What is private money? It’s a simple concept, and today, Matt Andrews joins us to clarify it once and for all. Matt shares his best advice for how to raise private money, and why it’s likely much easier to access than you think. In the 2nd half of the show, Matt shares specific advice on how to find and talk to private lenders…and even shares a link to get his slides to prepare your own presentation! Don’t miss it!
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 307 and my guest today is Matt Andrews. Matt’s become a good friend of mine over the past couple of years and always a wealth of knowledge. He’s a real estate investor, a mentor, an author, really an expert in a lot of areas including automation and private lending.
Now, if you see the benefit of having access to capital to run your real estate investing business that is relatively easy to find and plentiful, you do not want to miss today’s show. Now, Matt’s going to share many of the benefits of private lending, how it can work for you. A lot of times people don’t think, “I can do this,” because they get caught up on the phrase “private money” or some institutional-type phrases and really it’s finding people that are in your circle of influence that might want to lend to what you do.
So in the Taking Action segment of the show, part two of the show, Matt even tells us how to find private lenders, who in your circle of influence are the likely people that you should go after and really what to say to them, how to say what it is you’re offering, and how to create the customer avatar. You’re looking for somebody that fits a certain criteria. Matt shares with us how to think through that.
In fact, at the end of the show, Matt even offers to share a presentation that he has just finished putting together on this topic, Raising Private Money. It’s very much a template for you, completely free. So stay around until the end of the show and Matt will share his simple guide to help you learn more about raising private money.
So let’s go ahead and get this show started. Please help me welcome Matt Andrews. Matt, welcome to the show, my friend.
Matt: Good to be here, man. Good to be here again.
Mike: Yeah. Happy to have you back. For those that are just joining us right now, Matt and I have actually been talking for almost an hour. Every time we get together we’re like Chatty Kathys.
Matt: We’re just gabbing like a couple of gals, yeah.
Mike: Yeah. Cool, man. We’re really excited to have you on the show today and excited to talk about kind of private lending. We’ve had people on the show before that are syndication attorneys and stuff like that are talking about it, but I think that word sometimes, that phrase “private lending” just sounds like it’s a scary thing, when all it is is find somebody to loan you money. It doesn’t have to be this big thing.
I know we’re going to talk about a couple of things today which is what it is and then ultimately in part two of the show, the Taking Action segment, we’re going to talk about how to talk to private lenders, how to find them and you’re going to share some great tips for how to find those folks.
I just want to say upfront neither one of us are attorneys. We’re really good looking guys, but you should consult an attorney for the legal side of this. This is more of hey, if you’ve got that legal stuff taken care of, then this is how you do those things, how you block and tackle to make it happen.
Matt: Or the marketing side of it and the selling side of it, sure.
Mike: Yeah. So Matt, I know you’re world-renowned and well-known, but for those that maybe don’t know you or need to be reintroduced, why don’t you take a couple minutes and tell us about who you are?
Matt: Yeah. I appreciate it. Thank you again for having me here. I love you guys, love FlipNerd, just love all the awesome information. I’ve told you this before Mike and I’ve thanked you for this before. But I learned a ton from listening to your podcast and there are so many people and so many experts you bring on in so many different niches that I don’t know about. So for me, FlipNerd is a little bit like an idea incubator for me. So the more I can see what other people are doing, the better we all are.
Mike: I appreciate that. Truthfully, obviously you’ve had a podcast and done a number of things before. It’s the same thing for me. When I started doing this, I thought I kind of knew a lot. You start to realize how little you know when you start to talk to a lot of other people, right?
Matt: Sure. And there are certain things you think you’re good at and then you meet somebody who’s really good at it and you’re like, “Oh man, I’ve got to up my game.” That’s why we do this.
Matt: So I very much appreciate you having me back again. Yeah. Private lenders is something that I’ve been utilizing in my business for quite a few years, but really in the last couple of years and even more so in the last six to eight months, we’ve really been dialing in how do we find the ideal private lender. How do we position ourselves so that it’s not just, “Hey, give us money so we can use it for real estate deals.” It’s more like, “Hey, I’ve got an opportunity here that you wouldn’t have and you wouldn’t even know about if I wasn’t offering it to you.”
So there are so many people out there. I’m sure you’re invested in other things besides real estate. You probably have some stock and maybe some CDs and everybody has all these different investment vehicles. What’s a CD making these days? I haven’t even looked lately, but nothing.
Mike: Less than one percent, probably.
Matt: Yeah, at the best, 1.5, something that would over-perform would be like a 2% or something like that. There are so many people out there. The mutual fund is underperforming and all these different vehicles that when you can offer someone an opportunity, an intelligent person an opportunity to make a double-digit return on something with no risk or with minimal risk to them, that’s going to get people’s attention, right?
So positioning ourselves from changing the position, shifting the paradigm from, “Can you give us money?” “Please, somebody lend me money because I need money,” which is not a position of power, to, “Hey, I’ve got so many great deals and so many opportunities coming at me that I need more funds to put to use. I need more funds to deploy.”
Those are the kinds of terminologies we use. “I need to deploy more capital and so I wanted to offer you this opportunity.” That kind of positioning, that kind of language is magic to the ears of a smart investor who could be a private lender for you and it could be anybody.
Matt: You’ve worked with tons of private lenders. I’m sure you’ve had some that have come from sources you never thought they’d come from, right? So you don’t know where these people are going to come from and being open to and then starting to create a process for qualifying, bringing them in, explaining the opportunity and then you choosing who you want to work with as a lender, that’s the way it should be. We’re real estate investors. We know how to make money in real estate. Most people don’t. That’s a benefit to other people.
Mike: Yeah. I think we sometimes forget about the fact that a lot of people want to do what we do, but they’re never going to do it and it’s a way for them to kind of participate.
Mike: Hey, Matt, let’s take just a minute. You forgot to introduce yourself. Who are you? Who is this guy that’s been talking now? Who is he?
Matt: Yeah, sorry, guys. My name is Matt Andrews. I am Mike Hambright’s big brother. No, I’m just kidding. I live in Tampa, Florida. I’ve been flipping, wholesaling, rehabbing since 2000. Really my business exploded during the horrible years of 2008, 2009, 2010. That’s when my wholesale business really blew up in a good way. I started selling to a lot of international investors, started creating a lot of turnkey properties, started creating and selling packages of properties, so kind of like super wholesaling packages. And really through that started looking at other markets.
A few years ago I moved into Michigan and over the last couple of years now Indiana, Ohio, some of those Midwest markets to do the same kind of thing. So I think we’re in five markets now, flip, wholesale, rehab and all those markets. We have an education company too which is Real Estate Freedom. So do a lot of wholesale training and a lot of curriculums and educational programs and certifications and that type of thing there.
And really, you know this, Mike, and for anybody that might have seen the previous podcast I did with you guys, everything we do in real estate, we try to make it as virtual as possible. In fact, we’ve very much gone after creating a process by which we don’t need to physically be anywhere and can handle everything through DocuSign and all these other great tools that we have today.
So the last three, four, five years have really been everything is to get to that point. We love to travel. My wife and I, as you know, as you’ve been a contributor to some of our charities in Jamaica and India, we love to travel. That’s what makes us feel good. We love to help people. We like to do outreach work. The cool thing is with what we have today, I can be in India working with children in one of our homes and can literally be flipping a property back in Florida or Michigan.
Mike: It’s pretty incredible.
Matt: Overseeing a team that’s in place there. I’m just glad it’s 2016 and this is when I was born. I couldn’t do this in 1898.
Mike: No. You definitely are inspiring with as much as you guys do. Definitely one of those guys that practices what they preach. Glad you’re here.
Matt: If it all comes down to one word, you and I have talked about this before, it’s freedom. That’s what we work for. If you’re working for money, you’re going to get it eventually and then you’re not going to know what to work for if you’re doing things right. You need to have something behind that desire for money and finances that really fuels what you do.
First and foremost it’s freedom. With that freedom comes responsibility. What do you do with freedom you’ve established? Well, if you think like I think and like I know you think, it’s how do we help other people and how do we enrich other people’s lives and then how do we make business and outreach and all that stuff? How do we make that all one big thing that feeds into each other.
Matt: I guess that would be in a nutshell.
Mike: Yeah. It’s a great way to transition to talk about part of the way you get that freedom, part of the way you can justify spending the resources and the effort to build processes and be more virtual, is if you can actually fund deals, so kind of jump right back into the private lending stuff here.
Mike: Let’s just talk about . . . I think a lot of people realize, I think where we left off was a lot of people don’t realize maybe the guy next door or the person that I work with or even a friend or family member you never addressed it with, you don’t realize they . . . more than ever, I think people are dismayed with the stock market. I think there was a time when people were like, “I want to invest in things I know,” and I think most people realize now that it just seems like a big shell game.
There’s so much financial engineering going on and even if I know that company, like Starbucks or Nike or whatever, you don’t have any idea what’s going on to drive the financials in that company.
Mike: I think people because of the TV shows and podcasts, people want to be a part of it even if it’s not actually getting their hands dirty and doing actual deals, it’s like, “I can fund deals.” I think until you kind of introduce that to people, they maybe don’t even know that is a thing, right?
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You don’t have any idea what’s going on to drive the financials in that company. I think people because of the TV shows and podcasts, people want to be a part of it even if it’s not actually getting their hands dirty and doing actual deals. It’s like, “I can fund deals,” I think until you kind of introduce that to people, they maybe don’t even know that is a thing, right?
Matt: Absolutely. Yeah. Most people, and we’ll talk about this a little bit more later, but most people that become good private lenders for us and especially over the last couple of years that have become trusted, awesome lending partners for us, never thought of themselves that way before. They certainly weren’t coming to me saying, “Let me be your private lender.”
They didn’t even know that was an opportunity. Like you said, it could be your next door neighbor. It could be you’re at the swim lessons with the kids and there are other parents there. You just don’t know. How do you find those people? You’ve got to be bold and you’ve got to ask and you’ve got to talk to people and you’ve got to put it out there. I’m not saying hand a card out to everybody that says, “Want to be my private lender?” That’s cheesy and that’s not the way you do it.
Mike: You don’t just post it on Facebook and say, “Anybody looking for double digit returns?”
Matt: Yeah. Exactly. You don’t do a cattle call. It’s more like an invitation, an opportunity that you’re presenting, right? You haven’t just asked anybody or wouldn’t just let anybody do this, right? So a lot of it just happens . . . in all of business, in all of real estate, so much of it, and I’ve thought of so much of this lately, it’s just being bold. What’s the worst someone can say when you ask for something? No?
Matt: That’s not that bad. You move on with your life, right? We sometimes think, “I’m not going to ask.” We build this fear around asking someone to go into business with us or be a private lender or asking a cash buyer to buy a property from us or asking a realtor to do this kind of work with us, whatever it is. We’re sometimes afraid to be bold.
The way I get over that is think about what the worst case scenario is. If you need this realtor to do this for you or you want this realtor to do this and you ask him to do that, what’s the worst he can say? No, right? Your family is still alive. You didn’t lose any money. You’ve just got to know. You can move on with your life.
Matt: Every no you get gets you closer to that yes. It’s just asking. I told you I was going to tell a story from when I think I was five or six years old. This was when I first started. I look back now and I was taught this concept. I didn’t realize it at the time. I think I was at, we were just talking about Clearwater Beach before the show. I was at Clearwater Beach. It was a beach area.
Mike: You were raising money? You were five years old and you were raising money?
Matt: I was raising money. You’ll see where I’m going with this. I’m there with my family. There’s a pool and ocean and stuff. There was like a tiki bar, like one of those tiki bars, right on the beach, music blaring and stuff. I think I’m five, maybe six years old. I started seeing those little mini umbrellas that they put in drinks. I had never seen those before, cocktails, those little miniature umbrellas. I thought those were super cool. I was five years old and I went, “Super cool little umbrellas. I want one of those umbrellas.”
Somebody told me, I forget who it was, maybe one of the adults that my parents were with told me you only get that if you buy a drink or whatever. My uncle I think it was said, “Go ask the bartender for one. He’ll probably give you one.” So I go over to him and I’m like, “Excuse me,” I’m like over the bar, “Excuse me, can I have one of those umbrellas, please?” He kind of looks down on me like, “Yeah, sure.”
So he gives me this umbrella. I think it’s the greatest thing in the world. I’ve got the beach, I’ve got the ocean, but I’m playing with this mini umbrella. I’m like, “I’ve got to get another one.” I’m like, “One umbrella is not enough.” So I go back to him, “Can I have another umbrella?” So he gives me another one. At five years old, what’s better than two umbrellas?
Mike: Yeah, three.
Matt: So I go back to him five times. And I’ve now got five umbrellas. The sixth time I go back to him, I’m like, “Can I have one more umbrella?” He reaches onto the bar, he pulls out the entire cup of umbrellas, there were like 100 of them. He just says, “Here.”
Mike: Don’t come back.
Matt: That was it, dude. I was ruined. I was like, “All you have to do is ask.” If you ask the right questions, for him it was just being persistent. I look back on that now. I use that a lot throughout my life. It’s just being bold. As silly a story as that is, it’s true. You ask the questions, you’re not afraid. What’s the worst that bartender could have said? “No, kid, go away. You’re bugging me.” I would have moved on with my life, never would have thought about it again. What I learned was keep asking and you’re going to get the entire tub of umbrellas.
Mike: Yeah. I know some people that their strategy . . . I’ve talked to some folks about raising private money, how they position it, it’s not so much of a fear of like, “I don’t want to ask you directly,” but they’re a little more indirect like, “Hey, I’m a real estate investor. I’ve bought quite a few houses” and basically positioned it as, “We may have an opportunity to bring a new private lender on. Do you know anybody that would be interested?” You’re not asking the person directly, like, “Do you know anyone in your network?”
Matt: That’s a great way to ask.
Mike: It could do two things. Sometimes it’s like, “Why didn’t you ask me? I’m interested.” It’s almost like a scarcity tactic. “I’m interested in anybody other than you,” and they’re like, “I’m interested.” But sometimes if they’re not interested, they’re like, “I know somebody else that you might consider asking.” So it could open up some new doors for you potentially.”
Matt: I think that’s a great idea and you ask every person that. A lot of people are going to be like, “Yeah, what about this guy that you didn’t ask. So yeah. I think that’s a great way to do it. Even if they aren’t that person, say, “Who do you know that would?” Get lists from people and say, “Hey, there might be a little referral fee in there for you.” There are different ways to incentive people to bring you people that might be like that too.
That’s just one of many ways and many places, but obviously the first most natural place to look is right there in your own sphere of influence. You might have everybody you need right around you already, but you haven’t asked the right questions or you haven’t asked the right question enough to get the tub of umbrellas. That’s the way it works.
Mike: Matt, we’re going to jump into the Taking Action segment here in just a minute where I know you’re going to share more about where to find them. I know we talked a little bit beforehand. You’ve got some great tips for that. Before we jump into that, though, we’ve got a question. I purposely didn’t tell you what it was. But we’ve got a question from somebody off of Twitter. I knew this would be a great question for you. What are the pros and cons, this is a totally different subject here, pros and cons of working with your spouse as an investor, which you do.
Matt: That’s a good question, man.
Matt: How can I answer this that won’t get me in trouble with my wife?
Mike: Yeah. Let’s pretend that she’s not going to listen to this and let it all fly, man.
Matt: Yeah. I think a lot of it, obviously it’s an extra layer when it’s a husband and wife or even like a family member that’s a partner or something like that. It’s different than just a traditional business partner. There’s an extra layer there. The principles are the same. It’s first finding out, do you have complementary skills. Just because you’re married doesn’t mean you should be working together. So I think assessing that first and then if you agree, “We have some complementary skills here,” then it’s figuring out how to get in that lane and stay in that lane.
For me, I guess I should say I mis-assessed when Lindsey first became part of our company because I was a marketer and I made videos and my face is out there and that’s how we sold properties was kind of selling, I’m the investor in the Tampa Bay area starting out. I marketed myself. Lindsey hates that. She hates being in front of the camera, hates being on video.
In the first few years of our business, I had HGTV coming and shooting demo reels in my home market of Tampa. Lindsey’s on camera. She’s great on camera, but she hates it. I had her in the wrong lane. It was the exact wrong place for her to be. I thought, “Okay, she’s kind of like me. She’ll be the other half of this marketing side,” or whatever. Marketing is not her thing.
So early on, not as early as I should have figured it out, but after a couple of years of trying to fit a square peg in a round hole, she said, “I hate this being out front stuff. This is not me. I love you doing it. You’re great at it. This is not right for me.” What Lindsey’s good at is organizational structure, accounting processes. She’s great at hiring. She’s not as good at firing. I guess I have to come in and do that. She’s great at creating a framework. She’s great at training people. She trains our accountants to do the processes we need.
So she is the . . . she’s not that type A personality who’s all over the place like me. She’s the organized one. So one we figured out those lanes and really said, “This is what you’re going to do, this is what you’re good at. This is what I’m going to do because this is what I’m good at.”
It’s then about, “Okay, what do we both kind of stink at? What should neither of us be doing or what are we both miserable doing?” And a lot of that was some process stuff that we hired out to some in-house assistants, some virtual assistants, some virtual accountants. There are so many resources out there just on Elance alone.
Matt: It’s kind of like, “What do I hate that’s left that I can outsource?” I think that was it. Getting each other in the right spots. For me it was listening to her so I knew that she was in the wrong spot and then filling in the gaps that you don’t have. I think where a lot of people get in trouble is they both think they have to do everything or it’s a husband and wife team that they both have to be meeting with the contractors or they both have to be picking out colors. There’s very little that Lindsey and I and our business do redundantly.
Matt: You need to divide and conquer. There’s very little that we do together because we’re not good at the same things. So it’s kind of a long answer.
Mike: Yeah. I think I would have answered it almost the exact same way. My wife, also named Lindsay, she’s great on the operating side. I think it’s really important to identify what your roles and responsibilities are. I think you said a great thing that really took me a long time to pick up on too was, I just kind of assumed, “There’s some stuff she’s good at but she just hates doing it.”
So it was like I was kind of like almost like forcing her to do it because I didn’t want to do it. I thought, “You’re good at that,” without thinking, “Do you like that?” You’ve just got to find those things that you really don’t like doing and find another way to get them done, otherwise it’s easy to get this friction between, “I’m doing the crap and you’re doing the fun stuff.”
Matt: Exactly. And Lindsey likes doing the stuff that I think is kind of crap. She likes the organizational structure. She likes list making and checking off stuff off the list and processes and scheduling and calendar, just making sure the calendar is set the right way. All that stuff that if I didn’t have her, the business would be probably half as successful as it was because it would still make money, but it would be very, very inefficient.
Matt: That’s the piece of it for me. And then the outsourcing piece is huge. The outsourcing piece probably saved our marriage because we stopped trying to make each other do things that we didn’t have business doing.
Mike: Yeah. That’s right.
Matt: We can focus on the important things.
Mike: Well, hey, we’re about to jump into the part two, Taking Action segment and talking about how to find private lenders and how to talk to them, all the places that I know you’ve got some great tips you’re going to share. So why don’t we go ahead and let’s jump right in to the taking action segment and talk about how to find private lenders and how to talk to them, the places that you . . . I know you’ve got some great tips you’re going to share.
Matt: Yeah, man.
Mike: So why don’t we go ahead and let’s jump right in to the Taking Action segment?
Matt: All right.
Mike: Go ahead, Matt. Lead us down this path.
Matt: Take action. You guys all know what private lending is, I’m sure. It’s really any private source of funding that you’re using for your business, right? It’s not a terribly hard concept to understand. So why do you need private lending? For starters, you need it to scale up. If you’re using your own money to buy and sell properties and you want to do more than you’re doing but you don’t any more money, how are you going to scale it up? Obviously that’s where private lenders come in.
It’s also a great benefit. Once you start using private lenders yourself, there are a lot of options you have to offer lending possibly to other people or to hook up private lenders with buyers in some cases too. Maybe you’re selling to a buyer who needs a private lender. So it’s just another benefit that you can bring to your investor buyers and it sometimes will facilitate the deal or be the difference between having that deal or not. It just gives you more options and allows you to scale it up. Like you said, it can be anybody in your sphere of influence. It could be anyone.
So what does a good private lender look like? I went after some of the wrong ones early in my business and that’s why I know what I think is a good one is now. Here’s the, if I boil it down to one thing, here’s probably the one thing that when I look back at the people that I’ve had these relationships with that have been good private lenders for me, the one thing that I can say about all of them is they were somebody who took the time to understand what I did, but they didn’t want to do it. Does that make sense?
Mike: Yeah. Absolutely.
Matt: They got it. They were smart enough to conceptually understand they could go into the real estate business too. When I first started having private lenders come to my business, I was buying a lot at the auction. These guys knew the auction existed. These guys knew they could go down there every day and bid if they wanted to. They knew the process or had a periphery understanding of it.
They just knew they didn’t want to do it. They sold a software company or they’re in this business or they’re over here in this business or something unrelated. They got my business. They could have probably built one themselves, but they didn’t want to. That was the key characteristic of all of them.
So other real estate investors that do exactly what you do are not always the best lenders. You want somebody who understands it but doesn’t want to do it. That’s the difference between somebody who will kind of be part of your business and somebody who will get up in your business.
Matt: You don’t need somebody to get all up in your business. A good private lender doesn’t want to micro-manage you. A good private lender doesn’t want to know all the minutiae. They want to know what’s the end result? What’s the term? What’s the rate? What’s the end result. So they’re driven by the end result, not how do all these little moving pieces work.
Mike: Right. That’s the benefit for them as a lender. You ultimately are . . . you truly are an investor at that point. You’re not getting your hands dirty. You don’t have to deal with permit issues or deals falling through or all these things. You can truly just be for the most part pretty passive.
Matt: Passive. That’s the key word. That’s what most good private lenders will want to do. They want to make their money work for them. Like I said, most of my best lenders have made their money elsewhere, not in real estate. They’re smart business people, but they made their money elsewhere and they see the benefit. They know they’re not making money in their mutual funds or their CDs. So that’s one of the biggest characteristics.
Then after that, you’ve got to create your marketing plan. How are you going to go after these people? Where do you find them? How do you bring in leads for private lenders? Like you said, it could be anywhere. It could be your next door neighbor. Here are the ones that . . . and this is probably the real nitty-gritty. Here are the sources that find the best private lenders.
Number one has been and will always be the one you already mentioned, networking. Talking to people, asking questions, those great leading questions you asked, like, “I’ve got an opportunity that I can bring on another two or three private lenders. “Do you know anybody who’d be interested in making double digit returns on properties like this or loans secured by properties?” “Yeah, Mike, me, your next door neighbors.”
Mike: “What am I, chopped liver?”
Matt: Exactly. That’s a great way to frame it and a great way to bring them to you without saying, ‘Will you lend me money?” That’s one place. The next, probably the best for us, well, the best out of all of them is taking my existing buyers and converting them into private lenders. If I was going to choose a percentage, and by the way, 78.6% of all statistics are made upon the spot. So I’m going to say the top five percent of your cash buyers.
Mike: These are people you typically wholesale to, right?
Matt: People that you wholesale to, absolutely. Or people that you’ve sold turnkey properties to or anything, that have liquid capital that you’ve sold to, that you have a relationship with. For those of you that have been in the business for a while, you know who the pain in the necks are and you know who the easy people to work with are. You know, “Hey, I’ve got this fantastic property. I’m going to call Mary because Mary is super easy to work with. I’m going to give her the first shot. Joe would probably buy it too, but Joe is such a pain in the neck.”
So you’re looking for the Marys, the buyers who have bought from you before, the buyers who have been easy to work with. They’re not pushovers because they’re smart people, but they let you do your thing and they have confidence in the process and they see the end result. Those are the kind of people that we look for.
So let’s say the top five percent of your buyers. And then you offer them an opportunity, very much like you just said. The way I’ve done it a lot, and this has been probably one of the best things we’ve done in the past year, is sending out a message to a pre-selected group of cash buyers and, “You’ve bought some properties from me before. We’ve enjoyed working with you. I have just fired a couple of my institutional lenders I’ve been working with for a while,” which is almost always usually true. I’m almost always firing some bank that I’m not going to do business with anymore.
So then you can claim its validity. “I’m not working with this bank or that bank anymore and I’m going to offer the opportunity that I was giving to those lending institutions to a select few of my VIP buyers. That’s why you’re receiving this email. I have an opportunity right now to actually be a private lender, to be led on the inside of my business, become a private lender and fund some of these projects to get passive income.”
When I send out a message like that, I say, “I did this recently with so and so,” and I’ll even put like a light testimonial in there, like, “We did this with one of our VIP members in our mastermind last week and here’s how it worked. John was very, very happy about not doing anything other than letting the money work for him and getting paid in three months or six months or whatever it was.”
Mike: Absolutely. Yeah.
Matt: So that conversion, if you guys have a buyers list, everyone listening right now, you’ve already worked to build that buyers list, you’ve already got your beginning list to start looking for private lenders. Those are investors looking for a return. If it’s a return on paper secured by real estate instead of an actual rental return, many times that’s great for them and it’s less work for them.
Mike: Absolutely. I think the idea of testimonials or, “Here’s who I’ve worked with,” is powerful and truthfully, this is not to say that you can’t do this if you’re brand new, but this gets easier when you’ve done some deals, right?
Matt: Oh, yeah.
Mike: Because you can go back and say . . . especially guys like you and me who have done hundreds of deals, even with a bank early on when I was trying to get my foot in the door of the bank, we created this flip book of examples of deals we’ve done, what we’ve paid for and how much we put into it, the date we bought it, the date we sold it and we could kind of prove . . . the question was always like, “How did you buy it for that?” or, “Wow.” They can visualize what it is you’re trying to do and that changed everything.
I think it goes from a concept to these are real examples of pictures of before and after and how the numbers worked out. Along with testimonials, it’s really a testimonial of your experience as well. All those things are powerful.
Matt: Absolutely. I always try to think, I always have the words on my mind, “Set a clear path.” So if you’re offering an opportunity for lending, just like the same as if you’re offering an opportunity to buy a wholesale property from you, you are providing that person with a clear path of how this turns out.
You do that through testimonials. You do that through, “Here’s how we did it before,” or if you haven’t done it before, you do it showing how completely competent you are knowing the numbers on a deal, knowing how it works, showing comps. Even if you can’t show comps of other properties you did, show comps of other properties that fit that same profile.
That’s something really important for some of you might be just beginning or have never done a private lender type scenario before is to say, “Here are some wholesale deals we’ve done. Here are the numbers on those deals, here are some pictures, here are some numbers,” maybe even I like the idea of a flip, a nice easy ten-page flip thing.
Mike: Yeah. We just created it in PowerPoint.
Matt: Almost like a mini-prospectus just to show them that clear path and say here’s what’s possible and you give them that clear path and you let them sell themselves on it. It’s not a hard sale if you’re talking to the right people. So that’s been absolutely huge for us. That’s, without a doubt, number one, the best thing. I kind of put networking and using your existing network as number one.
First and foremost is networking and using your existing contacts, your existing group of buyers. If you’ve built your buyers list for a while, you may not need to go any further than that. You may not need to do any more marketing than just that. I don’t know how many private lenders you need, but you do it right and you get the right people, how many do you need, like two or three?
Mike: It depends on how much money they have to invest and how much deal flow you’re doing.
Mike: Maybe you can talk for a second, you kind of hinted on this a couple minutes ago, I’m sure you’re going to understand this when I say this and a lot of people listening will too. I started in 2008 when the market was tanking. It was hard to find certainly banks that would lend.
But then it gets to a point where of course the market got better and improved over time. I think most people who are trying to raise money, whether it’s private money from private investors banks, you quickly go from, “It’s hard for me to find lenders,” to, “I can raise far more money than I ever need.”
It’s interesting. It sounds like a good problem to have, but it is a challenge because if you find a private investor that wants to lend to you, you need to be important to them. You don’t want to find somebody that’s like, “Yeah, I’ll lend $1 million.” You’re like, “Awesome. I just need $80,000 right now. Can you just stick the rest of it on a shelf there collecting dust for me in case I need it again.” You want to keep people’s money busy. That’s why they want to work with you. So maybe talk about that issue.
Matt: Yeah. Absolutely. That’s exactly the kind of person you’re looking for, somebody who needs their money to work for them. We use language like capital that needs to be deployed because that’s way different than, “I’ve got to somehow figure out something to do with this money.” It’s like, I’m looking for real estate investors who have this much or more liquid that they need to deploy and get working for them right away because then you’re speaking to the needs of that person. And you’re speaking when you’re talking that kind of language, you’re speaking to a higher level individual too.
So setting qualifiers of what kind of funds they have and setting some expectations, you’re the one who really in the end, you’re the one that decides if you’re going to work with them. That’s the way it should be positioned.
So if you know . . . we have it dialed down to even if we would accept somebody with a couple hundred thousand dollars, I’m going to say we’re really looking for people that have half a million dollars or more in liquid capital. We’re really only looking for two, possibly three more partners at this time, but we work with a very small group of people because we want to do residual business over and over again.
If you just want to lend on one property one time, this is probably not the right thing for you. I’m happy to sell you some more wholesale properties. You can do whatever you want to. You can offer owner financing when you sell or whatever you want to, if you just want to make $50,000 work for you or something like that. This opportunity I can really only offer to people that meet XYZ criteria.
Then you put them in the position where they qualify themselves to you and then you choose them. When you choose them and you position it as, “I offered you this opportunity because I chose you and identified you as somebody that I respect and would let be in business with me,” that’s so different than, “Can I borrow some money? I need money to fund a deal.” Like you said too, you know now where you’re at you can raise more money than you ever need.
So it’s talking like that too, not faking it, but creating a, how to say this, creating the right level of opportunity and the right level of urgency there and say, “I’ve got so many great deals coming to me that man, I’ve decided I can’t let this stuff go because it’s some of the stuff that’s really, really good. So I’m going to let a couple of close associates in to be lenders with me so they can take advantage of this and we can do even more deals.”
Matt: It’s that type of positioning and it all goes back to asking the right questions and then positioning that it’s an opportunity, not a sale that you’re trying to sell them on.
Mike: One of the things I wanted to hear your thoughts on are if you do raise too much money, some people may, “I’ll work with you, but you need to keep my money busy.” One of the things you mentioned a little bit ago which I know a lot of people do is, they tend to potentially relend that money.
So you’re going to lend to me hypothetically at 10%. I can’t use the money you have, so I’m going to fund some of my deals with it and then I’m going to lend it out at 14 and 4 or some higher rate where you can essentially make a spread. And of course you’re taking a risk on that.
Matt: Arbitrage. Yeah. You basically arbitrage the deal. I think that’s a great point. You say it’s a benefit you can bring to your buyers that aren’t cash buyers, that are good, serious buyers who know their deal, maybe they’re rehabbers. I’ve lent money, especially in the last couple years in Florida, to a lot of rehabbers. Their process is dialed in, but they constantly need money because they’re doing more and more projects.
As a private lender myself, I love seeing that track record from those types of people. So it is finding the people who want that money constantly working for them and then even if you don’t have the property to put it into right then, you can, like you said, arbitrage it and say, “This buyer over here needs those funds. I’ll connect these two to make it work.” There are different ways to structure that. We’re not lawyers, so I won’t talk about the details of that because it’s different in different states too.
The other thing I would think of and I know you’re geared this way too is, “Okay, I’ve got more money coming at me than I’ve got deals. I don’t have other buyers right now that need that money right now.” You should already have a relationship with other people who do what you do, maybe not even in your area.
So if Mike, if you came to me right now and said, “I’ve got $2 million. I need this to go to work in the next 30 days.” Guess what? I don’t have enough deals in Florida to make that $2 million work for you in the next 30 days.
What am I going to do? I’m going to go to one of my friends and associates in Grand Rapids, Michigan, and we’re going to do something there. Or I’m going to go to one of my associates, some friends of ours, mutual friends in Columbus or in Cleveland or in Indianapolis, some of the other markets I’m in. I’ll arbitrage that money between those people.
Too much money to lend is never a problem if you have other people that you can connect with or your counterparts in other markets or even in your own market that you can, like you said, essentially coordinate that effort. Mark it up. Take a fee. Take a marketing fee. Whatever it is. So I think that’s a great point, for sure. Too much money, it’s a great problem to have.
Mike: It’s a first world problem.
Matt: If you don’t know what to do with it, it’s going to go away. If somebody wants to lend you $1 million, you’re like, “I can only do 80,” they’re going to find another place to put that money.
Matt: So we talked a little about this before and you’re a marketer, so you understand the term avatar. You know an avatar is this blue guy that lives on another planet in a movie from James Cameron, right? No. For those of you that don’t understand that terminology, avatar in the marketing world is who is your ideal customer? What’s your ideal avatar? So in this situation, we’re asking who’s the ideal private lender, what’s that avatar. What does that person look like?
So I’ll just tell you in Florida, here are the characteristics that they fall into with the people that I lend to the most. This is not a right or wrong thing. This is just what I’ve found. They’ve been usually married for a long time. They’re older than 40 years old. They’re usually conservative.
I’m not here to be political, but they’re usually more conservative on the political side. They like to play golf. They love their family. They’re usually invested in the stock market and they have always been successful at something else other than real estate. They might be successful in real estate in some way or shape too, but they had something else either before or currently.
My best private lender is a guy who sold a software company and had millions, needed to do something with it, understood real estate enough to know he didn’t want to do it himself. Great private lender.
Mike: Yeah. That’s awesome.
Matt: I know a guy in South Florida who is a really sought after, highly paid golf pro. Smart enough to flip properties himself, do all that kind of stuff. He doesn’t want to do anything but be outside swinging that club. But he’s got a half-million dollars here and there that he needs to put somewhere. Perfect private lender.
Those are the types of people. I usually go for half-million dollars and up is usually what I would start the conversation at. You can always make an exception and go down. You can always say, “I usually do half a million dollars, but you’re the coolest dude I’ve ever met. I’ll let you get started with a couple hundred grand. I love doing that too because then it’s like you’re doing them a favor. You’re doing them a favor to let them only do $200,000 instead of $500,000.”
Matt: So that’s kind of the ideal. Then of course like I said, somebody who knows your business but doesn’t want to be in it, somebody who won’t micromanage you, somebody who first and foremost is concentrated on the numbers and the end results, not the process. They have confidence that the process works but they’re mostly geared towards hey, I want to see that return. Obviously you do it once or twice, then they don’t even think about it.
Mike: Yeah. That changes everything, right? Once you start borrowing money from somebody and they see it come full circle where they can put a deposit back in their account. Now, they may want to relend that right away, but they just see, “I got paid. It works.” Once they kind of get a taste for, “This works. This guy is a good guy to work with,” then people tend to probably want to lend more. Or certainly do it again.
Matt: That’s proof of concept. Absolutely. It works right. And in fact, most of the time, the best private lenders, they do one or two deals with them. They’re going to be like, “Don’t let anybody else do any more deals with them.”
Mike: Right. Just use my money.
Matt: Let me know. I really have had . . . a couple of times I’ve had a deal where it’s like, “I’ve got to pull in some funds for this.” So I’ve called three guys in the same hour, left voicemails for two, talked to one and then I’ll come back, “I wanted to do that one with you.” “I just got a . . .” “Oh, man, come on.” You’re getting people mad at you because you’re not taking their money.
Matt: Again, that’s why you need those other partners so you can be like, “That one’s gone, but I’ll let you lend on this one over here. Let me call you back in an hour.” Then you call your buddy in Columbus and you put it together, whatever it is. Absolutely. And then we’ve worked a lot on crafting that message, like what is it that we say to those lenders. We kind of touched on this before.
What I usually say is, “I’ve got exclusive bank sources. I’m buying properties at $0.50, $0.60, $0.70 on the dollar. I usually flip these to hedge funds and fund them with my own money. But lately, we’ve had an influx of fantastic properties and it’s created an opportunity. It’s not an opportunity that I would offer. You’re not going to see it on Facebook. I’m not going to send out an email message to thousands of people. It’s an opportunity I’m talking to you and two other people about.” So tell the story.
Matt: We all have a story. Don’t make up a story, but tell the story. Here’s the opportunity because if you don’t have an opportunity or you can’t articulate the opportunity or you don’t believe enough in the opportunity to show the emotions and convey it to somebody else, then you really shouldn’t be trying to get a private lender anyway because you don’t believe in it enough. If you’re looking for a lender to lend on something to validate that it’s a good property, you’re going about it the wrong way.
Matt: You come to them with the pro forma in hand, that’s a no brainer. The only question then is can their capital fit into it at that time and am I going to let you come into it?
Matt: So the single biggest thing is for beginners, especially, knowing those numbers. What’s the cap rate on this rental property? What are maintenance expenses? What are vacancies? What does it really take to do a punch out in between tenants? What’s the maintenance vacancy, taxes, insurance?
If you can give them a sheet of paper and run down the numbers and show your competence like that, that’s going to give them the confidence. Or if it’s a rehab, showing them two other rehabs you did like that or showing other rehabs down just like that by someone else down the street, but knowing those numbers is the only way to bridge the gap when you don’t have testimonials
Matt: You’ve got to show as super competent and understand those numbers and that’s what’s going to give them the confidence to lend that money to you.
Mike: That’s awesome, Matt. I really appreciate you sharing this. Because we talked about this ahead of time, we’re going a little long here and you’ve got a lot of information to share. One of the things I thought was really awesome and I think people listening are going to love this is, that you have this in a presentation you’d just recently prepared.
Matt: This is all fresh in my mind.
Mike: You’ve got some slides prepared. We don’t show slides on the show here, but you offered to give out your presentation deck and your slides on this very topic to listeners, right?
Mike: We kind of did this on the fly like a minute before we started the show today. Just to kind of make sure we can record it properly. I put together a link for everybody. Write this down. We’ll at it in the show notes. It’s flipnerd.com/privatelenders, all one word. If you check that out, that’s going to move you over to Matt’s site where he’s going to show you how you can download this very same presentation, right, Matt?
Matt: Yeah. Absolutely, man. The framework we talked about today, it really goes down in detail, breaks down those points, helps you identify the marketing message, figure out your avatar for your private lender. It will be a good slide deck.
Mike: That’s a great resource. I really appreciate you sharing that. Any kind of final words of wisdom for folks that are out there? Wrap this all together real fast of what folks can go do from here and maybe some things we missed?
Matt: Yeah. I don’t think it’s something we missed, but it’s something I want to hit again. It’s something we talked about in the beginning. I just want to remind you, as silly of a story as it is, I want to remind you about the umbrellas. Everything comes from asking, just asking.
So if I was going to leave you with one thought, it would be whenever you’re fearful of something, whenever you’re fearful to ask for the buyer to buy or asking for the prospective private lender to lend or asking for the seller to sell or whatever it is, when you’re asking, just remember, you’ve got that fear that might keep you from asking or asking with confidence. Asking weakly and fearfully is just like not asking at all. If you’re not bold and confident in what you’re asking for, you’re not going to get it.
The advice I always use is think about the worst case scenario. Tim Ferriss has a whole presentation on this, break down the catastrophic worst case scenario. In these kinds of situations we’re talking about, the catastrophic worst case scenario is not bad. It’s a no that gets you closer to the next person that’s going to say yes.
No matter what it is, you can use that in any part of your life. Whatever that fear is that’s holding you back, just think logically about it. When we’re fearful, we get crazy. We’re not thinking logically. We’re not thinking objectively. We’re putting our own thing in a situation that’s not there.
Look at it objectively, “What do I have to lose here? What’s the worst that can happen?” Most of the time it’s not bad. That’s going to give you the confidence to say, “You know what? This guy might say no. I’m going to confidently ask for him to say yes.” That’s probably one of the best things I could teach you. You want to get the whole bucket of umbrellas, man.
Mike: Yeah. That’s awesome, Matt. In fact, you need to hear no a couple times. It makes your pitch better. You learn, “I shouldn’t have said that.” There’s something that happens that you’re like, “I need to hone this a little better.” That helps you get better the next time around.
Matt: I think that’s what John Maxwell calls that failing forward. That’s a key terminology. Failure, we’re still taught that failure is a bad thing, from the youngest ages of school through college because we take these tests and we get an A or a B or in my case we got Cs or an F or whatever. But yeah, that’s the key, man. That really is the key. Failing is a good thing and it gets you closer to succeeding.
Mike: Yeah. Well, Matt, thanks for your time today. Thanks for sharing these great lessons with us. Again, I’m going to give that link one more time. Thank you for sharing this resource, flipnerd.com/privatelenders plural. We’ll have a link on the page here. Matt, great to see you, my friend. Definitely appreciate you. Hope you have a great rest of the week.
Matt: Yeah, man. I appreciate you guys too. We’ll see you on the next show, man.
Mike: Awesome. Take care.
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