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The Private Lender Podcast
21 minutes | 16 days ago
PLP-114 Lessons from the Richest Man in Babylon
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 thehttps://www.facebook.com/groups/674936429994760Show notes page for the link2 – 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 31st 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 allowedOnce again go to PLP.com/INKOK, 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 speechThe 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 firstThis 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 table2. Rollover old 401 or other savings plans to SDIRA3. Sell old clothes, memorabilia, records, VHS tapes, kids’ stuff, garage sales4. 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 - Etsy6. 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 discussion2 - 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.Love the show? Subscribe, rate, review, and share!Here’s How »Join the Private Lender Podcast community today:PrivateLenderPodcast.comPrivate Lender Podcast FacebookKeith Baker on LinkedInPrivate Lender Podcast TwitterPrivate Lender Podcast YouTube
16 minutes | 2 months ago
PLP-113 The 6 Pillars of Private Lending
The 6 Pillars of Private LendingClick Here to join the Private Lender Podcast Facebook GroupHello 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-Judicial2-3 month processNO redemption periodDeficiency Judgements are allowedGo 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 21st 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 joinhttps://www.facebook.com/groups/674936429994760OK, 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 itTHE 6 PILLARS OF PRIVATE LENDINGPillar No. 1: My Money My TermsPillar No. 2: Never Trust, Always VerifyPillar No. 3: ROIsPillar No. 4: WIN-WIN-WIN ONLY: Always Full DisclosurePillar 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 backPillar No. 6: Honor the contract, but DO NOT hesitate to begin foreclosure. It can be easily stopped in case the borrower makes goodWell, 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 OF2 – ROI (Profit) ON3 – Integrity4 – Discipline5 – Creative Initiative6 – Take responsibility for everything7 – Always Learn More And upon these values stand the following pillars of private lending: Pillar No. 1: My Money My TermsPillar No. 2: Never Trust, Always VerifyPillar No. 3: ROIsPillar No. 4: WIN-WIN-WIN ONLY: Always Full DisclosurePillar 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 discussionsClick here to join the Private Lender Podcast Facebook GroupI 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
59 minutes | 3 months ago
PLP 112 – Lending On Properties 2,000 Miles Away With Jaspreet Baveja
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 BavejaLender 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
13 minutes | 3 months ago
PLP 111 – Core Values for Private Lending
Seven Core ValuesROI - Return OF Investment ROI - Return ON Investment (Profit)IntegrityDisciplineCreative InitiativeTake responsibility and be accountable for everythingAlways 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 DylanStay safe out there!-k
39 minutes | 3 months ago
PLP 110 – The Fastest Way To Start Private Lending With Paul Lamnatos
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.---The Fastest Way To Start Private Lending With Paul LamnatosI'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.---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...
18 minutes | 4 months ago
PLP-109 Fear Setting: Meditatio Malorum – the pre-mediation of evils
Episode 109Dear Lender Nation,Here are the links for Episode 109:Tim Ferris' TED TalkFear Setting WorksheetLove the show? Subscribe, rate, review, and share!Here’s How »Join the Private Lender Podcast community today:PrivateLenderPodcast.comPrivate Lender Podcast FacebookKeith Baker on LinkedInPrivate Lender Podcast TwitterPrivate Lender Podcast YouTube
37 minutes | 4 months ago
PLP-108: Passive Investing: Private Lending Through Brokers And Hard Money Lenders With Jason DeBono
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.---Listen to the podcast here: Passive Investing: Private Lending Through Brokers And Hard Money Lenders With Jason DeBonoOur 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.---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
23 minutes | 4 months ago
PLP-107: The Tipping Point of this Private Lender
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 AverageI'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 email@example.com and state Fact Check in the subject line.Love the show? Subscribe, rate, review, and share!Here’s How »Join the Private Lender Podcast community today:PrivateLenderPodcast.comPrivate Lender Podcast FacebookKeith Baker on LinkedInPrivate Lender Podcast TwitterPrivate Lender Podcast YouTube
45 minutes | 5 months ago
PLP-106: What You Don’t Know About Subordinate Lien Investing With Jim Maffuccio
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.---What You Don’t Know About Subordinate Lien Investing With Jim MaffuccioThis 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.---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...
12 minutes | 5 months ago
PLP-105: Humility. Honesty. Vulnerability
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 FruitThese 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 have2 – 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.
11 minutes | 6 months ago
PLP 104: WTF happened to us?
1963Addie Mae CollinsCarol Denise McNairCarole RobertsonCynthia Diane Wesley 2020George FloydMy 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
16 minutes | 6 months ago
PLP 103: Appraisals Part Two: The Uniform Residential Appraisal Form
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.---Appraisals Part Two: The Uniform Residential Appraisal FormThis 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. Important Links:Uniform Residential Appraisal ReportiTunes – Private Lender PodcastGoogle Podcast – Private Lender PodcastFacebook – Private Lender PodcastLove the show? 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15 minutes | 7 months ago
PLP 102: Appraisals Part 1: The Strength Of A Good Appraisal
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!---Appraisals, Part 1: The Strength Of A Good AppraisalPlus 9 Questions You Should Ask Before Hiring An Appraiser On Your TeamThis 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.Important Links:HAR.comiTunes – The Private Lender PodcastGoogle Podcast – The Private Lender PodcastLove the show? Subscribe, rate, review, and share!Here’s How »Join the Private Lender Podcast community today:PrivateLenderPodcast.comPrivate Lender Podcast FacebookKeith Baker on LinkedInPrivate Lender Podcast TwitterPrivate Lender Podcast YouTube
14 minutes | 7 months ago
PLP 101: Three Silver Linings For The Long-Term During This Difficult Time
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.---Three Silver Linings For The Long-Term During This Difficult TimeNow Is The Perfect Time To Start Your Journey To Becoming A Private Lender In A Self-Directed IRAThis 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 OneIf 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 TwoSilver 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 ThreeI'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.Important Links:iTunes – The Private Lender PodcastGoogle Podcast – The Private Lender Podcast Love the show? Subscribe, rate, review, and share!Here’s How »Join the Private Lender Podcast community today:PrivateLenderPodcast.comPrivate Lender Podcast FacebookKeith Baker on LinkedInPrivate Lender Podcast TwitterPrivate Lender Podcast YouTube
1 minutes | 7 months ago
Checking In on ya'all!
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
25 minutes | 7 months ago
PLP 100: A Mindset Milestone: An Interview With Dr. Steven Kaufman
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.---A Mindset Milestone: An Interview With Dr. Steven KaufmanIf 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. ---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...
20 minutes | 8 months ago
PLP-099: Creating A Lending Criteria During The COVID-19 Pandemic
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.---Creating A Lending Criteria During The COVID-19 PandemicHow To Stay Safe In An Unsafe MarketI'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 AboutBasically, 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 CriteriaAnyway, 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 MicrodataWhen 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:
1 minutes | 8 months ago
Ask a Private Lender tonight at 8:30pm CST
https://www.facebook.com/capn.bakerJoin 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
9 minutes | 9 months ago
PLP-098: 6 Warning Signs Your Borrower May Be In Trouble
6 Signs your borrower may be in trouble1. Sudden lack or stoppage of regular communication2. Late payments/returned 3. They ask you if you can lend them “just a little more”4. You have to chase them for an update5. They don’t want you visiting the property6. 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.
53 minutes | 9 months ago
PLP-097 10,000 Miles To The American Dream With Reed Goossens
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!---10,000 Miles To The American Dream With Reed GoossensInvesting In The US With Reed GoossensThe 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.---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...
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