Raising Private Money for Fix and Flips

Mike: This is the flipnerd.com Expert Real Estate Investing Show, the show for real estate investors, whether you’re a veteran or brand new. I’m your host, Mike Hambright and each week I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility and taking control of your life and financial destiny, you’re in the right place.
This is episode number 361 and my guests today are husband and wife team Jon and Stacy Bichelmeyer, good friends of mine for several years now. Jon and Stacy are investors out of Kansas City. They’re doing around 60 to 70 deals a year. Now, when the last downturn happened in the market, their traditional funding dried up and they needed to find another solution to finance their fix and flip deals.
So, they started to raise private money from people in their network, from friends, family, neighbors, people at the gym, word of mouth, anywhere they could find somebody that would be interested in potentially working with them. So, now they have more funding than they typically need, which means really a reliable source of private investors with very simple terms to ensure they never have a challenge funding their deals again.
Today we walk through their program. They discuss lessons learned, some mistakes they made and if they had it to do all over again, how they would do it right. We discuss how you, the listeners of this show, can emulate their model if you need private money. So, let’s talk about how to raise private money for your real estate investing business in today’s show. Please help me welcome Jon and Stacy Bichelmeyer to the show.
Jon and Stacy, welcome to the show.
Stacy: Hey, thanks, Mike. Thanks for having us.
Jon: Yeah. Thanks for having us.
Mike: Yeah. Good to see you guys. We’ve been friends for I think three years. We joined a mastermind group right around the same time.
Stacy: Right. Yeah.
Jon: I think so.
Mike: You guys are up in Kansas City. A husband and wife team, it always clicked with me because my wife and I are a husband and wife team. So, we kind of like watch each other to see how do we run this business and not destroy our relationship with our spouse.
Stacy: Exactly.
Jon: There are a few challenges sometimes, but I think we have more good days than bad days.
Mike: You guys have done a good job too, kind of like Lindsey and I, where you figure out how to split up the business where it’s like, “This is what you do and this is what I do. I don’t really know how to do what you do and I’m not good at it and you can’t do what I do.” It just kind of makes sense because you have different skillsets, right?
Stacy: Right. Absolutely. I kind of handle the money and the organizational stuff within the office and make sure that’s running smoothly.
Jon: I’m out in the field. I do the buying and oversee the selling and the rehab and all that stuff. So, you’re exactly right. We both have our areas of expertise. I don’t necessarily care how she does her stuff and she probably doesn’t necessarily want to know how to do my stuff.
So, it’s good that we can come together, “I need help with this,” or, “I need help with that.” And work together and figure out whatever needs to be taken care of. We each have our defined roles, so to say, and that makes things flow very good between us.
Stacy: Absolutely.
Mike: Yeah. I talk a lot to people that are partners or we coach people that have partners. It’s really the same thing even if you’re not a husband and wife team. You have to find a way to have distinct responsibilities. Otherwise you’ve seen people that have relationships that fail, partnerships that fail. They have the same skillset. They’re working with their friend that they’re just like but both of them are horrible at cash management or the accounting side or something like that and that just doesn’t work ultimately, right?
Stacy: Right.
Jon: And if you’re both trying to do the same job, then you see one way it needs to be done and your partner sees another way to be done and in the end, they’ll both get done, but the headaches and stuff that go in between if you don’t have defined roles.
Stacy: And this goes for partners too, but I read something recently about spouses and it says if you’re just exactly alike and you have the same skills, then one of you is unnecessary. That’s absolutely right. If we were exactly the same, we wouldn’t need to be here. One of us could be doing something else.
Mike: Yeah. Well, hey, so, I know we’re going to talk about raising private money today. You guys have an innovative program that’s allowed you to raise as much money that’s allowed you to raise your successful business up in Kansas City. So, before we kind of dive into that topic, tell us a little bit more about your background, how you got started in real estate investing, how you made the decision to work together, what you did before that, kind of the history of how you got to where you are today.
Stacy: Go ahead.
Jon: Well, believe it or not, I was a butcher. My grandfather had started a local family company called Bichelmeyer Meats. So, I grew up as a little kid and had been through high school as a butcher. I worked at a meat market. My grandpa, I always thought he made a very good living in the meat business. But he told me a couple times he had made as much money in real estate as he did in the meat business. I tried the meat business for a while and it was okay, but I was ready for a change.
So, I left the family business and went on my own and started doing some real estate. I’d like to think basically I’m a third-generation real estate investor. My grandpa did a lot. My dad is doing some commercial stuff and we worked together for a while. I just kind of learned as I went from there.
Mike: And Jon, is the family meat business still around?
Jon: It is. It’s still the old-fashioned meat company.
Mike: Yeah. Not to get too personal, but has that had pressure on it? I assume from like the Costcos of the world and all these things that probably put pressure on those historically mom and pop type businesses, I would assume. Is that safe to say?
Stacy: It’s kind of a staple in Kansas City and it’s a little bit of a specialty store. So, a lot of people will come. Barbecue is obviously really big in Kansas City. If you want the right meat, you go to Bichelmeyer’s to get it. It’s one of those kinds of places.
Mike: Okay.
Jon: I’ve seen a little bit, but they’ve got their niches and certain things they do that they’ve been able to hold on and thrive in certain areas.
Mike: That’s good. Awesome. Go ahead, Stacy.
Stacy: I was going to say when I met Jon, he was doing the butchering a couple days a week and getting into real estate. He had been doing that for a few years. By the time we were married, he was full-time real estate. I used to be a chemistry teacher. After we were married about three years or four years and I’d had my second son, I was done teaching. And about six months after he was born, I said, “Do you need help? I’m ready to do something again.” So, I’ve been working with Jon for about 14 years, maybe.
Mike: Awesome.
Stacy: Thirteen and a half years or so.
Mike: That’s great.
Jon: I like to joke she taught chemistry, I never took chemistry.
Mike: I didn’t know you were a chemistry teacher, but right when you said that, Stacy, I was like, “I could see that.”
Jon: Yeah. She’s very good with numbers and likes to analyze and do different . . .
Stacy: Problem solving.
Jon: Problem solving. Yeah. It works very well.
Mike: Makes sense. Awesome. Well, so you guys have carved out kind of a niche. You’ve done a lot of volume in Kansas City. About how many houses are you guys typically buying a year or a month just to kind of give some perspective on your volume?
Stacy: Right.
Jon: Sure. We’re on track to buy 65 this year.
Mike: Okay.
Jon: We’re not going to sell them all. We’ll have probably 120 to 130 transactions. Some of them we’ll hold for rental, some of them we’ll retail out. But yeah, buying and selling.
Mike: That’s awesome.
Stacy: Yeah. I was going to say, I don’t know, five years ago, we had about six rentals and they were accidental rentals. We didn’t think we wanted to be landlords. As we start looking at long-term lifestyle and everything, we now have about 75 rentals.
Mike: That’s great.
Stacy: So, we are officially landlords. We’re adding about five this month, not quite at that pace every single month, but we added one or two a month.
Mike: That’s awesome.
Jon: As you know being in the business, it just changes a little bit. So, a house we buy we think would be a good rental we end up selling. We have another house we think might be a good rental or a good flip, we end up renting it out. So, we just kind of let the market tell us. So, we have a couple different exit strategies. It’s a great position to be in.
Mike: Yeah. That’s fantastic. We’re the same thing. With our rentals, for a long time it was a big pain in the butt. We purposefully, I think kind of like you guys, we have the mindset of being more aggressive to get them paid down or paid off because that’s kind of our nest egg. So, what happens through doing that, they don’t seem to perform as well as they would if you stretched it out, but the goal is to get them paid off so they perform better sooner than they would otherwise.
When you start to pay some of them off, rates have increased over the years and you start to see, “Wow, that house that I paid $15,000 for is now worth like $80,000 and it rents for like $1,195 a month? What?” So, once you start to see some of that, you’re like, “Okay, I wish I had kept more now,” right?
Stacy: Right. I know. Absolutely.
Jon: Exactly.
Mike: Yeah. Awesome. So, along the lines, you guys started to raise private money. Maybe you can start by telling us why private money versus traditional money, traditional lenders’ banks and other things like that or hard money lenders. What was the impetus for you to start going down the private money path. Was it like during the last downturn when a lot of the traditional financing went away? What kind of caused you to lean in that direction?
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Mike: During the last downturn when a lot of the traditional financing went away, what kind of caused you to lean in that direction?
Jon: Basically, that’s exactly right. We had never missed a payment with the bank. We’d never been late on anything. During the downturn, we had several large lines of credit with five or six different banks and basically they all just shut down. Even though we never missed a payment, we were never late, they basically said, “Look, we’re not lending money in real estate right now.” We had to figure something out. I had four really good deals and I wasn’t going to lose them.
So, we basically had to get out of our comfort zone and come up with a program that we had presented to some people so that we could still get these houses bought. So, we got kind of . . . it’s turned out to be the best thing ever. We don’t have the banks telling us now what we can or can’t do with our money that we’re borrowing from them. You can’t do this or do that. So, we get to do what we want, when we want to do it as we see fit. So, we don’t have to get the bankers okay to put in the new furnace and air conditioning unit or put a draw in and have to do all that stuff.
So, it’s really simplified and really made things a lot better. At first, I was concerned how banks aren’t lending money anymore, how are we going to do this? In hindsight, it’s been one of the best things that’s happened to our business.
Mike: Yeah. What are some of the . . . if you had to list like pros and cons or benefits. Some of it is probably less administrative stuff, like less . . .
Stacy: Absolutely. They’re not asking me for financials. They’re not asking . . .
Mike: Say that again.
Stacy: They’re not asking for financials or they’re not wanting to come in and know what my private business is, necessarily. All they’re concerned about is they get their quarterly checks and they have a picture of the property. It makes them really happy. I know at any given time exactly how much I have.
The banks, sometimes they’re like, “Well, your line now is $2 million. We think we want to make it $1.5 million or $2.5 million.” You never know what they’re going to tell you because they don’t always control it. Somebody else in an office thousands of miles away might be controlling what they’re telling you. So, I know exactly what I have all the time.
Jon: But also it’s the ease. We don’t have to go to loan committee meetings and all that stuff. So, the ease, it’s a lot less for us versus hard money. We’re not having to pay a bunch of points and high interest rates and stuff and have it balloon in six months or a year or whatever. The ease of it is a huge thing. The paperwork, a lot less paperwork.
Stacy: Speed.
Jon: All those things are really good. Everything is handled by the title company. So, it’s all handled by the professionals. It’s not like they just give us the money. Everything is handled at the title company or the attorney’s office. It’s all handled by third parties to make sure everything is done properly.
Mike: Yeah. So, they’re still wiring the money to the title company. You’re giving them first lien deed of trust. So, they have the asset there. But probably, I don’t know this for sure, but you probably have the ability . . . when you buy like us and you buy at a deep discount, the problem with a traditional bank is they usually require 20% down and it’s 20% of purchase price, usually, right? They equate purchase price to value even though we know we bought it well below market value. So, with private lenders, you’re more likely to be able to borrow 100%, right?
Stacy: Yeah.
Jon: Typically we’ll just borrow up to 70%. It keeps our investor in a good, safe position.
Mike: Seventy percent of your purchase price or of ARV?
Stacy: Of ARV.
Jon: Yeah. So, we’ll give them 70% of ARV. If there was an adjustment in the market or something changes, they’re still in a very good position so they’re not over-leveraged.
Stacy: They’re well-protected.
Jon: Yeah. They’re well-protected in everything.
Mike: For sure.
Jon: Again, everything is held by the title company. So, they’re given a note and a mortgage, the insurance, title policy. They’re given all the standard paperwork just as if we were going to a bank to do that.
Mike: Yeah. And are you doing this . . . so, you have some lenders and you do this deal by deal? So, you’ve got one under contract and you just call up one of your lenders and say, “Hey, do you want to fund this one for us that we’re going to close on in a week?” How does that work?
Stacy: Like I said, I basically know how much I have and how much my lenders have for me. So, let’s say we buy a property and I determine I need $100,000 to purchase and do the majority of the rehab. I look down and sure enough I have a lender who has that much available and I send them an email that shows a picture of the property with a description of the property. And I call it a placement of funds and something they just signed that says, “Yes, I agree that my money can be put on this property.” I send it to them. They sign it. They send it back to me or the title company. That’s all.
Mike: Yeah. That’s awesome.
Jon: Yeah. So, our private lenders, basically they’ll tell us how much they’re looking to invest and then we just try to match the property that we have with what they have. Then again, everything goes to the title company from there. That title company basically takes over from there.
Mike: In my experience . . . you guys have a lot more experience with private money . . . I use a lot of private money from one person, kind of a friend and family member, so it’s a little more loose than even what you’re describing here. But I know that some people have a challenge because sometimes, you know, when you’re raising money, you go from like you can’t get enough or you can’t find anybody. It’s real easy, probably you would agree with this, to raise way more than what you need, right?
Sometimes you find somebody and they understand you, they want to work with you and they’re like, “I’ve got $1.5 million,” and you’re like, “I just need like $80,000 right now. Can you just set the rest of it aside?” So, you kind of go from, my guess is, and I don’t know your experience, but you kind of go from finding some people that have $50,000 or $100,000 that they can lend to somebody that has way more than that. Then your challenge is which lender did you use. How do you deal with that when you have multiple lenders that have a line of credit for you? How do you know where to go first?
Stacy: It’s kind of a puzzle. There are certain lenders that obviously if you have somebody who has a lot of money, you want to keep their money active all the time because they put a lot of faith and trust in you. You want to treat them and make sure they’re getting your returns. It’s a constant puzzle. You say, “Okay, you have this much. We’re going to take a portion of that for this property and we’ll save a portion for another property that I know will be coming.”
Jon: But all of our private investors, most of them . . . we had a few larger ones, but a lot of them will start out with maybe just one property kind of checking us out and then they see that their monthly or quarterly checks come. And then all of a sudden next month we get a phone call and say, “Hey, I’ve got another $100,000,” and then the next month, “Hey, I’ve got another $75,000,” or whatever it may be. And I’ll just kind of be joking with them, “What, have you got a CD come due?” They’re like, “Yeah.” I say, “You don’t want to renew it for 0.02%?” They’re like, “No, I like your rates a lot better.”
It’s kind of funny. Once they come in with us and they see what we do and we do what we say we’re going to do, then all of a sudden we get a couple phone calls a month and we’ll just politely find out what they have and write it down and say, “Right now we don’t need it right now, but let us know what you’ve got and if we have something that fits, we’ll be sure to give you a call back.” You’re right. Right now we’ve got a lot of availability, if you will.
Stacy: Yeah, we do. We have a list of people who have more for us like, “I don’t have the properties right now, but who knows. Things could change and next month I could give you a call. Is that fine?” And they’re always willing to work with us.
Mike: Yeah. To clarify for the folks that are listening or watching, you guys are using this for fix and flip money, not your long-term rental money, right?
Stacy: Absolutely. Yes.
Jon: Correct. So, for our rentals, basically what we’ll do is we’ll just go to . . . we actually office at a local bank. Basically, we’ll just refinance them through the local bank. It would free up their funds to go back to our flip business.
Most of ours are anywhere from three to five years. That’s kind of the terms with our private investors.
Stacy: Our private investors all have three to five-year terms and then most of the time they get to the end of their term and I’ll call them like, “Hey, it looks like you’re at the end of year term in six months. We’re writing this new one.” They’re like, “Oh yeah, extend me another five years.”
Mike: So, that’s three to five year terms for kind of the line of credit, right? But your typical house, you guys are probably holding for around three to four months for a typical rehab. Does that sound right?
Stacy: Maybe six months.
Jon: Depending on the size of the rehab, three to nine months, but yeah.
Mike: Yeah. Okay.
Jon: They basically said, “Look, I’m going to give you x-amount of dollars,” as long as the investment makes sense for them for the next three to five years.
Mike: Okay. So, tell me a little bit more about your program. You made some comments about it. How do you position it to investors? We’ll ultimately get into how you find the lenders. But tell us about the program itself. I’m assuming you have some marketing collateral. You ultimately are looking for people that know you or know of you. Tell us a little bit more about the actual program.
Stacy: Right.
Jon: All of our people that we work with, we have a relationship with, either a neighbor, somebody we bought a house from, some sort of acquaintance. Basically, we came up with a program. We’re going to pay X, the house is worth X and we’re looking to borrow X. It’s more of a mindset thing.
We’re not asking for money. We’re giving them the opportunity to invest and get a high rate of return, which they are having a hard time finding somewhere else. So, for us, we’re not asking for money. We’re giving them the opportunity to invest and earn a higher rate of return. It’s what’s in it for them, how we can help them, not how they can help us to buy a house.
Stacy: Right. We kind of started maybe the wrong way when we originally did it. We created a program and it was like a PowerPoint presentation. But I printed them off and put them in a flip folio kind of thing, totally old school, no high tech, super low tech. We go in and we’re like, “Okay, this is our business. This is what we do. This is the state of the market.”
We talk to them about investing with us versus investing in stocks because that’s kind of the alternative to get the similar rate. Then we’re like, “This is our program.” We have a minimum amount. Right now, it’s $20,000 minimum and they get eight percent quarterly. We’ve kind of adjusted it over term. We used to have first and seconds. We kind of got away with the second and did away with that a little bit.
Jon: Right.
Mike: So, you say quarterly, but let’s say you need a loan I guess halfway through a quarter then you sold it halfway through the next quarter. I guess you ultimately are paying out their interest at the time you sell it or quarterly payments, like whichever comes first, I guess.
Stacy: Exactly. Yeah.
Mike: Are they typically interest only loans or are you amortizing . . .
Stacy: Yeah.
Mike: Most people that want to invest with you, they don’t want their principal back, right?
Stacy: Right, no.
Jon: Yeah. They just want to keep it working.
Mike: Plus it’s good for you guys. You don’t have to pay the principal back and it’s good for you that you don’t have to build all these amortization schedules and stuff to manage short-term loans, right? What a pain.
Stacy: Yeah. It’s not worth it for anybody.
Mike: Yeah. So, talk about . . . I know what you guys went through because we’ve talked about this before initially and I think this will resonate with a lot of people that are listening to the show . . . you tend to think you’re trying to like get somebody to lend to you and you’re more about like, “Well, what rate of return do you want?” You’re trying to like sell them on it instead of like saying, “I don’t know if I want to work with you or this will work for you, but here’s what I’ve got. You either like it or you don’t.”
Talk about that phenomenon. A lot of new investors are fearful. They’re like, “Well, I’m paying 12 and 2 for hard money, so I’ll pay them 12%.” I guess probably a lot of investors can get by with paying less than they originally think because they’re comparing it to something like hard money. I mean, is that true?
Jon: Yeah. Again, it’s all in the mindset. So, yeah, when we first made some mistakes, it was more about us needing the money instead of us being able to offer a high rate of return to our investors. Once we had that mind shift, it’s a great opportunity for them to be able to invest and they can see where it’s secured.
They’re getting a note and a mortgage and a notice on the title insurance and the hazardous insurance and it’s a hard asset. They can drive by and look at it and all that stuff. It was more of a mindset shift. And then us with our meeting with them, here it is, this is what we’re offering. If you like it, great. If not, no big deal. We’ll just go to the next one. Just having the mindset that we’re offering them the opportunity.
Stacy: The other thing we put ourselves in the position of the investor. So, if you’re investing . . . when we started out, I would say it was like ’09 and ’10 and what are the investors, what are their fears? The stock market is doing crazy things. There’s been a bottoming out. A bunch of people just lost a bunch of money. They want something that has a consistent rate of return that they can count on.
Even at the time, even now, if you have it, like Jon said, in a CD, you’re getting next to nothing for interest. So, what if we could offer . . . kind of our tagline is we can offer two to three times what banks offer you. That sounds pretty exciting to people. They really like that. So, we didn’t need to necessarily do 12% with points because these people we’re talking to, they have no idea what hard money is. They’re not comparing themselves to hard money because they don’t even know what hard money is.
So, when you just say, “Hey, I’ve got a consistent rate of return that I can offer you every quarter without fail and I’ve got this hard asset and I’m securing you with 30% or more equity, that sounds really good.” So, we just put ourselves in their position instead of looking at it from what we wanted, what they would want.
Jon: Right. I think if you’re offering 15% interest, then they think it’s too risky.
Stacy: Too good to be true.
Jon: Too good to be true. So, if they’re paying that high of an interest rate, it must be really risky even though it’s still 70%, maybe you’re just buying 70%. But what we found too if you pay too high of an interest rate, they think it’s riskier than if it’s the exact same deal when you’re offering them 8% interest rate.
Mike: Yeah. It sounds too good to be true.
Jon: Yeah. It sounds too good to be true.
Mike: What is a typical rate that you offer in your program?
Jon: We had been at 8 and now it’s coming down to 6.
Mike: Okay.
Stacy: We tried to give some money back to people and they didn’t want to take it back. We’re a little . . . we’re just trying to adjust things a little bit. So, they’re like, “No, we want you to keep it.” And we’re like, “We’re going to have to go down to 6.” They’re like, “Okay.”
Mike: When you raise enough money, they know you have other investors and then like you said, they may negotiate themselves down, right?
Stacy: Right. Yeah. We have a guy who does a lot with us and he even told us, “I think you’re a little high. I don’t want to go down, but I think you’re a little high.”
Jon: But really, we just started doing it and then they loved their quarterly payments and then all of a sudden, “Hey, I’ve got some more money I want to invest,” then the next month, “I’ve got some more money I want to invest.”
Stacy: Or, “I want you to talk to my sister. I want you to talk to my neighbor. I want you to talk to my golf buddy.”
Jon: Right. We’re like, “We can’t help everybody.”
Mike: Right. You can’t save the world.
Jon: Right.
Mike: So, talk a little bit about . . . you guys don’t lend as well, do you?
Stacy: Not currently.
Mike: Yeah. So, I know some people that have gotten good at raising money. That’s one thing that they end up doing is, “I can borrow it at 6 and then I’ll lend it out.” So, truthfully most hard money lenders are backed by this situation, other private investors or maybe even banks that just are kind of arbitraging that amount.
I know that’s one way that people have gotten around saying, “I couldn’t raise any money and then I raised way more than I needed, so I had to either disappoint my investors or say here’s what I can do to keep your money busy.” That’s always a thought.
Jon: That’s a conversation we’ve been having recently.
Stacy: Yeah.
Mike: But of course that’s a whole new business, right?
Stacy: It is.
Mike: It’s an entirely different business and there’s already not enough hours in a day.
Jon: Exactly.
Mike: What are some of the mistakes that you made? Like if you could go do it over that you learned that people that are listening to this, you might be able to help them avoid making?
Jon: Sure. Yeah. When we were first getting into it, we would take them to a really nice restaurant and kind of show them our program. Everybody seemed really interested. It’s like, “Well, let me think about it,” and this and that and didn’t have a whole lot of luck. Then we started, well, instead of waste all this money, we just maybe meet at Panera Bread and buy a cup of coffee.
For whatever reason, maybe we got more comfortable, maybe we presented a little bit better, but then it really started clicking then. It was kind of funny. We tried to wine and dine them a little bit, take them to a really nice restaurant, show them our program or a really nice lunch and then not much luck. And then yeah, we just started let’s get together for a cup of coffee and then it’s just amazing.
Mike: It’s probably like the too good to be true interest rate. Something feels off that we have to go to a nice dinner to talk about this.
Stacy: I think maybe so.
Mike: Meet me behind the 7-Eleven and let’s do this.
Jon: Right.
Stacy: Well, the other thing we did with our little flip folio thing is we called up a guy that used to be one of our bankers who used to do a line of credit, small, local bank. We said, “We’ve got this program. We want you to look at it and tell us what’s right and what’s wrong because we’re trying to raise money.” He knew at that time that they just weren’t lending. It wasn’t him, it wasn’t us. They couldn’t do it.
We went to him and he said, “I would do all kinds of deals with you as a bank, but I can’t. But I would like to do personal deals with you.” We’re like, “Okay.” He came on board and he referred a couple of different people that have done a lot of business with us. So, getting people’s advice on it, they would be like, “I think I want to do that.”
Jon: It’s kind of funny . . .
Mike: Yeah, I have . . . go ahead, Jon.
Jon: We had the idea and like I say, we put together our presentation and we had a good relationship with this banker. We just wanted, “Hey, can you just review this for us? Would you change this? Would you change that? How do you think of it? What can we add? What should we take away?” He’s a professional in the business. He gave us advice and said, “I think it’s great.” He’s one of our private investors.
Again, it was somebody we had an established relationship with. He was very impressed with it and knew our reputation and everything. It worked out very nicely.
Mike: That relationship carries a lot of weight. Maybe talk a little bit about, for people that are listening, they kind of get this, right? There’s always this challenge when you’re new, you guys have done hundreds of deals, so you’re kind of legitimized.
Stacy: Right.
Mike: You have examples of hundreds of houses you’ve done. I don’t know your track record. I’ve done hundreds of houses. We have like a spreadsheet that shows our profit on every one and what the address was and how much we put in repairs. It’s kind of a big matrix of everything we’ve ever done. We’re blessed, I’m going to knock on wood here. We’ve only lost money on a couple deals, less than one percent of all of our deals, probably, or close to that.
Most people, when they see that, they’re kind of shocked, like, “Oh wow,” because they don’t really realize, the everyday person doesn’t realize how deep we buy our houses. There’s a lot of room in there for mistakes if you need them. But talk about to the newer person that maybe hasn’t done a lot of deals yet and doesn’t have the ability to share, “Here’s my track record,” which everybody starts there, right?
Stacy: Right.
Jon: Again, come up with your presentation and check with your attorney and your title company and make sure that you have everything ready to go. But then a lot of it too is just getting out of your comfort zone. I heard one time if you go out and show your presentation, somebody you know is really successful, maybe, “Hey, here’s what I’m doing. I’d like to run this buy you. Can I buy you a cup of coffee?”
And then run them by, show them your program and ask them what do they think of it, what they like, what they would change. I think that would be a really good way to get started and help grow your program and start your program. So, just asking for their advice, especially somebody that’s well-respected and that you know.
Mike: Right.
Stacy: I think with us, you have that equity in that property built in. We tell them your investment is based on more than they’re actually putting in. So, if they’re lending, let’s say $100,000 but the house is worth $160,000, your investment of $100,000 is based on a value of $160,000. So, they kind of like that concept. Also, knowing that they’re going to be the first people who get paid. When you lost money on deals, your investors or bank or whoever, they still got paid. You’re the one who lost.
Mike: They didn’t even know we lost money.
Jon: Exactly.
Stacy: They had no idea. We’ll say we maybe didn’t make money on every single deal we’ve ever done, but our lenders always made their money.
Mike: Right.
Stacy: Having that commitment to your lender and that honesty with them.
Mike: Yeah. And if you’re new, based off what Jon just said, sometimes when you’re new, maybe you have to pay a little bit higher rate because you might be seen as a little more risky, until you build out your network and things like that, it might just be that you have to pay a little bit more.
Stacy: Right.
Mike: And you guys, we haven’t said this yet, but one of the challenges when you use hard money or even traditional banks, if you buy houses the way we do where they’re heavy rehabs, is you usually have repair draw that’s in an escrow account somewhere, probably at the bank, they need to send somebody out to check that the repairs were done. And then you have to request a draw and you have to pay for it and all that stuff.
But with your private lenders, I assume you guys are just basically baking that into the loan upfront? How are you managing your draws? So, you guys just take possession of that money and pay your repairs as you need it and not have to worry about repair draws and inspections and all that, right?
Stacy: Absolutely.
Jon: That’s one of the best things. You don’t have to deal with the banks telling you when they’re going to give you your own money that you’re already paying interest on for draws and repairs and all that stuff.
With us, we get all the money up front and then we do the repairs. We’re not doing this huge paper shuffle back and forth with the bank. So, again, it goes back to that speed and ease of transaction. It’s by far the best way to go.
Mike: For sure. Yeah. What would you do? Let’s say you had to start all over again. I’m asking this question in the context of other people that are listening right now that maybe are interested in doing this and they’re going to start. How would you build your own program? Kind of give a high level pitch of how you would start your own program?
Stacy: Yeah. I think you need to sit down and say, “What do I want to pay? What do I feel like I’m comfortable with terms?” We use 70%, but maybe you’re like, “I really need to use 80% because I’m new and I want to make sure there’s plenty of money for me or whatever the case might be.”
But you have to determine what your comfort level is and what you can present. Create that and then we kind of became instead of real estate investors who fix and flip houses, we became real estate investors who help other people make money in real estate. You position yourself in a way that you’re not asking but that you’re helping.
Jon: And then to double-check with your title company, with your attorney, whatever type of closing you use in your state, just ask them, make sure that you’re doing everything right so that you and your investor are protected. That’s what we did. We took it to the title company and said, “This is what we want to do. How does it need to be structured?” So, it’s all hands off for us. It’s there. They get everything to the title company and the title company does what they would do just as if they got the money from a bank or mortgage company or whatever.
Mike: Right. That’s great.
Jon: So, that would be one of the main things to do is make sure you have all your paperwork and everything right.
Mike: Yeah. I’ll tell people that are listening right now. None of us here are attorneys, so we’re not giving you any legal advice.
Stacy: Absolutely. Yeah.
Mike: But I’m going to add a link below the show here on FlipNerd to an episode we’ve done with Jillian Sidoti. I don’t know if you guys have met Jillian.
Stacy: Yeah, absolutely.
Mike: But Jillian helps people raise money, specifically for real estate investing. She’s like the go to person. So, I know there are a lot of regulations. I’m not an expert, for sure, but I know a lot of them have changed over the past couple years in favor of what you’re doing and making it easier for us instead of having to jump through as many hoops as maybe investors have in the past.
If you’re interested in this and you want to stay safe, Jillian is an attorney and this is what she does for a living. I’ll link to that show.
Stacy: Excellent.
Mike: I think that show has her contact information for her firm in there so she can answer any questions you have. Pretty much everything I ever say you have to take with a grain of salt. I think I’m an honest guy, but . . . awesome. You kind of said you started with a PowerPoint presentation and almost like a flipchart presentation. Do you still do that? Have you kind of simplified it?
Stacy: We still do if someone’s new. But quite honestly, it’s been a year and a half or two years since we’ve had to raise private money. They keep bringing us more and they refer their friends to us. Now, there might be a time when they’re like, “I want you to talk to my son or my brother or whatever.” We would bring them in and probably go through the exact same flipchart.
Jon: Yeah. We haven’t had to use it or pull it out in quite some time. All our people are trying to give us more money and we’re trying to say, “We can’t take it right now.”
Mike: You can’t even use it all, yeah. Awesome. Well, guys, is there anything that we missed out today? Is there anything we forgot to cover?
Stacy: I would say one thing. If you’re new, this is totally outside your comfort zone, I get that, making phone calls. I talked to a gal at my gym at the time. Her husband was rehabbing this really big $700,000 house and I was chatting with her about it and gave her a little sneak preview of the program.
She said, “You mean I wouldn’t have to pick out paint and carpet and design it? I hate doing that and he makes me do it then the property sat on the market for too long.” She’s like, “We could invest with you and you could deal with all that? Oh my gosh, we totally want to talk to you.”
Then when we were talking to them, we said, “Well, who else do you know who might be interested?” They’re like, “There’s a guy and he’s a retired dentist. Maybe he would want to.” You just start making phone calls and make it your focus. You want to buy houses, that’s your focus. We’ll make raising private money and who you can talk to a focus.
Mike: Yeah. You guys know Corey Peterson. He has become an expert at raising money. I had him on the show a long time ago where he was not as much an expert as he is now. He gave a really good tip to basically kind of prepare your presentation like you guys have, but not necessarily say to the person like, “Would you be interested?” They might feel uncomfortable. Basically say more of like, “Do you know anybody that might be interested? Can you look at this? Do you know anybody that might be interested?”
Stacy: Absolutely.
Mike: Sometimes they’ll say, “Well, I am.” But it’s just in the positioning. It might make you feel more comfortable to not be as direct and then ultimately you might catch that person in your net, I guess.
Stacy: Right.
Jon: And again, you want to show them your program and you want to get their feedback and say, “Hey, can I pick your brain? Can I run something by you? I’d like to get your feedback.” Then it kind of opens the door and they’re looking at it like, “Oh wow, this is pretty good. I think this is something that we might be interested in,” or whatever.
Mike: Right. Awesome. Well, guys, thanks for joining me on the show.
Stacy: Thanks for having us, Mike.
Jon: Sure. Yeah. Good to see you again.
Mike: Good to see you guys. It took a couple years for me to get you guys on here. I appreciate you being here with me today.
Stacy: I know.
Jon: Yeah. You know with the kids and you’re running your own business, there’s just not enough hours in the day all the time. I’m glad we’re able to finally get together and work it out.
Mike: Absolutely. I get it. Well, this is great information. Thanks for joining us. Everybody that’s listening today, this is episode number 361. I appreciate you being here with us today. Keep an eye on it. We do this for our elite members.
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