: How Much To Charge?

Oftentimes, we take what attorney say as the gospel, much like a doctor or unfortunately like a weatherman. When those things don’t pan out the way we were told, we get upset and we blame them. It’s one thing to keep in mind, but it’s not a reason not to use attorneys. They’re going to be the closest to the court cases. They’re going to have the access. I’ll give you a prime example. I was looking back through some of my promissory notes and the lowest penalty I’ve ever been legally allowed to charge was 5%. It’s the lowest I’ve done. That was one of the early loans I did. I used the title company’s attorney, which again, I recommend you can. I have in the past, but that attorney doesn’t work for you. I like having attorneys that work for me to protect my interest. They don’t care about the title companies. They don’t care about the borrowers. They care about protecting my interests. That’s what you need.

Here I am reading a promissory note that was drafted by a title company’s attorney. The lowest was 5% and the highest was actually 15%, but that was to my partner Landon. I doctored the documents to see if he would catch it. You’d have to ask him if he did. Outside of that, the highest I’ve ever charged or been able to legal in the contract to the charge was 10%. I asked one of my attorney friends what is best. They have differing opinions but the answers are all in the same vein. The percentages may have been off a little bit. If you’re lending to a real estate investor, a rehabber or a flipper and you’re not providing a first lien for seller finance note down the line to the inline borrower. This is a business-to-business transaction, investor-to-investor transaction for a house flip. It is not a consumer loan. It is a business loan.

The protections aren’t necessarily the same, whereas if you were loaning somebody, knowingly lending to an owner occupant that you’ve put through and had them go through a mortgage loan originator. They’ve passed all the tests and paid all the fees and all that, but at the end of the day, that is a consumer loan. Consumers are extremely protected by the government. I’m not saying that’s necessarily a bad thing. Your average Joe on the street, I don’t know how much real estate knowledge they would have. Maybe that’s changed with all the television, but it’s a point neither here nor there. The point I’m trying to ramble through here is that as long as you’re staying away from the owner occupants, whatever the averages that you see in commercial loans, ask around and see what those penalties are. Go to your REIA meetings and ask what the penalties you are seeing for this loan or to hard money lenders. What are their penalty rates, is a great place to start.

Exercise Your Right To Charge Penalty

That way you can get in line with more the lending industry and that is looked upon differently than a consumer. Being in the lending industry and being a real estate investor, it implies a level of sophistication that would take somebody out of the average consumer category. The court expects a level of sophistication. With that sophistication, if you do something improper, you do something wrong or break the law, whether it is intentional or not, usually comes stiff penalties. Just because they’re not a consumer, it doesn’t mean you don’t have to worry about getting a slap on the wrist or more. You still have to worry about any repercussions. It’s a business deal, treat it as such. The question as to whether to use and charge the penalty or not, it’s going to be up to you. Make sure that mechanism is in place in your documents and that’s what your attorney’s there to make sure it’s in there.

A lot of times, you’ll get a doc prep form from your attorneys. It’s going to have all the information they need to know. Who’s the lender? Address? The borrower? Are they married? I make the borrower fill out most of it and then I fill out my info and I pass it on to the attorney so they can draft the documents. Sometimes those documents are blank. What percentage do you want? I write in as high as I can get. I’ll do 10% or 12%. One time, I showed my attorney from the 15% that I jokingly did to Landon. He said it depends. It’s not out of the realm for certain businesses in certain industries. You have to be careful. I have another lawyer friend who says, “Why risk it? Why don’t you mirror what the consumers are charged and dealt with and then that way you don’t have to worry about it.” That’s certainly another way of looking at it. I’m not here to tell you which is better. I like to use the late payment penalties. I want it to make it sting. I want to make the borrower have even more skin in the game.

Late Payment Penalties: Never lend any money to a friend or a family member who is in need, but rather give them the money without the expectation of it being paid back.

My note is more important because you’re going to see people who their rehab is crumbling. You’d rather he takes it back and yet you catch him at Perry’s Steakhouse. I’m not talking about for pork chop Friday when it’s half off. I’m talking about prime time, Saturday night full portions reading the polka band in the corner. I don’t want that encounter at the steakhouse or the Sizzler or the Red Lobster or wherever. I don’t want to have that encounter. My penalties are there to let them know that I mean business. If you don’t follow the agreed contract, I’m going to nail you with this and it’s going to sting. It’s going to come out of your profit. Let’s assume it’s a profitable transaction. The road to hell is paved with good intentions. Things are going to happen and then it’s at your discretion to, “I’m going to waive the fee.”

The fee is going to be there by contract and it’s up to me to take it away. I have taken it away with folks before. If they’re up front and honest with me and they come to me ahead of time and say, “I might be late,” or whatever, “This is the situation.” The guy comes up to me and says, “I can’t pay you, Keith. I got to pay my child support.” I don’t like that answer, but that obligation’s a little bit more important than mine. Not much, but a little bit and that’s all it takes. I got my money a couple of weeks later and I told him to not worry about it. He put the extra money in with the late fee and I said, “Don’t worry about it.” He came to me ahead of time and he handled the situation like a business person.

At that point, it’s up to me to waive it and I waived it. Other people, I put the screws to them, especially if my involvement goes from passive to now I’ve got to get involved, I’m not a happy person. That’s why I like private lending. Let me do my work up front and then put the wheels in motion and then check the account once a month. If I’ve got to go chasing you and stuff like that, I’m going to put the screws to you because I can buy a contract. My lawyer has put together that contract at the expense of the bar. That’s the best. I would love to walk into Fidelity or Schwab or whatever and say, “These are the stocks I want to buy. I want to buy Berkshire Hathaway. I want to buy IBM. I want to buy that hot new Pot Stock,” and you’re going to pay the $1,299 commission for it. I don’t know any other way.

You’re going to do everything and you’re going to pay for it and I’m going to take the gains. I’m now so far down the tangent. I’m back in college somewhere drinking Lone Star beer. Always buy but automatically have all those penalties in place. Talk to your borrowers, “This is what I do. This is what I charge. If your payment’s due on the first and then by day five it’s late or day ten or whatever,” that’s another thing you need to talk to your lawyer about is the grace period for a real estate loan versus consumer. Talk that over with your lawyer. I can’t speak for that, but make sure the borrower is fully aware. Honestly, “Have you read every piece of paper in front of you at a closing ever, even on your personal residence?” “No.” If it was your dream home, he didn’t care. He said, “Let me sign. I want to get in there.” In my case, “This is the house the wife wants.” I won’t sit there and read everything and I’m an investor and I’m not proud of that. It’s embarrassing, but it’s the truth. Go walk through everything with them, lay it all out and don’t be afraid to use it.

Why Listen To The MFCEO Project Podcast

People come to you ahead of time and say, “This is the situation. I’ll work with you. You come to me, I’ll help you, but you leave me in the dark. God help you.” I’m going to wind down the show now a little bit off topic. Back in February 2018, right after I had started this show, I attended the Grant Cardone 10X Growth Conference at Mandalay Bay in Las Vegas. I saw a lot of people speak. I saw a lot of people trying to sell. I saw a lot of people successfully selling huge product, courses, and whatnot. I was there trying to take it all in. One of the gentlemen who spoke on stage, I remember they introduced him and I turned to the guy next to me and I said, “Who is this guy?” He says, “He owns some supplement shop or something.” I was like, “He’s here? Let’s check it out.” He comes out and right away my swag meters up. I’m like, “Look at this guy. Coming out on stage all strutting, thinking he’s badass.” He lifts some weights.

He’s not like Lou Ferrigno or Arnold Schwarzenegger back in Iron Man days. He’s a big dude. He starts walking around and talks about how he was in the bathroom before he went on stage and he finally goes, “There’s a paper towel from somebody who dried their hands sitting on the floor by the wastebasket.” He started his talk about how it’s the simple things like that. You’re not too good to bend down and pick that up even if it’s not yours. He started talking about the culture in his shop and his warehouses and his employees. What he tries to foster and how he does it and why accountability was key. I wish I could remember everything this guy said because I was very impressed. He won me over fairly quickly. I realized this guy’s not selling anything. It wasn’t a rah-rah speech like, “I’m going to make you a millionaire overnight.” It wasn’t like that at all. He talked about his podcast, so I looked him up.

The podcast was different, but it’s taken me about a year to go from casual listener to a daily listener. He doesn’t sell anything. If you are looking for not just motivation in business or investing or how to be an online marketer or how to use whatever how-to. If you just want to learn the basics from somebody who’s not trying to profit from it, there’s no course to buy. He doesn’t push his products from his other companies. He just has this podcast. It’s one of the reasons why I’ve gone sponsorless. I thought I needed that when I started off because that’s what the polished successful podcasts I was listening to and that I enjoyed. They all had sponsors, so that’s what I did. I spent a lot of time trying to convince people to become a sponsor and then keeping them sponsor and whatnot. It bogged it down and it got to the point where I don’t want to be that commercial, not yet.

Lender Nation, if you’re reading this, don’t get me wrong. Someday I hope to have a product that I’m proud of, that I can exchange with you for money. I want to profit. I am a capitalist. I have a philosophy degree, but I’m also a capitalist. At some point in time, I want to monetize this show, but it’s because of this guy. I might as well go ahead and tell you his name now. I’ve botched this but his name is Andy Frisella and his podcast is The MFCEO Project. When I say things like, “Leave a rating and review or go to the website and go to social,” Andy does something that is amazingly simple and yet amazingly effective at the same time. He says the podcast is not free, that he does charge a fee, but the fee is not money. The fee is if you find value in his show, in each episode, tell a friend however you want to tell them. Tell them on the phone, text them, email them or whatever. Tell them about The MFCEO Project.

Late Payment Penalties: Use the penalty for late payment penalties to make the borrower have even more skin in the game.

Here’s a guy who’s not selling anything directly on his podcast. He’s not using his podcast to monetize anything. He gives advice and how-to stuff. If you want success, it’s not free. Freedom is not free, successes isn’t free. You’ve got to work for it. That resonates really well with me the way I was raised and how this show came together after I read The Richest Man in Babylon. Take one-tenth of your money and make it work for you. Put it to use. Find people who do whatever it is you want to invest in, trust them with your money and let them do the hard work. You work...

PLP-064 Title Insurance Explained with Josie Anderson

Keith Baker — Mon, 01 Apr 2019 03:00:17 -0600

Title insurance is a one-time charge paid at the time of closing. It covers your right and legal ownership to your house or land that you have purchased against liens. Josie Anderson, VP of Marketing at Valero Title – the only title company in Texas that offers zero escrow on all products – discusses the importance of having title insurance from a lender’s perspective. She also walks us through the company and what the title insurance cover, as well as touches on T19, title commitments, and more.

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Listen to the podcast here:

Title Insurance Explained with Josie Anderson

Why Title Insurance Is So Important

You’ll hear my guest, Josie Anderson, talk about putting a class together which we did. I want to thank her for coming on the show and helping to put the class together. What’s the class about? It’s all about title insurance. I was going to say I finally found somebody but truthfully, I finally made it a priority to bring somebody on the show to speak about title insurance from a lender’s perspective. A lot of people think as long as they get a title commitment, it’s fine. I can get a title. There are exceptions. There are things title policies don’t cover. This is going to be an intro into that. I like it because it’s somebody else who is talking about it. Hopefully, I ask the right questions for everyone in the audience. Let’s go ahead and get to the interview with Josie Anderson from Valero Title.

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Lender Nation, I am proud to have Josie Anderson on the show. Josie is with Valero Title. I have been chomping at the bit to have somebody from a title company come on and talk about title insurance in the process. Josie, welcome and thank you for coming on the show.

Thanks for having me.

I know you’re not an escrow officer yourself. You’re the VP of marketing. By proxy, you have a PhD in the title process. Walk us through your company Valero Title.

Valero Title is all over Texas. We have an office in Houston, Dallas, Austin, and San Antonio. We’re the only title company in Texas that offers a zero escrow on all products. Whether it be both sides of your contracts, cash out, rate and term revise, whatever it may be, no junk fees. We don’t have courier fees. A lot of title companies have the eFile fee as much as $450 to $500. I was telling people, “That’s an email.” They’re charging as much as $500. The other thing we offer is complimentary mobile notary on anything over $50,000.

You’re investor–friendly. No escrow fees, no junk fees, and the complimentary mobile notary is a lifesaver. As a lender, we usually don’t get involved in the closing. As an investor, when someone shows up to the office and all I have to do is sign a few docs, it removes the friction out of my day. That is a great service. You’re already established. You’re in Texas. Are you in any other states or just Texas?

We do have a sister company in Fort Lauderdale, Florida. That’s a whole other territory. They cover anything outside of Texas.

Any reason you’re Texas-specific than everything else?

Texas is amazing. Our owner is born and raised in Texas. He’s a UT guy. He opened the first office in Florida and knew he wanted to get back to Texas. We’ve been in business in Texas for several years.

Title Insurance: What title insurance covers is your right and legal ownership to your house or land that you have purchased.

Title insurance is something I demand on any of my loans. A good relationship with the title company is you’ve got to have one on your team. It doesn’t matter for me as a lender what title company closes the transaction as long as they are licensed with the Texas Department of Insurance. Their policies are like everybody else’s. As long as everything is above board, I don’t have a problem. I do have preferences with using certain title companies. You can call somebody, “I’ve never heard of this. This is an oddball thing.” How would your underwriter treat that if, “Let’s wrap a mortgage five times?” Would your underwriter do that? It’s an example of why you need a title company on your team. Let’s start with the top. What does the title insurance cover? How does it protect both the borrower and the lender?

I always tell people when you’re getting a loan, especially if you’re getting a loan from a bank. The bank is not going to give you a loan without title insurance. They want to be as protected as the borrower. I always explain in my first time home buying classes like, “Title insurance does not cover you for theft, fire, flood or any of that. It’s a onetime charge. They pay at the time of closing. As long as you own that property, you are covered.” What title insurance covers is your right and legal ownership to your house or land that you have purchased. If anything comes up in the future that you may need a legal backup because it’s something that we missed, whether it is a lien, whether it is a judgment, it’s something our examiners missed. That’s what we’re there for. We’re there to cover that.

If the long-lost cousin or brother accidentally shows up and we thought he got killed at sea and is like, “Here I am. You sold grandma’s house and left me out.” That’s when the title policy kicks in.

That’s something I explain all the time. You don’t want someone to come knocking at your door and say, “This is my grandmother’s house. No one told me this house is being sold and I’m an heir to this property.” That’s exactly what title insurance is for.

Flood, windstorm, fire titles are not going to cover your air conditioner when it goes out. What are some of the things that are typically not covered? I’ve seen it in the past where an investor sold a house. It was a wholesale deal. He came in. He got it and put a little bit of work into it, sold it. Everyone assumed where the property lines were. Come to find out half of the garage was in somebody else’s yard. It got messy. Is that something title would help out with?

Some endorsements can cover that. I’ll give you an example. This is something we had where they decided to build a swimming pool and no one looked at the survey. They built over an easement smack in the middle. It wasn’t a couple of inches or a foot. As a title company, most likely we will not insure that even if you have extra coverage or whatever it may be. Our underwriters will probably turn their nose up at that and say, “No, thank you.”

Having a survey performed before closing is worthwhile. I always go back a few years. If nothing has materially changed on the property, maybe a deck or something fine. If someone has owned the house 30 to 40 years then it’s worth checking those boundaries.

As a title company, as long as it is legible and it is stamped, normally our escrow officers and underwriters will accept it as long as there is a T-19 in place. They will normally accept it even if it is ten years old, twelve years old. As long as it is legible and there is a stamp and it can be read and nothing has changed. We’re normally okay with that. I always say it’s a case by case basis.

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That’s what I’ve found out when it comes to the title. What’s a T-19?

There’s a T-19 and then there’s a T-19.1. The T-19 is actual coverage for the lender. It protects you against violations of restrictions. The owner can also get a T-19.1 on their portion of the title. It protects them as well.

Two policies are issued at closing. There’s one for me, the lender, because I want to protect my money. It’s usually for only the loan amount. If I’m loaning say $100,000 on a property on rehab total, that is purchase and rehab repair costs, my policy will be for $100,000 because that’s what my loan amount is for. The investor or the buyer will usually go for the ARV or the after repaired value would be. This title policy would reimburse them for that full amount or protect them up to that full amount.

I would throw in there so people know, as a title company we are regulated by the state, by the Texas Department of Insurance. As far as title fees go, it should be the same across the board where the difference comes in or the escrow fees, junk fees, mobile notary fees, but everything else should be straight across the board.

My day job is insurance adjusting so I know a little bit more than the average Joe. The premium is going to be standard for the premium for the policy that is. That’s going to go through Austin. They got to stamp it and say, “You’re not charging $1,000 per $10,000 for title insurance.” They’re going to make sure no one’s getting gouged. That goes across other states as well. I don’t speak for them as we we’re in Texas. The Texas Department of Insurance, that’s who issues my adjuster’s license. I have to keep happy every couple of years for my continuing education. The same people are overseeing the title premiums, what’s covered, what’s not and what products are allowed. Let’s say you wanted to get a specific endorsement for your father’s third ex-wife’s brother to come back in one of camp out on your plate, you can do it. TDI, the Texas Department of Insurance will say, “Yes, but we’re going to oversee the premiums for that.” What’s the risk? What are the odds of that happening?

We honestly do not get a lot of that. 99% of the time whenever you see endorsements, they are going to be on the commercial property or additional endorsements. You don’t see that as much on residential property. Can it be done? Yes. Can I speak about it a whole lot? No, because I’d be lying to you if I told you all the different endorsements that could be added on.

With the way the show is geared, the first couple of years are going to be all residential. Ultimately, I do plan to get into the topics of multifamily and commercial deals. If you could give us a high level of what are some of the endorsements that a commercial policy would have you wouldn’t find on a single-family, for example.

Going back to a commercial endorsement, you’d be also looking at the T-19. Why? When they buy a piece of land, they want to make sure they can build a structure on it. I asked one of our examiners and that’s what he was telling me. He is 40 years in the business. He’s been an examiner forever. He’s a book of knowledge. He’s like, “Josie, you don’t see a lot of other endorsements between the residential and commercial.” The ones you see in commercial are the T-19 because they want to make sure they can build some structural building on there once they buy this property. There are mineral rights involved and everything else. He said that’s one of the biggest ones you see as far as commercial goes.

Title Insurance: If there are any IRS liens, the IRS wants their money regardless. There are no ifs, ands, or buts about it.

Most of your residential property is already planted, plotted down at the county courthouse. It’s a residential.

I had a gentleman that we closed on here in the Heights. He bought in a nice townhome, subdivision, gated. We were going over the mineral rights as far as residential and him not having any and so forth. He’s like, “I could always put a piece of artwork in the front and say that it’s art. They’ll never know.” He’s like, “I’ll put a piece of art at the front and they’ll never know that it’s oil.” I was like, “Good luck with that.”

Whoever developed the Heights took those mineral rights years ago if there were any. I know a guy who buys raw land and strips the mineral rights from it and sells it back for the same price. He doesn’t care about making money. All he’s doing is leaving a legacy for his family in mineral rights. He’s buying up all the mineral rights. I’m walking into the title company out of the blue. I got my first-time home buyer credit and whatever. What’s the process? Once I start saying, “I want to buy 101 Main Street. I need to get a title commitment.” Walk us through that process. What does a title commitment give us and so on?

I always tell people as far as the title company, we’re involved from the beginning to the end. Once you have a contract in place and you have earnest money in place and that’s delivered to the title company. We then get that contract receded and make sure everyone gets copies of who’s involved, what’s involved. Let them know we’re working on the search examination of the title. Our examiners then turn around and start searching the property. They go back as long as the property has been there. They go as far back as they can. Our examiners, they’re behind a computer. They don’t want to talk to anybody. They don’t want to see anybody. They work from home, “Leave me alone. Let me do my research.” They’re looking for judgments. They’re looking for child support liens. They are looking for any IRS liens, anything you can imagine. It normally takes them anywhere from 24 to 48 hours to get that title commitment back to us. At that point, we want to make sure the address is correct, the lot and block are correct.

The most important part is looking at Schedule C where anything attached to the property will be on Schedule C. Any liens, judgments, anything will be on there that would affect you and may keep you from closing that property. If there are any IRS liens, the IRS wants their money regardless. There are no ifs, ands or buts about it. It’s the same with child support liens. People think men or women that pay child support to think, “It’s not going to affect me.” It will affect you and they want their money too. Once we get the title commitment, it goes to all the parties involved so everybody has a copy of the title commitment. If there are any liens or judgments, our escrow officers and the examiners are working behind the scenes to try to get all those cleared up. Once those are clear, then we can move forward. At that point, we’re working directly with the lender so we can go ahead and get the transaction ready for closing. They can either come to the office. They can go to their home, job, whatever it may be to get their transaction closed. Keys are exchanged and everybody’s happy. Let’s not forget the funding, the money.

That’s the important part. Nobody buys a house without unless they’re paying cash, but even then it has to be funded. It’s got to hit the escrow. One of the beautiful things about title companies is I would never give borrower money directly. I give it to a third-party title company. They get my instructions from my attorney. They confirm this guy is who he says he is. If it was to bring something to the table, whether it be money, keys, the title to a car, a boat, whatever because it’s not always cash that changes hands at a closing table, they get all that together. Once all the insurance in place, the binders are there. You have windstorm because we’re in Texas, Gulf Coast. You’ve got flood because we’re in Houston. Southeast Texas is a flood zone. It’s not in the FEMA maps yet.

Once all that’s in place and the escrow officers ticked all the boxes, the money goes from my bank to your escrow to the seller at that point. Could you send us an example of a bad Schedule C? We take out all the personal information or property information. A normal Schedule C there was a lien from the purchase of a mortgage. There was a refi. Here’s the payoff amount if it’s going to change hands. Can you show me there’s child support, IRS all that stuff?

One of our underwriters comes in and does classes for our lenders and our realtors on how to read a title commitment. She has some gnarly stuff. Things that you see are crazy. Where someone’s name was there and they were married. The way that it was vested is in somebody else’s name. It goes all over the place.

The escrow officer is your go-to person. They're going to be answering any questions from beginning to end.

PLP-063 The Difference Between Hard Money And Private Money

Keith Baker — Mon, 25 Mar 2019 03:00:36 -0600

They say that hard money lenders are the solution to any real estate investor’s funding impasse. On top of that, there’s been an evident confusion on the difference between hard and private money. What are the distinctions despite seen similarities? Which one should you prefer if you wanted to scale up your business? Learn the top three answers to what makes them poles apart when it comes to funding deals.

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Listen to the podcast here:

The Difference Between Hard Money And Private Money

Intent, Flexibility And Rates Are The Key

I want to take a moment and welcome you and also thank you for sharing your time with me. For this episode, I will attempt to answer a question that I hear a lot in the REIA or Real Estate Investment Association meetings in the community and yet hearing it in the flesh and then seeing things online. To me, there’s some confusion there. That is the simple question of what is the difference between hard money and private money? You can start with things like the difference in the terms. Both hard money and private money can be very short-term. In fact, most hard money loans are short-term, six to twelve months. However, the difference with private money is I have some loans that are out three years. Some lenders will provide landlords a ten to fifteen-year loan at a relatively reasonable interest rate at 5%, 6% and they’re completely comfortable with it. That wouldn’t be me.

However, the real difference for me comes down to the intent and it’s not the intent of the loan or the intent of the property or the transaction. It’s the intent of the individual. For me, a private money lender or a private mortgage note investor is someone who is typically not in the business of making loans. It’s not Wells Fargo or Quicken Loans or name your mortgage company or big bank. Those companies are in the business of making loans and deriving their profits from the interest rates and the points charged. A hard money lender, like the banks or mortgage companies, is in the business of making loans and deriving business income off of those loans. The difference is a hard money lender will typically go to someone like myself or you who want to be a private lender and borrow at say 8% or 9%. Turn around and then loan that money out to an investor at a much higher interest rate. They get the points most of the time.

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Some hard money lenders will pay the first lender much more, 10%, 11%. However, when they loan it out to the investors, they’re pulling off points and possibly the spread, the difference in between that interest. That’s a business. That’s not what I do. It’s not what I talk about when I talk about private money lending, private mortgages. That is in and of itself the biggest difference for me. When people ask me the question, that’s what I like to start. If you go online and I see there’s a private lender association, what it is are businesses that loan money to other businesses which, in a way, that’s what a private lender does. However, these people have offices and staff and it’s their job to look for financing for real estate deals or perhaps they could make loans for inventory or on accounts receivable. They’re often a different thing than giving somebody like my partner lending some money to buy a house and wrap it and sell it. The intent is the biggest thing. It makes the most sense if you look at it from that aspect to begin with. You can look at the terms.

Most hard money lenders aren’t going to be as flexible as a private money lender. Any hard money lender, and I tell this to private lenders, is always get some type of monthly payment. That way, you have a mechanism for foreclosure. Don’t do a twelve-month loan with no payments due until the end of that twelve months and then in those twelve months, that house is sitting there. You could have done something to foreclose on it, but you can’t for a year because you have no trigger for default at that point. A hard money lender would never do that. I would suggest private money lenders never do that, but things are much more flexible on the private money side because many more things are open to negotiation. For example, the collateral. I have loaned money against property A so that the investor could go take care of property B. A lot of banks and hard money lenders will do that as well in the collateralization. However, I’ve also known some people to collateralize boats, RVs, basically anything that has a title and can be repossessed.

I have known extreme cases where somebody has placed a very valuable piece of family jewelry in escrow at an attorney’s office for collateral. I guess it would be okay if it covers the price. That makes me whole if things go south. As a private lender, I think about that thing. These are some examples of the way you can get creative with collateral. You can go back and read episode number 59 with Nomi Yah when she talks about hypothecation and how she wants to construct her deals and her notes for cashflow. Tom Berry touched on that in episode 43 briefly with fractionalizing the loan. You can get some pretty creative things. You have a lot more flexibility as a private lender. Unfortunately, that also means that people can pull the heartstrings of a private lender sometimes a little more because it’s not a business.

A hard money lender can look at a desperate investor in the eye and tell them, “I’m sorry, this deal doesn’t make sense.” When that investor says, “If I don’t do this, I go out of business or I have to go back and get another job or whatever.” A hard money lender is a businesswoman or a businessman. They’re going to look that investor in the eye and say, “This doesn’t fit the criteria.” To me, that is one of the few flaws and differences that private lending does have. If you’re a softy pussy cat, “That’s okay.” Private lending is not going to be for you. You can be a little generous here and there. You can always waive late fees if it’s a little late. There are mechanisms you can show mercy as a private lender. You’ll see that more and more with private lenders above hard money because hard money is business. I am trying to, as I go through this journey, meld those two things together. To be the Republican and the Democrat, as George Bush said, “The compassionate conservative.” I want to help people build neighborhoods. I do want responsible investing.

Hard Versus Private Money: Private lenders have this wonderful little area that we can sit in between what the banks are charging and what hard money is charging.

I once had a professor that didn’t like his pension was tied up in Raytheon. It was a defense contractor. He didn’t like that and wanted his money out. He fully admitted he loved the return, but he didn’t like the fact that his money was with a defense contractor. I can respect that. With the real estate investing, the private lending you can have the element of conscientious lending, giving people chances, so on and so forth. It’s not all cut and dry, but I would highly recommend you start your foundation cut and dry. When the lines get blurred and you go from the black and white into the gray a little bit, at least you have some type of good footing and a good foundation from which all of your decisions are made. That’s why I say let’s take it real conservative in the beginning because you can always loosen up a bit, especially once you get going that you can start with the rates.

For example, the number three difference. Private lenders have this wonderful little area that we can sit in between what the banks are charging and what hard money is charging. If you look at money as how much does it cost and that is out of pocket interest rates, points, time, processing the application all that stuff. Banks are traditionally lower. You can get a 30-year investment mortgage, 20% down between 4.5% to 5% depending on what part of the country you’re in. I’m going to use some bank rate stuff here. You can get a fifteen-year investor loan, 20% down and you get closer to 4% or under 4% in the rates. Whereas hard money is traditionally 12%, 15% or in some cases 18%. It depends on the usury laws of whatever state that you’re in. In Texas, it’s 18%. That includes points and interest rates. I have seen loans that go out with three points and 15% interest or two points and 16% interest. I’ve also seen one that was five points of interest and a 10% interest rate monthly or annualized, non-amortizing interest only.

We as private lenders live in that sweet spot in between what the banks charge, not only on the numbers, points, interest and hard money. That leads the question this is all well and good, but some of you may or may not remember. If you’re reading this blog, you are either my age or older. That means you remember the 1980s. You remember the housing market and what happened. Normal mortgages were at 10% and 13%, regular mortgages, Freddie, Fannie stuff. It got crazy with interest rates. That begs the question, “What’s that going to do between hard money, banks and private lenders? What does that mean for them?” It’s going to squeeze this out from a number’s perspective. That means if we continue, we’ll have to get more and more creative because we are private, we’re not businesses, we’re not regulated. As long as it’s our money, it’s our choice. That’s what I’m looking forward to and fearing at the same time.

It’s going to be interesting to see. We have this nice sweet spot that we’re in between banks and hard money lenders. With the blockchain coming, it is going to radically change the landscape, but we might not be talking about banks and hard money lenders in ten, twenty years. It might be a person to person. That whole industry may go away. We don’t know. It’s going to be cool but I hope I live long enough to see it and to be able to shift and to pivot around that when the interest rates rise. We’ll see what happens. Usury rates are at 18%. They may go up. I would love to own a lending business in North Dakota. The simple reason is because of their usury rate is tremendously high. In fact, most of your credit cards are domiciled in North Dakota.

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In recap here, the main difference between hard money and private money. Number one is the intent. Is the lender for business or is the lender an investor? Maybe someone has a regular job or isn’t a real estate investor, has an old 401(k) but they’re not using it to derive consistent business income, but rather investment income. Number two, the flexibility on the terms and the collateral and what you can do as a private lender. You don’t have to answer to a board. It’s your call, it’s your negotiation. The world is your oyster. You can write up anything as long as it’s legal. That’s why you have to have a lawyer but within reason. You can negotiate that RV as collateral for a quick fix and flip. Number three, the rates. Stay between the rates, especially while we have it good as private lenders and let’s make sure that interest rates stay low. That’s my political message. Let’s make sure that interest rates stay reasonable and necessary, but low.

I do appreciate you reading this. I want to tell you to stick around. I’ve got some cool interviews lined up. I’ve got some attorneys. You’ve read about them so far and they’re only going to get better and hopefully a little bit wilder. I hope they would deliver value to you. If they do deliver value, please go to iTunes, Google Podcast, Stitcher or SoundCloud and leave me a rating and review, please. That helps spread the word. It brings people awareness, people like you and me. We can find it a little easier. I would appreciate that greatly. Connect with me over on social channels: Facebook, Instagram, Twitter, LinkedIn and BiggerPockets. I do peruse those channels. Until next time, I wish you all a prosperous and happy investing in private lending. Take care.

Important Links:

Real Estate Investment Association

Episode number 59 with Nomi Yah

Episode number 43 with Tom Berry

Private Lender Podcast on iTunes

Private Lender Podcast on Google Podcast

Private Lender Podcast on Stitcher

Private Lender Podcast on SoundCloud

Private Lender Podcast on Facebook

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PLP-062 The Art Of Raising Private Money with Alan Cowgill

Keith Baker — Mon, 18 Mar 2019 03:00:39 -0600

The beauty in private lending is that private lenders get to set the rules. Alan Cowgill, owner of Colby Properties, LLC and President of Integrity Home Buyers, Inc., tells us how this goes down as he goes deep into raising private money. He shares how he got started in the whole real estate game, taking us into exit strategies, keeping investors and landlords safe, and paying private lenders. Alan also touches on 401(k)s and self-directed IRAs. Ending it with more great insights, he shares what he looks for in a lender and how communication is key.

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Listen to the podcast here:

The Art Of Raising Private Money with Alan Cowgill

I’ll speak with Alan Cowgill who was the first person to put the concept of private lending into my noggin several years ago. I’m honored to have him on the show. Speaking of the show, you can probably tell that I’ve been making some changes here and there particularly in the format. Whereas I’ve gotten away from selling mid-roll advertisements mostly because I didn’t feel like it suited me. I like the flow of the show better without the adverts. I’m experimenting with that to see how it goes. I’ve also brought in some more plans, reevaluated a few things and I hope to broaden the topics of the interviews a little. I’m going to go into some areas that hopefully bring you, the reader value in other aspects of your life not just in investing in real estate. It’s very closely tied to all that. Let’s go ahead and cut to the chase and get to the interview with Alan Cowgill.

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Lender Nation, I’m excited to introduce to you, Alan Cowgill, who is one of the people who got the private lending kernel in my brain about a decade ago. It’s an honor to have him on. Alan, welcome to the show.

Thank you very much. I’m tickled to be here. This is exciting for me.

To give the readers some background, I was introduced to Alan years ago. I went to a Larry Goins boot camp and he came up and said, “How many of you guys deal with private lenders? I need to work with private lenders.” Long story short, going to the real library, finding one of your old programs on cassette tape and whatnot, CD and trying to put it all together, here we are in 2019. I’m stoked. Thank you for coming on. Amongst the many questions that I have, I want to try to narrow it down for you to just a few. I’d like you to tell our readers how you got started in this whole real estate game.

I was broke. I got a quarter century in Corporate America. As I was climbing that corporate ladder, one day, I realized I had the ladder against the wrong wall. I had to do something else with my life. I’d seen so many of my family members work a job all their life and retired poor. I thought, “I don’t want that to happen to me.” What I was going through, I was broke. Even though I had been successful in Corporate America, I was living in a little dinky two-bedroom apartment and I was struggling to pay my bills. What was happening is I had this old beat up car and I needed to put some repair work into it, but I put that on the backburner as we do.

I was busy doing other things and paying my bills and going along. All of a sudden on a first date, this car paid me back. It’s an ugly story. I pulled up in front of this apartment complex to walk her to the door after our very first date. Halfway up to the door, I heard something, I turned around and looked at my car that had burst into flames. Keith, when I tell people this, when I speak on stage, somebody on the back room goes, “Hot date.” It’s more like first and last date. Can you imagine how embarrassing this is holding her hand, watching the firemen put your car out?

Here’s this successful middle manager in Corporate America. He can’t even afford to get his car fixed. Every morning when she woke up, there was a burnt charred mark in her parking lot. What an impression did she make that apartment complex? I looked into franchises but they take money. I didn’t have the money to get a franchise. I was trying to figure out what to do outside of Corporate America. I did decide to invest. I took my whole federal tax return that year and plunk it down on lottery tickets. You’re thinking not the sharpest tool in the shed.

I was worried about paying my bills one night. I couldn’t sleep. At [2:00] in the morning, I got up and turned on the TV and started to channel surf. I hit one of these real estate infomercials. It got my attention and I thought, “Maybe I can do this.” I picked up the phone. I ordered that home study system. I didn’t have the money to hardly do it because I spent my money on lottery tickets. They take a credit card. I ordered that system. I became enthralled with real estate. That year, I bought two houses in my very first year. The next year I bought five. The following year I bought eighteen. Since that point in time, I’ve done hundreds of real estate deals. Half the deals I do are without monthly payments. We can talk about that later on if you’d like because I’ve got private lenders but that’s how I got started in this business off the TV commercial. As a side note, I’m in three nationwide infomercials that’s played over the years.

I was going to ask you, what program did you purchase?

It was Carleton Sheets. He got a lot of people started way back then.

Private Lending: In real estate, you focus in on what you hit on to what works, and you stay there.

What were your exit strategies? Were you flipping, buying and holding?

When I started out, the first property I bought was a side-by-side double. The goal was to hold it. I started to do that for a few years, buy and hold. I’d buy duplexes and side-by-side doubles and got into some single-family homes. I decided that along the way I’d like to buy, fix and sell. I started doing that. I realized that the areas that I was buying in that people would move into the houses and many times do a rent-to-own on it. They’d tear the house up and leave. They had more of a renter mentality where I was buying. I had to move up into higher level property and that helped quite a bit. I call it the model. What model do you want in this business? I started out buy and hold, then I went in to buy and sell. It’s a learning experience. You focus in on what you hit on to what works and you stay there.

How did you get introduced into private lenders?

What happened was I’m coming up to my real estate education, I believe the foundation of business and it is exactly what you and I are doing right now, is training. I focused on getting a solid education in this business. I’d go to REIA events and I’d go to boot camps. I heard this thing about hard money lenders and private lenders. I thought they were the same thing. I thought it was interchangeable terms. It’s extremely different for one to the other one because with a hard money lender, they set the rules. They want to have money down so you’ve got some skin in the game.

Mine wanted 15% down and that’s a showstopper for some people that are getting started. A 15% down and then they would have to get paid the way a hard money lender gets paid is they charge you with what they call points, which is a percent of how much money they loan you. They take that right off the settlement statement right off when you buy. That comes right out of your side of it. They want to turn this money over and over again. They put you on a short-term commitment on this where they have balloon payments. Typically, it’s within a year so that they can get that money back and get it working again, they can get another 5%.

After a while though, I realized that private lenders were different. I realized that I got to set the rules. There are only four parts of a real estate deal at the very pinnacle, at the very top. Number one is you’ve got to find a property that’s good to buy. Number two is you’ve got to have money. Number three is you fix the property to enhance value. Number four is you’ll flip it or keep it long-term. If you can’t get by this second item, you’re dead in this business. What happens is any other place you go to look for money out there, somebody else is setting the rules like a bank and lending institutions. That’s what hard money lenders are, they set the rules. I realized with private lenders from my education of going to these events once I had this untangled, that I got to set the rules. That was so appealing to have one of the biggest of the four items out there where I could set my own financing rules. I went back to my mom. She had committed some money because my dad had passed away. She took that money. She had not been taking care of the finances in the house when we were growing up. She realized that she could plunk that money down on a bank certificate of deposit.

She would study the rates. She would drive 45 minutes, one way to get a few pennies more on a CD because she knows she’d have to live off this money. This was twenty-something years ago. Now, she’s 93 years old. She’s still got some money out there. What happened was I went back to mom. I said, “You’re getting a paltry low rate of return on a bank CD. I can pay you three, four or five times from what you’re getting on a bank CD. I’ll give you a mortgage promissory note, a hazard insurance and lender title insurance,” and mom jumped for joy. I said, “I’ll even pay you monthly.” She loved that because that’s what the CD was doing. It was giving her a monthly income of a small amount. I could give her a lot more. Mom was my very first lender. What that did was by getting that first lender, it gives you the confidence to do it again, be able to talk to other people about it. It shows you the way how the paperwork’s handled. That got me out of the chute. That’s where I started.

I won’t borrow from my parents. I have the same frustrations. We’re looking at their finances as I’m sure your mother’s CDs aren’t paying anything. The reason I like private lending so much is because I could keep my day job and yet still invest in real estate in a relatively passive insecure manner. There are some works and some due diligence upfront. I espouse a very conservative view because at the end of the day, if I tell somebody, “Don’t ever do a second position lien,” I do them. There are certain instances where I will do them but by and large, I tell people not to. I like the fact that you said you were able to set your financial terms. That’s to me the beauty of the private lenders is hard money lenders. They want those points because that’s their money. That’s where they make their profits.

Any other place you go to look for money out there, somebody else is setting the rules.
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The interest is usually going back to someone who they borrowed the money from at a lower rate, generally speaking. They want to turn that money over. Private lenders tend to want to keep the money working and not have the hassle of going around and originating alone every six months on a flip or something like that. I recommend people do that at first. You’ll get tired of the process every three to six months of loaning on a flip to learn the process. Get in there, see the nuts and bolts, see the machine, the gears and then back out. Lower your expectation on interest rate a little bit and watch how long people like yourself will use your money and keep it coming in month after month.

That’s one of the things that attracted me to you when you spoke at the Goins boot camp. Now, you’re not just buying some flips or some rentals. You’re educating. You’ve got systems out there that I know took you a long time and a lot of the attorney’s fees to create. You keep people in line. Investors say if you show them the roadmap, I understand you’re not an attorney. You’ve used many of them to create this. It’s a roadmap of how an investor can stay safe especially with the Securities and Exchange Commission at the state and federal level. Whereas private lenders, we’re not regulated like that as long as we’re using our own money, we can do what we want. Check with your local state attorneys and whatnot. It’s the Wild West if it’s your money. If I borrowed your money, Alan, and then loaned it out, now we’re getting into a whole new, different situation. You figured this out. We’re in the same boat but on opposite sides. Walk us through how you keep investors who are the flippers and the landlords, how do you keep them safe?

What happens is first off, I don’t touch their money. I have a good old form of closing. The reason that’s important is because we commit to the private lender that their money is secured by real estate, number one. You don’t want to violate what you tell the private lender. You do what you say. I don’t touch unsecured money. Early on, I would have private lenders that would be so excited about giving me money there. They’d want to hand me a check on the spot because they wanted to get that high rate of return. They were so tired of the low returns they were getting. I learned early on that you don’t touch those checks. You let them go through the closing. In Ohio, we can close with attorneys or title companies. Let’s say for an example that I’m talking to you and I asked you if you want to loan me money. You say, “I like to loan you $200,000.” The first thing I’ll do is I’ll use my up the ante technique where I’ll ask you, “If I find a deal worth 400,000, should I call you?” If you say, “Yes,” then I instantly went from $200,000 to $400,000.

In fact, I had a lady in my boot camp. I’ve got a live event. She asked somebody for money and let the other person, that lender said, “I’ll loan you $100,000,” and my student used the up the ante technique I gave you. They went to $200,000. Within twenty seconds, she had her up to $900,000. She kept asking the same question. That’s how powerful the up the ante technique. To follow on how we handle this is I would shake your hand once you say, “We can do $400,000.” I’d shake your hand and I’d say, “You made a wise decision.” Then I shift into what I call the mechanics, which means I tell you how the money is handled because being a new private lender, you don’t know. You might think, “I’ve got to cut a check now or get Alan the check tomorrow.” I want you to understand going in how this works. What happens is you don’t make the check out to me. What we’re going to do is go to a formal closing like you would if you were at the bank. In fact, you are my bank.

What will happen is I’ll have you wire the money into the closing that I tell you. I’ll call you up four to six weeks from now. We’ll close on the deal. I need you to be ready for that. “Does that work for you?” They always say yes. Let’s roll the clock forward. If I get down four weeks and I don’t have a property that I’m happy with for us, I will get ahold of you. Communication is so key with your private lenders because private lenders lend you money based on the fact that they trust you. You want to maintain that trust and keep everything out there that they understand what’s going on so they aren’t frustrated or confused. I would call you up and I’d say, “Just so you know, I don’t see anything right now in the market that is good for you and I, both together. Hang in there another four weeks and we’ll have something rolling.” They’re cool with that. What will happen is seven to ten days before closing, I’ll call you up, you send the wire in and we close. The lenders never ever go to closing.

I’m so glad that you said those three words, “Communication is key,” because the lender takes on the role of the bank, but this isn’t a bank where the tellers change every two weeks and nobody knows your name except the fees keep going up and up. The other thing I liked that you said is the handshake. One of the things I like to think, at least I espouse on this podcast, is what I call old world values. If you give someone your word, you keep it. If you shake their hand, you look them in the eye, there’s your contract. Having said that, that’s the trust part. Now, you’ve got to verify. Get that contract in writing, notarized or whatever you need to do to keep yourself safe. I’m glad that you said that.

Up to that point of where I up the ante with you now, everything before that, what I’m trying to do is attract private lenders in converting into private lenders. What will happen before that, I might invite them to a one-on-one meeting or I might have a group meeting. I’ll show my PowerPoint slides that I use. In fact, when I ratcheted up the business from when I got started after my mom, I decided to have a meeting with private lenders. I didn’t know if I was going to be alone or if I’d be up in there with 50 folks and eighteen people showed up. I had a PowerPoint slide presentation

PLP-061 Q&A Session On A Real Estate Bus Tour

Keith Baker — Mon, 11 Mar 2019 03:00:34 -0600

What are your pain points and what are you struggling with when it comes to private lending? Is it finding private lenders? Is it convincing them? We answer these questions about private lending, minimal risk investments, and a whole lot more. Join us on this episode as we conduct a Q&A session with Mitch Stephen, his students, and other entrepreneurs on his bus tour. Mitch is a self-taught entrepreneur and the author of the book, My Life & 1,000 Houses: The Art of Owner Financing. Keith also introduces the podcast and the reason he’s doing it.

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Listen to the podcast here:

Q&A Session On A Real Estate Bus Tour

Keith Conducts A Q&A Session On Mitch Stephen’s Bus Tour

What I’m trying to do with the show and my online courses is getting people trained up and ready to be private lenders for you and for people like Mitch. I’ll give you a little background. I started this show on January 1st of 2018. The way this all came about was because I have a day job that I like. I do insurance adjusting for the oil field. I don’t deal with homes. I don’t deal with autos. I don’t deal with feelings or soft tissues. None of that. I deal with oil field equipment, big money and large item stuff. One day when I was walking out of Lloyd’s of London, I realized, “I handle a lot of other people’s money,” but I love my day job and there’s a lot of promise with that. I have a little equity in the company that I worked for, but I wanted to stay involved in real estate. The best way I could do that was through private lending.

I get to stay around with heavy hitters, people who do it every day. I get to learn from them whether they want to teach me or not. Oftentimes, I’ll make them hold my hand and walked me through their transaction. I got a call from a guy who I used to loan a lot of money to who said, “I’m switching over to wholesale.” I don’t need money, but my friend Landon needs a private lender. One of the first things that Landon asked me was, “Have you ever heard of Mitch Stephen?” I was like, “No. Who’s that?” To make the long story short, Landon and I started in LLC and now we do owner financing out of that LLC. It all started with a private lending contact. I don’t loan to the LLC because I do most of my lending out of my self-directed IRA. I like to sleep at night. I like to keep things above board and very transparent. I don’t loan to the LLC that we do our owner financing with, but it doesn’t mean we can’t use other people’s money or other people’s IRA.

Fast forward to about last September 2018, I was forced to take a family vacation to the beach. I’m not a beach person. I’m a mountain guy, but when you have a wife and two daughters that love sunshine, you do what you have to do. While I was miserable and destined, the idea struck me to start the show. Mitch does bust his tail and a lot of you do try to find private money. I’d like to bridge that gap and be able to get people who aren’t necessarily versed in real estate who aren’t going to go out and flip or landlord but might have that 401(k) or an IRA sitting around. Maybe they got lucky and inherited some cash, but they can put it to work. What I’d like to do is bring everybody together and create an economy by which we don’t need banks and we don’t need Wall Street brokers getting paid. I’m not going to begrudge anybody for getting paid, but when you’re losing my money, why should I pay you a bonus? That’s the way I look at it. It’s a meritocracy. That’s why I like private lending so much because I can pick and choose who I work with. The students or the gurus, I get to choose them who I work with as well.

When I kicked off the podcast, it got us going slowly, but there’s been traction little by little getting more and more episode downloads every month. It’s getting more and more interaction with people. That is going to lead to the Private Lender Academy, which is going to be the funnel to bring in your dentist, your orthodontist and your people with money who want to invest and help put things to work in your projects. We’re going to start that in an online community. Hopefully, by this time next 2020, we’ll be talking about having functions with Mitch and other people. I’m bringing everybody together so that you can introduce yourselves and your businesses to private lenders and negotiate the terms. That’s the other beautiful thing. Everything is negotiable. Nothing is taken for granted. It’s not like walking into a bank. I’d like to bring these two groups together and create this economy. I’m looking for from you. Besides indigestion, what are your pain points? What are you struggling with when it comes to private lending? Is it finding private lenders? Is it convincing them?

It is convincing private lenders. I know people who have money, but they were skeptical.

You need to realize that it's not about you, it's about the deal. You just need to explain to them.
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Are they skeptical of you or is it your process of doing the owner finance and having them fund the first lien?

I’m not sure. It’s the insecurity on their part because you don’t think that you deserve the money or like, “Why would anyone loan to me?” You can get over that. This is not about you. It’s about the deal. You just need to explain to them. They need to realize that it’s not about you, it’s about the deal. You either going to get paid this amount of money or you would get this house and this is how much you have involved. If that’s not a value to you or you don’t see how you’re protected with that, then don’t do this. It’s pretty cut and dried. I’m not going to force someone or talk someone into doing it. If they don’t see it, I’ll just leave them alone and go to the next one. You start getting into trouble when you start pushing round pegs into square holes. The other thing I want to address is create your own economy. That’s how I learned to move. I had my own economy during the recession. I didn’t need a bank. I didn’t need anyone to support me except for the team that I had built, which was my private lenders, my clients and my sellers. It’s about creating your own economy. You have to create your own economy from the very beginning until the end so that when there’s a slow down or if there’s a bump in the road for everyone else, it doesn’t affect you.

Manhattan Luxury Real Estates had four consecutive quarters of decline so there are some potential signs and writing on the wall that we may be coming in for the next market cycle, the next correction. What happened in ‘09? Who was lending money in ‘09? Not banks, it was private lenders. Part of my job is to get people over the hump to see that this is a good deal. That their money is going to be protected. Yes, there are risks in everything. I just read any prospectus from Schwab or Fidelity, but you can mitigate that risk. I’m trying to get people over that hump to when then they come to you, they’re ready to go. If they’re comfortable with the deal, then they’ll move forward and then everybody gets happy.

One of the main things is you can’t guarantee anything. You can’t have the word guarantee in anything you say. There is no guarantee. The whole United States will be knocked off the planet if there’s a nuclear war. There’s no guarantee. That’s how you look at it. When you tell people, “I have an investment with minimal risk or a very nice risk-reward situation.” That’s how you will start to phrase it like, “We have security backing up your home.”

This is one of the only investments that is secured by real estate, insurance policies and title insurance property. After Harvey flood, I require on any note that I originate or have touched flood insurance from the National Flood Insurance Program. If somebody is going to say $450 is going to kill my deal, then it’s not a deal. You don’t need to be lending on it. You shouldn’t be getting into that deal anyway. That’s my opinion. From a lending perspective, that’s where I come from with the flood insurance side of things.

Real Estate: You can’t have the word guarantee in anything you say because there is no guarantee.

How do you find them? How do you get their attention? How do you stand in front of them? Once you do, what’s your script? What do you talk about?

I was the guy who went to REIA meetings for three years and sat back there and never opened up my mouth. Now, that I’ve started the show, I can’t shut up. I go to REIA meetings all over here. I’m from the Houston area. I go to as many REIA meetings as I can. I go to every single Quest IRA event that I can and any other self-directed IRA custodian out there. Quest is the hometown for me that’s why I stick with them so much and I got my start with them, hence my loyalty. I go to those meetings and then I’ll just chat with people. I heard this great analogy. When you go to a singles bar, you don’t walk up and tell exactly you want. You have to go around it. I don’t talk about private lending. I don’t talk about real estate. I talked about what they do in their family and how they want to secure their future and lead that into, “Have you thought about private lending? It’s not for everybody.

The first time somebody takes a chunk of money and enhance it to you for three to five years, I don’t care how solid the paperwork is. That’s still a gut feeling. I would start just building rapport. Why wouldn’t even touch the topic of private lending at first? See where their mindsets are and go from there and lead them into that situation. You don’t want to take a guy who drives a Cadillac and make them drive a Pinto. You’ve got to know your audience. I do it on an individual basis. Mitch was easy. He’s been doing it for so long. It was his student who was telling me how great he is. I saw him work and I saw the numbers come in and they’re still coming in and I’m like, “This is good stuff. Thank you, Mr. Mitch.”

In my case, 100% of my clients are investors. I talked about private lender and their biggest fear is lending me $30,000 on a property. It’s such a small amount. In their eyes, 8% of $30,000 is big. How do you fix that situation?

When I first started private lending, I only did six-month loans and I want a minimum of 12%, but then I was working every five months trying to find another deal to put that into so that my money would just consistently run. I’m into owner financing model now for three years. I’m going to get 8% and I don’t have to work my money. All I do is check at the first of the month if the payment has come in and that’s it. How hard do they want to work for that is what it boils down to. As you can see, I’m very lazy. The only thing I like to do is eat. That’s all I want to do. Once I do my due diligence, once I underwrite and vet your project, I want to set it and forget it. I want to go Ron Popeil all the way for those three years or however long we’ve got our terms for. I want to do that. Ask him, “How hard do you want to work? Do you want to do it one time?” For the next three years, you’re going to get a consistent return.

You start getting into trouble when you start pushing round pegs into square holes.
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People that have 30 years to go before their IRA matures says, “I just want to set it and forget it.” I said, “How about a fifteen year? You can pay 10% if you get a 25-year M or 20-year M.” It’s not all about the rate. Sometimes it’s about the term and it depends on what the person that you’re talking to wants. Most of my people are older so I do 8% interest for only five years. I started talking with some of the younger people. They might just want to set it, forget it. You can do a twenty-year below with a five-year call. They can do anything they can think of because it’s private lending.

It’s all negotiable. If someone wants a shorter turnaround or they want the higher yield, then I wouldn’t fish in that pond with them. I will introduce them to a rehabber or a flipper and tell them, “If you change your mind or when you get tired of spinning your wheels for your money, come talk to me.” That’s how I weed those people out because I spend a lot of time trying to convince people who were only locked in on 14% and like, “No, you can do this. It’s great.” You’re just spinning your wheels. Identify them and be like, “Maybe rehab is better for you.” Look for the people like Mitch is talking about who want to do the set it and forget it.

Even if people say no, they’re stuck on the 40%. You just send them an email with your funding opportunity. Maybe you’ve got a house worth $100,000 that you’re picking up for 45%. You say, “I just want to show you the deals that I’m offering for 8%. Look at this, it’s a 45% LTV. How do you get burned on that?” You send it out. Just keep digging once every month or once a quarter and not too much. Just so you know that when a super stubborn or guilt comes by, pick one of the people that told you, “I just want to show you what happened this week. I’ve got a guy loaning on this deal here.”

Those drip campaigns will wear them down slowly but surely.

Flip Your Capital

Just to add value to the group. Our company is called USA Private Money. We wrote a little eBook called Flip Your Capital. Many people can’t find flips and they go through with this training, education and so forth. We’ve got an unfair advantage because we speak at those events. We were able to raise $10 million in eighteen months with this little eBook. All of you can go take this eBook off our website and it’s the fourteen reasons why banks loan money on real estate and why you should too. If you create your own little eBook and comes across as the expert, we take a little different approach. We are bold about it. You can’t find a house you want to flip, how about flipping your capital? Let’s put your money to work. Flippers are a fantastic place to go to. You can get it to USA Private Money. In the middle of our webpage, it says, “Flip Your Capital.” Click that or FlipYourCapital.com.

That does a lot of value in adding to you because you’re giving somebody value up front. You’re changing their mindset up front with that eBook and it’s successful. I don’t how much would that averages out a month, but it’s a lot more than a dollar.

I need to write that book myself. I’m just about to finish with that book. How to become a passive lender using real estate as collateral? My life went to a thousand houses on how to become passive real estate investors using real as collateral. Part of the challenges though in the book was, there’s all these different ways that you could set up alone. I just had to pick one winning and not complicate it too much.

Before you publish it, pick up Bob Zachmeier’s book. It’s a fantastic book that you’re going to want to read through before your book is out.

The biggest thing is you have to put up the numbers. It’s a sales game. It’s just the same as anything else. I challenge all my students all the time, “I bet you can’t present to 50 people in a row even as an amateur. Your challenge is to get 50 notes in a row. Who in this room was going to go for that 50? I bet you can’t make it to fifteen. I guarantee you, you can’t make it to 50.” If you set your goal to get 50 notes in a row, I bet you can’t do it.

You just said guaranteed coming from the guy who said never guarantee. That’s how powerful that statement is though. Get your 50 notes and it won’t happen.

Create your own economy so that when there's a slow down or if there's a bump...

PLP-060c Is it time to tighten your lending criteria?

Keith Baker — Mon, 04 Mar 2019 05:01:40 -0600

I’m still hiatus for the moment, but am looking forward to March 11th when it all kicks off again!

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The Foreclosure Journal – Part 1 – Episode 42

The Foreclosure Journal – Part 2 – Episode 48

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PLP-060b Football Season is Over

Keith Baker — Mon, 25 Feb 2019 06:00:41 -0600

~Football Season is Over~

by Hunter S. Thompson (18 July 1937 – 20 February 2005)

“No more games.

No more Bombs.

No more walking.

No more fun.

No more swimming. 67.

That is 17 years past 50.

17 more than I needed or wanted.

Boring.

I am always bitchy.

No fun – for anybody. 67

You are getting greedy.

Act your old age.

Relax – this won’t hurt.”

I’m still hiatus for the moment, but am looking forward to March 11th when it all kicks off again!

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BiggerPockets – Keith Baker

YouTube – Private Lender Podcast

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The Foreclosure Journal – Part 1 – Episode 42

The Foreclosure Journal – Part 2 – Episode 48

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PLP-060 I need to take a short hiatus

Keith Baker — Mon, 18 Feb 2019 06:05:17 -0600

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I am taking a short hiatus form the podcast because life has gotten busy, in a good way! But I need to take a few weeks to get the podcast back on track, and back to delivering valuable information and interviews that I hope you’ll find inspiring.

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PLP-059 Listener Spotlight: Hypothecation – A Unique Approach To Private Lending with Nomi Yah

Keith Baker — Mon, 11 Feb 2019 03:00:00 -0600

Nomi Yah is a practitioner of creative financing. She hustles to make things happen. She’s not just waiting for things to come to her, but she makes sure to go after it. After buying her first house for $90,000, she sold it in a few years for $140,000. Seeing the profit from real estate, she bought and sold several more houses, adding in-law units and becoming a landlord. After consistent success, some family members invested and the business grew until they had thirteen tenants and one note. Realizing that the note was easier and more profitable than the tenants, she spent a year learning about notes and decided to sell the rentals and become a private lender, starting Elohe Loans in 2018. Nomi talks about hypothecation and shares her unique approach to private lending. See how this can also work for you.

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Listen to the podcast here:

Listener Spotlight: Hypothecation – A Unique Approach To Private Lending with Nomi Yah

A Different Way To Earn Monthly Cashflow

We are breaking new ground here. We’re going to reach a new milestone as this episode is the first of its kind, a Listener Spotlight. This an episode where I interview a listener who is actively lending money and seeking to expand their network. The idea is for you to know the ins and outs of lending from somebody in the trenches every day, someone besides me. I’m excited to get to this interview with my guest, Nomi Yah. The nexus of this episode was an email that said she was traveling to Texas in the near future to look for deals to lend on and would like to meet me and talk about all things private lending, which that in itself I thought was cool. She offered to buy me a barbecue, which is my kryptonite. How could I say no?

I met Nomi Yah in Austin near the end of 2018. I listened to how she prefers to lend, how she likes to structure her deals, and how she’d lends for cashflow and also had some fine brisket. It was during that conversation that I realized that I wanted to have people like Nomi on the podcast so they could share their stories, tell us of their genius moves and maybe their mistakes and regrets as well. This thing has made the podcast so much more enjoyable than I could have imagined. I hope you enjoy the first Lender Spotlight with Nomi Yah. Let’s get to the interview.

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I’m honored to have a Listener Spotlight with Listener, Nomi Yah. Nomi, welcome to the Private Lender Podcast.

Keith, I’m glad to be here.

Thank you so much for reaching out and agreeing to do this. This is a new segment that I’m trying this year in 2019. As a little background, Nomi signed up for the email list. I finally sent an email out. She responded and filled out a survey and then emailed me and said, “I’m going to be in Austin, Texas. Can we meet up? I’ll buy you lunch.” She said, “Barbecue.” I said, “I’m there.” We had a great afternoon chatting about real estate, lending and everything. She graciously agreed to come on. Again, thank you. I’m looking forward to this. How’d you been?

I’ve been great. It’s my first podcast and I’m excited.

Let’s give us a little background about yourself. What type of environment do you come from, corporate finance? I know you have a very interesting background so please tell everybody.

I’ve been in the music industry for 25 years. I toured around the world. I got a gold record. I’ve performed in front of 100,000 people. I got a whole lot of milestones with my music career. I’d have to say I aged out of the touring part of it. I’m still a songwriter and have some success. I got more and more into real estate. I’ve always been interested in real estate. I finally hung up the touring gear and put on the real estate thing. I started with a whole bunch of rentals then I sold off all my rentals. Now, I’m doing lending.

I’ve seen the gold records. It’s legit. I love the musical background and also real estate. What part of the country do you live in? Do you invest in your own backyard or you go across state lines?

As a landlord, I only invested where I live, which is Northern California. As a lender, I only have one note in California. I’m doing the rest in Texas and Missouri. I’m open to other places as well.

What made you choose Texas and Missouri?

You can get a house for a lot less than you can here. Here it would take all my resources to get one house and there, I can get multiple houses.

There are millions of niches. It may take you a couple of years but you will land on one.
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You can scale it a little more, diversify the risk. What are your goals in becoming a private lender? What is your primary investment objective with that? Is it cashflow?

It’s definitely cashflow and also generational wealth.

You want to leave a legacy.

As a musician you don’t have any retirement plan, so when you start performing royalties trickle in, but they’re not dependable. It’s a retirement plan for myself.

The loans that you have made out in Texas and Missouri, walk us through it. What do they look like, a single-family, rehab or rentals? Walk us through the mechanics of those loans.

Let’s say they’re all a little bit different, but mostly they’re single-family homes. Most of them have come through real estate investors where I own part of it and they own part of it.

Do you have equity stakes in addition to the mortgage and the interest?

That’s not how we set it up. We hadn’t set it up as an equity stake. We’ve set it up as a loan or hypothecation.

Let’s delve into that a little bit and explain because one, it’s a big word and two, not a whole lot of folks understand what it is. Can you walk us into that?

For example, I have a property where a real estate investor bought a house for $22,500. They turned around and sold it for $65,000 with an owner finance note. They needed to pay off a short-term hard money lender and so then I gave them a long-term note. I specialize in long-term notes because I want a stable environment. I believe that balloons create an unstable environment. You have to go and replace that balloon so you have to take action. Whereas when you have a long-term loan, you could refinance it or sell it, but you could also keep it. You’ve created the possibility of long-term stable cashflow. When they hypothecated the note to me in that case, they gave me a first lien for $22,500 on a $65,000 property. They’re collecting from that $65,000 note and turning around and paying me $22,500 note. That’s the hypothecation.

Hypothecation: As a musician, you don’t have any retirement plan.

Basically, that debt or pledge as collateral to secure a debt or as a condition of a debt. In this sense, you refinanced the hard money lender out and the investor was able to sell with owner financing. Now, you have a nice note and a $22,000 investment based on a $65,000 note, which is going to pay out more than $65,000 over the life of that loan. You’ve gone a good way of creating something stable there.

I’m looking to go more into that where I’m looking for real estate investors, who are good at finding deals and is using seller finance. I’d like to come up with a way of doing long-term financing for these deals so that they can end up part of the note and I can end up part of the note.

It’s more than a rehab on this is. This is why I find this interesting because this isn’t just, “I need X and we’ll turn it into Y and then I’ll pay you back Z.” I like this because it’s more of a legacy. It’s a bit of the longer term. Nomi and myself, we’re not selling or buying securities or anything like that, but I’d like for you to run through an example of what you would further like to do. You sent me something, you purchased a property a $75,000, for example as an investor does. They put up some cash and borrowed the rest from you at 10%. After the rehab, they sell the property with seller financing. Instead of giving you the money back, you have them say, “Let’s turn that into a note where I get my monthly payments without a balloon.”

The real estate investor can keep part of the note too. They can keep the whole down payment. If you look at that example, I made a loan so that a real estate investor can buy a house for $75,000, fix it for $15,000. We’re in it for $90,000. I lent them $70,000. When they sell the house, in this example, they sold it for $140,000. They have a note for $125,000. That’s how we did it in the example. They have a seller finance loan for $125,000 to the buyer. They’re going to turn around instead of paying me my $70,000 back, they pay me back part of that $125,000 loan. They’re going to pay me, in this case, $93,000 of that note, and they’re going to keep the remaining $31,000.

They get the down payment, which in this case is $15,000. It’s cashflow in their pocket plus the remainder of that note, which they can ride out for $31,000 or sell it or do whatever exit strategy they want it. If they want to turn it into quick cash or have something steady or they can sell it back to you. Let’s walk through another example where this one is a little different. I like it because it’s a lot more advanced than what I would say is your normal run of the mill private loan. This is more in the area of development where you find the 40 acres. It was parceled out and subdivided. You created multiple notes off of this. Walk us through that, please.

In this example, it was a 40-acre parcel that someone was selling for $200,000. It would cost $20,000 to get the subdivision to work. I think that involved dividing it, maybe putting a road or something on it. It’s pretty minimal. It’s basically raw land.

It was basically going down to the city council or the county and having them allow it to be subdivided.

Which you would have to know in advance before you got into the deal. The real estate investor that I would work would find the properties, do the subdivision and I would make the loan. They would split that 40 acres up into five-acre parcels. I’ve even heard of cases where they split it up into one-acre parcels, the smaller, the more profitable. In this case, it was eight parcels for five acres each. They got a down payment of $5,000 for each one and a note for $45,000. They sold a five-acre parcel for $50,000. They have eight $45,000 loans plus $40,000 in down payments they can put it in their own pocket. Out of those eight $45,000 loans, they’re going to give me five. I’m actually going to end up owing them a little bit more. I would give them $8,000 or so to make it an even five notes. I’m going to own five notes. They’re going to own three notes.

All they have to do is get you to agree to loan and they go to the city and get it subdivided. It seems like a pretty nice little payout there.

Everybody keeps saying, “We need money.” Everybody is thinking in terms of two kinds of money. You got hard money. You got the super passive, retired person with some funds, but I’m not in either camp. You’re not either. The Private Lender Podcast is for people who are more active. After two years of struggling with all the different options, there are like millions of niches. It took me a couple of years to land on this one. It’s very profitable for me and for the real estate investor and workable for the buyer. I am currently looking for some investors to work with one deal at a time. I’d like to find somebody I could do multiple deals with.

Getting used to the ins and outs of details is the most confusing thing.
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Why reinvent the wheel if we can get a phone call and say, “Let’s do it?” That’s what this is all about. It’s creative financing. It’s building your network so that you can find people to where you could work together because private lending is not for everybody. Your niche of private lending is not for everybody. Wholesaling is not for everybody. There are enough variances and variations that if you build a big enough network and worked it then you can find what you need and put it to good use. You can fly under the radar of the security laws as long as you keep it personal and one-on-one without advertising. This is what I like about private lending and also what you’re doing. The fact that you got on a plane, came to Texas and was looking for deals and looking for people. Tell me did you go to any REIA meetings or what did you focus on that trip?

I had a REIA meeting I was invited to. I was supposed to go. I missed it because I had a very interesting meeting with somebody else. I prioritized the meeting I was having. I’m going to have to come back. I belong to the Houston REIA, but I didn’t actually make it to Houston. I’d probably come back next year and do that.

I assume you like the relatively short foreclosure laws in Texas?

I very much like that. There are a lot of things about Texas I like. There are a lot of properties of different values you can get like I said, a $20,000 property and you can also go up to $400,000 or $500,000. There are a lot of booming areas in Texas. I like it there.

We have a lot of folks are still moving in. Our three major markets, Houston, Dallas, Fort Worth and San Antonio, the doors are still open. People are coming in. It seems like all the time they expect growth even though I hear that the housing market is cooling off, at least in the Houston area. I understand probably a little statewide not failing, not crashing, natural ebbs and flows of the market. It’s cooling off.

Except for maybe Austin because I heard that they’re getting Amazon now or is it Google? I think it’s Amazon, but I can’t remember.

Austin is the California of Texas. It’s its own special area. I still love the shirts that say, “Keep Austin weird.” I’m all for it myself. That’s one of the reasons I’ve done the private lending is because I can take a property back if I have to. I will never loan, for example, in New York State because it could take years to take it back.

California too.

I won’t invest in California but I would love to, especially on the bottoms. For me, it’s the same thing. I can invest in one house in California or I can have multiple here at home. It doesn’t require any travel. A lot of people are writing about loaning in other states and I don’t do it myself yet. I’m looking into it. I don’t speak about it because I don’t feel like I know enough yet. That’s why I wanted to bring you on because you’ve already started to do it. Is there anything different for making the loans of a property in California than in Texas or Missouri?

Some of the documents are different. Some of the terms are different. People are always stumbling over how to phrase like seller carryback, seller finance, owner finance or installment sale. This is my business and I don’t even know what phrase to use.

Hypothecation: If you want a more stable environment, go for long-term notes.

It’s a title company-dependent it seems like because I’ve seen seller finance, owner finance and the carryback. I don’t hear so much in Texas, but I do in other states. It’s the same thing. It’s different terminology. Is it a mortgage or a promissory note or deed of trust? There are documents that secure that loan to that property and so on...

PLP-058 Foreclosure Journal: Episode 4 – A New Exit Strategy

Keith Baker — Mon, 04 Feb 2019 03:00:17 -0600

Just when Keith thought he had it all figured out, he found a new exit strategy for the property he and his partner landed. This fourth installment of the foreclosure journal documents is about how Keith and Landon made a property more profitable than reselling it with owner finance, taking a down payment, and coming up with a note. Find out more as he walks you through how it happened.

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Listen to the podcast here:

Foreclosure Journal: Episode 4 – A New Exit Strategy

Just When I Thought I Had It All Figured Out

I’ll be speaking or giving you part four of my Foreclosure Journal. I’m going to be telling you the rest of the story.

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In the past three editions of the Foreclosure Journal, I’ve talked about how my partner and I got into the property. What happened? What went wrong? Hurricane Harvey. We let the guy stay for over a year with no communication from him. Ultimately, we consulted the attorney and we had him take care of the foreclosure process on our behalf. What finally happened? The foreclosure went through. Nobody bid on it because the ask was high. It didn’t make sense picking it up at the foreclosure auction for several reasons. Mostly, there wasn’t enough equity in the home. We got it back, which is fine. It’s still in bad shape, about the condition it was in when we bought it. However, we have a new exit strategy that in a perfect world, it should prove more profitable than reselling it again with owner finance and taking a down payment and then coming up with a note. What had happened was against my initial feelings and flashbacks to my landlord. We’ve turned the property into a rental. Yes, it’s true. I want to walk you through at least how I was sold. All the credit goes to my partner, Landon’s team, his office who found a new couple that has some interesting needs and there’s some synergy here with us.

Once we got the house back, Landon’s team found a new couple. I don’t know how young they are exactly but apparently, they’re new. They’re maybe divorced, having some credit issues. I’m not exactly sure. However, they run a contracting business and want to rent this house for its garage on a lease option program with it. We’ve got all the documents. We have our lease that stipulates some pretty wonderful things including inspections. We ended up trading services in lieu of a deposit. It all worked out because we found this couple. They’re going to rent it for a year. We have a contract, a lease for a year at $650 a month in rent. The security deposit normally would have been at least $650. We put it in the contract that the tenant had to have the property trashed out, the yard mowed, the three cars removed from the front yard, all the junk out of the backyard and the floor is swept before they could move in and get the keys and take possession. We were able to confirm that. They held up their end of the bargain, so now the property is not going to get letters from the city and other municipalities for various code violations. We are renting. We’re going to depreciate and take advantage of some of the depreciation on that property for this first year.

Take advantage of some of the depreciation on a property for this first year.
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My friend, Michael Plaks, always says you should consider converting rental properties into owner finance or seller finance properties because it is much more beneficial for you tax-wise. I’ve got to run that back down. I knew that in the back of my head that this would probably be a decent move if we can get some good renters who are serious about wanting to become owners in the next many months. We can depreciate the property lease up and I need to fact check that with my CPA because you never know these days. Every time you turn around, something’s new. I believe at least the last time I looked, we can still depreciate the property which might not be much but every little bit that goes to helping me avoid taxes, not evade them but avoid them. Avoidance is okay, remember that. I’m okay with that.

I realized I don’t have the firm numbers on this. I’ll have to go back in another episode to confirm with you these numbers. Essentially, our overhead on this property consists of taxes and insurance. It’s about $125 a month, give or take. We’re cashflowing $525 a month before taxes and repairs on a house that is worth as is probably $25,000. We could seller finance it for $35,000. If somebody went in and fixed it up, it could probably nab $60,000 to $65,000 retail after repair value, give or take. I’m still a landlord and I feel a little weird about that. I wouldn’t have done this if I didn’t have a partner who’s experienced with this type of house in this particular city in this part of Texas and whose staff manages the property and similar properties on a daily basis. We’ll see how it goes but so far, all the checks have cleared. All the signatures appear valid. We’ll have to go from there and see what happens. I’m hoping that this doesn’t end up like my last landlord adventure.

Exit Strategy: Consider converting rental properties into owner finance or seller finance properties because it is much more beneficial for you tax-wise.

You’re probably yelling at me going, “Keith, I thought this is about private lending? Why are you becoming a landlord?” Being honest, I’m trying to tell you what has happened with the foreclosure. Not my initial exit strategy, but I’m willing to be a little more nimble on this rental. It’s a great way to get my feet back into the game. If we can turn this into lease option and seller finance, then it becomes a win-win for both Landon and I and also this couple who want to convert it not just from a shop but back into a residence. The Journal will continue on this for a little bit, but that’s the four steps that have gotten us through from the beginning to the end. The price of admission to this podcast is free. The only thing I ask is that you please go to iTunes, particularly leave a rating and review. The more of those I get, the more we can reach people like yourself who are looking for alternative ways to create wealth and not have to live with banks or Wall Street. You can also go to Google Podcast, Stitcher, SoundCloud or whatever platform you use to listen to the show.

Normally, if you’re listening on your iPhone, hit the little Podcast button. Find the Private Lender Podcast and scroll all the way down. There will be a place where you can give a star rating and a review. Please help spread the word so that others can find this and read as well. Connect with me on social media, Facebook, Instagram, Twitter, LinkedIn and BiggerPockets. Links to all of those channels can be found at PrivateLenderPodcast.com. Finally, if you want to know and learn about the Private Lender Academy whenever I do finally get it out of the workshop and into the hands of the public, please go to PrivateLenderAcademy.com and sign up to get on the waiting list. You will know more about when it launches and goes live. Thank you for reading. Please keep reaching out to me. I greatly appreciate all the feedback I’ve been receiving. Besides health and success, I wish you all a safe and prosperous private lending. I’ll catch you on the next episode.

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The Foreclosure Journal – Part 1 – Episode 42

The Foreclosure Journal – Part 2 – Episode 48

Brandyn Cottingham’s Road To Real Estate And Creating A Fund – Episode 51

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PLP-057 Using Private Money From 8,000 Miles Away with Steve and Michelle Green

Keith Baker — Mon, 28 Jan 2019 03:00:49 -0600

Working remotely in the USA from anywhere in the world is the new normal. Michelle Green is a professional real estate investor, ex-property Lawyer and Realtor/Real Estate who works virtually in Texas, USA from her home in New Zealand. In 2016, with her father Steve, she founded the Koru Group which specializes in seller financing homes to retail buyers and investors who are not currently able to qualify for conventional financing. Steve and Michelle share how they first got started dabbling in real estate, how they moved their real estate operation to Texas, USA, private lending, and how to find private lenders from 8,000 miles away. This dynamic father/daughter duo of Steve and Michelle Green is inspiring to say the least!

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Listen to the podcast here:

Using Private Money From 8,000 Miles Away with Steve and Michelle Green

This Dynamic Father/Daughter Duo Is Suffocating ALL Excuse

It’s my mission to create private lenders and to create a community where people just like you and I can safely and confidently invest and build wealth with old world values and pragmatism and without banks or Wall Street. 2019 has started off to be a very international year at the show where we had Victor Menasce from Canada and now, I have very distinct honor to interview a father and daughter powerhouse all the way from New Zealand. Steve and Michelle Green live almost 8,000 miles away and yet they have found a way to invest in single-family homes real estate here in the United States. I find their story fascinating and very interesting. I believe that you the Lender Nation will as well.

When I think of all the excuses I gave in the past as to why I was or wasn’t doing something, mostly why I wasn’t doing something. It’s too hard. I don’t have the time. I don’t have the money or whatever the case may be, I get a sense of shame now when I think back on it. I don’t think it’s uncommon among investors and it’s not necessarily a bad thing unless you let it ruin you or run you. It’s a good thing if we can find motivation in those emotions. I certainly find it there. I heard this thing about you should never compare yourself to another as we go around and we journey around the sun through life. After hearing how our guest is investing in real estate in Texas all the way from New Zealand, I feel downright lazy. Because Steve and Michelle Green and negating all the excuses, mine, yours, everybody’s for not putting in the hustle and getting things done. Veering out of way and making it happen. This dynamic father and daughter investing duo tell us how they do it. They shared it with us and I’m forever grateful.

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I’m honored to be interviewing Steve and Michelle Green all the way in New Zealand. Steve and Michelle, welcome to the Private Lender Podcast.

Thank you very much. It’s a pleasure to be here.

When I started this podcast, it was back in April or May. Somebody reached out on LinkedIn. It was this fellow named Steve Green and I didn’t realize the significance at the time, but in August of 2018, we met at the Quest IRA Expo and Steve said, “This is my daughter Michelle and we were investing in the Southern United States.” I said, “You don’t sound like you’re from Houston or Dallas. How is it that you guys have come and invested in the United States? We caught up before you left and thank you for lunch. I was jumping at the bit to have you guys come on because your story is absolutely fascinating and I can’t wait for you to tell it to the audience.

We were investing here in New Zealand for various reasons. Our portfolio’s top properties weren’t performing as well as it should have been. The government here is getting very difficult for landlords, so we started looking further afield. In 2012, I decided to go to Sacramento on a hard money lenders course. While I was there, I met a lot of wholesalers doing reasonably well for themselves and that prompted an interest in getting involved in the States. Few things happened after that. In 2014, I started to get interested. We sold our portfolio in New Zealand altogether, got out of it and we started to market in 2015 to see if we could find any properties in Florida.

I always wanted to work in Texas. I knew several people that were working in San Antonio and Houston and it looked like a great market to be, but there was something in my research that said, “Go to Jacksonville, Florida. That’s the market to be in.” We started looking around at how we could do this. We put out some mailers and some Facebook ads, bits and pieces, generally dipping our toes in the water while everybody here was saying, “You can’t do that. It cannot be done.” Steve Green being Steve Green, when somebody tells me I can’t do it, I go out to prove that they’re wrong. In late 2015, we came across a couple in Florida who were at the same level as we were. They are very new. They wanted to get involved but didn’t know how they could do it.

We had a chat and we said, “What about if we do the marketing? We’ll find and screen the sellers. They won’t bring the deals to you. You can close the deals over there.” That seemed to work. The first year, we closed eighteen deals between the two of us. That’s what got us rolling. The thing it Texas evolved when we decided that we were at such a level that we could go to where we wanted to invest and not where we had to invest. We wished the other couple very well and we came over to Texas in August. I spent three months there. I met you at Quest Expo and the rest is history.

I’m jealous that you’re able to take that much time spending in another country. You’re working, you’re not sitting on the beach sipping Mai Tai’s. You’re out there networking.

We were analyzing it when we go back. We decided that we had three days off the entire time we were there. They weren’t really days off. We still did a bit of work.

Private lenders are forward-thinking people
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I’d like to talk about your backgrounds a little bit because a lot of questions I get are people think that they don’t have a background in say construction or lending or anything else. I really want to show that it’s going to take work. You can’t snap your fingers and be done. If you could go into your background because I love the different sides of it and how you guys wedge it and come together and invest.

I got dragged along. I don’t know how it happened. I just know that dad gave me a book when I was about fifteen or sixteen years old and it was Rich Dad Poor Dad. I read it and something in it resonated with me. The idea of having a business that can work for you so that you can go and do the things that you want in life started to appeal to me. By that stage, I’d already gone quite a way through my education and I knew that I wanted to go off to university and study Law. I went away and I did that. While I was there, I found myself dabbling in real estate all the time. It was around about the time that mom and dad started buying the investment properties over here. I’ll never forget I went to a seminar or a one-day course type thing in Christchurch. I must have spent something like $500 to get there. Then I ended up purchasing a course and I got absolutely sucked along into it.

I came out of it in the other end thinking that the course was an absolute waste of money, but this is something that I like to spend some more time doing. I started to develop an interest in real estate and I eventually ended up getting my real estate salesperson certificate here in New Zealand and working for a real estate agency. Then I got into law and started practicing property law. I was doing that for a good four or five years, on and off, both here and in Australia. I enjoyed doing the property law stuff, but I always wanted to start my own business and I found myself becoming guided by dad. Before we knew where we were, he hooked me in on the premise of he had shoulder surgery and he said that he needed somebody to help him while he had his surgery. It just snowballed from there.

It’s a great field to be in for sure. I remember when we met, I was like, “You’re an attorney,” and you were like, “I want to get out of it.” I’m like, “Why?” but I understand completely.

It’s such a stressful world being an attorney. I was going to work every day taking onboard everybody else’s problems. I thought, “If I can solve everyone else’s problems, then why don’t I put that to some better use and get into a business where I can start solving our own problems.”

Private Lending: If you can solve someone else’s problems, then why don’t you put that to some better use?

How about you, Steve? Did you get a law background?

No. She does the contract. She looks over the legal documents. That’s my background. I started off life as an electrician. I had a great boss at the time. There were three of us were working in a small workshop out in England. He kept telling me, “Go self-employed. I said, “I don’t want to do that.” Then one day he said to me, “If you don’t come in on Monday and be self-employed,” he said I’ve got no work. I thought he was kidding. I turned up on Monday and he said, “Show me your ticket.” I said, “I haven’t gotten it.” He said I haven’t got any work. He was serious and I had to go home and I had to call my accountant, my CPA and I turned up and I said, “I’m at work. I’m self-employed.”

He said, “I’m going to double your wages immediately.” That was the eye-opener for me into self-employment. He also has had properties and he kept saying to me, “Buy properties.” I just ignored him. The whole time I worked for him, I was like, “That’s not for me.” Every time I went away from the real estate, I kept getting back to it by somebody or something. Eventually when we moved to New Zealand in 1995, we noticed a lot of people were getting involved in it. I started to take a bit of an interest in it, I go to seminars, and whatever. It still didn’t resonate. Then we ended up going back to the UK about three years later and we had an investor buy our property. He came in and he offered us a price that we didn’t want to take.

The lifestyle going back to the UK was appealing to my wife more than me and we took that offer. The time that we spent back in the UK, I started to think about this and process it. We ended up coming back out to New Zealand in 2003 and that’s when I started to get into it. In 2008 was when we bought our home and two months later we bought our first rental property. It was as quickly as that and within three months, we bought our second rental property. It snowballed and we got interested. The market here wasn’t great, but we were into that situation. When the US things started to happen for us, we were keen on learning everything, but it came down to what could we do to support ourselves and to get where we want it to be? We quickly came to the realization that there was no way we wanted to own rental properties with all the issues that we face here.

There are some great property managers out there. There are some great tenants out there trying to bring it all together. We didn’t feel that we wanted to go down that route. In the US, there was so many more opportunities, wholesaling, seller financing, and lease options. There is a whole plethora of things that we could get involved in. We were wholesaling initially in Jacksonville, but when we decided to move into Texas, we decided that we have a crack at lease options. We were listening to various podcast wide and some of the more successful investors. We try to put that together. Somewhere in the middle, after getting all the contracts together, it wasn’t going to be for us. It wasn’t what we were looking for. We were looking for a more long-term strategy that could support us and the seller financing model, being the bank for somebody who can’t get conventional financing. Helping a lot of people along the way. Helping people with retirement funds get some good rates of return on their money. Finding a buyer that cannot get a conventional loan and putting them into a property. It all seemed to make sense for us. That’s where we are now.

Things are going to take work. You can't snap your fingers and be done.
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There are a ton of questions in there and I can only unpack maybe one or two. One is you know that I’m a big fan of the seller financing option as well. It’s how I got into all this, with my partner Landon and now I’m with the podcast, meeting you guys and everything. It is a great model because to me it’s a true win-win. Life happens and one of the things that I struggle with is even though I’m in America and our healthcare is what it was, you had to pay for it and all this and that. I never thought anyone should lose their house because they got sick. However, I understand if I’m a landlord, I’ve got a contract. I still want to get my money.

Life’s not fair. That’s the bottom line, but seller financing coming in and let’s say somebody gets divorced. Even if it’s an amicable divorce, their credit is probably going to be hit pretty bad. They’re going to be unbankable or unmortgageable. It’s happened in my family. My aunt got sick very young and it was a financial burden for about 30 years with her condition and everything. It’s a great way to help people get into properties. I found that people do care if they get a chance. If somebody gives them a chance, they will do their damnedest to make the most of it. Have you found that to be the case?

That’s the big thing. When we were dealing with tenants, they don’t care as much about the property they’re living in. I was listening to the radio in the car. They were talking about having pets in rental properties and a woman came on. She said, “I’ll have pets all day long because people generally look out to their pets. What I don’t like are young children because they scratch everything up and they wreck everything.” I thought it was hilarious, but then I looked back and I thought, “The last property that we sold, we had a family of ten in there and the place was trashed,” and she was so right. I thought, “I don’t want to deal with those properties anymore.” People that buy the properties, it’s their property. Do you trash your house? Do I trash mine? No, we don’t. We look after them and these are the kind of people that respect what we’re doing. They appreciate what we’re trying to do for them and they work with us when we’re trying to help them out. If we can get somebody into a property for a similar price to what they would rent their property for, why wouldn’t they do it?

You guys are students of Mitch Stephen.

I absolutely love him.

Private Lending: People buying the properties look after them. They don’t trash their houses.

He’s absolutely right. If you’re going to pay $1,000 in rent, why not pay something similar to that and own it and have equity and have something that you can sell at the end of the time that you’re there. I got into private lending because I found out that I made horrible landlord. I suck and I embrace that. There are great property managers out there. There are great tenants and there are great contractors. I never seem to have all three at the same time, except when I bought my first rental property. There was this amazing tenant in there and she and her husband were building their retirement home. They were waiting it out and didn’t want to spend a whole lot of money in the nice part of town on rent. I had a house and four months into it she wrote me a letter,...

PLP-056 How to Lend when Markets Turn Down

Keith Baker — Mon, 21 Jan 2019 06:02:27 -0600

If you are looking for a way to learn how to increase wealth by using time-tested methods in an ever-changing world, then you are in the right place! Welcome to the Private Lender Podcast, the only podcast whose mission is to teach people how to become private lenders and to create an economy where people just like you and I can confidently invest and build wealth with old-world pragmatism, and without banks or Wall Street.

I want to share with you 3 or 4 of the ways I help keep money protected in a market that has peaked and is trending down. I know many are probably asking what’s my opinion on the current market? Well, as I record this episode in early January, 2019 I will only say that I believed the market has cooled a bit in my area. I’m sounding any alarms. All markets ebb and flow, tides rise and fall, and sometimes there are insane bubbles and crashes – does that sound familiar? So my answer is this: I am agnostic on US real estate at the moment – neither hot nor cold – the waves are not massive, fear and doom inducing trends. But I will certainly start looking more into the national indicators as I do the 4 things I’m about to share with you now.

1 – Tighten up lending requirements

Demand more skin in the game from your borrower

More reserves to pay on a loan that goes long

quality of borrower’s RE portfolio: High-end vs. Low-end

2 – Scrutinize the comps – utilize a downside price contingency

Look for a tight radius on the comps map – no more than ¼ – ½ mile, do not cross any major roads or intersections

Are DOM (Days On Market)increasing and prices decreasing? Notice a lot of price reductions?

Age of comp: Last 30 best, 60 manageable, no more than 90 days preferred. More than that is outdated and old, like a rotary phone or my Atari 2600

3 – Lower LTV

4 – Look for longer terms with established landlords/seller financers. My not pay as much, but Steady payments, ride out the trough and get ready for the next upmarket ride, don’t have to work your money as much.

The only price I ask for listening to the PLP is that you please leave a rating and review on iTunes, Google Podcast, Stitcher, Soundlcoud, or whatever platform you are using at the moment.

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-k

PLP-055 Why You Should Use A Note Servicing Company

Keith Baker — Mon, 14 Jan 2019 07:17:58 -0600

Show Notes: TBD

PLP-054 From Silicon Valley To Real Estate With Private Money with Victor Menasce

Keith Baker — Mon, 07 Jan 2019 03:00:49 -0600

Real Estate Espresso podcast host Victor Menasce spent the first 25 years of his career in the high-tech industry. On his eighteenth trip to Tokyo in a year and a half, Victor realized he was on the wrong path. He felt the way he was working wasn’t right for him nor his family, so he made the conscious decision to move full-time into the world of real estate investment. Victor stops by to share his knowledge about investing in the US from his home in Canada.

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Listen to the podcast here:

From Silicon Valley To Real Estate With Private Money with Victor Menasce

I am thrilled to have on this episode, Mr. Victor Menasce. Welcome to the show.

It’s great to be here.

Victor and I met back in the summer of 2018 at a podcast conference. I remember we were in a group in a room talking and nobody seemed to have a real estate podcast. Victor said, “I’ve got a real estate podcast.” I interrupted the lady speaking with us, “Excuse me, I need to go speak with this man.” Here we are, you’re on the show. Thanks for coming on and you have an interesting background for when you started off in the tech field but then like many people, either you grew tired of it or you decided to come over into real estate and here you are now. You’re a developer, you utilize private money. You have a real estate podcast, The Real Estate Espresso. Let’s try to unpack a little bit about that. Tell us a little bit about your journey on how you got to where you are now.

If I go back to 2009, 2010, I was still working in the tech industry. I was managing a microprocessor development team and we’re basically designing chips that we used in mobile phones and data cards. We’re building a new cellular network in Japan and I was literally traveling back and forth to Tokyo every two weeks and it was burning me out. It wasn’t the right thing for me. It wasn’t the right thing for my family. I resigned my position as VP of engineering and decided to take a hard left turn in my career into the world of real estate investing on a full-time basis. If you remember what was happening back then, it was probably the opportunity of a lifetime to invest in real estate, particularly in the United States. I took advantage of that opportunity and decided to jump in with both feet. That’s where I got my start on the journey.

One of the things that I discovered along the way is I had a bunch of skills that were pretty portable. Project management is a very portable skill. It doesn’t matter whether you’re managing software development or microprocessor development or new construction, it’s all the same. The other key skill was the ability to raise capital and I learned how to raise money in the tech industry. It’s much more difficult to go raise $5 million for an idea than it is to raise money for something that’s going to cashflow in six months. Those are vastly different and I was able to transport that skill set over into the world of real estate as well.

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Going to Tokyo every two weeks, how long of a flight was that?

In the summertime, it was a direct flight from Toronto, thirteen hours into Narita Airport. It was pretty good. In the winter time, I had to fly through Vancouver. That added another five-and-a-half-hour flight as an appetizer to the big flight.

I can see why you get burned out at that real quick. You’re in Canada, in fact.

Yes. I live in Ottawa, Canada and I’m halfway between Montreal and Toronto, almost due north of New York City. Even though it’s Central Canada, we still refer to it as East Coast but it is somewhat Central Canada.

That’s still in Ontario if my geography is correct. You are English first and then the Quebec next door to you has the French. You are my first Canadian interview on this show. If anyone knows me, they know that I am an obnoxiously huge Rush fan and Toronto is my second favorite city in the world because of that. Unfortunately, those guys have retired and hung up their axes.

Real Estate: Building wealth in technology is like saying, “I want to win the lottery when I grow up it.” It’s a very difficult road unless you have the depth of pockets of Intel or Samsung.

In fact back in the 1980s, I was a roadie and I did a bunch of shows with Rush. We did some special effects. I setup Neil Peart’s drum kit a few times and they were amazing people to work with.

We’ve established you’re Canadian, you’ve worked on some Rush shows. You have a successful career in tech and you get burned out flying to Japan. Was it the portability of your skills into real estate that made it so attractive or was this something that has always been itching at you all along?

It was a couple of things. The idea of building wealth in technology is like saying, “I want to win the lottery when I grow up.” It’s a very difficult road and unless you have the depth of pockets of an Intel or a Samsung, it’s very difficult to be successful, especially on the hardware side. If I told you that to design a new microprocessor chip, the minimum investment is $50 million to $60 million. Maybe in four years, I’ll make you your money back and maybe by year five I’ll give you a profit. Are you lining up for that investment? Probably not. That’s, unfortunately, the reality of that business. That makes it challenging. One of the things that I look for is opportunities where you can do things where there’s leverage, where it’s not consolidated down to three players, where it’s a wide-open market. Real estate kept coming up over and over again as having those characteristics. There’s the opportunity for leverage. If you look at where a lot of the wealth in the world has been created, it’s been in real estate or in oil and gas, but first and foremost in real estate. It kept coming up over and over again. It’s given me the opportunity to exercise a creative side. My mother was an architect and if I hadn’t gone into engineering, I probably would have gone into architecture. I’m loving the new development these days. The fact that we get to exercise a creative muscle here and build a new product that fits a particular need and is aesthetically pleasing and is functional. That to me is so much fun. I love that.

You do mostly ground-up developments, is that correct?

Now, yes. If you go back to 2009, 2010, you could buy things far below construction costs. It didn’t make sense to develop. Now, prices have come up sufficiently that we can build for a substantial discount compared with buying things on the open market. Now, if you have a 200-unit apartment complex come on the market, most brokers treat that as an auction. There will be twenty offers and people pay too much and all that craziness. I don’t want to be the winning bidder with nineteen other offers behind me. That’s crazy. Whereas if we can build a product where there are excess demand and a shortage of supply, then we can create something out of nothing. There is no competition. We can build it at a discount to the market and then have an opportunity to refinance out of that polar chips off the table and go do it again.

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That’s a rinse and repeat. What’s your average size? We’re not talking single-family residences here. What’s your average or what’s the threshold that you look for to get into a project?

Whether a project is a ten-unit building, a twenty-unit building or 200-unit building, it’s almost all the same. It’s just another zero. The steps you have to go through are basically the same. We’ll do ten-unit buildings. I’ve got a few of them under construction right now in Philadelphia. They’re fairly straightforward that I call it a base single. They’re a bunt these days, it’s not a homerun. The numbers are great, but they’re small projects. We have several projects that are $30 million to $40 million sized projects that ground-up development that we’re undertaking. That’s our focus these days.

Is that mostly multifamily or commercial?

It’s a bit of both. We’re doing multifamily, we’re doing senior assisted living, medical office and workforce housing.

My oilfield background, you’re not making man camps, are you?

Real Estate: The average listener who subscribes to podcasts subscribes to six and listens to five because that’s all they have time for.

A little bit. If you go to Southwestern Louisiana, what you’ll find is there’s an area there where there are literally hundreds of billions of natural gas, petrochemical and seaport expansions underway over the next decade. A lot of the construction workers that come into these towns are working for companies like Chicago Bridge & Iron, Fluor Corporation that are usually the construction contractors for the major oil companies like Sasol and British Gas, now part of Royal Dutch. They’re working on these mega plants and they get a housing allowance because there’s a shortage of housing. Some will go into a man camp but it’s not that desirable. Many of them will prefer to use their housing allowance to go buy an RV. I put it on a payment plan and at the end of each month, they’ve got a few extra dollars in their pocket and at the end of their contract, they have an RV that they own outright as opposed to wasting that money on a hotel night. It’s a better deal for them. We’ve built an RV Park specifically servicing that sector of the economy and in fact, that’s going to be opening soon.

I liked that model as well. I used to stay in some hotel. When I was on the rigs, they had a trailer houses for us mostly, but we would occasionally have to go get what I call a shoddy hotel room. When you won’t even sleep on the bed, you’ve got to put your sleeping bag down first and then put everything on top. That’s quite an interesting mix that you have with the whole man camp. In Southern Louisiana, we’re seeing a lot of construction in my normal day job with insurance and risks. It’s great to mention that you’re finding needs where there’s a little supply and a big demand. You fill that need to answer that question to solve that problem and it becomes profitable for you. Did you start off doing the typical single-family rentals, fix and flips or did you just jumped into larger projects?

We started as everyone else does. I got my start in the Ottawa market specifically servicing a segment of the market that I saw there was a need. Ottawa, being the nation’s capital, we have a parliamentary staff, embassy staff, military officers and government contractors that are coming into town on a medium-term basis. This was before the days of Airbnb. I basically started building a portfolio in the downtown core within walking distance to parliament specifically servicing that market. It’s medium-term fully furnished executive rentals. I knew what their monthly housing allowance was. I simply priced the product to meet that and said, “For that price point, what product can I deliver that’s going to be the right product and built a very good business with that?” It wasn’t a great business, but it was a good business.

Now, you’re into the big developments. For a lot of fledgling real estate investors, that’s always so far down the road. Within less than ten years, you’ve gone from creating your own Airbnb, mid-term rentals into this portfolio of projects. You have your own real estate podcast daily. That is a commitment. I do a weekly podcast and to come up with content and to produce it and get it out there every day is a feat that is worthy of applause. I commend you on that.

It’s been a lot of fun. It’s The Real Estate Espresso Podcast. It’s your daily shot of what’s new in the world of real estate investing and it’s seven days a week. During the weekdays, it’s five minutes. On the weekends, it is a little bit longer interview style with notable people from the world of real estate investing. The idea behind the podcast is there are a lot of great shows out there, very established shows. You and I talked about this at the Podcast Movement Conference. The average listener who subscribes to a podcast subscribes to six and listens to five because that’s all they have time for. If I’m going to attract a listener over to my show, who am I going to kick out? Am I going to kick out Tim Ferriss? Am I going to kick out you? Am I going to kick out The Real Estate Guys? Who am I going to displace? It’s not obvious. I designed a show that was five minutes so that I didn’t have to kick anybody out. I would slip in below the radar and the feedback that I’ve been getting from listeners is that it’s working. Many listeners say to me that they will listen to my show first, ahead of more established shows because they know they can commit to five minutes. They can’t necessarily commit to one hour.

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I’ve literally digested your episodes at a stop light, while commuting. Everything is succinct and it’s right there. It’s a complete opposite of my long-winded shenanigans here. How do we listen to them? How can my audience find you?

I’m on fourteen different platforms. Whatever is your favorite podcast platform, whether it’s iTunes or Google Podcast, CastBox, Podbean, the list goes on and on. Amazon Alexa, anywhere you search for podcasts, you’ll find it.

Google search Real Estate Espresso, it should pull you right up into Victor’s homepage there. When you go raise money, are you raising it mostly from accredited investors or people that are “wealthy” enough to make decisions? The American government thinks they’re wealthy enough and sophisticated enough to make their own investing decisions. Are you dealing with that or are you pulling from Joe the Plumber type people? Who’s your target? Who are you going for?

Increasingly, it’s the higher net worth individuals because the projects are larger and one of the things that I’ve always believed is that you’ve got to have a fit. You’ve got to have that perfect alignment between the goals for your project and the goals for the money. If you don’t have that perfect fit, it’s not going to work. The analogy that I sometimes use is it’s like buying a pair of shoes. If you see the most beautiful pair of shoes and it’s your lucky day, they’re on sale. It doesn’t matter how beautiful they are or how deeply discounted they are. If they don’t fit, you’re not a buyer. It’s the same with money. We talk about shoes and everyone gets it instantly. When you talk about money, all of a sudden people get weird about it. It’s exactly the same.

If you’re dealing with a high net worth family, the more sophisticated investors are much clearer about what their investment criteria are. The unsophisticated investor typically says, “My goal is to make money and not lose money,” and that’s about it. A sophisticated investor has a much more precise definition of what they’re looking for. They might say, “I’m only looking for medical office buildings at an 8% cap rate where my minimum investment is $5 million and it’s a five-year term.” This control structure, that tax consequence, all of...

PLP-053 One Year Anniversary: Thank You To The Listeners

Keith Baker — Mon, 31 Dec 2018 03:00:33 -0600

It has been one year since Keith has started this journey of communicating and reaching out to all in the private lender space. He thanks his listeners and gives a heads-up of what is to come and the latest on the Private Lender Academy. Sharing some plans, he invites you to stick with him as you share great information and insights about private lending.

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Listen to the podcast here:

One Year Anniversary: Thank You To The Listeners

One year since this great experiment began, I thought I’d throw together a quick episode. I didn’t think I was going to make it a year with the podcast. I didn’t think I was going to make it this far. I’m very happy, honored and humbled that you are reading, downloading, communicating, responding, reaching out to me and meeting me, talking off of the podcast and finding out the type of investor you are. Hopefully, I can provide some value to you during the meeting. I’m just a knucklehead who gives investor loans.

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It’s been quite a process. It’s been quite a year. This is a pretty big milestone. I couldn’t have done it without you. If nobody had ever reached out or said anything, I probably would have quit, who knows? I do greatly appreciate it. I’m going to make 2019 season 2. I want to make it ten times, 100 times better. I’m going for higher profile guests. I’m going to niche down into some topics a little more and bring in some new things.

One Year Anniversary: Niche down into some topics a little more and bring in some new things.

For example, I’m going to have a reader spotlight. It’s where I interview the readers. They tell us where they are, what’s working for them or valuable lessons and just peek in and see what their struggles are. They share those so that everybody can learn from them and identify with them perhaps. That is the plan. I’m still working on the Private Lender Academy. That’s on hold for quite a bit. I guess that’s a sad announcement in January because I was hoping I’m going to launch it in January. I might have a bit of a change of plans. The content, the coursework, all of that’s still coming. It’s going to take me a little longer to get a good product and something I can be proud of and put my name on before I present it to people. For the time being, I appreciate you reading, subscribing and leaving your ratings and reviews. Every one of them helps get the word spread. It helps people like you find this podcast. Please connect with me on social media, Facebook, Instagram, Twitter and BiggerPockets and all that stuff. You can find all that information out at PrivateLenderPodcast.com. I want to wish you prosperous lending, prosperous investing and a great 2019.

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PLP-052 Foreclosure Journal Part 3 And The HUD-1

Keith Baker — Mon, 24 Dec 2018 03:00:18 -0600

Keith gives an update on his active foreclosure and discusses the HUD-1, also known as Closing Disclosure. One of the things he learned from his CPA is to look closely at the HUD-1 or the settlement statement because a lot of the mistakes tend to happen here. He lays down the things you need to go over and put consideration into, whether as a buyer or seller. He then shares about his foreclosure and his experience of deciding when to evict someone out.

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Listen to the podcast here:

Foreclosure Journal Part 3 And The HUD-1

I’m going to talk a little bit about the HUD Statement, the Settlement Statement. If you close at a title company, you purchased a house or you sell a house, the buyer and the seller get a copy of this. It is the document that records the transaction and the pieces of the transaction. The thing that makes it the most interesting is a couple of things. One my CPA always requested, which is pretty standard if you invest in real estate or purchase, is the document by which my CPA will compute my taxes. I was taking a class by Michael Plaks, who was guest on this show. He handles nothing but federal taxes and state taxes for real estate investors. He taught that you need to look through this HUD-1, the Settlement Statement with a sharp magnifying glass and a good lens because a lot of mistakes are made here. I’m saying this not only just as a lender because I always look at this as a lender as well. During the process, I’ll get my commitment for title insurance, but I also get a copy of a pro forma HUD-1.

It’s a living, breathing document. The down payment is on here. The insurance premiums, the costs, and the fees to file with the county. All of that is listed out here. If you’re buying, selling or lending, you want to check this to make sure that your interests are best represented and there’s not a typo or an error. There are essentially two sides as the left side and the right side. It starts pretty simple. The contract sales price, what were the settlement charges that the borrower is going to pay so as the closing costs that the purchaser, in this case, I’m using one of my HUD-1s from a transaction I did where I was the purchaser and not the lender. However, it doesn’t matter for the illustrative purposes, but I will put a copy of it on the website. The HUD-1 is going to list off all the costs and fees. There’s going to be HOA dues, insurance, taxes that need to be paid or prorated. They’ll take into account the earnest money and how much the principal of the new loan is going to be. There is the owner’s policy that’s paid by the seller. When someone buys a house, the seller normally pays for the title policy, for title insurance, not for property insurance. It will go down and say the estimated amount from the borrower, how much they need to bring to the table and also with the seller contract sales price, any monies they are giving up, any concessions that they’re having to give up.

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Oftentimes the seller will contribute to the buyer’s costs. In this case, I negotiated $4,000 off of my original contract price. There are also interesting things. If there’s a mortgage on the property, how much that has to be paid off. That’s key. It’s taken into account. The settlement charges to the seller, oftentimes they pay more, they pay the realtor fees. That’s going to be part of their fees. That will come out of their end. You want to make sure that everything is correct. Your loan payoffs are correct. You want to make sure that anything that’s quoted in here is going to be accurate. Insurance premiums, for example, taxes owed, all of this. There should all be paper trails for this stuff and take a look at it. Make sure that if you owe property taxes and you’re selling October, you could pay the taxes up until that point. Most of the times, they’ll just prorate and credit to the buyer and then in January, that buyer has to pay the taxes. You want to make sure those numbers are accurate.

Items payable in connection with the loan. This is where your origination fees and points are going to be listed. It also has a place for the flood certification, tax service, or credit report. Oftentimes, the appraisal fee is paid but normally, I pay my appraisal fees upfront initially before I get the loan. If I’m going to use an appraisal or let’s say a broker price opinion, then those are paid up front. If you go back to my lending scam, those are one of the few things you want to pay. One of the few lending fees you want to pay upfront. It just lists everything out. Those reserves that have been deposited, how much money has been put into escrow, earnest money, so on and so forth? Then there are title charges. There’s a settlement or a closing fee that usually goes straight to the title company or to the attorney who’s performing the closing. There’s an owner’s title insurance and lender’s title insurance. As a private lender, it’s something you demand. It’s one of those non-negotiables or you don’t lend the money, plain and simple.

HUD-1: If you’re not ready to foreclose on people, you probably shouldn’t be in the lending business.

There are extenuating circumstances where I would consider not taking a lender policy, but they would have to be very rare. What Michael Plaks was talking about is that a lot of these fees get doubled up. People will use preliminary numbers. Let’s say for example, taxes that are going to be owed on a property. They’ll use preliminary numbers. The more that you stay on top of the HUD-1 statement, the more you’re involved in it, the more that you requested and want to see the updated versions of it. It gives you a chance to find things that are inaccurate. It also lets everyone know that you’re not just going to take their word for it at face value. You’re going to look at everything. Whether you’re buying, selling or lending, you’d need to look at your paperwork. Plain and simple. In the future, I’ll be bringing on guests that work at title companies to explain a little bit more. I wanted to start at least get the conversation rolling on this document because it’s boring. Everybody gets it. It’s there for a reason. I highly recommend that you check everything on your HUD-1your Settlement Statements when you close as the buyer, as the seller and as the lender.

I’m off my soapbox about HUD-1s. I’m thinking about jumping right back on when I give you my foreclosure update. The attorney reached out and said, “There may have been an issue. We may have to wait another month” because the clerk reported some inaccurate information back to him and said, “We’ll have to wait another month.” As it turns out, he did a little digging and emailed us and said, “No, everything is okay. We’re on schedule to foreclose on the fourth.” The first Tuesday of the month in Texas is when the foreclosure auctions occur. This one happened to be December 4th. Nobody purchased the property at the foreclosure auction. The title is now gone back to mine and my partner’s company. We’ve issued the order or the notice to vacate, to evict. Then I started thinking. I’m not going to lie, I felt like a piece of crap for kicking somebody out this close to Christmas. It was a little rough. November doesn’t bother me and January doesn’t bother me, but there’s something about around the Christmas time that I didn’t like. It was too late essentially at that point in time.

I started thinking, it was a mentality of lack because I was taking something away from somebody literally. This borrower didn’t honor the contract and it’s written down. These are the remedies available to me. I took those remedies. I hired a lawyer. I let him do all the dirty work and filing and everything. I’ve hired a lawyer to keep me legal as well. To keep me protected, to keep me and my partner, our business and our LLC protected. I started thinking, “I need to always stop thinking with that lack mentality.” Then I realized that for the last sixteen months, this person has been able to live in a house. Is it a perfect house? No, it had issues with it but he knew that going into it, he was going to fix it up. I did receive some water from Harvey. For the last sixteen months he’s lived in that house and for fifteen of those months, I let them live there for free. We waited over a year to foreclose because I didn’t feel right after Harvey. Now sixteen months later and fifteen months of no payments, time is up. He needs to go. I still feel like a piece of shit because I did it at Christmas, but it’s bad timing. Fifteen months of free rent is a pretty good gift. If you’re not ready to foreclose on people, you probably shouldn’t be in the lending business.

I want to keep it real with everybody that I don’t want to come across and say, “It’s all rainbows and snowflakes,” because it’s not. This is a business to me. Lending is a business, it’s an investment. I do it to grow my money, to make my life better or my future life, I should say my retirement hopefully, and that of my wife and my children. I don’t get into it to take properties back. I want the cashflow every month, but I’ve come to accept this. This is part of it. This is my warning to you is if you’re going to lend to somebody who’s going to be an owner occupant. This may be a case not to do it because one, you need an RMLO, residential mortgage loan originator. They need to make sure that these people are vetted because they are a consumer. They’re not an investor. Essentially in the eyes of the law, they’re completely ignorant and easily misled. It’s not a complaint. I’m just saying that, but that’s the way it’s going to play out. They don’t know anything in the bad lender.

I kicked somebody out of their home right before Christmas. I don’t like that but have moved through it, moved on and we’ll do it again. This is one of the less favorable spots of this business. It’s all part of it. I feel like I would be doing a disservice to anyone reading if I wasn’t honest about the foreclosure process, the end result, and how that made me feel as a person, as a lender. Hopefully, you can glean something or take something away from it. I want to do this again. I’m okay with it because I’m not going to change my lending strategies because of this. This is part of the game. Please continue to email your questions to Keith@PrivateLenderPodcast.com. Please rate and review on the platform that you use. Please spread the word, connect with me on social media at Facebook, Instagram, Twitter, LinkedIn, BiggerPockets. You can find all this information, how to connect with me and more over at PrivateLenderPodcast.com. Thank you for sharing your time with me. I wish you prosperous lending, investing and life. I’ll see you in the next episode.

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PLP-051 Brandyn Cottingham’s Road To Real Estate And Creating A Fund

Keith Baker — Mon, 17 Dec 2018 03:00:58 -0600

Not many of us realize the things we are destined to do immediately in life. Sometimes, we have to take a couple of detours to get there. Sharing his own road to real estate and creating a fund is Brandyn Cottingham of Major Gainz Capital. He begins by talking about joining the Marine Corps band playing the podium. Later on, he got out of the military and was faced with trying to figure his way around after. Going from one odd job to another, he eventually ended up getting the taste of executive level management to creating his own fund. Brandyn talks to us about Major Gainz Capital, breaking down its structure as an opportunity fund while describing the great ways they do to legally get money. He also shares his philosophy that not everything is about money and how he applies that with his clients.

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Brandyn Cottingham’s Road To Real Estate And Creating A Fund

Lender Nation, I hope you’re ready for a very interesting conversation because I interviewed Brandyn Cottingham with Major Gainz Capital. He’s the principal partner. Brandyn, I want to thank you for coming on and welcome to the Private Lender Podcast.

Keith, thank you so much for having me here. It’s an honor. I’m very humbled to be asked about you to be on your show. I follow your podcast. There’s a lot of great content on there. To be a part of this conversation is an honor for me.

Thank you for that. You and I met at one of Steven Kaufman’s events. Steven was interviewed on episode number one. I was honored to have him. That’s how you and I started talking. Lo and behold, we keep running into each other at various industry events. Finally, here we are together. You have a very interesting background. I know you moved to Texas when you were young, grew up the south side of Houston, in Pearland. I’ll set that up and let you talk.

I appreciate it. Both my parents are from small towns in North Louisiana. They both went to Grambling State University up there. It’s an HBCU, very famous HBCU. A lot of strong football tradition up there. They graduated from college, moved to Houston with opportunities where. I was maybe about four or five when we moved here. I ended up in Pearland. We moved there. I think I was I third grade. This is back when it was a small town. There was a beltway. It was like one major highway. It was fifteen minutes to a grocery store. It’s a small town, very rural by today’s standards. My father was a musician. On my dad’s side, everybody was a musician. My uncle was a music major. He taught music. He was a jazz musician. He was a jazz teacher. Aunts, uncles, they all played instruments, orchestras and symphonies, things like that. Music’s in my blood.

I picked it up when he taught us how to read music at a young age. I was very blessed that in Pearland at that time, I found out the high school is going to stay competition again for a marching band in August. When I was there, we were third and fifth in the state in the marching band. Both years that we went, third my sophomore year, fifth my senior year. I was always in a leadership position there. We would go competitions to warm up the water. It was low acumen for the discipline that we had to have to perform at that level and compete at that level. I learned a lot from our band director, Mr. Jack Perez. I have a lot of respect for him. He taught us a lot.

A friend of mine dared me, bet me that she would make the Marine Corps band before I would. It was an interview process or audition. I’m super competitive. I was like, “No way, I’m going to beat you. There’s no way you’re going to beat me.” We ended up going to Lake Charles. There were eight people. I was the youngest person there. Everybody went. I went last. Nobody had made it the whole day and passed the audition. Everybody was coming in, “Nope, I’ll go and do my thing.” I remember putting the thing down and sitting in this room and said, “Congratulations.” I was like “Okay.” He was like, “You made it.” I was like, “Okay.” Here I was on track to go to college. That was a long conversation with my parents, with the recruiter coming to the house and all that. We went and long story short, I ended up in the Marine Corps band. I graduated high school in ‘95. I turned eighteen that September then October I was in a boot camp.

The Master-Key to Riches: The World-Famous Philosophy of Personal Achievement Based on the Andrew Carnegie Formula for Money-Making

I enjoyed the boot camp experience. It was freaking crazy, intense, but it’s one of those things I look back. I’m like, “If I can do that, it doesn’t matter to me anything is possible.” You have to push your body to those limits, your mind in those limits and keep going and understanding how far the human experience can go. I never reached anything on a SEAL level or Special Forces level. I know some of those highly intelligent men. What they do or how they do is amazing. I’m not on that level. I’m very fortunate I never saw any combat. I have a lot of respect for combat veterans. I respect minor combat veterans. From that, I had a cool experience at the Marine Corps. I got to do a lot of cool stuff and met some cool people. I was part of pomp and circumstance at the Marine Corps and the military part being a musician. I ended up in San Diego down there for a while.

Did you go to MCRD in San Diego or Parris Island, where did you go?

I’m a Hollywood Marine. I’m scared of Hollywood Marine. Everybody west of the Mississippi goes to San Diego, everybody east goes to Parris Island. On the west, we got those mountains. We have to hump those mountains up there. It was a cool experience in San Diego. I was stationed there too, MCRB San Diego. It was hard. For a young marine, it was a lot of distraction. I would put it to you that way.

I’ve heard the mountains and scenery are very nice down there. That’s all I know.

The scenery is nice and the mountains and the valleys.

I appreciate your honesty and your service. Thank you for that. A Marine Corps band, what did you play?

I played the euphonium. It’s like a mixture of trombone and a tuba. I found a close instrument to the human voice. It was a great experience. Like I said a lot of marches. I did Rose Bowl Parade a couple of times. I’ve still got some great relationships from that time period.

I graduated in Sugar Land a few years before you did so I’m sure that we saw each other at UIL competitions, Road Stadium in Katy and all that fun stuff. Once you get out of the Marine Corps, I know you were flushed with cash and you decided to open up a fund or what happened?

I was out bankrolling me. I got out of the military. I didn’t know what I was going to do with my life. I was married at that time. I wasn’t playing the instrument anymore. I didn’t have a tracking plan. I did odd jobs trying to figure it out in life. I didn’t know where I was going to go. Eventually, I got divorced, ran out of money in Southern California. It’s in the ‘90s. It’s so expensive. I run out of money. I was like, “Let me go back and get my life together and see what’s up.” I came back home. I started going to school trying to figure my way around. I did sell cars. I ended up waiting tables for a pretty long time. I’ve got introduced to network marketing. It was a great experience for me. The people that I was introduced into that business, they were very big on education and knowledge of self-understanding, self-improvement.

I started reading a lot of books. The first book I ever read on that subject was The Master-Key to Riches by Napoleon Hill. A lot of people know his book, Think and Grow Rich but to me, I like The Master-Key to Riches better because it is more of a holistic approach. It’s not about money. A lot of people gravitate to that because they’re on the money, which is a part of it. That’s why I love more The Master-Key because it talks about all the twelve riches and what they are. It tells you why finances have the most importance. He explains it as, “Finance is the most important because it’s only one of the twelve riches you can measure.” You can’t measure integrity. You can’t measure love. You can’t measure honesty, but you can measure whatever denomination that we have agreed upon is our means of understanding.

Built to Last: Successful Habits of Visionary Companies

It’s the only reason why most people put so much perceived importance on it. I started reading books like that Built to Last, Good to Great, I read all the Robert Kiyosaki books. Literally every single book he’s ever written, I’ve read. I started reading. My parents aren’t business owners. They’re good at what they do. They’re great at earning a living but I knew I wanted more. After that Marine Corps experience, I knew there was more you have, the more you could be. I didn’t know what that looked like. Finally, it was like I got to do something different. I went back to school. I was like, “Let me go to school for a look.” I went to school for audio engineering. I went to HCC here in Houston. I got an Associate degree. That was an amazing experience. It helped me ground myself and found myself again in where I was trying to go.

From there, I ended up going to Texas Southern and try getting a four-year degree. I was supposed to get an audio engineer degree with a minor in business. I knew I wanted to own my own studio. I wanted to have the business acumen as well with the knowledge of the actual operations also. From there, I ended up getting a Finance degree with a focus on risk management, which is probably one of the best experiences and decisions I’ve made. A buddy of mine was like, “Why are you doing management?” It’s nothing against management, but he was like, “You’re smart enough. You need to do this finance thing.” I was like, “Why?” He was like, “Finance is like being an engineer in science. You leave with hard skills that you can then go, and you can apply. You can apply across many different aspects in business.” Accounting is the language of business. Finance is the sister to that, which is the projection of business and the manipulation of those currencies. Accounting is what has happened because of the basis of finance. When I understood that, I fell in love with it. I ran off of that and it’s been one of the best decisions I’ve ever made.

Were you part of the Ocean of Soul at TSU?

No, I wasn’t. It’s funny that you asked that. I thought about going back and play the instrument almost a decade when I was at TSU because I was 32 or 33 when I got to TSU. One summer, I’ve got this window. I want to join the band. If I can get in, I can practice, and I’ll be able to get my chops up. By the time the marching band starts, I’ll get in. It never worked out. It’s one of those things the universe, God works in mysterious ways. It was wasn’t meant for me to do that anymore. I shot my shot and it got shot down by the universe. I have a lot of respect for all those fans. My dad was a musician like that in the marching band at Greenland. I love those shows and performances and I’ll show my son the YouTube videos. “Check this out. They’re so entertaining.”

You have to push your body and mind to the limits to understand how far the human experience can go.
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I want to have my parents check this episode because back in the ‘80s we go to the Astrodome for Oiler games and nine times out of ten, TSU Ocean of Soul would play the halftime show. It was so funny because they would come out almost the drum and bugle corps they’d march out. They’d get there very rigid and then that big bop and bass would boom. My parents were tapping their feet. It was always an experience and my mom would always say, “Who’s playing halftime? Is it TSU?” My parents went to Sam Houston State and we’d watch Sam play and it’s like, “This is boring.” There was so much energy. I know we went down a rabbit hole that’s my fault, but I was curious about it. After TSU, what happened then?

While I was at TSU, I was a non-traditional student. I was in my 30s and technically a freshman there because I got this audio degree. I was trying to get this business degree now so I’m certainly a freshman. I’m a non-traditional student. I was like, “Let me take real advantage of this college experience while I’m here.” I joined organizations. I networked with the faculty and staff who were there. I’ve talked to a lot of the younger people who were there trying to help them. One young guy and from there, he became as one of my good friends. We had an accounting class together. He was struggling with it. I helped him out. I was in this group and I wanted to do some good while I was there. I saw that there were needs.

I come from a family of giving, service. I was raised in the church and we did roadside clean up. We took communion to the people and the elders and old folks’ home. We went to house visit sick and study and all that stuff. My mom has always been into politics. My grandpa was into politics in North Louisiana. I knew when I was there, I wanted to make some social impact. I didn’t know what it was. I ran across this opportunity of urban gardening. We had times when I had to go see this guy at this farm in Fifth Ward, this urban farm. I was like, “Urban farm, what is that?” I went there and I met this guy. His name is Joe Isaac. If you’re interested in that stuff, look him up on Instagram or Facebook, Joe Isaac, he’s doing a lot of great stuff around the city of Houston.

He had developed this urban farm at his old rice mill. You’re there and he’s growing like okra, tomatoes, kale, lettuce, and corn. I was like, “What is this?” He told me it was on top of what used to be a parking lot. What is this? It is crazy. It’s a holistic, cool place. They turn the loading dock into a big aquaponics farm. They had had tilapia and blue crab in there. They were siphoning that off to feed plants hydroponically. It was amazing. They had chickens and all the stuff. The place is still there but Joe now moved around the city doing other things. From that experience, I ended up getting this knowledge and getting this bug in my life about I can do that here in the Third Ward. My buddy was like, “I’m interested in connecting with the university to make this happen.” They had torn down an old dorm. It was two acres. It was the exact same size as what this place was at the Fifth Ward.

We were like, “We can do the same thing.” Basically, me and my buddy, we went, and we lobbied with the university for them to give us the servership of the two acres in the middle of a city, which is amazing. We turned it into an urban farm. The best part about it was we have social impact aspect where we engaged directly with the university. We engaged with the faculty and the staff and the students at the university. We engaged with the community itself. We have a program called the Icarus International Green Program. He and I were founders of that. That’s how I got my first taste of executive level management and running an organization. This was all totally conceptual. He and I came up with the concept. I learned about understanding your personal growth as a person and how you as a leader have to grow because a lot of time it’s not about the people in your organization, mostly it’s you.

When you fix you, the right people will be attracted to you. Those things will work themselves out. We went through like three iterations of a board. It was bad like I didn’t know if we were going to make it. It was one of those things. It was my first entrepreneur taste of things. We were out here trying to raise money. We were putting out this program. It ended up being in a great situation. I ended up being on the sustainability board of the university. We worked projects for Earth Day, Sustainability Day. We were the student representatives on our undergrad standpoint for the university and that voice of what we wanted to see...

PLP-050 Identifying And Avoiding Lender Scams

Keith Baker — Mon, 10 Dec 2018 03:00:35 -0600

There are so many lender scams spreading through the internet that sometimes, you can’t even tell which ones are true and not. Suffice it to say, it has become easier to fall into these traps. The good thing is that you can learn some ways to avoid them. Learn the ways and means that you, as the borrower, won’t fall into any types of lending scams. Identify the red flags when it comes to offers and know where to put or give your money.

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Identifying And Avoiding Lender Scams

Lending scams, how many times do you go to Facebook or Instagram or on the BiggerPockets forum, sometimes I’ll see complaints or lamentations about lending scams. We’ve all received the emails about the Nigerian prince or some rich uncle in the Middle East and you can get a cut of $5 million or whatever. You go to Facebook and you see, “I am a private lender or I’m a hard money lender and I can get you anything from $20,000 to $5 million, asset-based lending only,” and there’s going to be like a Gmail or Hotmail account. Some of these people are legitimate. I used to do my lending out of a Yahoo account. The difference between me and this guy on Facebook, I was not advertising I could lend you millions of dollars. In fact, I wasn’t even advertising. I wasn’t putting it out there that I’ve got money to lend. If someone is going to get a broker a deal and get a commission on $5 million, even if it’s only one point, that’s enough money to where I’m thinking in my head. You can take that $50,000 and go to GoDaddy and get you a legitimate email address or a company URL and a company email address. You wouldn’t rely on Yahoo or Hotmail, one of my favorite ones to see. Not necessarily a dead giveaway, but something to look at. It’s something to consider, especially if they’re a hard money lender and they’re using Hotmail or Gmail.

If it walks like a duck, talks like a duck, and smells like a duck, then it probably is a scam.
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Some legitimate businesses do use that and I know some people that still do. However, they have websites. They have proper companies, insurance policies in place and employees and things like that. That’s something to look at. One of my favorites is that generic stock photo of somebody smiling and they’re trying to play it off like it’s themselves. It just reeks much like that email from the Nigerian prince. I don’t know if this is something that viscerally hits you and these are the obvious ones. You can tell that if it walks like a duck, it talks like a duck, smells like a duck, it probably is. That’s a just a couple of examples. What I’d like to talk about are ways that you, the borrower, cannot get into any types of lending scams. Sometimes people get to the closing table and find out that their lenders have a piece of crap or all of a sudden are going to require something to where they’ve got you over the barrel. Banks have done this to people as well. I know it’s errors and omissions or whatever or we forgot to get this, we have to get that. I get it. Some of it is legitimate, but sometimes there are crooks out there trying to lend money. There are also crooks out there who are trying to do houses and trying to buy it several times and borrow from other people at different times and get money and never repay it back. Buyer beware, lender beware and investor beware for sure.

One of the things that I recommend is that if a lender is asking you for fees upfront, that’s a red flag. The only fees that you should be paying upfront are appraisal fees and perhaps a property inspection because that’s a legitimate expense that is part of the loan. I require people to pay for those services and those documents. However, they don’t pay me. They pay the appraiser. I don’t get a cut of that. I have a panel of appraisers. You can choose one of these people talk to them and see which ones you like better but we’re going to use my appraiser, if it’s my money bottom line. The borrower will pay the appraiser directly. I don’t see the money. I don’t need the money. That is fine and same thing if I do require an inspection and if I don’t see the house, sometimes I like to require an inspection just to get another set of eyes on it and some photos and little narrative with the condition of the house but again, I would never take that money and pay the inspector. I have a panel of inspectors. Kevin’s my number one, but I would have the choice. They pay the inspector directly. I don’t see or touch a dime. There’s no reason for me to do that. That would be a red flag right up front.

Lender Scams: Every now and again, you get a bad apple. Someone borrows a bunch of money and they leave.

The next thing is to keep yourself safe as a borrower when it comes time to put money to pay some money. You don’t give it to the lender directly. Let’s use an example of your closing at a title company, which I always require because a title company has escrow accounts. Any money that I pay goes into escrow. If something happens at the last minute and we decided not to do the deal, that money comes back. I still have access. There’s an independent third party who’s handling those funds. As a borrower, I would never give money to the lender or never provide anybody money outside of an appraiser or an inspector or some third-party service that maybe is a septic inspection. The list goes on and on, but never give the money to the borrower. Put it in escrow. Never give money outside of escrow. Always have escrow. It’s a little safety net for you. Never provide money outside of escrow. When I say escrow, usually it’s a title company. You’re probably wondering, “What about closing at an attorney’s office?” That’s fine as long as it’s an escrow and as long as it’s my attorney, I don’t have a problem with that or at least it’s an attorney that I’ve been able to vet. I don’t necessarily tell people what title companies or attorneys they have to use.

That’s going to be their choice, but I do want to know the attorney. I want to do my own little due diligence on them, see what the history of the firm and knowing that if they’re going to hold money in escrow, they know how to play by the rules just like the title company. That’s a pretty strong bet that things will go the way they should. That’s about it. You can see forms everywhere, lending scams and unfortunately the people that you see around Junior City. Every now and again, you get a bad apple. Someone borrows a bunch of money and they leave or someone that is a lender and shuffles money out from you or takes the deal. It knows that it’s a bad deal and it takes the deal anyway just to take it back or let you do as the investor do all the footwork. It makes the terms and possible to have it be a successful loan. Those are just some of the things that you need to look out for. Be on your toes and trust your gut at the end of the day. You can go get all the references about people but trust your gut. Never pay money outside of escrow and be suspicious of anybody who wants to loan you money, but they need money first. On the next episode, my plan is to talk about lenders fees much like this, but on the closing costs and what we used to be called the HUD-1 or the HUD statement. A settlement document or whatever they call it now, but the HUD-1, we’ll talk about those fees and what’s reasonable and where you can shave some costs away if you’re so inclined.

At the end of the day, be on your toes and trust your gut.
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Please continue to email questions to Keith@PrivateLenderPodcast.com. Please help other people just like you find the show. Please go rate and review and give me an honest review. We’d love five stars, but if it’s a one star, give it to me. I want to review. I want to hear feedback from people and please spread the word. Connect with me on social media at Facebook, Instagram, Twitter, LinkedIn, and BiggerPockets. You can always catch me at PrivateLenderPodcast.com. Hopefully, that website will be looking a little different here in the very near future and of course, please go to PrivateLenderAcademy.com and sign up to get on the waiting list so that you can find out all the good news when I am able to finally get everything together. I’m still hoping to launch something for you. It won’t be a cost, at least initially. I hope I’m trying to get a kickass cool roadmap put together for everyone that lays everything out and then keep going with the academy and perhaps some type of a tribe of lenders and a group. There are a lot of stuff going on in my head. I hope you’ve enjoyed this episode. I do appreciate you sharing your time with me and I wish you a happy and prosperous investing and lending.

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PLP-049 All Things Private Lending with Steve Driscoll

Keith Baker — Mon, 03 Dec 2018 03:00:03 -0600

Some of us originate from somewhere away from real estate investing. A person who has been through the same journey is Steve Driscoll of ECONO HOMES, LLC who talks about his experiences and all things private lending. He shares his background on how he went from auto finance to real estate investing, walking us through cars and houses. Steve gives some great insights on how he runs things, from buying and liquidating credit card paper to financing. Touching as well on subjects like LTV and RMLO, he brings information that shows the inner ropes of private lending.

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All Things Private Lending with Steve Driscoll

I’m proud and honored to have Steve Driscoll with us. I met Steve down in Cancun on the Mitch Stephen Real Estate Mastermind. If there’s anything you want to know about that trip, Steve could tell you all the dirt on me and everything. Steve, thanks for coming on. It’s good to see you.

Thanks for asking me to come on board.

There’s no formal structure to this interview. I wanted Steve to come on. We got along good down in Cancun. I’ve seen him in Texas since then at another Mitch Stephen event and I wanted to continue the roll. You were on very quickly on the episode I did regarding the Cancun mastermind, but I want to delve a little deeper into your past and what you do. Correct me if I’m wrong but you are a New York gangster. You’re in the mob.

I was out in the San Antonio and Houston. I didn’t spend much time in Houston. It’s a nice part of the world there but it’s a lot different than what New York is and a lot different than the Northeast. You don’t appreciate the country until you start traveling around it. I had a great time. I met some good people.

You did it right. You went down there in October, which is a good time to go to Texas; May through September. Besides that former criminal activity that you never did, I know you have a background in finance. Give us your background in how you went and got into auto finance I believe now you’re doing in real estate. Walk us through how you went from cars to houses.

If you're an entrepreneur, you better roll with the punches.
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The cars started way back. I took a hobby and decided to make a living out of it. I love automobiles. Who doesn’t love cars? Who doesn’t like cars? I was a kid and I was selling cars out of my driveway. As time went on, I opened up car dealerships and it was around 1985. In 1985, when our friends from Korea started bringing cars to the US under the name Hyundai, we also got another beautiful automobile here called the Pyeonghwa. Detroit started to feel the pinch because they were taking sales away. They started dropping their interest rates and as they dropped the interest rates down, they were buying anybody’s loans that they could fog a mirror speaking.

We went from doing a great business to being almost shut down overnight. What do you do? You had to reinvent. If you’re an entrepreneur or a true person, you better roll with the punches. You’ve got to change with the market and you’ve got to make yourself reinvent it. We went ahead. I did a little research and I said, “It’s the same thing in the real estate market if you’re doing financing. Look at the biggest side of the market. The biggest side of the market is the people that can’t get financed and it’s over 80%.” At the time back in the ‘80s New York metro area, over 80% of the people who were shopping to buy a car didn’t qualify. I said, “I want to go service that into the market.” I made some alliances with some finance companies and that these guys were absolute crooks. They were the gangsters. I said, “If these guys can do this, I can do this legitimately.”

I went and I became a licensed finance company. In New York State, that’s not an easy thing to do. Nothing’s easy to do in New York, but I did it for a long time. You use your own money for a while and after a while, you run out of money. You are bringing in private investors. There are banks and finance companies that are unique, that are just boutique lenders for that end of the market. After a while, we were collecting $500,000 a month just in interest. We were doing well. I had lines of credit with asset-based lenders. I had one line for $65 million and a backup line for $15 million. That’s $80 million and thank God we never used the backup line. We came close at one time using the whole line, but we did well for a long period of time. This podcast is about private lending and if I go back and I think, “You’ve got to be able to put a price on an asset. You’ve got to be able to look and see document wise no matter what the asset is.” I used to loan money. I had loaned money on some of the craziest stuff. I’ve come out with that book. You’ve got a copy of it right there, Real Estate Rock Stars. I contributed to the first chapter inside the book. I didn’t write the whole book.

I was asked to come on board with it and I talk all about my business model and I talk about how to protect investors, what you should do, what the steps are in general. I’m a pretty conservative borrower. I don’t like borrowing money, but if you can’t do business now, sooner or later you’re going to run out of cash. This is a quick story. I’d buy almost any damn thing if I could liquidate it. I learned from these two old timers from New York City. They were both old retired attorneys and they’d buy anything. They could make chicken soup out of a chicken crap. They called me up one day and I was buying a credit card paper and all kinds of notes and stuff from them and just liquidating it out in big volumes through my company. They called me up one day and say, “Where are you?” I said, “I’m in Long Island.” These guys said, “Move to Arizona. Get in your car. You’ve got to go to Connecticut for us. You’re in this deal.” I said, “What’s the deal?” He says, “We’re buying a submarine.” This was the craziest deal I ever did. He said, “You’re in.” I said, “What are you talking about?” He said, “You should just get in the car. Call me when you’re on the way.”

Real Estate Rock Stars: Real Estate Leaders Rocking The Real Estate Industry Today

I had a couple of loose ends that I need to take care of and I hop in the car. I’m driving up the New England Thruway and I’m heading up to Connecticut. I get them back on the phone and he says, “These guys will liquidate us. We’ll loan this guy money against this submarine.” I go, “Yes.” He goes, “He’s not going to make the first payment on it.” I was like, “How do you know that?” He was like, “I’m telling you, he’s not going to make the first payment.” I go, “What’s the deal?” “Instead of us just buying it, we’ll get a loan of money against that. You’re in for $150,000. We’ve got the rest of it handled.” What does that mean? We already got this thing sold. I didn’t say anything after that. He said, “Go up there. Pull up to the place. See if it’s in the water. That’s great. It means it floats. If it starts up and it runs, that’s even better. If it moves, that’s even better. It’s a celebration.”

I wind up and I was up over there. There is this big black turd in the ground. It was a World War II whiskey sub. The guy had bought it up in Nova Scotia and it was decommissioned. Then he drove it down to Connecticut and he wanted to borrow some money against it. I show up there and the guy said, “Are you here to inspect it?” I go, “I guess so.” “Come on our board.” I said, “I’ll stay right here.” He started it up and the big wheels turned. All was well. I left and I was on the way back and I called him. I said, “Is this thing all right? It’s in the water.” He said, “It’s great.” About five six weeks later I called because I haven’t gotten the check, “What’s going on with this thing?” “It’s all being worked out.” It was about eight weeks. He said, “The guy defaulted so we foreclosed. We’re dicing it up. We’ll ship it to San Diego.” I said, “What does that mean?” “We’re cutting it up,” because you can’t put the thing on one trailer.

They’re cutting it up in pieces and they’re selling it to a salvage company in California. They already had money from the guy. These guys were incredible. These guys are real hustlers. That was a lesson I learned early about knowing what a liquidation value was worth. If you’re going to buy an asset and you’re going to loan somebody money against something, you want to know what the quick liquidation value is if the crap hits the fan. That’s important. Without knowing the value, you’re gambling. I don’t mean to take over your shoulder.

I have no problem doing it. It’s a great story. You went to Connecticut to look at a submarine. I can see a mobile home or maybe a hot rod car but a submarine.

We made six figures on that one. I was happy on that. They sold it to us. They salvaged it supposedly. It was in pieces on trucks by the time I called the guy. About six, eight weeks into it, they had already cut the thing up and they were transporting it. They had a piece left in Connecticut.

I’d like to continue down this tangent a little bit because you mentioned that you were buying and liquidating credit card paper. Run us through how that worked.

Without knowing the value of what you’re buying is gambling.
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Back in the day, I don’t know how it is nowadays because I don’t do that, but you could buy volumes, lots of defaulted credit card paper. This fellow was taking over companies that were going out of business. Let’s say a guy at a jewelry store and he had four or five different jewelry stores. When I say credit card paper, it was more like loan paper, this particular transaction. They originated millions of dollars and it was all just paper. Meaning, it wasn’t cash. I promised the pays. I don’t think the guys cost of goods was even 5% of what was writing the stuff for but it was crazy. It was marked that way up. When he was liquidating these buildings, he got everything. He was going to make it play and he says, “I’m going to buy everything. I’m going to buy all the assets. We’ve got the buildings, the furniture,” he got everything in it which included the account paper. When he put a liquidation value on this and that, I want to put it all on the paper.

Some of the transactions were big. He also bought in a different transaction, he wants them taken over. It was a collection agency and he got a lot of accounts that they held in-house that they had purchased and he wants them shoveled out over to me. There was a lot of HSBC. I believe it was HSBC Bank many years ago. We started running this through our systems and most of the stuff was fraud and the people never existed. When they send you a credit card and all you’ve got to do is sign, they wouldn’t go by people’s addresses. Generally speaking, what the income is for the area. They’ll give anybody a $1,000 line. That’s where all this crap was, most of the stuff was a collective. We wasted a lot of time on that. I bought judgments in the past. You can make money with judgments if you know what you are doing. When anything you’re going to look at is going to be tied to a piece of real estate, you’re in the driver’s seat if you know what you are doing.

You mentioned your business model in the book, Real Estate Rockstars. You do a little bit of landlording, some lease optioning and seller financing, but what does your business look like now?

What I do now is I bring in private lenders, buy houses and finance them for the long haul. I like passive mailbox money. I’m not in getting big checks right away. I want to retire one day. I’m getting old. I love mailbox money. One thing I found when I was in the auto finance business was good times and bad times, no matter what. You might not be selling anything or you might not be financing anything, but money still comes in the door. That’s what I love. When you’re in a business, when you can manufacture a business like this, when you’re in a business where the money makes the money, now you’re in a business. In the home finance business or owner finance business, you’re limiting your income to how many units you can go out there and sell and finance. The long-term, since what you’re doing is facilitating financing, you’re selling money. You’re not selling a piece of real estate. I’m selling money. When you sell money and I’m writing 30 contracts on it, that’s forever money. I bring investors in for five and ten years and I just do interest only with them.

I was at a REIA meeting. He’s all happy about this renovation that he did on this house, this rehab. Many people watch this stuff on TV and they think they’re going to make so much money. He’s talking about this and when he gets all finished, with all the money that he invested in this property, he takes out a calculator and goes, “What’s the net number before taxes?” It was less than 3.5%. This guy killed himself that put this thing together. I didn’t crack what it was with the guy or anything like that, he was a lot bigger than me anyway. I said, “The thing to do is just sit back and watch it.” I don’t know when this is going to hit the airwaves, but the stock market dropped 650 points. This is no ordinary mom and dad stock market. This is not the Wall Street that your dad invested in. The individual people or even if your company’s investing, we’re not big enough to be in the know as to what’s happening. They say this insider information is all illegal. It’s all over Wall Street and that’s how these guys are making their plays. We’re not big enough to being inside that club as they say to know how that’s going to work. Where does that leave us? If you’re investing on Wall Street, you’re gambling. It’s the biggest casino in the world.

Private Lending: If you’re investing on Wall Street, you’re gambling. It’s the biggest casino in the world.

You have absolutely no way of knowing what this stock is or whatever you invest in is going to be worth anything. After the meeting, I was giving away my book. A bunch of them came over and said, “What’s your strategy? How do you figure this and that? Why is what you do so much better than what happens on Wall Street? I’ve been investing in Wall Street for years.” I said, “How much money do you make?” They go, “Enough for a part-time job.” I said, “The big difference is the hedge.” “What’s a hedge?” I go, “If you buy a piece of stock, you buy one stock for $100 on Wall Street, you’re paying 100% of the value for that stock.” It costs you $100. A week from now for some reason, the stock loses 10% of its market value. Now it’s down to $90 a share. If you decide you want to get out, there are fees for getting out of it but let’s just say it’s $90 now. What do you do? Does the street tell you to reinvest it to just sit back and wait? Maybe it will go up. How many times are you going to sit there and stare at the business news and hopefully there is more good news that will help you maybe push this back up? I can’t do that and I can’t be responsible like that for an investor. I can’t tell somebody that that’s legitimate investing.

My dad was a banker all his life. He invested some money in Wall Street and he never made a lot of money on it. I was raised saying, “Don’t gamble. There are no sure things in life.” Let’s change the numbers. Instead of $100, it’s $100,000. It’s a $100,000 house and you’re going to give me $60,000 on a first mortgage. That’s $0.60 on the dollar. That $40,000 is the hedge. It’s the spread. In order for your value to start dropping, in order for that mortgage, that value that you have, that note to take a big hit, that number from $100,000 has got to drop way down. That’s your hedge. That’s what banks look at. This as a bank model. If you don’t think so, ask yourself one question. Why are there banks on every corner throughout the United States? Why is it that you can put money into their bank and they’re only giving you a point two or three quarters of a point, 1% or maybe a point and a half. They turn around and put it out for five or six. They’re making money on your money arbitrage. That’s what they call it.
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PLP-048 Foreclosure Journal: Part 2

Keith Baker — Mon, 26 Nov 2018 03:00:14 -0600

In this second part of the Foreclosure Journal, Keith gives a sneak peak of his private lender academy that is slated to go live in January – what the latest situation is and what steps that must be taken to improve it are. He also gives some updates on the foreclosure process with his house in Port Arthur, offering insights and highlighting what is great about foreclosure.

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Listen to the podcast here:

PLP-048 Foreclosure Journal: Part 2

I’m going to tease you a little as I have a small announcement I’d like to make about the Private Lender Academy. This episode will be part two of the Foreclosure Journal where I’m going to give you updates on what’s going on in the foreclosure process that I have in a house out in Port Arthur. Unfortunately, I’m running behind schedule. That’s the announcement. The Private Lender Academy does not look like it’s going to be ready to launch in January. I’m still busting my tail to make it happen. I realized that I needed to do a little more research and so I’ve been reaching out to you, the audience and those who have signed up and provided me with your email address. By now, you should have received at least one email from me and I don’t email very much. I hate unnecessary emailing, but I am asking for your help and input to help me shape and create the Private Lender Academy. I want to take my time and deliver a good product. I don’t want to rush something out just because I put a flag in the sand and said I’ll do it by January. That’s the announcement and please stay tuned. You can go to PrivateLenderAcademy.com and get on the list so that you’ll be alerted and informed when everything starts to roll out. That’s the grand announcement.

This is going to be part two of the Foreclosure Journal. I’m going to bring everybody up to speed to where we’re at in this. If you’re following along, this isn’t quite in real time, but it’s enough in real time that you’ll notice that several weeks have gone by since I’ve given any updates and what’s happening. On this particular house, we sold it with a first position lien for the purchased price. We’re seller financing it to the end buyer and then he asked if we could roll over his closing costs into the note. I wish I could remember why we didn’t do it all in one, but we did a first lien and second lien. The title company wanted us to do it that way to keep things cleaner. When we go to the attorney to get the letter of default and the intent to accelerate the loan, I and my partner, Landon, cannot find an executed copy of the second lien and deed of trust. First, we went to the title company. However, our escrow agent was no longer at the title company where we closed. In fact, they pretty much shut down after that. We were unable to get the second lien. I liaise with the attorney and asked if we could foreclose on the first lien. It’s the bigger one anyway and it still could get the buyer out and get the property back over into our hands. That’s what we did and we’ve also started to advertise the house again for seller financing.

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The buyer got the hint because now after not paying anything for almost a year, all of a sudden, he says he has money and he’s returning phone calls. This is a positive thing because my goal isn’t to foreclose on people and resell the house even though that is an option for me and my partner. I don’t want to do that. I don’t want to be predatory. I’d rather have somebody stay in the property. We’ve said that we’re willing to negotiate what’s owed if he can come up with a substantial chunk of money. He said he could, the arrears are $6,000 right now. That includes the county taxes, the property taxes that have not been paid and late payments and everything that he still owed us in the first and second liens. We gave the payment instructions and said, “Until we received the money, we’re not going to stop the foreclosure process.” That’s the beautiful thing about it. Once you start the foreclosure, you can stop it anytime. You can stop the steps of the county courthouse, so to speak up until that moment. You can cancel it. That’s our plan of action right now is we’re going to give the 21 days. The letter has gone out. A signed return receipt and also regular mail. Our attorney had process served. There was a signature, we know the borrower got the letter to accelerate notice of default. As of right now, we’re about ready to go to the first Tuesday in December, which is when all Texas property auctions occur. We’re all lined up. If he can pay, great, we’re more than happy.

Foreclosure: The beautiful thing about the foreclosure process is that once you start foreclosure, you can stop at anytime.

If he can come up with even half of it, we were willing to extend an olive branch and modify the loan for him and allow him to stay. That’s the decent thing to do. However, if things don’t work out, then we do have the remedies available to us and that remedy is foreclosure. We will continue to go through with it. It is what it is and I used to wrestle with this kind of stuff, but at the end of the day, we held up our end of the contract, the other side didn’t. We’re going to do what the contract allows and we’re going to go get the house and try to go resell it with owner finance again. First, we’re going to try and see if we can get this guy to turn around. That brings us up to speed where we’re at. We’re still in the holding pattern. We’re going to go to the foreclosure auction. We’ll let you know how it goes. I’ll let you know how it goes. That’s going to do it. That’s going to be a pretty short episode. I’d like to ask you to please continue to email your questions to me at Keith@PrivateLenderPodcast.com. Please rate and review. It helps people just like you find this podcast. It spreads the word. Word of mouth is the best advertising. If you could please, I will greatly appreciate it and promote yourself, promote your business and I’ll read it off on the air. If I can help you in any way possible, I’d like to be able to. If you scratch my back, I’ll scratch yours.

Continue to spread the word. Please connect with me on social media. I’m on Facebook, Instagram, Twitter, LinkedIn, BiggerPockets or PrivateLenderPodcast.com. I want to say thank you to a listener who left their rating and review. They said the title was fantastic. Expert advice delivered in an entertaining and easy to understand format. Keep up the great work, Keith. Thank you very much. I do appreciate that. Please go over to PrivateLenderAcademy.com and sign up for alerts and get on the waiting list. Unfortunately, as you know now, everyone’s going to have to wait a little while longer, but it’ll come out. We’ll get it there. Everyone who has been providing their input and their support and email me. What would you like to see? What type of training would you like to have? I’m looking for Beta testers. I’m more than willing to share training for your input and your time to help me create a good course or membership site or whatever is going to be. I appreciate your input and I want to say thank you again and I wish everybody happy and prosperous lending and investing. I’ll see you in the next episode.

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PLP-047 Raising Other People’s Money (OPM) For Out Of State Deals with Gustavo Garza

Keith Baker — Mon, 19 Nov 2018 03:00:44 -0600

Gustavo Garza, the CEO head guy in charge and main check writer of Clear Path Property Solutions, discusses how to raise other people’s money (OPM) for out of state deals. Going deep into the relationships that start it all, Gustavo talks about the need to build it well with the people and not just ask for money. He shares his own personal journey that eventually got him to start on second liens, giving advice on how to be safe at it. Gustavo shares how he raises money, highlighting the value of networking through social media, conferences, and hosting dinners where people can share the same fears and provide each other solutions. Learn about all of this together with some nuggets about deeds of foreclosure and private lending that will equip you to navigate through investing.

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Listen to the podcast here:

PLP-047 Raising Other People’s Money (OPM) For Out Of State Deals with Gustavo Garza

Joining us is Gustavo Garza, the CEO, head guy in charge and main check writer of Clear Path Property Solutions. Gustavo, welcome to the Private Lender Podcast.

Thank you.

Thanks for being on. It goes just goes to show you the hustle that’s involved in running your own business. You are a real estate investor full-time. Go ahead and walk us through from the very beginning to your company.

I got into real estate because my wife and I wanted to buy a mobile home park. I was working a six-figure oil and gas job doing well. We wanted to start gaining some passive income. We got to the point of almost closing on this park and we step back and go, “Do you know what you’re doing?” She goes, “No, I thought you knew what you were doing.” I was like, “No, I was pretty much BS all the way up to this point. How about we figure out what we’re doing first before we go and buy an $800,000 mobile home park?” It’s not a small investment at all, so we probably should figure out what we’re doing. That’s when we did one of those real estate programs that everybody likes to knock. I’ll keep their name out of it, but you know who we’re talking about.

That opened my eyes. It was essentially like the scene in The Matrix, “Do you want to take the red pill or the blue pill? Do you want to forget everything and go back to your ordinary life or do you want to embrace the knowledge that you have just received and completely open your eyes to what’s out there?” I felt like that was a decision that was being made. When we did that, out the gate, we started lending money. We did it in the second lien position. We did pretty well our first year. We made a total return on our capital of about 29% between points and interest. We jumped into the home staging of properties that were being done by investors. We started marking for deals. It was a flood of us what can we do, what’s possible and figuring out what interests us.

My wife hates this analogy, I was sleeping around in real estate and I hadn’t figured out who I wanted to marry yet. I’ve got to have a little thought. I’ve got to try a little bit of everything before I figure out where I want to sink my teeth into. Throughout that process, we flipped houses. We’ve wholesaled. We’ve lent money. We learned a bunch of different stuff in the process where it fell into my niche. What I enjoy doing is building the relationships, getting to know people and raising capital for the projects that we have and I’ve been able to do that where I’m based here in Houston Texas. We raised capital for projects in Florida and Iowa and here in Texas. Most of our lenders are from other states outside of those states. They rarely ever see the projects that we’re working on, which I feel is a little bit unique because for the small stuff that we do, we deal with a lot of small investors. I feel that most people want to go see the project that they’re putting that money into. For you to be able to raise money and put it in another state where they’re never going to see the project, where they’re going to rely on you and trust you in order to handle their money properly and to be successful, I feel it takes a certain approach to be able to make that happen.

I would have to definitely agree. I’ll get to the second lien position. You invest not just in Texas but out of state and you are able to raise funds from other out of state investors who will never see the property. Whereas I always tell the newbies to start in your backyard, go see it, touch it, taste it. Go see where the dead body was lying, the outline or the chalk of the house. It helps build the experience for a lender. I met you at a Quest IRA event. You were looking for some funds. Go to the meetings, go press the flesh, shake hands meet people like Gustavo because he can put your money to work for you.

A note to that, I have not been able to raise not one dollar out of Quest because they say, “Where are the projects?” “Iowa.” “I’m not interested. I want to make sure that’s here in my backyard.” There is a big perception and it’s funny because I can raise a lot of money out of doubts. I have been very unlucky in raising funds here out of Houston. Most lenders in Houston want to lend in Houston. They will not even consider even if numbers are fantastic. It’s something I’ll go into a little bit because the fact is with Quest, you show up. You try to raise capital. You can be consistent. The fact is, are you truly building a relationship just going to meetings for 30 minutes? It’s very difficult to do that. That’s where I’ve been able to raise a lot of capital because I’m building those relationships first and not asking for money. This is one of the things that I figured out.

Go see where the dead body was lying, the outline or the chalk of the house; it helps build the experience for a lender.
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I find it interesting that you haven’t been able to raise anything out of Quest. I didn’t quite realize. I knew you’ve got projects all over, but that’s funny. Here’s another thing, a huge red flag went off for me. You said you started with second liens. I’m not going to interject any prejudice into that. What made you decide we’re going to start on second liens? How did you keep yourself safe? Walk us through that.

There is what we call a method to the madness. That’s what they call it. There is a method to this madness because so many people told me whatever you do, do not lien in the second position. You have all these programs saying you can do real estate with no money out of pocket. It’s hard to do that without finding somebody to be in the second position. I feel like it’s two worlds colliding. Don’t do the second position but find somebody that will so that it’s not your money that is doing it. You can make a deal and get no money out of pocket. I am a physical learner. I like to put my hands on things. I don’t like to learn from other people’s experiences. I feel like I’m a replicator. If I can see it, I can replicate it. That’s where my strength is. Part of lending money in a second position was not only validating the deal but negotiating with the people saying, “I want to take part in this project.”

That gave me a hands-on experience to be a second lien position with people that had already been doing the business for a little while get another construction cost, get to know the contractors that were good. Walk the projects. What to look for? How to view what something is going to cost? How did they determine their numbers? How are they able to walk through a house and in under five minutes have a good idea of what their budget is going to be and be accurate with it? All those things were things that truly fascinate me. How can I convince somebody to give me the time of day? “I have money in the second lien position that I’m willing to fund one of your projects in return for all this knowledge.” To me even if I had walked away with not making a dime on that, the experience, the knowledge that I would have gotten from these people would have been worth it because that supercharges my way into where I’ve got today in such a short period of time. That’s how I feel.

I am so glad to hear that because I took a very similar path, but I didn’t do it in the second position. I ended up lowering my interest rate to the borrower. In exchange I said, “You have to walk me by the hand through everything.” We’re going to go look at the property. We’re going to do this. Even if I just got my initial money back, I made no interest payments on that loan, the education that I got from that was tremendous. To me, the biggest part about private lending is those relationships and the learning. I like to say to lend and learn or lend to learn because there are so many different facets to real estate investing. The fact that you went into the second lien, did you have any equity or just a second lien in the beginning?

I went to a lawyer. I said, “I’m going into a second lien lending,” and they’re like, “Really?” I was like, “Yes. Draw up the best documents you can and let me know what I need to do to best protect myself.” It’s the smartest decision I made as far as doing that. I knew that I was bringing value in the second lien. I could even charge higher interest rates and points and so on and so forth. I was reasonable. The second thing I did was I look for people that would lend money back in the second position. I’ll lend you in the second position on the contingent that when it’s time for me to do a project, you will reciprocate. In return, I’ll tell you, “I’ll lend this to you at a decent rate, in return that when I need money, you lend it back at me at the same rate.” It was like a barter or an exchange system. When I got my first deal, I had no problem finding it and having zero money out of pocket because I had built those relationships up when I first started.

Raising Other People’s Money: You either lend and learn or lend to learn because there are so many different facets to real estate investing.

You are a shining example of what I like to call the alternative economy where we don’t need banks and brokers because you’ve negotiated that, “I’m going to loan you some money in the second position, but I’m going to need that favor back from you.” It’s beautiful and it’s simple and clean. I’ll get the lawyer to draw up the documents, but that’s what they’re there for. That’s a very clean system.

Not everybody followed through with the promise. I can’t force them but the people that did are the people that I have some great relationships with now. I know that for any projects that I have near Houston, call them up and I’ve got some money waiting for me to be able to use it on that project.

That’s what it’s all about. We got through the second lien. You’ve navigated through that minefield skillfully and beautifully. You do a lot of out-of-state investors. Give us a 30,000-foot view of how Gustavo Garza raises money, not in Houston but elsewhere in the country.

I go to a bunch of real estate conferences. What I do is I build up a little social media around it and I go to these conferences and I host dinners. In these dinners that we host, we talk about real estate and everything like that. I tell people exactly what I’m going to do. I’ll say, “Here at this dinner, I want to walk away with at least $100,000 in the new private account. I want to break this down because not only am I looking for your money, I’m going to teach you in the same breath of air how to go raise money yourselves for the projects that you have.” I go, “We have right here fifteen people at this table. I’ll cover the bill for the dinner. We’ll go to these restaurants.” This is the key and I’ll share this with all your listeners because this is a great way to keep your expense down, but what you get out of it is huge. I get this entire table of people, fifteen people. I order appetizers because usually big plate dinners are overpriced. They have way too much food that people can never finish in the first place. I order all these appetizers, cover everybody’s first round of drinks. I get them sat down for an hour or an hour and a half. I have never had a bill for dinner like this go more than $400.

If I’m able to raise $100,000 for a small project out of this dinner for $400 that’s 0.4% of my money going to raise $100,000. I can guarantee anybody out there. Everybody’s heard this before, where did you spent $400 to raise a $100,000? Everybody would be like, “It’s totally a spin.” This is a practical way to do it because now you have fifteen people at a table that you’re talking to. You’re masterminding. You’re asking questions. You’re getting to know them. You’re building the relationships. Here’s the thing that we did. We started doing that at dinners that brought people together. We said, “We want to try something different. I appreciate you coming to dinner. In return, this is all I’m asking for. I want to go around the table and I want everybody to share their biggest fear that they manage or deal with in real estate.” “I am fearful of calling people and negotiating. I am fearful of raising capital. I am fearful of this.”

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What it comes down to is a lot of the people at the table share the same fears. Not only do they have people that they can now relate to and build a stronger relationship at that dinner even if it’s not with me. If it’s just like, “We share the same fears. Let’s hold each other accountable to see if we can overcome this.” That just brought everybody so much closer together. With that, everybody just wanted to help each other out. In doing so, I had people come and go, “I don’t have the capital, but I know a guy that does. I liked the dinner. I appreciate you doing all this. I love it. I love to put you in contact with that person.” Doing something like that has helped us grow and bring in some of those bigger moneylenders.

I like that tactic. $400 to get a $100,000, it’s a no-brainer. I do like expensive appetizers just to let you know.

“What do you guys want? We’ll just go two of these, three of these, four of these, six of these.” We just spread it out. They get full. It’s amazing because the appetizers will fill you up so quickly. It just costs so much less on a per person basis. It’s a great tactic. The thing is you’re feeding people and you’re buying them a drink. The thing is this when somebody is covering your drink, you typically don’t order the most expensive. They’ll get like a beer or margarita or something like that and it’s not a big deal.

Of these fifteen that you have at the table, break it down for us, what are some of the common characteristics of them? What do you have to look for a maneuver? You’re dealing with people. We’re worse than snowflakes, no two are alike. After you shared the fear, how do you get money out of them?

My approach is I work to help them solve their real estate problems. When you take care of somebody in return, most people want to do something in return for you. It’s like the saying, “The greatest compliment is a referral.” If I’ve helped you with something, the greatest thing you can do is refer somebody of something I’m looking for. Usually what I’ve done is I go out support other real estate investors. People have called me because they’re looking for solutions or creative ideas and have to do something. I’m going out and I’m taking the time to help people. I’ve helped one of our lenders. They lend us money, a total of about $100,000. They’ve had such a good experience. I’ve helped them in answering questions and do a bunch of stuff that they referred me to a lender that over $1 million. I’m not there going, “I want your money.” I want to make you successful. I appreciate what you’re doing because you’re making me successful. How can I make you successful? In return, I’m going out there and trying to build a network of people around me. It’s not just a one road street. It’s a two-way street. I call them up. They’re like, “Do you need money for a project?” “No, I wanted to call you and ask you what can I do for you? Is there anything I can do to help you?”

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The Pros And Cons Of Getting Flood Insurance

Flood insurance is a topic that’s near and dear to my heart for a few reasons. Number one, my wife and I went through our own flood insurance claim on our primary residence back in April of 2009. No named windstorm, no Harvey, no Rita, none of that. Just a freak springtime thunderstorm that sat over West Houston and dumped a tremendous amount of water. That’s one reason. The next reason is the flood policy through the National Flood Insurance Program. You’ll buy it through State Farm, Farmers, Allstate or whoever, but it’s relatively cheap. They sell the policy and they will administer any claims. It’s all backed by FEMA, the Federal Emergency Management Agency. That’s why it’s cheap. It’s a government subsidized. This is one case where as an investor you have to take advantage of the subsidy and the relatively low price it would cost your borrower to have the flood insurance.

In my daytime and my real life, not just on TV, I’m a licensed insurance adjuster. I hold property casually, that is. I hold licenses in four states and reciprocity through a whole bunch of others. In the last few years, I’ve adjusted several commercial and industrial flood claims whose settlements total in excess of $160 million. I’ve seen some flood claims and what it can do and have handled a lot of other people’s money during that process. The moral of the story is after Harvey, I now demand flood insurance on all of my notes. People say, “It’s not in a floodplain.”

Back in 2009 when my house flooded, we were fortunate enough to have good neighbors across the street from us who only took on a little bit of water in one corner of their room. We had a young baby at the time. The neighbor said, “Come on over.” We waded across the street. We were talking with the neighbors and they asked if we had flood insurance. I said, “Yes, I’ve always had it. My dad beat that in my brain. If you’re going to live in the Houston area, you better have flood insurance. There’s no getting around it.” I asked them if they had flood insurance and they said, “No, we don’t because we don’t live in a floodplain.” I pointed to my house across the street and I said, “Neither do we.” If you live in a low-lying area or near the coast or river, you should go ahead and expect that those flood policies are going to cost more. The likelihood of a 100-year event or a 50-year event damaging a property is pretty high. If you’re not in a flood zone, it is relatively cheap and you can go to the National Flood Insurance Program to find out more or call your agent and then talk to them about it. I’ll treat this like any other real estate investment. We bought the house in early 2006. It was 1,500 square feet. Nice little ranch-style home in Spring Branch area of Houston. It had an 8,500-square foot lot, 1,500 square feet of living space. We paid $120,000 for it. We lived in it for a few years before we flooded.

That's the beauty of insurance; whether it be flood property or not, funds do not matter as a lender.
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During those three years, it costs $300 every year for flood insurance policy. We had it at closing. I demanded it at closing and kept renewing it every year. By the time we flooded, I had paid $900 into flood insurance premiums. At the end of 2009, after the house was all rehabbed and remodeled with the building and the contents. My total flood insurance claim was $95,000 is what I got out of my claim. That didn’t cover everything but it did allow me to spruce up the house. I became the general contractor myself because I do have a construction background. I got all the sub-contractors, the electrician, the HVAC, sheetrock, painting and flooring. I put in some nice hardwoods, some four-inch oak with a nice dark stain. I let the wife choose the pallets in all the rooms and all that fun stuff that goes along with remodeling a house.

We held onto it for a few more years and we were able to sell it for $315,000. I consider that my best investment I’ve ever made. When we flooded, I had already remodeled the three bedrooms in the hallway myself. All that had to be redone. At least with the National Flood Insurance Program, I had it through Allstate at the time, it took care of it. Let’s look at how it happened. It starts raining on a Monday night. About [4:00] AM on Tuesday, I see little geysers coming up between the hardwoods. I say, “We’re flooding.” It was on. After the flood waters went down, I notified my agent and I got an appointment with an adjuster. He came out in a typical fashion. He wasn’t too keen on repairing much more than about a foot of damaged sheet. He was under the impression that I didn’t get much water in the house. We had a few inches. Once he found out that I was in the business, it became a little easier to negotiate with him. I was able to speak his language to get a little more out of it, which I thought was justified. It’s not like I was adding onto the house or anything.

We had put in some nice material in the bedrooms and the hallway. He had originally scoped it down like the cheap builder’s grade stuff. A little back and forth we got it $95,000, totals about $65,000 in the dwelling. They send me a check for $5,000 to get going right off the bat. That gets the dumpster in the driveway. I get my friends, the beers, the pizzas. I go cheap because I’m the general contractor in real estate investors. We’re notoriously cheap people. We just rip it out and thank you to Erin, Christian, Cabot, James, Matt, Andrew, Michael and Nian as well. Those guys helped me out on the demo. They had a lot of fun. It’s always fun to go to someone else’s house and beat the crap out of it and rip stuff down without any consequence.

Flood Insurance: Without the flood insurance, everything had to be done by yourself.

Fast forward a few months, I totally remodeled. I get all-new HVAC, all new ductwork, new lighting, recessed cans, granite in the kitchen, granite in all the bathrooms. We went with porcelain tile. I removed the tile myself and took the savings and put it into porcelain rather than ceramic tile. That’s a little thing I recommend in areas like Houston or the Gulf Coast where you have clay-based soil, we call it gumbo soil. When it dries, it shrinks and it cracks. That’s why you’ll see cracks in the ground, and then when it’s wet it swells up because there’s a lot of clay. The porcelain won’t prevent your tile floors from cracking as your foundation shifts but they’re a little more durable, just a little tip to the wise out there.

They gave me a $5,000 check right there. They put in for it and I got it a few days later. That got me going. I went to my parents, I said, “Let me borrow some more.” I thought I’d get the money, make the repairs and then get paid back. Wells Fargo at that time had purchased my mortgage. That first check for $5,000 went straight to me. That was the get going. My first draw was written to me and Wells Fargo. They were the mortgage holder on my policy. They didn’t require flood insurance, they’re glad I have it. The mortgagee is the bank, Wells Fargo. I get the check. I’d have to send it to them. They would endorse it. They send it back to me. I would endorse it and then be able to put it into my account to pay for the repairs. Each step of the way there was an inspection. They sent out an inspector, it didn’t cost me anything. At least nothing outside of what I paid my monthly interest and whatnot. The inspector came out and saw that the work had indeed been done. It was good to go. When I finally had the inspector to come out, we were about 93%, 95% complete. All we had to do is basically paint and we were done, so they released all the funds to me. That’s the beauty of insurance, whether it is flood property, it doesn’t matter. As a lender, I demand property and flood insurance on every property. It’s like a homeowner’s policy or a landlord’s policy, a dwelling policy at a minimum.

Wherever you’re reading this from or whatever country, it’s good to have the property insurance. If you’re anywhere near water, even if you’re not, it’s smart to do so. If I’m loaning to a real estate investor, let’s say he’s going to flip a house. He buys the house and I loan the money. I don’t loan all of it, I just loan what he needs. As he does his work, I do the draw and that gets inspected just like the bank. That way I’m not loaning all the money out at once. I don’t want to have paid more for a house than it’s worth at any point in time. Give the purchase price then you do the draws. The banks do the same thing when a claim comes along. They want to make sure that asset, that property that’s backing their investment is indeed going to be fixed up and they have that control, so do you as the lender. You’re the mortgagee. You’re the mortgage holder or the lien holder. It’s part of your paperwork that it’s a requirement to have property insurance, title insurance and flood insurance. If they don’t carry property or flood, that’s grounds for foreclosing. You can default on the note.

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As the lender, you can put policies against that asset that’s backing your investment. Whereas in Wall Street, there’s no direct insurance policy. There are options. There are other ways to hedge your bets, but you can’t go to a Wall Street broker and say, “I want to buy an insurance policy that my IBM stock doesn’t go down.” It doesn’t happen that way. This is yet another reason why I love private lending and investing in notes because there are insurance policies specifically to protect that asset. I didn’t always require flood insurance but after Harvey, I sure did. That was because over the last few years in Houston, we’ve had some pretty horrendous floods. The Labor Day flood, the Tax Day flood, Harvey and each time it seems like parts of town that had historically never flooded were getting flooded. This goes not just for Houston but anywhere, particularly in Houston because of the population density, but along the coasts in general. It’s not a question of if, it’s when now. Is it 100 years from now? Five years from now? A thousand years from now? Mother Nature doesn’t care.

One of the beautiful things about the National Flood Insurance Program is it’s cheap. The national average is about $700. Coastal areas, low-lying areas, all that’s included. If you’re not in a floodplain, you’re not going to pay that much. I was paying $300 a year in ‘06, ‘07 through ‘09. In ‘10 it went up to $360. It went up very little even though I had a claim. I expected it to go up since I had a claim. If they’re flipping the house for six months, they can get about half that money back. They can get half of their premium back. They have to show that the house has been sold, etc. There is a process. If they’re going to balk at that, it might not be that good of a deal especially if you already are in a low-lying area behind a levee, behind a damn, near a canal, lake and river. To me, it’s a no-brainer to add to it. You can say, “You’re a Houstonian. You’re living in Houston. You’re in a crap area for floods.” “Yes, you got me,” and this has definitely colored my vision on flood insurance and especially as a lender.

At the end of the day, it’s my money. It’s my investment. It’s my retirement, my rules. I’m happy to walk away from anyone who’s not going to get flood insurance and people have balked at it. That’s their prerogative. It’s my prerogative to decide I want to have it on all my loans or the properties that I loan against. It’s their prerogative to say, “I don’t want to use that guy because it costs me too much money.” That’s fair. I don’t have any problems with that. If you’re lending money, I highly recommend you demand flood insurance from your borrowers. A lot of people think that homeowner’s insurance covers flood and it doesn’t. That’s why there’s a separate program that’s backed by the federal government to subsidize the premiums. It might cover your pipes, you have to look at it and you have to see to determine. One thing I can categorically say it won’t cover is a flood that comes from rising waters of any stream, pond, lake, ocean, sea, any body of water that comes up. If your street floods, backs up and comes in, homeowners will not cover the damages for that. It will not be a covered claim under a homeowner’s policy. Demand flood insurance. I’m sure I’m going to anger a lot of investors by saying it, but I’ve already told you my reasons. My money, my rules.

Flood Insurance: If you’re lending money, it is highly recommended that you demand flood insurance from your borrowers.

I’d to like to thank you for reading and sharing your most valuable asset with me, your time. I’d like to remind you to go over to PrivateLenderAcademy.com to get on the waiting list to find out all that fun stuff. I hope I can launch it in January of 2019. Please rate and review. Go to iTunes and leave me a rating and review. In your review, go ahead and promote your business. If you’re a wholesaler, you’re a landlord, you have anything to promote, you’re a dentist, put it out there in the review. Periodically, I check them. Please go do that. Connect with me on Facebook, Instagram, Twitter, LinkedIn and BiggerPockets. I’m trying to increase my presence on the social front. It’s a little difficult, but please reach out for me there. I wish you happy and prosperous lending and investing. I’ll catch you on the next episode.

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Inspectors: A Must For Private Lenders with Kevin Smith

It’s my pleasure to introduce you to Kevin Smith, who is a state-licensed Real Estate Inspector. Kevin, welcome to the show. I appreciate you coming on. For full disclosure, Kevin has done a few houses for me in the past. A good inspector is a must-have in the toolkit on your team for a private lender. Kevin, you’ve been gracious enough to come on and talk to us a bit. Let’s start back in the beginning. What’s your story?

I grew up in Texas. I’m a Vietnam vet. I had a Bachelor’s Degree in English. I couldn’t find a job in the English field when I graduated college and I started working on apartments, which brings later on to me becoming a painting contractor which grew into me becoming a rehab contractor. Rehabs are when the contractor gets a house ready for sale. He fixes everything up. He puts the paint on and gets it all market-ready. I did rehabs for about eighteen years in the Houston area. I did 175 of them and then I got my inspector’s license and this month makes 28 years as a licensed real estate inspector in Texas. I have done well-over 14,000 inspections to date.

You have a background in construction. Number one, thank you for your service and number two, you’re a liberal arts brother like me. I have a degree in philosophy when I got out of college and nobody was hiring philosophers. I couldn’t figure out why. What led you into the inspection side of things?

I’m one of the lucky ones because I pay my bills with money, I earned doing stuff that I like for a living. I liked working on houses. I liked going on different places. I like meeting new people. Not every day is a good day, but most of them are. I enjoy what I’m doing. I started out as a painting contractor and found out that I liked doing this kind of work on houses. As it went along, I had picked up more information. If I was doing a rehab, I had to bring in somebody else to do something I didn’t know how to do, like a plumber or an electrician. I’d lay awake at night thinking about questions I’ll ask the guy when he showed up on the job. I politely asked him, “Can I watch you do what you’re doing? I’m not checking up on you, but I’m curious and I want to learn more.” 99 of people out of 100 of the tradesmen were happy to share and answer my questions and give me the little tips and techniques all along the way. I wound up with the knowledge of plumbing, of electrical work, how to change appliances, how to fix sheet rocks. All the things that you’re going to run into. I already knew how to paint.

All of those rolls up into me being pretty familiar with single-family residential housing. Somebody called me over to a Rich Club meeting and said, “Why don’t you become an inspector?” I said, “What’s that?” I found out what it was and I took all the classes and I took the state exam and became an inspector. I started out doing inspections when I was still doing rehabs, and gradually within about the first eight or nine months, I was able to stop doing the rehabs and focus full-time on the inspections. My focus is investment real estate. That’s what I’m familiar with. That’s how I built my book of business. I understand investment real estate.

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I’m an investor myself and I understand what investors are looking for, what they’re trying to do. I don’t write inspection reports where I’m the only one that gets paid on the deal. I take my clients, my investors out onto the property whenever they can make it, so I can take him around as I’m doing the inspection and I teach them and I show them. I say, “This is good and why. This is bad and why. You need to put this in because it’s missing. You need to tear this up because it’s a piece of junk.” An example of that would be a patio cover or a hot tub that doesn’t work that you’re going to have to put $1,500 to $2,000 into to get it to work again. I’m very conscious of profit margins and returns on investment and how the investor looks at the property, whether it’s fixing it up for sale or for rental.

That’s why you’ve done so many houses for me because of that. The first one you did for me was in Baytown and I wasn’t able to be there. When I did get to come and meet you at the property when you were inspecting it in and walk through it, it went a long way for me to understand. It makes the written word and the photos on the page come alive when you’re reading that report.

When you get up next to it and touch and smell it and see what’s going on there and watch it fall off the side of the house, then you understand this is what we do for maintenance on the house, especially for rental properties. Investors buy properties and become landlords, and if that’s your end game for real estate investment, that’s perfect for you. Landlords have to understand that one fine day, you’re going to want to divest yourself of the asset. That might be five, ten or twenty years from now. In the meantime, you have to maintain that asset. You have to keep the place locked up, so the weather doesn’t get in. You’ve got to make sure that all the health and safety considerations have been dealt with. You want to make sure that the roof stays in good condition, so you didn’t get water in the house. There are some things that you can do along the way, like with your heating and air conditioning systems that will help the health systems last longer. That’s the information that I share when I’m on the property doing an inspection for an investor.

You touched on a lot of things I’d like to unpack. Let’s start from the 30,000-foot view. We’ll get down into the nitty-gritty of inspections roles and whatnot for private lenders or hard money lenders. Let’s start off again, a high-level view. What is your job in the real estate transaction?

My job in the real estate transaction is to make sure that the buyer is informed about the condition of the property that he’s buying so he can make a rational decision about what is offers going to be. If I come in and say the investor might be a chemical engineer, he might be an accountant, his wife might be a nurse or it could be a single lady, school teacher, a social worker, whatever, a doctor, but their expertise is in other areas. My expertise is in single-family residential construction and the maintenance and repair of single-family residential construction. I can explain to them in words that they’ll understand without the jargon of what has to happen with the property. If I come in for a person that doesn’t know anything about construction and they want to do some investing, they don’t know about how to check heating and air conditioning or make an assessment of the roof or evaluate the foundation, whether it needs repair or not. When the lender comes out and he says, “This needs foundation work,” most mortgage companies are not inclined to write a mortgage on a property that has structural problems, foundation problems and a leaky roof. My job is to observe and report on the condition of the property and that’s what I do for the investors or for the buyers.

Inspectors: If you don’t understand what’s going on with residential construction or how to evaluate, it’s certainly not a crime. It just means that you have experience in a different area.

As a side note, on my primary residence, you put in your report that there was some failure in the facade of the brick and you recommended an engineer come out and take a look at it. Also with the pool, you recommended a few folks and fortunately both the engineer and the pool guy came out and said, “This is cosmetic. It’s no big deal. It’s not a structural issue. Your pool is fine.” The engineer that came out said, “You need to tuck point. Fill in your mortar on your brick and that’s it.” That’s the beauty because my wife fell in love with the house. As an investor, you should never get emotional or romantic about a property. Since this was our residence, my wife loved it and I said, “If the pool or the brick is bad, we’re staying away because that’s too much,” but it worked out. By taking your lead, I was able to figure that out. It costs a little more money upfront, but I got the loan. I sleep better now knowing that it’s a cosmetic issue on both fronts.

I recommend that other professions like a structural engineer or an electrician, probably fifteen to twenty houses out of a 100. If there’s a lot of foundation movement and I assess and evaluate that and tell you where the movement is and how much the movement and then recommend a structural engineer to qualify the foundation of your contractor. I don’t build pools so I say, “Get the pool guy in here. Anybody that you know of or you can get a referral from, a pool supply or poor repair company to come out and have a look at it.” What I recommend for the investors is that there’s a pool or a hot tub, ask these people for a pool school and a pool school is where they come out and they show you how to operate all the equipment. They show you minor repairs that you can do for yourself and they explained to you when something is a major item and if you’re going to have to call in the big boys with the knowledge and the experience to fix that. I want to make sure that the investors and other clients, my retail clients that they understand what they’re getting into.

I provide information for them to make a decision, filling in the blanks where they don’t have that background or that training. If I have a legal question, I call my attorney. If I have an accounting question, I call my CPA. I don’t have to go to get a degree in accounting and sit for the CPA exam and I don’t have to go to law school. I rent that expertise and when I call them up, I ask my questions. They give me the answer and I say, “How much do I owe you?” I write the check and there is a smile on my face because I’ve got it figured out. I get the problem solved and I can go ahead and move on from there. It’s the same way with an inspection. You’re going to spend a couple of hundred dollars getting a house inspected, but if you don’t understand what’s going on with residential construction and you don’t understand how to evaluate, it’s certainly not a crime. It means that you have experience in a different area. I was with a client, a lady who’s a professional. She is a master social worker and she deals with eating disorders. She doesn’t know about her air conditioner or a roof or any of that stuff and I don’t know about eating disorders. I told her, “I couldn’t sit down at your desk and do your job, not for the first five minutes, nor could you do nine. I’m here to help.” One of the things I always tell my clients at the end of the inspection is I want you to call me if you have any questions at all, especially if you think it’s a silly question because that’s what I’m here for.

I’m here to answer your question. You’re paying for this information. I want to make sure that get everything I can possibly give you to help you make the decision about whether or not you’re going to move forward on the property. Whether this is going to be your personal residence or if this is going to be an investment property. If it’s going to be a property you’re going to rehab and flip, which means you’re going to fix it all up and sell it on the retail market, there are some special considerations with that. If you’re going to use it as a rental property, then you might not have to go quite as far. For instance, if there are about three or four years left on it, if you’ve got to sell it, you’re probably going to want to replace it when it gets down to about three years like that or it starts needing repairs. If it’s going to be a rental property, you might hold on. You might put off replacing that roof for two years or so until you build up a little capital reserve. A capital reserve being money that you take from the income stream every month and put it aside for things like replacing roofs and replacing water heaters and turning the property over. When it comes time to do these things, you’ll have some money and you don’t have to reach into your pocket to get it.

That’s a great distinction. I’m glad that you brought it up in terms of when you purchase a house and what your exit strategy is. If it’s going to be a retail sale, fix and flip or a rental. I know with rental properties, there are codes, city, county codes. Ground-fault circuit interrupter, for example. Is there a difference between the condition of a house for retail sale versus renting out? From your perspective when you go in and look at a property, do you look with one set of glasses if you know it’s going to be a retail sale or an owner-occupant versus a rental or do you differentiate at all with that?

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I don’t differentiate these and here’s what I do. I want to evaluate the property and all the systems and all the parts of the house. After I’ve done that and informed the client about this needs to be replaced or that’s doing fine, I’ll say, “You’ve got one point of the foundation that’s down. You’re going to probably need five in there. As long as the windows and the doors are still operating, you may want to put this off until you’ve done a rental cycle,” which means you had a renter in there for a couple of years and you’ve built up a little capital reserve, and it’s not so much a strain on your budget to go ahead and repair the house. If you’re going to sell the house, you need to bring everything up. These TREC inspections, Texas Real Estate Commission inspections, are not code inspections. They are mainly based on health and safety issues and performance issues. Is it safe to live here? Ground-fault interrupter always got to go in in the places that they’re specified. We have to make the place safe and habitable, a good and habitable safe condition for the people who are going to live there and make sure that everything is working and everything is safe. You’d put your own mother in the house and not be afraid that it’s going to fall down overnight.

As far as selling the house, you’re in competition with new houses, other houses that have been rehabbed. You’re going to want to bring it up right to the top of the line. You’re going to want to take the worst-looking house in the neighborhood and bring it up to where it’s looking better than the other houses in the neighborhood that might for sale so that it’ll stand out. It’s like prom in high school and you wore this shabby dressed and she’s looking at her shoes. She doesn’t have her hair done. She doesn’t have any makeup on. She is not going to be asked to dance as much as the girl that took a little time to fix herself up and make herself presentable and attractive to the public. It’s the same way with houses for sale. You’ve got to make them presentable, take care of all the health and safety considerations and you’re going to want to make it easy for people to buy. It’s got to be clean. Everything has to work and make it so that they would be happy to live there. It doesn’t matter whether the house is going to sell for $100,000 or $450,000 as long as everything is working and it’s been all cleaned up and fixed up for that neighborhood and for that market.

What you’ve touched on is great because you do have the investment background. When people talk about rehabbing, a friend of mine came to me and said, “I’d like to flip some homes. What advice can you give me?” One of the pieces of advice was to take the worst house in the neighborhood, make it look like the best house, but price is slightly below that way you get a quick sale and don’t chase those pennies. Time is money and having an inspector that comes from that background is invaluable. I’d like to switch gears from and get a little more granular. To me, behind an attorney, an inspector is a must for a private lender. You should never loan the rehab money budget to the borrower at closing. Hold it back in escrow and then agree on a schedule of draws, two or three or four, however the project...

PLP-044 Should You Require An Application From Your Borrower And What Info To Require

Keith Baker — Mon, 29 Oct 2018 03:00:57 -0600

The real estate investing experience is crucial, especially to someone you don’t know or you’re not familiar with. You want to see a track record of a certain type of investing that you’re comfortable lending to or lending on. While past performance can be a pretty good indicator, it is no guarantee of future success. When you’re taking a loan application or if you are insisting that someone fills out a loan application, the first question to ask yourself is should you require an application of any borrower? The second question is if you do require an application, what information should you ask for? Learn the answers here so you can protect yourself and mitigate the risks.

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Listen to the podcast here:

Should You Require An Application From Your Borrower And What Info To Require

I’ll be discussing whether you should require a loan application or not and what type of information would be beneficial or is the most important on a loan application. Before we get into the heart of that matter, I’d like to thank you for sharing your most valuable asset with me and that is your time. Time is the one thing that both the rich and the poor have in common. Everyone gets 24 hours in a day, no more, no less. The man who sleeps on the street has the exact same amount of time as the man who sleeps in an ivory tower. How you spend your time makes a huge difference in life and I’m grateful that you’re spending your time with me.

I’d like to pose two questions to you. The first question is, do you require an application or would you require an application of any borrower? When I loan to people like Chris Funk, my partner, Landon, or Ray Sasser, I’m in the industry enough with them that I don’t require an application. Maybe I should. I do require proof of identification though. However, I don’t always necessarily want or need to take an application from an investor like that. However, if I don’t know you, you don’t have a track record or at least a track record, I’m not going to loan to you. If I’m not familiar with you, if it’s a new joint venture or a new investment, I will require an application from that borrower so that I can get some background and it helps me underwrite the loan. That first question is do you require it? It’s going to be up to you. Everyone fills out the same form. I have all that information. If you’re comfortable with somebody, you may not need that application. I would suggest you verify that they have the funds to pay you back and the reserves to be able to afford the loan. The actual formal application you might not want to use, it’s up to you. It’s going to be a judgment call. In full disclosure, I don’t always require an application, but it’s a good practice. Repeat loans to the same borrower, that’s going to be your call depending on your comfort level with that borrower.

You want to protect yourself if you want to mitigate the risks.
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Then the second question, if you do require an application, what information do you ask for or should you ask for? This is where things can get a little hairy and personal. The deeper you go into somebody’s background, the better protected you are. However, the beauty of going to a private lender is not having to get the financial autopsy that the banks like to perform and some hard money lenders like to do. You want to protect yourself if you want to mitigate the risks. You also don’t want to make it so incredibly difficult for the borrower that they might as well pay a few more interest rate points or points on the loan to get the hard money without the hassle. I’m going to go over a few things with you that I like to require and that is first off, the investor’s name. All that good stuff, contact information, home phone, cell phone, work number, email addresses and the address that they live at. If they have a business address or if they’re borrowing in the name of a company, I want to know all that information, like in LLC for example.

I’d also like to have the information on their spouse if they’re borrowing as an individual. If they’re borrowing as a company, it’s a different topic for a different day. I would still get a personal guarantee from that person, which may give you some flack but I like to see skin in the game. That’s just me. When my borrowers have skin in the game, I feel a lot better and a lot more confident about making them a loan. If your borrower is doing it as an individual and not in an entity, an Inc, an LLC or a limited partnership, get the spouse’s information and have the name of the spouse on the promissory note and the deed of trust.

After I got the personal information, I want to see what they say that they make as far as their income, whether it’s a base income, a full-time job or a full-time investor which in itself is a full-time job but may not generate a W-2 for that person. I want to know about that. I also want to ask them about their real estate investing experience right up front. Outside of the financial information, I’m going to follow-up on this the most on somebody that I’m not familiar with. This goes back to the people, the process and the property, the way I underwrite a loan, the way I look at it. I want to see what that person’s process is. Are they a landlord? Are they a rehabber? If so, how many have they done? How many properties have they turned around? With some of the low-grade rehab, how many properties have they done a full rehab? Have they gutted the house down to studs? Have they had to rip out a pool and fill in the backyard? I’m sure everyone out there has had to pull at least one hot tub out from somewhere and get rid of it somehow. At least on the application, I want to find out a little bit more about them in that regard. It’s not so much on the application, but I want to see their portfolio. It’s hard to do that in the application.

Loan Application: When you try to cover things up and make yourself as you’re the expert when you’re not, it’s best to fess up, admit you’re wrong, and do what it takes to fix the problem.

In the application, I let them know. If you say you flipped 50 houses, great. Let me see the HUD statements. Let me see some photos, maybe a Google Drive. If they’re a full-time real estate investor, they’re going to have documents and records of pretty much everything they’ve put their hands on. I’d like to see if they are who they are. If they say they’ve done ten flips, ten rehabs, fine. Let me see before and after. Let me see the HUD where you purchased it. The HUD statement is called the closing statement. I have to ask our escrow officer. I want to see the HUD when they bought the property and I’d like to see the HUD when they sold the property. If they bought it for $120,000 and fixed it up and sold it for $250,000, I’d like to see that. I want to see success. I also want to see failures not to disqualify or to exclude anybody. If someone is going to be honest and say, “I screwed up on this one and this is what I did wrong,” I’m going to be more apt to loan to that person because they’re honest. They made mistakes. They know that in the game of life no one’s perfect.

When you try to cover things up and make yourself as you’re the expert and you’re not, I get into an underwriting area where it’s like, “I learned a long time ago in the oil field. It’s best to confess up. Admit you’re wrong and do what it takes to fix the problem.” I learned it earlier, but it came together for me when I was working in the oil field. I saw a lot of people. Some of the guys were straight up, honest and everything. Others did not want to admit they made a mistake. With full disclosure, it’s very humbling when you make a $400,000 mistake, especially when that $400,000 belongs to somebody else. I know it because I did it and I kept my job. The only reason I did is that I confessed up. I explained exactly what I did wrong and what I’ve done to make sure that it never happened again. I didn’t get fired from Schlumberger. That’s what I want to see in their portfolio and their experience. I want to see the good, the bad, the ugly. I want to see everything, what’s in all. Let me see what you do.

To recap, when you’re taking a loan application or if you are insisting that someone fills out a loan application, try to at least get their personal information, all the contacts, where they live and two forms of ID. I like a driver’s license and a Social Security card. However, this can open up an area that we should get into a little further discussion. When you start taking personal information like that, you need to secure it. Oftentimes, what I like to have the borrower do is provide their driver’s license and Social Security card at closing. They have to provide their driver’s license at closing to prove who they are because these are notarized documents. You get that automatically. You’ll get a copy of it and on the application, you can put the driver’s license number or Social Security number. I’d like to leave that off of the application to get a copy of it somehow some way and put it in a file cabinet or put it in a very secured digital environment, whatever a secure digital environment means. Before someone jumps up, especially an attorney and say, “You’re collecting personal data,” you want to be extremely careful with how you handle it. I have a file cabinet that’s safe and it locks.

In the game of life, no one's perfect.
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When I get my closing documents, I put a copy of the driver’s license and/or Social Security card in there and keep it there. I don’t like to keep it in email form, in Dropbox or anything like that. I like to try to keep it as safe as possible. Even if I need to put it in the safety deposit box at a bank with some of my other valuable documents. That’s something you want to consider when you’re taking it. Do not do it alone because you don’t want to do that. I’m saying to be aware of what you need to do, that you need to be protective of other people’s information because think if you were in their shoes, you would want that same courtesy and that same respect with your information. We’ve got personal information, contact where they live, how many properties they’ve lived at, when they had moved there, have they been there forever? Those kinds of things. Also a brief description of their monthly income. You check it to verify and see if anyone’s lying at the end of the day. Some folks, they go into the assets and liabilities. That is a different conversation. I don’t put that on the application. I’d like to see that in the portfolio, which will be another episode. The real estate investing experience is crucial, especially to someone you don’t know or you’re not familiar with. You want to see a track record of a certain type of investing that you’re comfortable lending to or lending on. While past performance is no guarantee of future success, it can be a pretty good indicator.

To our audience, please go rate and review on iTunes, Google Podcast, Stitcher, SoundCloud or whatever platform you use to this golden gilded voice of mine. You can use that. Go ahead and promote your business in the review. I would love to be able to read a review that promotes your business on iTunes or on the air. Promote your passion or promote whatever niche that you invest in. I’d love to hear about it. Drop in your website, your email and phone number. If I can help you in the investing world, I would love for you to share the platform that I have to help you do that. Also, I’d like to ask you to spread the word, connect with me on social media, Facebook, Instagram, Twitter, LinkedIn or BiggerPockets. I want to thank you for sharing your time with me. I’d like to wish everyone a happy, safe and prosperous private lending. I’ll catch you on the next episode.

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PLP-043 Tom Berry Discusses How Investor Loan Source Was Funded Without Bank Money

Keith Baker — Mon, 22 Oct 2018 03:00:42 -0600

After being hit with the financial crisis of 2007, Tom Berry needed to work on something to get him back on his feet. He went off buying properties and investing in real estate. What separates him from the rest who attempted to go the same path is that he and his team never used a penny of bank money to source for money. He is a seasoned investor, teacher, and the founder of Investor Loan Source which is one of his primary vehicles for assisting fellow investors. Tom shares his journey on how he built Investor Loan Source and provides great wisdom on private lending and how you can also do the same.

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Listen to the podcast here:

Tom Berry Discusses How Investor Loan Source Was Funded Without Bank Money

I have a question for you. Are you an investor looking for funding for your next fix and flip or maybe your next rental? Or maybe even you’re owner finance or seller finance or looking for some funding that you can wrap to sell to your end client, to your buyer or tenant. If you’re an investor or a lender who is looking to passively invest in real estate while others do the work, then you’re in luck because Tom Berry will loan you money for your deals and/or he will put your money to work by lending it to mortgages backed by real estate. This is really geared for accredited investors. You and your spouse have to make $300,000 a year or you as a single person can make $200,000 a year or have a $1 million net worth that does not include your homestead. I’ve been waiting to get Tom on the show for a while. I’m very happy he agreed.

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I’m more than honored and pleased to introduce to you Mr. Tom Berry who is with Investor Loan Source and is the reason that I have this podcast is that I’m a private lender. Tom, welcome to the show. Thank you for joining me.

Thanks for having me. I appreciate it.

I met Tom at Quest IRA in Houston. He was looking for money. He has a great hero background story. How did you get into real estate? I know you came from a different background like most of us in real estate. Can you give us your background story?

My wife and I had a financial services firm. We moved from Ohio down to Texas about a year before the financial bubble burst. In 2007, we lost everything. We went from riding high in 2006 to nothing in 2007. We were part of a lot of people that were out there looking for work and trying to figure out what we were going to do next. I couldn’t find a job. I put out resumes. I couldn’t even get a phone call. I told my wife one day, “If nobody’s going to offer me a job, I’m going to make one.” She’s like, “What does that even mean?” I said, “If I don’t have a job, I’ve got to do something. I’ve got to start some little business, a little company or something.” I’ve always wanted to do real estate and my other job and my other career never allowed the opportunity timing-wise. I guess the opportunity was given to me and it was a blessing in disguise. We didn’t look at it as such at the time, but it allowed me to get into real estate. Like most people that are starting where we were financially, we started out wholesaling. Then we figured out how we can do a couple of fix and flips. We figured out, “We could keep some of these rentals.” We accumulated 425 doors, made over $100,000 a year every year including our first year in cash and were completely and totally financially independent and multimillionaires.

Just because you said you’ve got to do something and no one would hire you.

It pissed me off.

I guess necessity is the mother of invention.

I’m not a person to sit around on my hands and wait for somebody to come to give me something. If there’s no opportunity out there, I’m going to go make one. That’s what it was. I was angry not at anybody in particular. I was angry at my position and my situation at that point in my life. I was over 40 years old and I couldn’t get a job. That is the first time in my career that I couldn’t get a job.

If you don’t know how to vet a deal, then you shouldn’t be a private lender.
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What were you doing prior to the crash?

Prior to that, we owned our own financial services firm and then prior to that I was in corporate management. I was what’s called a turnaround specialist for companies that have a problem. It might be one store that’s not profitable or one depot that’s not profitable. I always took the non-profitable ones and the challenge for me was to see how quickly I could beat the profitable ones.

I see the parallel into flipping in real estate.

I was trained for this. I didn’t know it.

I remember you telling your story. I remember thinking, “This guy has got a lot of hustle in him.” A lot of people will go and you meet them in REIAs, Quest events or Meetups. I still have your original business card. It’s got a palm tree on it in one of the corners. I pulled it out when I was getting ready for this. I was like, “Look at that,” I couldn’t believe it. How much in that time before you got into Investor Loan Source and whatnot? How much money did you borrow from private lenders from Quest or any other IRA custodian?

The first eight years we bought roughly $18 million worth of real estate and of that $18 million, I used $1,000 of my own money. That’s a whole different story on why I did that. I bought a house for $1,000. It would have cost me $450 to get the legal docs done to borrow the money. That wouldn’t have made financial sense. I did suck up my pride and used my money for that particular purchase. Other than that one oddball deal, we’ve never used our own money. We’ve done a lot of other things with private money too. We purchased some houses is what we started with, but then we bought apartment buildings and then we moved up to buying apartment complexes. We bought office buildings. We bought self-storages. I bought a dumpster rental and excavating company. I started a pawnshop and a gun store. I bought a hunting ranch. I’ve done a lot of stuff with private money outside of buying single-family homes as well.

With the $18 million, are the most of it from IRA clients?

I would say IRAs probably made up over half of it. Probably 60% if I were to put a percentage on it.

Investor Loan Source: Go to meet-ups. Meet with investors. Compare notes. Swap secrets.

We were both at the Quest Expo in Dallas. That was a great experience. I always tell people to go. These people put on free events all the time. Go meet with investors. Go meet with other lenders and compare notes and swap secrets. I didn’t realize it was 60% all private. I remember you telling a story once that a private lender had called you and said that he had a problem that he needed to put money to work because he didn’t want it back in his accounts. You being Johnny Hustle is like, “We’ll find a place to put it. Don’t worry about that.” You and your partner came together and tell us about how you came to create Investor Loan Source.

Investor Loan Source came out of necessity. Pretty much every company I have has come from necessity. With Loan Source, the problem was we were selling off our apartment complexes at a rapid rate in 2016 and ‘17. The prices were to the point. I was getting offers. Honestly, I didn’t think the properties were worth what they were offering. I was more than happy to let them go. That created an issue. It created an issue because now for the first time in my career since being in real estate, I had some cash. I was getting some of that equity. On paper, I looked good. It was just on paper until we sold those properties and saw that equity in our bank account. That was a problem. What do you do with that? When you’re in the market cycle, it doesn’t allow for finding really good deals like we were finding in prior years. The other challenge that we were presented with was all of my lenders were howling at me. They’re getting these massive amounts of money back and they don’t want it back. They want to continue to get their interest payments from Melissa, my wife who makes payments. I was literally inundated with phone calls, “What do you mean you’re paying?” I’ve got a payoff request. What’s happening? Why are you doing this? We don’t want the money back.” We were literally looking at millions and millions of dollars that were available and there’s nothing to buy. For the first time in my career, I had way more money available to me than I had deals.

Prior to that, it was always I had plenty of deals on the table and I was scraping, scrounging and making phone calls to get the money put together. This time it’s a totally opposite situation. I said, “What can we do to fix this?” I called up Donald Sutton who was my fourth private lender. Donald I knew had been raising capital from folks in his hometown for years and years. He had a pretty good little pool of cash, his families, his friends, and other people in the area. I said, “We ought to start a lending company together,” and he says, “I have X number of dollars.” It was $6 million at the time. He says, “What do you have?” I said, “I could kick in $1 million or so,” and he’s like, “I don’t understand how that’s equitable.” I said, “Here’s how it’s equitable. You don’t know how to lend. You got lucky with the borrower. You have never known how to lend. Any other borrower, you could have got your butt handed to you. You got lucky you were lending to me and I knew how to vet deals.” This is instructive for people that want to be private lenders. Most people should not be private lenders because they don’t know how to vet a deal. They don’t know how to vet a borrower. They don’t know how to vet the paperwork. They don’t know the legalities involved. They don’t know how to read a title commitment and know what it means. They don’t know what title company endorsements they need on the title policy, on their lenders.

I could go on and on about the things most people who are trying to be private lenders don’t know how to do correctly. In Donald’s case, he didn’t know how to vet a deal and he didn’t know how to do the numbers. He didn’t know anything about repairs and he didn’t know anything about vetting a borrower. That could have been extremely detrimental to him given the amount of money we have of his. At one point we had over $3.5 million of his money. Giving money to people has to be a methodical thing. Private lending is great if you know what you’re doing. It can be a horror story if you don’t. He’s great at the details. He’s great at knowing the title policy stuff and what should be a note and what should be in a deed of trust. How the assignment of rents and all the other things that go along with lending should be. That’s stuff I don’t want to deal with. I don’t want to learn it. I don’t ever want to be good at that.

What I’m good at is real estate and I’m good at the people part. I can vet the people. I can vet the deal. I can go walk a property and know if the repair estimate is reasonably close and correct or not. I explained to him, “Putting your talents and mine together, I know you think you’re doing great right now but it’s because you got lucky. You’ve got a good, big borrower. Without that good, big borrower, you’re going to get your butt handed to you at some point.” He agreed. We started that company. He had a little office in his house. I had a little office in my house. We kicked it off. We have 21 employees now.

The last time I had counted it was around nine or so. You’ve already double.

We run out of two offices. I handle the marketing side. I handle creating new loan products. I handle opening new markets and going into different states. All of those types of things as far as growth orientation are on my plate. We also handle in my office vetting of the deals. All the underwriting takes place in our office. Once we’ve got it underwritten, approved, and we say, “This is a great deal. We’d love to lend on it,” then that file is taken to Donald’s office and he takes it through to closing and beyond in the servicing.

How do you source your funds? Is it yours and Donald’s money?

Private lending is great if you know what you're doing. It can be a horror story if you don't.
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That’s what we started with but we quickly ran out of that. We brought out some unique loan products. There are few hard money lenders that have products like ours. In fact, I would argue we have some but no other hard money lenders have. It’s because we created them. We invented them. I created those products based on what I know as a real estate investor and what I wish I had when I was starting out as a real estate investor. That has given us an opportunity where we don’t have any competition. We are constantly growing. Every month is bigger than the one before, it seems like. I know that’s probably an exaggeration, but certainly every year has been larger than the one before. We are constantly out of money. It’s been a joke with us. We were out of money when we had $6 million. We’re out of money when we had $10 million. We’re out of money when we had this $15 million and on and on.

As we grow, the amount of money that we keep in play, we still always have a huge appetite for more. We wrote $46 million in loans just in 2017. We may not double that this year but I know we’ll certainly eclipse it. That’s the volume we’re riding. To answer your question, the one thing we don’t do for sourcing money is we do not and never have, to this point, ever used a penny of bank money. I’m using the same rule that I used when I built my real estate portfolio. I never used bank money ever. Not a penny. Now that I’m to where I am with my portfolio, I am refinancing out of a lot of those private loans. I’ve got my lenders howling again because banks are throwing money at me cheap now. That’s a great opportunity. We’re taking those lenders and moving them to ILS and we’re still taking care of them. We’re still able to put their money to work for them there as well.

My goal with this podcast is creating and training private lenders on how to do it, how to do it right, how to do it safely and taking banks and brokers out of the equation. That’s been your MO from the start. The fact you’ve done all these loans without bank money. That’s the whole point and the beauty of being a private lender. Even lending into something like Investor Loan Source where the professionals vet it out and they put the money to work. You get that mailbox money every month. When your lenders get a lump sum back, that makes me nervous. I want to see my money working for me.

That’s constantly what I hear from my lenders when we’re paying off, whether it was when we were selling apartment complexes and we were paying off huge amounts of money then. I refinanced 34 single-family homes. That put a lot of money back into my lenders’ hands. I was prepared. I knew the phone calls, emails, and texts would start coming in. This time, I had a quick fix for it. The quick fix for it for them was really simple. They could move the money into our private equity fund, which then we use to make short-term loans on a fix and flip properties. We give that profit back to the investors in that fund. If they don’t like fund investing for whatever reason and some people are weird about it. Some people have to have a first lien position deed of trust in their palm, that’s fine. We’ll sell them some of our long-term notes. As we write these notes, we can’t sit on them for ten years, twenty years, whatever the case may be. We’ll sell those notes to IRA holders or people with some cash that are looking for a good, strong yield and don’t want to go to the stock market to get it. It’s backed by a first lien deed of trust on a rental property with a tenant in it. It’s cashflowing. It’s about the safest piece of paper you could buy. It works well for IRA holders in particular.

That’s why I love it, especially now that we’re somewhere long in the tooth in this market cycle both from a real estate and stock market standpoint. If the market’s like we’re a nine-inning baseball game, what inning are we in? I’m thinking we’re in the 14th inning right now, so far beyond the “normal” with what history has shown.

There are a few things that have propped that up and elongated this cycle. I do a lot of study on market cycles. That’s how I made my wealth is playing market cycles. We bought houses when no one else would buy them and put tenants in them and cashflowed them and held them. Now, I’m

PLP-042 The Foreclosure Journal – Part 1: Foreclosing On An Owner Financed Note

Keith Baker — Mon, 15 Oct 2018 03:00:06 -0600

It can be quite difficult to foreclose a property, but sometimes, you just have to do it. When a borrower has seized making payments, the lender must take some actions before things get worse. In this foreclosure journal, Keith talks about foreclosing on an owner-financed note. He talks about what you need to know with foreclosure as he shares his own personal experience of dealing with a client in this situation, including the difficulties in contact as well as the effects of natural disasters to the property. He walks you each step of the foreclosure process, highlighting his motto of having insurance. Furthermore, he covers the difference between an owner occupant and an investor, and then letting you in on his exit strategy.

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Listen to the podcast here:

The Foreclosure Journal – Part 1: Foreclosing On An Owner Financed Note

This is episode number 42. I just want to let you know that I appreciate sharing with me your most valuable asset, and that is your time. I hope I can make everything worth your while. It is my goal to provide private lenders just like you and me with help in mitigating risks and increasing our yields and opening doors for bigger and brighter possibilities, bigger and brighter yields and return on investment as well. Our topic is foreclosure and I have started the foreclosure process or moving towards starting the foreclosure process. My goal is to walk you through each step of the way and share with you what’s happened, how we got here and share my thoughts. Maybe I’ll share my feelings too because this is where the healing begins.

I’d like to thank CountyTaxSaleApp.org for their sponsorship of this show, especially Sammy Gupta. Please go check them out. You can’t find a cheaper lead generation tool out there for less than $0.03 a day. It doesn’t matter what device you have or where you are in the world, you can still invest in Harris County, Texas, the third largest in the nation. It’s a good deal. Please check them out.

The Situation

Let’s start with the nitty-gritty, foreclosure. What happened? We started actively seeking distressed owners. We found one for a house that was in Port Arthur. It’s very much an industrial town, part of the Golden Triangle, east of Houston. It’s along the coast and very close to the border of Louisiana, the Sabine River. It’s the hometown of a lot of people, Janis Joplin for one and many others. The Golden Triangle is home to a lot of famous athletes and even some actors as well. We found this house and we were able to negotiate the purchase of the house that was in a very bad shape and had a lot of back taxes owed up on it. We negotiated with the owner to purchase it for what was owed in taxes. He was also getting tired of getting citations from the City of Port Arthur when they would come and cut the grass for him. He was happy to get rid of it. What we did, because it was in such bad shape, rather than going in and spending a lot of money and doing a fix and flip on the rehab, we decided, “Let’s go ahead and just try to owner finance this.” We paid cash for the house and ended up selling it last August of 2017 for $30,000 owner finance at 10% interest and we put it out over to ten years.

If you don't do everything by the letter of the law, it can really hurt you.
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Everything closed, everything went fine because the person who was buying the house was not an investor but rather was going to be the owner-occupant. We went through a residential mortgage loan originator who vetted our potential buyer/borrower. Once they did their magic and they crunched the numbers, we figured out that we can’t get rent for what we were charging a month on the note. He closed, he moved in and then a little thing called Hurricane Harvey happened. We kept our communication up with the owner saying, “Don’t worry about paying. We’ll do a little forbearance. Just get on your feet.” The house did flood and one of my biggest mistakes there was I did not demand flood insurance. Harass me, email me, call me, text me, call me out on social media, it was definitely a mistake that I made when you have a property that’s close to the water. Even though it’s not in the floodplain, common sense should tell you, you get a big enough storm surge and you’re going to take on some water.

This house is actually pretty close to the coast, about a block or two away so it took on water. We told the buyer, “Stay in it. Don’t worry about paying us right now. Just get it cleaned out, do what you’ve got to do so that you can live in it and we’ll work something out later on down the line.” He made one payment after Harvey and then half a payment. We told him, “Get on a good foundation, get on your feet again financially and we’ll talk about the payments later. The house is still yours, it’s not going anywhere.” What we wanted was him to stay in it and to occupy it so it keeps the likelihood of vandalism down but also to keep him in it, so he could repair it and fix it up. Long story short, after reaching out to him and letting him stay in, he has now abandoned the property and hasn’t made a payment in over eight months. Even though we were trying to keep him in and give him as much leeway as possible because that’s just crappy timing to buy a house and then two weeks later, three weeks later, you get flooded out by a hurricane, one of the biggest natural disasters that this part of the country had seen in a very long time.

Foreclosure Process

In order to sell the property again, legally we have to foreclose on it. My company is just the lien holder. Our borrower is still the owner of the record, although he’s gone, so now the foreclosure process begins. Like many of you, I’ve got a full-time job. I don’t need to be messing around with attorneys. My partner and I do have an attorney picked out and I have emailed the said attorney and laid out the situation and said this is what we need. We need to follow all of the state foreclosure laws to the tee because this is an owner-occupant. If this was an investor, the laws would not protect that investor as much as they do a consumer owner-occupant. In the interest of keeping everything above board, everything legitimate, we’ve decided to engage an attorney.

Foreclosure Process: When you have a property that is close to the water, common sense should tell you that you must get flood insurance.

Knowing what was needed, I just introduced myself, “What do you need from me just to get the ball rolling?” That’s the level that we’re at. Here’s what the attorney needs in order to process a foreclosure or at least to send the notice of default, letting the borrower know they have twenty days to cure the default and bring the loan current. If they fail to do that, then we go to the courthouse steps and the property is auctioned. If nobody bids high enough, then the property will go back to my company, my LLC that purchased the property and then sold it with owner finance. You definitely need a few things. You need the actual promissory note that the borrower signed or at least a good copy of it, a good scan to send over to the attorney. You also need the deed of trust, all the paperwork that the borrower signed at closing you’re going to need copies of.

The deed of trust is what puts the property up for as collateral. That’s how the lien is secured or the lien is placed against that property, securing the lender, my position in this case. I need all the paperwork on that from that transaction of closing. Then we need an arrear statement, which is essentially an amortizations table. It’s when did the loan start? What payments have been made? How much were those payments? When were they made? How much interest was reduced and how much principal was reduced? The attorneys are going to need to see all of that before they can even write the letter and send it to the bar or letting them know, “We’re calling the note due and you need to pay up or we’re going to foreclose on you.”

On the arrear statement, you break down the principal and the interest. Here’s something that’s also very important, late charges. In that promissory note, in those documents, your lawyer should have outlined what the penalty is, how many days until the payment is late. In this case, there’s a big grace period because it’s an end consumer owner-occupant in there, but there’s a late charge if they don’t pay on time, so those are going to add up. Any escrow fees, and by that, that’s your loan servicing fees that your borrower has to pay also taxes, insurance, any HOA or any other fees that your loan servicer will collect on your behalf every month and then pay for you on an annual basis. Then you need any prior unpaid costs of collections. If we’d already sent a couple of a certified mail return receipt letters to the owner, we will put those costs in as well.

When that owner finance borrower is an owner occupant, he's no longer considered a business; he's considered a consumer.
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That brings you up to speed to where we are. All of this has started. I’ve gone back and pulled all the documents. I did all this and emailed that over to the law firm, to the attorney and await his communication with me to let us know where we go from there. What’s also going to happen is before he even starts anything, I’m going to have to pay him some money. In addition to all of that fun stuff, this is probably going to end up running about $1,200 all said and done. There will be a few hundred dollars for the letter and then several hundred dollars for the actual foreclosure. He’ll get it listed down at the County Clerk’s office and all that fun stuff, while I sit back and do my job and my normal day-to-day.

You could ask the question, “Why don’t you just do this? Can’t you do this yourself?” A lot of it you can, but here’s the thing. If you botch a foreclosure, it can come back and haunt you. If you don’t do everything by the letter of the law, dot your i’s, cross your t’s, it can hurt you. That’s to an investor because if you’re selling owner finance to an investor, you’re giving them a lot of leverage. When that owner finance borrower is an owner-occupant, he’s no longer considered a business. He’s considered a consumer and consumers are afforded much more protection under State and Federal law no matter where you live than an investor, a business deal. For me, do I want to pull $1,200 out of my pocket to pay this attorney? No. Am I going to do it? I am because he knows the process. He knows the law. He knows how to do what needs to be done. I write the check, I provide the information. I wait for him to let me know when the house is mine again, so I can put it back on the market and sell it. I need to go look at the property to see it. The last time I saw it, it was not in good condition. My exit strategy with this is to go ahead, take back the property, wipe out the original loan and then resell it to either an investor or an owner-occupant.

This time I’m going to go with an investor, but I won’t shun away or turn away an owner-occupant with money and have a decent job. I don’t hold any hard feelings against this guy because he bought a house and then it got flooded by Harvey. It’s just some bad luck. Selfishly, I want him to take care of the property but more importantly, I don’t like doing the foreclosure. I’d rather get my monthly payment every first of the month, get my mailbox money than have to go through all this hassle. We tried to do a deed in lieu of foreclosure, which means he would sign the paperwork and give the house back to us, which would avoid the whole foreclosure process. We would file that paperwork with the County Clerk. That would show he purchased the house, but he has the deed of the house back over to us, so now my company, my LLC is the owner of the record and has legal authority to go back out and market and sell that property.

Foreclosure Process: If you bought a foreclosure, it can come back and haunt you.

Takeaways

A couple of things to take away. Number one, I don’t regret making this deal at all. It was a good deal and I’ll make it again tomorrow. It’s unfortunate that we have to foreclose and I do feel bad for the borrower. After a year’s time, we also owe back taxes. In order to take the house back, it’s going to take a couple of grand, maybe $2,000 to $3,000 to get it back. There is that cost that I do definitely want to recoup, but I do feel for the borrower and his family and I wish them all the best. At the same time, this is my business. I want to take the house back, which I rightfully can do, legally can do, will do and put it back on the market. We’ll see if we can get it sold again. I do like originating owner finance notes that if you do it right, if you put enough spread in it, it’s going to be very lucrative. I can later on sell that note even at a discount and still make money. That’s where things are. I do definitely now require flood insurance within 50 miles of the coast. It’s a huge broad brush, but if I’m going to invest in properties along the Texas Gulf Coast, it’s inevitable a hurricane will come through at some point.

We also have tremendous spring and summer thunderstorms and with all that moist air coming off the gulf, you just never know what’s going to happen. We also get some tornadoes and whatnot. Flood insurance is something that I require now on all my loans and if somebody complains to me that they can’t afford $400 a year for the FEMA National Flood Insurance Program, then I walk away because then they don’t have a deal. It’s plain and simple. That’s a cost of doing business. Unfortunately, it is but I’d rather have the borrower pay $400 a year to keep my investment protected than me having to pay $1,200 to foreclose. Do the math. I know they get stuck in the long run paying more, but they’re protecting their property and my asset or the asset that’s backing my investment. Moving forward, I always have flood insurance. That’s my motto and it’s angering a lot of people, but it’s my money. I’m going to invest it the way I want to invest it.

That’s going to do it for the installment one of the foreclosure process, the Port Arthur house saga. I want to thank you for reading and I want to bring a couple of things to your attention. Number one, sometime in November, I will be participating in an online summit. Go to PrivateLenderPodcast.com/events for more information on that. Nothing’s been solidified yet. We’re still trying to work the dates. There’s going to be an online summit and it’s going to be a ton of good information on it. It’s going to be a three-day seminar. The cost is much less than a three or four-day seminar that I’ve been to that can run as much as $500 to $1,000. Just for a few hundred bucks, I think it’s about $300, you get three days of content from people. Some people will be selling but there are a lot of great programs out there. That’s number one.

When you do it right as an owner finance notes and put enough spread in it, it's going to be very lucrative.
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Number two, about a week after the summit, you’re going to get replays of everybody’s presentation from beginning to the end. That’s three days’ worth. It’s a lot of content, a lot of great ideas. Even if you don’t pursue any one person’s content or coaching or education, just jotting down the notes and connecting the dots alone is going to be worth your time and your money. Please stay tuned for more information about that online summit. Also, it’s time for me to grovel and beg, please go to iTunes, leave a rating and review, an honest one. I would love five stars, but if you don’t honestly feel that I deserve it, give me what you feel like I

PLP-041 Scott Carson explains how he invests in non-performing mortgage notes

Keith Baker — Mon, 08 Oct 2018 02:12:00 -0600

This audio has been removed pending further investigation

PLP-040 Title Insurance and why I demand it

Keith Baker — Mon, 01 Oct 2018 00:01:32 -0600

If Title Insurance is a "useless" fee, then why do I insist on having it when I lend money?   To Help Keep My Investment Safe

PLP-039 Priorities and keeping them in focus

Keith Baker — Mon, 24 Sep 2018 02:30:29 -0600

Welcome to the Private Lender Podcast, the only podcast dedicated to creating successful private lenders and a new alternative investment economy without banks or Wall Street brokers. My name is Keith Baker and you’re listening to Episode 39. Being a private lender can be the most passive form of real estate investing there is, and my goal is to keep private lenders safe while increasing their yields.

Sorry Lender Nation, but I have been busy with my day job and haven’t seen my family that much so I am phoning in a short episode to let you know that I am still here and will be producing more episodes – I just need a breather.

Stay tuned for more to come!

Thanks

PLP-038 Self-Mastery expert Leila Khan will change your mindset around money

Keith Baker — Mon, 17 Sep 2018 00:30:45 -0600

Leila Khan

Self Mastery and Leadership Expert, Personal Development Author and Soul-Awakening Speaker:  Leila Khan is an author, soul-awakening speaker, self-mastery expert, teacher & mentor of personal transformation.She is also the creator of The Trailblazers Mentorship for aspiring entrepreneurs who want to reach the next level in their personal and business life.

She passionately engages, motivates and inspires professional ‘success seekers’ to lead lives that fulfil their core desires using the incredible power of the mind. She teaches and encourages self-mastery to energies the human spirit and experience the deep well of inner potential for a happy, meaningful and satisfying life.

She is the winner of ’Outstanding Woman in Business, in Scotland’ and has spoken on stage to around 2000 people at the National Achievers Congress in London. She also shared the same stage as Tony Robbins. Her third book 101+ Ways to Overcome Life’s Biggest Obstacles! was published in 2017.

Leila is available for keynote speaking, business & personal development seminars, team & one to one coaching or mentoring.

(Contact her to have a conversation about how she can create something uniquely motivating and beneficial to your organisation or for further information. She’s ready to inspire!)

To find out more about Leila, please visit the following link: Find out more about Leila Khan

Be sure to attend the next meeting of. . . . . .

713 REIA

a Strong Real Estate Investors Association built by and for Investors

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

And please donate to the Texas 100

and make sure owner finance rights are understood and upheld!

Click the Image/Link Below!

PLP-037 10th Anniversary of the largest bankruptcy in the history of the U.S. and why we need to take control of our financial security (aka: the reason I started this podcast)

Keith Baker — Tue, 11 Sep 2018 03:54:21 -0600

The most important podcast episode, ever. This is your only source for unbiased information about passively investing in real estate as a Private Lender. Donald Trump and the liberals can not, will not want not, and shall not stop this podcast. This is the best alternative investment podcast available.

Thank you for your support!

I will post show notes just as soon as I am able.

Thanks for understanding, listening and supporting this podcast!

PLP-036 Labor Day 2018 and old world money values

Keith Baker — Mon, 03 Sep 2018 20:36:18 -0600

Today's episode is a quick discussion on the book: The Richest Man In Babylon

I highly encourage you to read this once per year. Look to see how Private Lending can fit into the theme of the book and help you grow your wealth. I find it very interesting that even though technology is changing at such a rapid rater (and getting faster)the more these old-world principles prove to be true, time and time again.

I wish you all the best,

-k

Be sure to attend the next meeting of. . . . . .

713 REIA

is a Strong Real Estate Investors Association built by and for Investors

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

And please donate to the Texas 100

and make sure owner finance rights are understood and upheld!

Click the Image/Link Below!

PLP-035 A chat with the Guru’s Guru: Ron LeGrand

Keith Baker — Mon, 27 Aug 2018 01:42:02 -0600

Ron LeGrand in his own words:

“When I first got involved with real estate I was a dead broke auto mechanic trying to make enough money to make ends meet. There was no such thing as disposable income around my house. It was all disposed of before I got it. Thirty-five years old, bankrupt and I didn’t have a clue what I wanted to be when I grew up; but I knew it wasn’t fixing cars in the hot Florida sun.

The year was 1982. I saw an ad that said something like “Come learn how to buy real estate with no money or credit.” That appealed to me because I had no money or credit and I liked the rich idea. So, I attended the free seminar.  The instructor got us all excited about real estate and showed us how people were buying real estate with no money down. Then he said, “if you pay $450 and attend our two-day training this weekend, we’ll show you all the secrets”. I wanted in but I had a big problem, actually 450 of them.

But something compelled me to find a way to get the money and that’s what I did. I borrowed it from two friends and showed up for the seminar. That decision changed my life forever, my family’s life and their family’s lives for generations to come, not to mention hundreds of thousands of my students and their descendants into the millions. That one small split-second decision that could have gone either way made me millions of dollars since and spawned countless numbers of millionaires all over North America and other countries I can’t even pronounce.

In fact, most of the stuff taught in that seminar was over my head. I was clueless and could barely spell real estate. But I picked up one idea I felt I could do and within three weeks I made my first $3,000 from real estate using none of my money or credit, which I didn’t have. I immediately called my boss and said, “I’m upping my income… up yours!”  The biggest thing that seminar did for me was get me involved in real estate and committed to changing my lifestyle. For years I’d been looking for something but didn’t know what it was. When I got my hands on that three grand it became crystal clear real estate was my future.

Fast-forward two years, I had amassed 276 units, some single family, some apartments, not including some I sold along the way to live. I was a millionaire… on paper. I had over $1,000,000 in equity two years after starting with no money or credit.

Reality Arrives!

I sat down one Friday evening to pay my bills and realized my outgo was bigger than my income and my upkeep was becoming my downfall. All I had accomplished was create a big, ugly mess. I’d spent two years buying the wrong properties the wrong way in the wrong areas for the wrong reasons. I built my empire on a house of cards, not a solid foundation.

You see, I really didn’t understand the real estate business. I just bought properties because I could, without money or credit. I bought all the crap savvy investors wouldn’t touch. They’d already been to the school I was about to graduate from… The School of Hard Knocks. All my low income properties in war zone areas with brainless tenants were sucking me dry, financially and mentally. My days were spent solving their petty problems and listening to all the worthless excuses why they couldn’t pay rent.

I spent the next five years selling off my junk for dimes on the dollar. It took me seven years into the business to really understand it and get my life back. Oh, I made a good living during that time. Several times my job income. But I sure wish I’d known me back then and had the system then that my students have now. On second thought it wouldn’t have mattered anyway. I wouldn’t have listened. I’m a man, men don’t follow instructions. It’s testosterone. It’s not our fault. We can’t help it.

After about seven years into the business and over 400 houses later I built an easy system to turn real estate into cash now, cash monthly and cash later. I made it a real business anyone could do from home and make obscene amounts of money. That’s about the time I started teaching what I had learned. Somewhere along the line someone called me “The World’s Leading Expert at Quick Turning Houses” and the name stuck.

Now fast forward

a few more years of teaching what I know while simultaneously doing what I teach and I will admit I’m a weird dude. I’ve bought and sold nearly 2,000 houses and still do.

Over the years I’ve created a mountain of home study products, written millions of words in print, shared the platform with past presidents, movie stars, actors, politicians, sports heroes, business leaders, super wealthy from all professions and some of the best speakers in the world. I’ve spoken to audiences as small as 20 and as large as 20,000 in hotel meeting rooms and coliseums all across North America.

I’ve gazed in amazement and sheer joy as so many thousands of my students and new friends have pulled themselves out of financial mediocrity, or downright poverty, and made themselves financially independent millionaires and some multi-millionaires from the words that left my lips and the time we spent together.

So many new millionaires have now become leaders and are reaching a helping hand down to those in need and helping them climb the ladder to success.

My legacy has spread like a swarm of locusts and thousands will be affected, (maybe millions now), by the positive impact I made with a few carefully chosen words that left my lips or got put in print at a time when students were ready to receive them and convert to action. New generations will profit directly or indirectly because they attended one of my seminars then used the information and passed it on. When the student is ready, the teacher will appear.

Now much of my time is spent in front of good people who are serious about getting rich and will do what it takes to become one of the 3% who can really say and prove they have achieved true wealth.

People constantly ask me why I continue to teach. It’s hard for them to understand why a guy with my experience would take the time to work with those who don’t have it.

My answer is simple really. First, make no mistakes about it, I get paid well for teaching. It’s not a mercy mission and we’re not a non-profit organization. Second, I have to do something with my time. Golf, fishing and diving get old quick. Making millionaires never gets old and I can’t think of anything I’d rather do in my life. It’s fun to be me and I love doing it.

Besides, I’ve been married for over 50 years to one woman. Her name is Beverly and between the honey-do’s and the nine grandchildren (three live on our estate) it’s nice to get away once in a while. Beverly says even though we’ve been married 50 years, if you take out my travel time… it’s closer to three.

Truthfully, I’m just a simple auto mechanic with a redneck background who barely got out of high school. I’d rather have a good hamburger than a steak. I hate wine and all other alcohol beverages. I smoke cigars, listen to country music and jazz and go to the movies a lot. We have horses, cats, a dog and chickens and we grow stuff in our own garden and yes, I even have my very own tractor, which I use to plow that garden.” – Ron LeGrand

To learn more about Ron and to get his book for FREE, simply:

CLICK HERE FOR MORE INFO ABOUT RON

Be sure to attend the next meeting of. . . . . .

713 REIA

is a Strong Real Estate Investors Association built by and for Investors

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

And please donate to the Texas 100

and make sure owner finance rights are understood and upheld!

Click the Image/Link Below!

PLP-034 How to treat a Private Lender/What to demand from your borrowers

Keith Baker — Mon, 20 Aug 2018 01:01:40 -0600

SHOW NOTES:

To be continued. . . . .

PLP-033 How to become a millionaire

Keith Baker — Mon, 13 Aug 2018 00:01:05 -0600

How to become a millionaire? Plant Seeds

Sometimes the simplest of ideas can inspire massive change within an individual.

I purchased a CD of this speech a few years ago through SUCCESS magazine, I believe. I placed it a drawer and forgot about it for a year or two. After I listened, I knew that something was different – something had changed.

I’m not a fan of Rah Rah artists and mentors who provide tons of positive encouragement but really don’t provide actionable tactics and advice, thus my initial skepticism of Shoaff’s method seemed justified: it seemed as though it were too simple, too easy, and not nearly complicated enough.

But Shoaff provides a road map and the small number of steps one must do to plant their seeds – to achieve their goals. I like to listen to this speech every so often and replant some seeds.

You can find versions of this and several videos of J. Earl Shoaff on YouTube

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

Be sure to attend the next meeting of. . . . . .

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld!

Click the Image/Link Below!!

PLP-032 John Jackson discusses how to profit with Lease Options

Keith Baker — Mon, 06 Aug 2018 00:01:49 -0600

FAST CASH WITH LEASE OPTIONS

Do you know the fastest and easiest way to a paycheck in real estate?

Are you new to real estate?

Do you think that you need access to cash to make money in real estate?

Would you like to learn how to make money without using money, credit or even risking anything?

Welcome to LEASE OPTIONS!

John Jackson started Leasing to Buy over 15 years ago and has done over 600 lease option transactions, and he never even met with many of the sellers or buyers!

John teaches students across the country how to get started with lease options by showing them how to actually DUPLICATE his business model!

Let John show you how to:

Work with nice houses in nice areas!

Stop throwing away leads and turn skinny leads into CASH!

Make $6,000, $7,000 or MORE on each easy deal!

Make money in real estate using NO money!

Make money in real estate with NO risk!

Make money in real estate using NO of credit!

Learn the 3 types of lease options, and how to make money with each type!

Make money WITHOUT negotiating with the owner!

How to do lease option deals without ever seeing the house!

Learn the TRUTH about lease options in Texas!

If you are a WHOLESALER, John can show you how to turn all of those “skinny” leads that you just can’t figure out what to do with, into CASH!

STOP throwing away leads you don’t know what to do with!

You paid for those leads, so why not make MONEY off of them?

If you are an investor in Texas, then you really need to listen in, as John is the only educator that teaches lease options in Texas! Listen as John explains the TRUTH about lease options in Texas! YES, despite what everyone has heard, they are completely legal!

John is highly regarded in the real estate and real estate training fields, having taught some of the well known national educators as well as having been a featured guest on many of the top real estate podcasts.

For more information about Lease Options or to contact John Jackson:

facebook.com/leasingtobuy

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

Be sure to attend the next meeting of. . . . . .

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld!

Click the Image/Link Below!

PLP-031 Have we already entered the next market correction?

Keith Baker — Mon, 30 Jul 2018 00:01:11 -0600

HAS THE MARKET TOPPED OUT?

PLP-030 How to find private lenders

Keith Baker — Mon, 23 Jul 2018 00:01:19 -0600

Learn the answer to one of questions I am asked the most: Where do I find Private Lenders?

Episode 30 Quote of the Day: “Money is usually attracted, not pursued.” – Jim Rohn

WHAT YOU’LL EARN ON THIS EPISODE:

The Usual Suspects of Money Sources

1 – Hard Money Lenders (seriously, they can be an amazing asset to a fledgling investor)

2 – Banks: Mortgage, Biz Loan, HELOC, signature loan, portfolio

3 – Family and Friends (Are you sure about this? – Caveat Emptor)

4 – Social Functions – (Highly Recommended)

Real Estate Investment Association (REIA) meetings

Meet Up groups

Self-Directed IRA custodian events

Mentor/Coach sponsored events

Nationwide Guru Seminars (think Ron LeGrand, Robert Kiyosaki, Than Merrill, etc

the Private Lender Podcast events (COMING SOON!!)

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

Be sure to attend the next meeting of. . . . . .

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld!

Click the Image/Link Below!!

PLP-029 Fabian Toledo explains how he found his first Private Lender

Keith Baker — Mon, 16 Jul 2018 00:01:00 -0600

Fabian Toledo is a full-time real estate investor, wholesaler and flipper in Houston Texas. Fabian was formerly a Quality Control Inspector for FEMA in addition to being a licensed realtor for more than a decade. He is currently a stockholder of eXp Realty and Founder of LatinosinRealEstate.com, an organization that teaches real estate investing in Spanish. Fabian’s favorite investments are “Subject to” deals, and his favorite sources of funding are IRA funds and private capital.

Fabian’s additional accomplishments include first place winner of the Best Investment Case Study 2017- Quest IRA, former board of directors for the RICH club, NHPO leadership institute graduate and a Landmark education graduate.  He hails from the beautiful country of Colombia and is passionate about enriching the Latino community! His future plans include exploring the real estate investing arena of Puerto Rico and expanding the Latin influence in real estate to other cities.

www.FabianToledo.com

Connect with Fabian’s REIA group:  www.LatinosInRealEstate.com

SPECIAL OFFER!!

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Be sure to attend the next meeting of. . . . . .

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld!

Click the Image/Link Below!!

PLP-028 Sammy Gupta & the County Tax Sale App

Keith Baker — Mon, 09 Jul 2018 00:01:07 -0600

Sammy Gupta has been investing in single-family residences for 15 years mostly by using Private Lenders’ money to fund his deals. Sammy and his team survived the financial crisis and shifted their investing strategies and lead generation as the market changed.

Ultimately Sammy developed an online App that helps investors find and source properties that are delinquent on paying property tax and that are scheduled to be auctioned off at the Harris County (TX) Tax Sale.

(In Texas, the County Tax (Foreclosure) Sales are held on the first Tuesday of every month.)

What You Will Earn On This Episode:

Where Sammy finds his Private Lenders

The strategy that allowed Sammy and his team to not only survive but to thrive through the Great Recession

Sammy has developed a web App for purchasing tax foreclosure properties in Harris County, TX

Since it’s a web App, you can access it from ANY device and you don’t need to download anything

To Earn More:

www.countytaxsaleapp.org

For Questions or more information, please email:

support@countytaxsaleapp.org

OR

stephanie@countytaxsaleapp.org

The book Sammy is currently re-reading:

Think and Grow Rich by Napoleon Hill

Don’t forget to email any questions to info@privatelenderpodcast.com, and I would be most grateful if you could leave a Rating & Review

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

Be sure to attend the next meeting of. . . . . .

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld! Click Link Below!!

“OUR voices must be heard at the State and Federal levels!” – Texas 100

PLP-027 – How much money is needed to become a Private Lender?

Keith Baker — Mon, 02 Jul 2018 00:01:29 -0600

What You Will Earn on this Episode:

One of the most frequent questions I receive is: “how much money do I need to become a private lender?” The person asking the question will then go to qualify this question by saying they don’t have a big IRA, they don’t have any 401k’s that they can roll over, and they don’t have a large sum of inherited cash. How does a person get started if they’re darn near broke?

While you absolutely need to save up a sum of money in order to lend it out to others, a small amount of money shouldn’t discourage you from becoming active and involved in Private Lending.   Obviously the more money you have to lend, the larger your pool of options will be, but just remember this:  Everybody has to start somewhere

3 Key Points to Consider:

1 – You can begin lending with just a few thousand dollars

2 – A way to determine if your employer would allow you roll over a portion of your retirement plan (401k, 403b, etc), while still being employed: an In-Service Distribution/Withdrawal.

3 – If you don’t have much to lend, your primary concern should not be the interest rate and amount of money you potentially earn, but rather building your network, and therefore building your Net Worth.

Don’t forget, you can find certain key words and phrases at the Glossary of Terms

SPECIAL OFFER!!

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Don’t forget to email any questions to info@privatelenderpodcast.com

Be sure to attend the next meeting of. . . . . .

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Where Deals Get Done!

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld! Click Link Below!!

“OUR voices must be heard at the State and Federal levels!” – Texas 100

PLP-026 Ray Sasser – Real Estate Investing

Keith Baker — Mon, 25 Jun 2018 00:01:27 -0600

Ray Sasser

Ray has been buying Single Family houses for more than 30 years around the Houston area. During that time he has bought and sold over 1,000 houses. He also owns a property management company and typically has 3-4 rehabs going on at any time. Ray is known throughout the investor community as an expert rehabber as well as an expert transaction engineer.

Ray is the kind of investor Private Lenders should seek out.

Ray –

Began investing in Real Estate in 1982

Has rehabbed over 1,000 houses

Served as President of the Realty Investment Club of Houston

Co-owns Alamo Real Estate Investors Association in San Antonio, TX

Co-owns 713 Real Estate Investors Association in Houston, TX

Owns a property management company

Is a mentor and coach

Utilizes Private Lenders’ money for his and his students’ deals

Is a private lender himself

Also lends from his Self-Directed IRA

Does deals/loans all over the state of Texas

What you’ll earn on this episode:

The value of starting small and working your way up to higher levels of sophistication

Get around experienced people, establish relationships, make loans and learn everything you can

Ray treat his Private Lenders extremely well and makes sure they are paid first, especially if he gets upside down on a deal

Suggests Private Lenders help the borrower to be successful

insights into various aspects of Real Estate Investing that go against conventional wisdom

To learn more and get in contact with Ray:

ray@raysasser.com

Alamo Real Estate Investors Association

713 REIA

Voice/Text: You gotta listen to episode!

Please Visit and Support the following:

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld! Click Link Below!!

PLP-025 Cancun Mastermind

Keith Baker — Mon, 18 Jun 2018 00:01:38 -0600

People you’ll listen to on this episode:

Mitch Stephen (PLP episode 6)

1000houses.com

reinvestorsummit.com

Daryl & Felicia Claiborne

www.Investreconpro.com

www.squadglammigalore.com

Steve Driscoll

Sunrisecredit@yahoo.com

866-779-3770

Crystal Caruthers

www.ownerfinanceokc.com

www.okcashhomebuyers.com

Eddie Speed

www.noteschool.com

Please Visit and Support the following:

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

713 REIA

Hosted by Landon Rothstein & Ray Sasser

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld! Click Link Below!!

PLP-024 My First Joint Venture Deal and the Lessons Earned

Keith Baker — Mon, 11 Jun 2018 00:03:39 -0600

1 – How I got involved in my first Joint Venture deal:

Investor friend came to me for a private mortgage on Single Family Residence he owned as a rental in Baytown, TX.

Coming up on 5-year anniversary and balloon note was due: $55,000, looking to borrow 65k.

Had too many mortgages in his and his wife’s names – Banks said “NO”

Originally asked if I would refinance him for 5 years at 5% (take some cash out)

Well. . . .

I only wanted to loan for 12 months

Interest rate too low, and higher interest rate would significantly reduced his monthly cashflow

House had a really good tenant (building their retirement home)

I declined the, didn’t meet my criteria on paper, and my gut said no

He tried other sources of money but was unsuccessful and came back

He suggested

Option 1: He sells the house to me/my IRA at slight discount

Not want I wanted to do

I wasn’t comfortable with his asking price (~75k, his ARV ~90-95k)

Option 2: We do Joint Venture on the deal,

he sells the house to my LLC at a significantly reduced price

He retains a percentage of the deal (TBD) and I get to keep the cash flow

I chose to Joint Venture

My LLC got a loan at a community bank (w/ personal guarantee)

I had to come up 20% down payment

Down Payment and my share of closing costs = 14k

Partner retained 40%

Closed in early September

How things worked out

First 3 months were easy

Tenant called on Oct 23^rd and apologized for mailing the rent payment late (arrived on the 26^th)

Tenant finished building retirement and moved out in December

Who does what? Who manages property? Who handles repair requests or contacts the tenants?

2 – Lessons Earned and what you should take away from this story:

Didn’t run the numbers well enough.

Became too active an investment for my liking

Should have negotiated better terms – I had the most leverage and all the time, balloon due, un-mortgageable) not to take advantage of the partner but could have made the deal work better for me and I never asked

Failed to confirm tenant’s security deposit transferred to me (LLC) 1k

Didn’t outline each partner’s precise responsibility, duties, obligations

Didn’t discuss or formalize how the property would be managed

However, aside from some tenants headaches, miscommunication between the partner and I sold the house to a group of 3 investors (my partner was one). When the final sale settled, I run some numbers and found that I had made about 8.5% on my money in 26 months – not the ROI was hoping for on a “passive” investment.

But all is well that ends well! I did made money so the investment was not a loss. And besides, I was able to earn a good education by taking action – not by reading about it or looking at someone else’s case study. I was in the middle of it and felt all the emotions: the good, the bad and the horrific.

My education consisted of the following crash courses in such topics as:

Where there is a will there is a way

The power of a network

How to be creative when putting together a deal

How not to JV when you don’t ask questions or get a second opinion (until its too late)

How one should always let someone else look over the deal if you are not sure (investor and lender)

Property managers need to be managed, closely

Tenant screening is VITAL to getting a good tenant and increasing your ROI

Please Visit and Support the following:

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

Please donate to the Texas 100 and make sure owner finance rights are understood and upheld! Click Link Below!!

713 Houston Area Real Estate Networking

Hosted by Landon Rothstein & Ray Sasser

PLP-023 Joy Gendusa mixes digital with direct mail marketing for Real Estate Investors

Keith Baker — Mon, 04 Jun 2018 00:01:09 -0600

JOY GENDUSA

About Joy Gendusa:

Joy Gendusa is an entrepreneur, business owner, author, keynote speaker and philanthropist. She is the Founder and CEO of PostcardMania, a marketing company specializing in lead generation for businesses of all size. With only a phone, a computer and postcard marketing (no VC funding or investors!), Joy grew PostcardMania from a startup into an industry leader generating more than $49 million in annual revenue and employing more than 210 people in the Tampa Bay, FL area.

As a business leader, Joy has been awarded the Tampa Bay CEO of the Year, Entrepreneur BusinessWoman of the Year in Tampa Bay, and twice been an Ernst & Young Entrepreneur of the Year finalist. Her company, PostcardMania, has been featured on the Inc. 500 and the Inc. 5000 lists, and has helped 78,589 small businesses (including thousands of real estate investors) with their marketing.

Joy’s marketing strategies and accomplishments can be seen in today’s top business publications, such as Entrepreneur, Business Insider, Inc. Magazine and more.

What you’ll earn on this Episode:

Joy began brokering printing for other businesses in the late 1990’s.

She started PostcardMania after refusing to allow a printer to put their 800 number on one of her customer’s orders.

What started off with a staff of 3 has grown to a company of over 200 employees and over 50 million in revenue. How did she do it?: by continuously overpromoting Postcard Mania’s services!

Joy wanted to help small business owners figure out how and where to spend their marketing dollars:

Google?

Social?

Direct Mail?

To whom to market – which list to use?

The solution she came up with is Everywhere Small Business

Everywhere Small Business starts with direct mail postcards, plus

mail tracking code (know when postcard is delivered)

call tracking phone number that rings your phone (and records the phone calls)

when recipient visits your website they receive a cookie to trigger Google ads

list specific Facebook marketing

Customers are seeing increased response rates to their marketing by incorporating Everywhere Small Business

Postcard Mania can provide lists based upon several life events, including:

Foreclosure

Death

Bankruptcy

Probate

Divorce

And more

Joy has written a book – “Postcard Marketing in an Online World”

Postcardmania.com/podcast

Take advantage of Joy’s AMAZING offer for PLP listeners:

1,000 free postcards with Everywhere small business!

Click click on the link below:

Postcardmania.com/privatelenderpodcast

Not sure how Postcard Mania can help your business? Then call 844-573-8085 or email Joy directly at joy.gendusa@postcardmania.com

Click below to see examples of successful post campaigns from other Real Estate Investors:

PM-Successful Campaigns

Please Visit and Support the following:

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

713 Houston Area Real Estate Networking

Hosted by Landon Rothstein & Ray Sasser

PLP-022 – Lessons Learned

Keith Baker — Mon, 28 May 2018 16:00:02 -0600

What you’ll earn on this Episode

Mistakes that I made (and lived to tell):

I used the title company’s attorney to draft the loan documents (Deed of Trust and Promissory Note) – Lesson: use YOUR own attorney who drafts the docs for you

I wasn’t a stickler for payment on time (didn’t charge penalties) which told the borrower it was OK to pay late

I trusted the borrower’s assessment of the property’s value rather than looking just a little deeper myself

Things to take away:

Always get a copy of the Driver’s License and Social Card from ALL borrowers, members of an LLC, INC, LLP, etc.

THIS WILL ANGER LANDLORDS, but I prefer to discount rental properties when determining the Loan To Value I’m willing to accept on a property.

Don’t be afraid to exercise your rights to foreclose if a borrower doesn’t perform as agreed

Remember, its your money. You should only loan money on deals that make sense to you, and that make you comfortable. If you’re comfortable, ask somebody for help (second set of eyes) or walk away

Please Visit and Support the following:

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

713 Houston Area Real Estate Networking

Hosted by Landon Rothstein & Ray Sasser

PLP-021 The easy way to get started in Private Lending

Keith Baker — Mon, 21 May 2018 00:30:33 -0600

What You'll Earn in this Episode:

In this episode Keith discusses a great way to get your feet wet with Private Lending. By providing the funds to a hard money lender, the Private Lender has the opportunity to peek behind the curtain to study and learn the process of underwriting a loan on a single-family property.

A simple internet search can put you in touch with investment funds and hard money lenders in your area.

"Opportunity is missed by most people because it is dressed in overalls and looks like work"

--Thomas Edison

Please Visit and Support the following:

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the image below to purchase your tickets!

713 Houston Area Real Estate Networking

Hosted by Landon Rothstein & Ray Sasser

PLP-20 Brant Phillips explains how he keeps his Lenders’ money secure

Keith Baker — Mon, 14 May 2018 00:30:05 -0600

Brant Phillips: Investor, Lender, Coach, Entrepreneur

Brant Phillips

Brant is a full-time real estate investor, business owner, business coach, speaker and bestselling author. He has been featured on Fox News as a Real Estate expert and hosts local seminars and training events.

Brant is a proverbial ‘rags to riches’ story, while living in an apartment and having no money, he was able to purchase his first investment property on a credit card! He went on to by 10 properties that same year with no money down and since that time has gone on to purchase, renovate, flip and rent hundreds of homes and owns a portfolio of rental properties in the millions and continues to flip houses and take part in a variety of real estate projects, including new home construction and development.

In addition to Brant’s real estate pursuits, he’s an active entrepreneur as owner of a coaching and consulting business. One of his companies, Invest Home Pro, was recognized by Inc. 5000 as one of America’s Fastest-Growing Private Companies.

Brant is a former police officer who prides himself on integrity and serving others. He is a husband and father of five and enjoys helping and teaching people to experience the freedom and success he has achieved through successfully investing in real estate.

You can learn more about Brant here:

www.BrantPhillips.com

www.Facebook.com/BrantAPhillips

REIAction.com

On this Episode  listen to Brant discuss the following:

How Brant maneuvered through the Great Recession when banks wouldn’t lend

The benefits of private lending: investing locally and seeing the results first-hand

Private Lenders helped Brant leave his corporate job and invest in real estate full-time

Brant’s thoughts on Lending/Borrowing from family members

Some of Brant’s Non-Negotiables for Lenders

Close at a title company

First Lien Position

Understand the investment

Make sure the numbers make sense

Brant has written a book:  ”The Private Lender Playbook”

Please Support:

Please visit the PLP’s Sponsors!

SPECIAL OFFER!!

Get 25% off your Quest IRA Expo tickets with promo code:  BakerExpo

Click the images below to purchase your tickets!

713 Houston Area Real Estate Networking

The RICH Club – Realty Investment Club of Houston

PLP-019 Private Lender Manifesto/Rant

Keith Baker — Mon, 07 May 2018 00:01:44 -0600

The Private Lender Manifesto

(a.k.a. the Spring of 2018 Rant)

1 – Take Responsibility for every aspect of your finances

2 – Take Control of your cash flow, savings and investments

3 – Take Action and create your future now

Recommended reading:

(reading these books should be mandatory in every high school in the USA, if not the world)

The Richest Man In Babylon by George S. Clason

The Millionaire Next Door by Thomas J. Stanley & William D. Danko

Announcing the PRIVATE LENDER ACADEMY!!

I’ve decided to go ahead and announce the creation of the Private Lender Academy – an online educational platform to promote the teaching of the fundamentals of lending. Now that I’ve let the cat our of the bag and announced to anyone who will listen, I hope this tactic will provide some needed motivation to add yet another project on my plate: If I do not launch the Private Lender Academy to the public by September 1st, 2018, then let this stand as my witness: please call me out on this website, in social media Facebook, Twitter, Instagram, LinkedIn.

I believe I have just burned the boats, so to speak. I have given myself just under 120 days to have the following educational tools available for FREE:

1 – Private Lender Risk Survey –  A short interrogation designed to gauge the risk tolerance of a fledgling lender. Private Lending is NOT for everyone, and I believe it is best to put the effort into facilitating self-awareness before investing in anything. Knowing who you are as an investor is crucial to creating any sustained success. In order to create a product that is completely unbiased towards Private Lending, I will now be forced to Google every possible investing risk tolerance assessment, and hack (rip-off) from those found on many popular 401(k) sites! ; )

2 – Private Lender Academy – Phase One: Private Mortgage Lending –

An online class that will teach the fundamentals of successful lending: basic lending principles, conquering the fear to make the first loan, understanding and underwriting the loan, , how to beat the IRS by being a Private Lender, and much more.

It is my personal goal to eliminate the need for banks in real estate investing, and so the more people who become educated on alternative investments, the more we can change and adapt to insure prosperity for ourselves and for others who are seeking to command their investments and therefore their futures.

Buckle up Buckaroo, I look forward to this being a wild ride! Now I REALLY have to get to work!

All the best,

-k

“No sympathy for the devil; keep that in mind. Buy the ticket, take the ride…”

– Dr. Hunter S. Thompson

PLP-018 Credit Repair for Tenant Buyers with Paul Ritter

Keith Baker — Mon, 30 Apr 2018 00:01:25 -0600

Paul Ritter – MyCreditTeam.com and ScreenTheTenant.com

Paul Ritter has over 25 years’ experience in the mortgage and credit enhancement industries. He has developed software, which invokes mortgage-underwriting guidelines. It is very useful for anyone looking to buy a home, wants to run “what if” scenarios and is especially useful for Lease Option transactions. Paul has formerly owned and operated several mortgage companies. He is currently the owner of Credit Investigation Service, dba My Credit Team that specializes in credit enhancement for the Real Estate Industry. He also owns a screening company, which provides the front-end piece to evaluate potential tenant/buyers. He is an expert in building Business Credit. Paul is well versed in identity theft protection and repairing a credit report after an ID theft incident. He is FICO certified, an expert in his field and a national sought after speaker.

Contact Paul and learn more at:

Screenthetenant.com

Mycreditteam.com

Special Offer for PLP listeners!!

Fees Waved:

$79 analysis

$119 set up

50% Off Coupon

Text: name and email address

412-242-2733

PLP-017 Building a Lender’s Team of Professionals

Keith Baker — Mon, 23 Apr 2018 00:01:36 -0600

Building a Lender’s Team of Professionals

In every business it is wise to surround yourself with a stellar team. In private lending, this team not only makes life easier it helps keep you safe and prosperous. The professionals you will need on your team include:

Attorney – prepare your documents and handle foreclosure, among other things

Appraiser – to provide you a professional opinion on the value of a property

Title Company – a trusted friend that is a necessity

Property Inspector – to determine the condition of a property as well as insuring the rehab/construction work is progressing according to predetermined draw schedule/plan before you release more funds to the borrower

Note Servicing/Escrow Services – let someone else collect the payments, withhold taxes and issue 1098’s

Insurance Agent – self-explanatory, or is it?

Surveyor

Accountant/Bookkeeper

RMLO (Residential Mortgage Loan Originator) – to help with owner financing

Realtor

PLP-016

Keith Baker — Mon, 16 Apr 2018 00:01:00 -0600

Please visit and contribute:

PLP-015 Open a Roth IRA for FREE at QuestIRA.com

Keith Baker — Mon, 09 Apr 2018 00:01:54 -0600

Use Coupon/Promo Code: KeithQ on your account application and for a limited time. . . . . .

All Account Opening Fees are waved!

This extremely rare promotion is ONLY good through 11:59pm on Tuesday, April 17th, 2018 (all documentation must be received and the account opened before the end of tax day 2018). Call 1-855-FUN-IRAS if you have any questions.

Normally Quest IRA charges a one time fee of $100 per account for an application/account opening fee, but now you can open as many accounts as you wish, for you and everyone in your family for FREE!

Just think, if each person in a family of four (even minor children) opens a ROTH IRA they save $400! AND they now have one of the most powerful tools for tax deferred wealth creation. You don’t even need to fund the account to open the account – it doesn’t get any better than this!

Click on the logo image below and use Promo/Coupon Code on the application:

KeithQ

PLP-014 The transition away from banks to Private Lenders with Landon Rothstein

Keith Baker — Mon, 02 Apr 2018 00:01:05 -0600

Landon Rothstein began real estate investing by using conventional bank loans. But he quickly found after the fourth loan the banks would no longer loan to him. That’s when Landon began utilizing loans from private lenders to amass a portfolio of well over 80 rentals and owner financed notes. He now enjoys the lifestyle of a full-time real estate investor, and has teamed up with some amazing partners.

Landon has teamed up with Houston area REI heavy hitter Ray Sasser. Together they host one of the fastest growing real estate Meetups in Houston.

Contact Landon:

281-852-7777 mobile/text or via email at: landon@sellerfinanceme.com

Visit with Landon at: 713 Real Estate Networking w/ Landon and Ray Sasser

Please visit

PLP-013 Effects of new tax laws on Private Lenders with Michael Plaks

Keith Baker — Mon, 26 Mar 2018 06:00:48 -0600

How do the new tax laws affect Private Lenders? – IT DEPENDS!!

Listen as Michael Plaks explains:

-How the new tax laws can affect Private Lenders and the profits they receive from the interest on their loans.

-What investment vehicle is practically custom designed for Private Lending

-Learn about changes to Self-Directed IRAs.

Michael has been helping Real Estate Investors and Private Lenders save $$$$ from their tax bill for over 2 decade, and he can help you save as well.

To find out more about the special offer only for Private Lender Podcast listeners that Michael has graciously provided, visit reitaxfirm.com/plp

Many thanks Michael!

And please be sure to visit and donate to The Texas 100

PLP-012 Analyzing Rental vs. Flip comparables

Keith Baker — Wed, 21 Mar 2018 00:00:17 -0600

Listen as Keith explains how he determines ARV (After Repaired Value) and LTV (Loan To Value) for short-term flips as well as long-term rentals. Learn the reason why he discounts his LTV on rentals and other insights on this episode.

Please visit: texas100.org and donate to make a difference for Real Estate investors and the communities we serve!

PLP-011 Kevin Bupp – Serial Entrepreneur & Mobile Home Park Investor

Keith Baker — Mon, 12 Mar 2018 01:45:44 -0600

Kevin Bupp

Listen to serial entrepreneur Kevin Bupp discuss his path to Real Estate and how he utilized a loan from a private lender on his very first deal.

Links:

KevinBupp.com

sunrisecapitalinvestors.com

72hourstokeywest.com

Books Mentioned:

Traction by Gino Wickman

The Slight Edge by Jeff Olson & JOhn David Mann

Key Points:

1 – Start with education

2 – go meet people doing what you want to do

3 – giving back

A Lesson Learned: One mistake Kevin has made in his career is paying too much attention to appreciation

From Kevin’s website:

“I have been an entrepreneur all my life.

It almost seems too idyllic to admit, but it all began with a paper route when I was 12. Once I’d gotten a good taste of making money for myself, I moved on to a far more profitable endeavor: buying, selling, and installing automobile electronics out of my parents’ garage at the age of 14. Thankfully, my parents have always been blissfully supportive of my enthusiasm, even when the most well-laid plans went astray.

I briefly tended bar, filling my requisite “food service” quotient for kids my age (and, incidentally, teaching me how not to treat bartenders), then jumped right into real estate investing by the age of 20. I completed a degree in business at a small community college in PA, but eventually decided to focus all of my energy on real estate. This turned out to be a good move, because for more than thirteen years I have been investing and consulting with tremendous results, having personally completed in excess of $40 million in real estate transactions. Currently I’m a candidate for CCIM, the highest commercial real estate designation around.

However, even that success can’t fully quench my thirst for the thrill of new business. I’ve owned a successful mortgage company, and have started a number of other successful businesses, including an events company that hosts running events in 8 different states, a printing company, marketing consulting…the list really goes on and on. I have new ideas all the time, and it’s a shame not to act on a good idea.

On March 20^th of 2010, I married the love of my life, Joanna, and we live happily together with our amazing son, Jackson, and our two amazing dogs: an English Pointer named Rascal, and Blue, our German Short-haired Pointer. Through all of my ventures, I try to stay as physically fit and mentally active as possible. I’ve run several half and full marathons and I enjoy competing in triathlons and cycling events to stay in top condition. I love outdoor sports like boating, wakeboarding, kite boarding, surf skiing, and snowboarding, and whenever possible, my wife and I travel together. I’m an incurable autodidact; I read two or more books a month and attend seminars and training sessions throughout the year to keep my brain sharp and my ideas rolling. I am also a craft beer and wine SNOB.

I’ve worked hard and made it a long way, and there is still a long way to go. World domination isn’t on my list of goals (anymore), but I do intend to continue doing what I do well to the best of my ability. I’ve learned a lot of crucial lessons that I believe other young entrepreneurs can use to achieve success. I’ve had a lot of terrific mentors in my life, and I’ve made it a goal to “pay it forward” by offering training, resources, and much-needed guidance to the other forward-thinkers in the world. One day I would love to form a non-profit organization that offers this training to those young people who have big ideas and need a little extra help getting them off the ground.

I love life. I love my family, and my friends. I love meeting new people and taking calculated risks and inspiring growth. I love that my upbringing gave me the ability to pick myself up after a fall. Passion is the key, I think. Without it, ideas die before they have a chance to thrive, people don’t start their own businesses, and success remains a speck on the horizon.”

Kevin, thanks for an amazing episode!!

-k

PLP-010 A few announcements and what’s ahead!

Keith Baker — Tue, 06 Mar 2018 00:33:59 -0600

PLP-010

Find out where Keith with be speaking and recording for the Private Lender Podcast!

NEW SPONSOR!!

713 Houston Area Real Estate Networking with Landon Rothstein and Ray Sasser!

Wednesday, Mar 14, 2018, [6:00] PM

Holiday Inn Express & Suites Houston North Intercontinental
125 Airtex Dr Houston, tx

34 Real Estate Investors Went

On Wednesday March 14th, we will have a WHOLESALER PANEL! Join us with some of Houston’s top wholesalers. If you’re interested in being a wholesaler, come with your questions. Even if you’re not interested in wholesaling, you still need to learn how to market for properties and wholesaling’s engine is all about marketing and systems. If you have a …

Check out this Meetup →

APRIL 7th, 2018 and NEW SPONSOR!!

April- Main Meeting and Trade Show

August 25th & 26th

Quest EXPO – Dallas, TX

PLP-009 Phillip Carranza of Refuge Real Estate

Keith Baker — Mon, 26 Feb 2018 07:00:41 -0600

PLP-009 Phillip Carranza

Listen to the founder of Refuge Real Estate discuss their strategies for utilizing private lenders’ money to transform neighborhoods.

From the Refuge Real Estate website:

IT IS THE AIM OF REFUGE REAL ESTATE TO PROVIDE OUR INVESTORS WITH THE BEST POSSIBLE RETURN ON THEIR INVESTMENT WHILE SIMULTANEOUSLY AIDING IN THE REVITALIZATION OF COMMUNITIES IN WHICH WE INVEST.

PHONE 281.888.3212

PLP-008 – A quick discussion on liens: position and importance

Keith Baker — Mon, 19 Feb 2018 06:00:59 -0600

PLP-008

A quick discussion on liens: position and importance

Show Notes will be posted as soon as practicle

PLP-007 Nate Hare: Lending from a Self-Directed IRA

Keith Baker — Mon, 12 Feb 2018 03:00:46 -0600

PLP-007 Nate Hare: Lending from a Self-Directed IRA

WHAT YOU’LL LEARN IN EPISODE 007

Advantages of lending out of a self-directed IRA

The types of self-directed accounts

-Traditional IRA

-ROTH IRA

-Health Savings Account (HSA)

-Coverdell Education Savings Account (ESA), and MORE

The many ways you can structure a promissory note

Don’t miss out on Quest IRA’s SPECIAL OFFER:

Open as many accounts as you’d like for the price of one! For only $100 you can open accounts for you, your spouse, children, etc!

Just enter the promo/coupon code “LOVEQUEST” to receive this special offer.

www.questira.com

PLP-006 Mitch Stephen: The Art of Owner Finance

Keith Baker — Mon, 05 Feb 2018 03:00:14 -0600

PLP-006 Mitch Stephen – The Art of Owner Financing

WHAT YOU’LL LEARN IN EPISODE 006

OFV = Owner Finance Value

How Mitch went

from losing money on rentals and turned it all around with the Owner Finance model and has executed more than 1,500 Owner Finance deals

The Core Belief behind the Owner Finance model

How you don’t need to repair anything or spend any money on a rehab

The typical type of private lender whose funds Mitch utilizes and the buyer’s traits that can cost you money

Mitch’s Blog Post: Why I borrow at the Terms I Do

Mitch’s Podcast: reinvestorsummit.com

Books by Mitch Stephen:

My Life & 1,000 Houses: Failing Forward to Financial Freedom

My Life & 1,000 Houses: 200+ Ways to Find Bargain Properties

My Life & 1,000 Houses: The Art of Owner Financing

Nothing Down by Robert G. Allen = The book that started Mitch’s Real Estate investing

Mitch is currently reading: The Richest Man in Babylon by George S. Classon

Mitch’s websites:

1000houses.com

reinvestorsummit.com

PLP-005 The Mechanics of a Loan

Keith Baker — Mon, 29 Jan 2018 04:15:52 -0600

The mechanics of a loan:

PLP-004 Chris Funk (part 2) – Mitigating Risk and My First Commercial Loan

Keith Baker — Mon, 22 Jan 2018 01:33:23 -0600

WHAT YOU’LL LEARN ON EPISODE 004:

How you can lose money and the ways to prevent that from happening

LTV = Loan to Value, the amount of the loan compared to the value of the property

ARV = After Repaired Value – the perceived sales price (based on recent comparable sales {comps}) for a reconditioned property

Listen and learn what Chris includes in his credibility book that he shows to prospective lenders and sellers of distressed properties.

I made my first commercial property loan to Chris on a deal he found in Texas City. Chris used my money for the acquisition of a distressed corner property (from an out of state owner) that was previously a Mexican restaurant and a convenience store. There were two small units in the back that were occupied by a barber whose rent just covered the mortgage payment, insurance and taxes (PITI). Chris refinanced the property to cash me out after 6 months and wrapped his commercial bank loan (bank approved) when he sold the property via owner financing to the end buyer. The end buyer recently defaulted on Chris’ note and he foreclosed on the property, taking it back with a ton of equity: a $60,000 loan on a property that appraised for $305,000!!!

And much more. . . .

PLP-003 Determining Value for Lenders and Investors with Chris Funk (part 1)

Keith Baker — Mon, 15 Jan 2018 04:07:56 -0600

WHAT YOU’LL LEARN ON EPISODE 003:

How to evaluate property condition and “as is” value

How to analyze and fine tune comparable sales (comps)

How to find comps without MLS access

The biggest value mistake both lenders and borrowers are making in the current market

How flexibility and being easy to deal with can benefit the lender

Sage advice from one of the Houston area’s heavy hitting real estate investors

And so much more!!

Who is Chris Funk?

Contact: Facebook.com/funkmadelic

Chris Funk is a 36 year old real estate investor from Houston, TX. He dropped out of college at the age of 23 and began working hands on in the construction industry renovating homes for clients who were investors and landlords to learn the renovation business from the inside out with the ultimate goal of owning enough real estate that he could quit his job for good.

Chris had the dream of becoming a landlord and set out to learn wholesaling as a strategy to find good deals he could eventually hold as rentals. Chris networked at the local real estate clubs and made friends with some of the top local area wholesalers but was for the most part self-taught.

In 2010 Chris Joined the Houston Apartment Association (HAA) and earned the Certified Apartment Manager, Certified Apartment Portfolio Supervisor, and Independent Rental Owner Professional (CAM, CAPS, & IROP) Designations. Having the goal of owning a rental real estate portfolio Chris wanted to know as much about operating investment properties at his employee’s that he would eventually hire.

With a solid foundation laid, learning to renovate homes from the ground up, taking classes at HAA and finding below market deals as a wholesaler, Chris made contacts with several seasoned investors who owned rental properties and formed partnerships to take down the deals he was finding and keep them in house with his partners rather than wholesaling them to outside investors. Chris had the great deals and the renovation experience, and the partners had the money and the credit.

Fast forward, 6 years later, Chris owned 92 rental units at the age of 29 he officially was “retired” with enough rental income to live comfortably. He has done wholesale, owner finance, rehab flips, single family rentals and apartment complexes. He currently owns 115 units consisting of 2 apartment complexes, 2 four-plexes, 1 six-plex, and 9 single family rent houses and several owner financed notes.

Chris still operates a full time property management business and a full time wholesaling business with 3 full time employees and 1 part time employee. The majority of the properties he puts under contract now are acquired with private money or bank lines and then sold with owner financing or held as rentals.

Chris has been honored as a guest speaker at MyHouseDeals.com, Lifestyles Unlimited, Rich Club, Wealth Club, various podcasts, and several live radio shows over the years. Chris currently teaches real estate investing at Su-Casa University.

PLP-002 What funds can you use for Private Lending?

Keith Baker — Mon, 08 Jan 2018 02:16:28 -0600

This episode is geared towards beginners, so you advanced listeners may want to skip this episode. However, if you are new to the concept of Private Lending, then give this a listen as it answers many common questions I receive when I explain to people that I am a Private Lender.

i wish yo happy, safe and secure lending!

Enjoy!

-k

PLP-001 Mindset & Lending Criteria with Steven Kaufman

Keith Baker — Mon, 01 Jan 2018 03:51:03 -0600

Steven Kaufman - Finance Enthusiast

WHAT YOU'LL LEARN ON EPISODE 001:

CIAE =
Credit
Income
Assets
Equity

LTV = Loan to value

Steven’s prediction for the start of the next correction or recession and how his lending criteria will change

Companies that are not making money are trading as if they do

The Ben Franklin Close

[35:25] -80/20 Principle - 10% marketing, 10% underwriting

[36:00] – Use fear as a guide not a roadblock

“can I go get the resources I need to be successful in this?”

PLP-000 Introduction to the Private Lender Podcast and Keith Baker

Keith Baker — Mon, 01 Jan 2018 03:50:55 -0600

Episode 000 – Introduction

Learn about what you can expect from the Private Lender Podcast. This is by far the greatest experiment I’ve ever attempted and I appreciate you coming this far with me on the journey.

DISCLAIMER: I am not an attorney nor a CPA. If I am fortunate enough to inspire you to take action, please perform your own due diligence and consult your own attorney, account and other member of your business team before executing any actions.

Now that you’ve bought your ticket, it is time to take the ride!