Today’s guest has successfully invested with Robert Kiyosaki, has multiple international bestseller books (one with Donald Trump), and has done over 2000 transactions. John Burley joins us today to tell us that most real estate investors are raising money all wrong. He tells us how he’s spend his career raising money to do deals, as well as a blueprint to follow his process. Don’t miss this exciting episode of the FlipNerd.com Expert Interview Show!
Mike: Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting Expert Interview, where I interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow. Today I am joined by John Burley. He’s a real estate investor that has completed over 2000 transactions, is primarily a cash flow investor. John has received recognition from the likes of Robert Kiyosaki and Tony Robbins and was actually a featured author in a recent Donald Trump book called “Wealth Building 101.”
John is an expert at raising money in addition to everything else. That’s what we are going to talk about out today is how to raise money. It’s going to be a unique experience. We’ve talked to some folks about raising money in the past. But what John is going to tell us is how everybody is primarily doing it wrong in our space, and he is going to teach us some new lessons here, where you can actually get paid for raising the money you need for your business and not necessarily always paying somebody else.
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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real investing can be risky.
Hey John welcome to the show.
John: It’s great to be here Mike, thank you so much for having us.
Mike: Yeah, glad to have you on. You came highly recommended from a guest that we had on recently and we’re always excited to meet new people. Before we get started talking about raising money, which obviously is a critical part for every real estate investor. You got to have money to be in this business. Or it’s certainly a whole lot easier if you have it, right? Why don’t you tell us your background? You’ve got a very rich background and an exciting story, so can you share with us?
John: Yeah, I come out of Wall Street financial planning industry. I had my own brokerage with my own team and stuff, so I look at the money side very, very different than anybody I’ve ever met in this space. I started investing real estate back in the early ’80s. I formed a private equity company at the end of 1989. Private equity company would be kind of like a hedge fund or family office in today’s vocabulary.
I was doing this way before it was even talked about. Obviously the reason I was able to do it is, I took what I learned from Wall Street in business and applied it to real estate. One of the big things that’s always missed in real estate is the money side.
Like you, when I started, most people were like, “Hey kid, go find a great deal. When you find a great deal, the money will come to you.” I found that wasn’t really true most of the time. We just focused entirely on the financial side, the money side, what made the business model work. What we do is foundationally and fundamentally quite a bit different. It has certainly blessed us and given us lots of avenues and opportunities. So I’m looking forward to sharing with you guys.
Mike: Yeah and tell us a little more about your background. I mean, you’ve done a lot of transactions and you’re definitely a sought-after a speaker in this space. Tell us more of the sexy side.
John: The sexy side for me and my life is I don’t do a lot of the educational stuff. And the reason is, there is a lot more money doing deals than there is teaching about them, just flat out. I do three events a year in Phoenix. We also have coming up, next year we have our 24th annual Burley Bootcamp which is the largest running real estate investing training in the world.
The sexy side, I wrote a book, “Money Secrets of the Rich,” which was actually in Australia and New Zealand the number one bestseller. We actually outsold Harry Porter for a couple of weeks. We spent 10 years on the bestseller list. Three and half years at the top of the business bestseller list. Really, really a lot of that, I mean I’ve worked with Robert Kiyosaki. Bob and I are dear friends. “The Rich Dad, Poor Dad” guy. I’m not speaking out of turn because he said several times in the platform, I’m actually the guy who did his real estate deals. The model I use that we’ll talk about today, where I have an investor come in and they put up all the money and they sign for the loans and they pay me to do the deal.
Bob Kiyosaki, Robert Kiyosaki was just one of those many investors that buy. Those of you that are familiar with the Rich Dad and all that fantastic success they’ve had, the properties that he actually bought and brags about, were properties that he did with me, the majority of them. He put up the money, I did all the work, found the deals, we split it right down the middle 50/50. Which is what I’ve been doing with investors for 25 years now.
Mike: Awesome, tell us… like you said, one of the challenges for a lot of real estate investors is they’re typically taught, if you find the deal, you won’t have a problem. You won’t have a problem selling it, you won’t have a problem raising the money, all those things. Of course one of the challenges is, it’s hard to buy with confidence if you’re not certain that the money is there. Everything gets a lot easier when you can buy with absolute confidence that you have no problem doing the deal, which is counterintuitive to a lot of folks, right?
John: Yeah, boy you’ve said such a truth there. Here’s the deal, when I started, I probably started like a lot of people listening right now. The internet hadn’t been invented yet, Al Gore hadn’t done that yet.
What I did as you know, there was a couple of books created for real estate investing. There was a small amount of seminars, but not a lot. I went and I learned as much as I could. They all were basically teaching the same thing, how to buy a house, how to flip it. It was with no money down and what they were really teaching in a high tide, is they were teaching pipe dream. They were basically teaching me to go out and try and find a needle in a haystack.
What I found is that sounded really good to me at the seminar because I wanted what they were selling. It didn’t work so good in the real world. First of all, most real estate agents didn’t want work with you at all if you don’t have any money. Today, they’ve all figured out that those proof of fund letters that anybody can download on the internet aren’t real. So they know that, it doesn’t work. What they wanted is they wanted real money.
Then I went through it, I struggled, I did some deals, I went full-time in ’89, I did 42 deals in the first 6 months. Which is great, but I also was doing a tone of work that didn’t work. Then I was kind of like, “Wow John, you come out of Wall Street, you understand how to raise money, why aren’t you doing what you’ve learned.”
I got so caught up in the real estate hype that I had forgotten about what actually made a business work. That makes sense?
Mike: Yeah, absolutely.
John: So we can take these, 100, 200, 300, 1000 page business plans and if we were to put them all together and we look at the businesses that succeeded, they had three common elements. The first one is that they had a good idea or a great idea and real estate investing, for those of you listening, if you’re new to this game, real estate, it’s a great idea.
The second thing they had is that, the successful plans, they all had a way to monetize. Meaning there was a way for the owner to get paid because here is the problem for most of us as real estate investors when we start out. You get all excited, you go out, you don’t have any money, but they kind of taught you to forget about that and just move forward, right?
John: So you go start doing deals and here is the problem. With no money there is an exception always, but with no money reality is, if you’re going out and finding a deal, you’re looking at 90 days to 9 months before the deal is completed from start to end and you actually receive a check. That’s just way, way too long for most new people to make it. That’s why there is such a tremendous drop off rate in real estate investing in my opinion. It takes too long to get paid.
Financially it’s hard to hang in there. But also emotionally and psychologically it’s really hard to hang in and it’s almost impossible to get your significant other, your friends and family to stay with you while you’re doing all this work and receiving no money.
Mike: Right, you’re the last person to get paid.
John: Yeah, you’re the last person to get paid which makes no sense and it violates everything for a successful business. The third thing successful businesses have is they’re funded, they have capital, they have money. If you’re going to do a normal business, here’s what you do. You have your great idea, you would write it out, this is what I’m going to do, I’m going to be a real estate investor. I’m now going to set up a system where I get paid right away upfront because obviously the lender and the bank or anybody, they’re not going to give me any money if can’t eat. I mean, I have to be able to pay my bills. Then I go raise the money, then I go into business.
Real estate investors are taught to do it completely opposite. We’re taught to put the cart before the horse. We’re taught to go out with no money and very little probability of getting the money, even if we find the great deal or paying exorbitant rates for the money and then go and get the deal.
What we teach people is like, “Look, stop the madness, don’t do what everybody else is teaching you.” First of all, most people aren’t rich and aren’t successful. It’s pretty obvious if you’re doing what everybody else is doing, you’re going to get similar results, agree?
Mike: Yeah, sure.
John: Obviously I look at not what successful real estate investors were teaching from the stage. I looked at what were successful business people doing for real. What they did for real is, they got paid first and they raised money first and that’s what I learned from the Wall Street side. So that’s what we did. And the cool thing, what I learned, that I brought into real estate, is that in Wall Street and all the other financial services but the real estate investor, nobody ever works without getting paid first. You talk to a stock broker, first person who gets paid when you transfer money is the stock broker. He actually takes the commission out before he buys your property, before he buys your investment.
The fund broker, the FX guy, the currency person, the commodities broker, all these people, everybody in financial services gets paid first except for the silly real estate investor. What we do is, what we teach people, “Look, if you don’t have any money, stop wasting time looking at real estate, stop surfing the internet. Stop driving the neighborhood, stop wasting your time pretending you have a business, because you don’t.”
Learn how to raise money first like every real business does. As you raise money, you get paid every single time you do a transaction upfront. So not when it closes escrow, not after its rehabbed, not when you resell it. The day you get the money, you get paid.
Mike: Talk about the structure of that John. Is this traditional debt that you’re basically just borrowing against what you have to pay back eventually or?
John: Actually we look at it at it a different way. There is a couple of ways we can do this.
Mike: Or you’re simply borrowing money from equity partners as well.
John: Yeah, it’s an equity situation. There’s different ways we can do this. The most complex way is there are several different security models. We can do a 504, 505, 506, we can do a fund model. For most of you, just put it aside and you heard some fancy buzzwords, don’t worry about them because they’re not what you’re going to do.
There is also a mortgage model. Mortgage model requires licensing in some states. In most states with a repetition, you have to license and there is different [inaudible 00:11:17] things you need to make. What we find works best for most people, what we’ve done primarily is the JV model. That’s the Joint Venture model. That’s where Mike, you and I can get together and we can do any form of business we want and have it not be a security as long as we both know each other and we have a relationship within what’s called, a sphere of influence, correct?
John: Made much easier if you’re an accredited investor because there is even less disclosure involved, but you don’t have to be accredited. Think of it this way, someone listening right now, you can go into business with your mom or your dad, you could form a business and you could do anything you wanted. You could open up any kind of store, any type of business and it’s not a security and there’s no issues.
We do the same thing, we just do it with real estate. We form a joint venture agreement, we split the profits down the middle after all the expenses. I’m fully responsible for managing the investment whether it’s good or bad or indifferent, I have to manage it. If it doesn’t make money, I have to manage it for free. There is a lot of benefits for my investor. I’m also going to actually manage it like an owner because, I am. The better it performs, the more I make.
With each transaction we do, I get an upfront fee on every single property that we do and then we split the profits, a 50/50 for the long run. We’ve done this on a large number of our transactions because it allows us to do more and more deals and it’s a JV model and it works fantastic.
Mike: Does that model work as well, you think, in a lower volume? I mean, if it enables you to do a lot more volume, of course, you can make your profit up. For people that are out there buying, say 5 or 10 house a year, does that model still make as much sense?
John: Great question. Actually in many ways it makes more sense. So a lot my investors started out part-time. They only do, a lot of my students, they do maybe two, four, five deals a year. They’re not looking to do a bunch of deals, they’re just looking to do some deals. They’re looking to build a future. They’d like to make a little bit more money today.
What they found is their initial plan was they were like, “We’re going to flip the house.” In flipping we hit homeruns and make 20, 30, 40, $50,000 on some deals, net. But that’s not our normal deals. Normally we make less than that especially once you put in your overhead, your costs and your expenses. I know you work with home investors, so you know that the true net per deal is way, way less…
Mike: It’s not what they show you on TV?
John: It is not what they show you on TV. I found out a long time ago that TV is actually not real.
Mike: But it is called reality TV.
John: Which is the most unreal shows in the world. I know several people who do reality shows, you’d be stunned how unreal they are, its almost entirely staged. What we found is that a good flipper is looking to make 6, 8, $10,000 net after real expenses on a deal.
We show them how they can do a deal, never have to flip it, keep it and split the profits 50/50 and get $10,000 upfront. That’s what we do. We charge you $10,000 fee for finding the deal below value, rehabbing it for below cost and putting a resident in the property for above market rate. We charge $10,000 to put that up. That’s our fee upfront for services rendered in part of our JV agreement as the partner who is doing the work. We get paid upfront.
The student who is only doing the two, three, four, five deals a year, they’re making 20, 30, 40, 50 grand a year now in their pockets. So they’ve monetized, they’ve gone from the great idea of real estate investing to the second key component. They monetize it, they’ve actually got paid today.
John: Because of that, most people find with a lot of their properties, if they got 10 grand upfront with a lot of their properties they’d never flip them. That a lot of properties that people flip, they flip because they needed money. If they had money, they wouldn’t have flipped them.
Mike: That’s a big trade off. I can tell you as an investor, I mean, we have a rental portfolio. But we would have kept more if we didn’t kind of need the money to feed the monster. We never followed a model like yours. We basically, it was a sacrifice to put those rentals away because we weren’t structured the way that you are talking about.
John: Absolutely, I mean, I haven’t flipped since 1990. So it’s 25 years literally and I still, at least once or twice a year, make sure I drive by a couple of the properties that I flipped in ’90. That’s 25 years ago. I drive by a couple of those to remind myself how much money I made somebody else for all the work I did. I did all the work to put together the deal of a lifetime and then I handed it to somebody else and they gave me a little teeny bit of money. If I had been applying what we’re talking about today, if I charged the $10,000 fee per property as many properties as I buy, I would have never needed to do it.
For many of my student, they make, on top of all the money they make on real estate, they make tens of thousands or hundreds of thousands. Some of them make millions of dollars a year in upfront money just for putting the transaction together. Then still getting to own half the long term back end.
Flipping is great. Occasionally people say “John Burley is anti-flipping.” I’m not anti-flipping at all, flipping is great. But there is a reason why a guy like Warren Buffet never wrote a book called “Flip and Grow Rich.” Because I know we’re on FlipNerd, but the reality is, you’re not going to ever get rich flipping. You can make a good income, you can make money to take care of your past, your problems and give you seed money. But if you really want to be rich, you can’t flip. If you want to be rich, you need to own and control assets for the long term that will provide you an income stream.
The challenge of flipping, flipping is like any great high paid job. If you don’t go to work, you don’t get paid anymore.
Mike: That is true. You can make a bunch of money, but the next day you never make a penny off of it again once you sell it.
John: Absolutely. Michael Jordan, when he played basketball with the Chicago Bulls, that would be the equivalent of having a flip contract. But he was smart enough, he set up enough long term cash flow deals from endorsements, that are far more than he ever made flipping and it continued to pay him for all of his life.
From a real estate vernacular, that’s what we’re looking to do. We’re looking to create income upfront to pay our bills, feed ourselves, take care of our needs. Because I remember what it’s like to be new and have those short term pressing issues that I don’t have today. Then at the same time, build the long term.
What we try to do is like, the best part of flipping was money today and that was a great part. The bad part of flipping is I gave away all the other good stuff for real estate, make sense?
John: It’s like, I didn’t want to give up the good stuff, but I needed to be paid today and so it’s kind like I was struggling with it. Then it’s like, I’ve been in the business full-time for about nine months. So I am like, “John you’re about as stupid as it gets. You came out of wall street, you know how to monetize, you know how to get money upfront, why aren’t you doing it in your real estate transactions.” And its like, “Well, no one else ever did it.” Just because nobody did it doesn’t mean it shouldn’t have been done that way. Just nobody who was teaching had come out of my background to know how to do it.
Mike: Right. John, talk a little a bit about the structure of these JV relationships. Just give an example of kind of how that works.
John: Yeah, it’s very, very simple. We use a JV agreement, you can draft them up. We have documents obviously that we use that we provide for people. But it’s a very simple JV agreement. It basically is, we are going to set up an LLC, for most people it would be a limited liability company. That limited liability company will be run by the operating agreement and the JV agreement with the JV agreement having control. I like doing it that way because the JV agreement is not recorded publicly and many disclosure states require you to record your operating agreement these days. We don’t want anybody to have all the details of our transactions, make sense?
So we have the JV agreement. The JV agreement just outlines what the capital investors, the money partners are going to do and what the managing partner is going to do. The capital investor, they put up all the money, they sign for loans if you’re doing it with loans. There is a reserve we set aside upfront because reserves are prudent, all real businesses have them. Real estate investors usually don’t. So obviously we do.
Real estate investing, once I got the model down, it was pretty easy to figure out what had worked. Just looked at all the other people what they were doing that wasn’t working, what their problems were and fixed it. They were always the same. I don’t have money to do deals and I don’t have money to finish my deals and I don’t get paid up front. If something goes wrong, I don’t have money.
All the real estate problems were money, money, money and money. It’s like, okay, let’s just do what real businesses do, raise the money first, have the money there and then do it. So we simple agreement between us and that, it spells out everybody’s duties. What they do, what they are involved with. It shows the splits. It keeps us morally, ethically, legally, lawfully on the right side of the law so that what we’re doing is right and proper at all times.
John: It sets it up specifically so it’s not as a security. Some people go more advanced. They do want securitize its security. By making a security it just opens your marketing capabilities.
Mike: Sure, yeah.
John: Contrary to what’s taught, you can’t go solicit money from strangers who are not accredited investors, without having it registered and filed in your state as a security or non-security. And we teach the technical details of doing a 504, 505, 506.
Mike: Of course those things have changed a lot recently with Reg A-plus just here, last week I think and a number of other things.
John: There’s been some great stuff for us that makes it easier, but there are still compliance, dot the I’s, crossing the T’s. So we have a simple model that we start with for most people, where whether you want to do two deals a year which is 20,000 and half the deals or whether you want to do… I have several students who do 50 to a 100 deals a year, where they’re making half a million to a million dollars a year upfront fees plus then all the real estate. The real estate is more money in the long run.
Mike: Sure. Lets talk a little bit about, those typical structures who well I have a couple of questions. One is, I assume one of the challenges with partnerships is when one wants to sell and one doesn’t. All those things kind of defined in your JV agreement. I assume the managing partner gets to make those decisions, and is that typical?
John: What’s really important that we do, and there’s a lot of questions in there and one of the neat things is, I’ve been doing this for 25 years. And I have a student Steve, who did this over 500 times. Another guy Joe did it over 600 times. A [inaudible 00:21:26] did it over 200 times. So I have all my experiences plus all these students who’ve done hundreds and hundreds of transactions. When something didn’t quite go how they wanted, I was one of their first phone calls. And then we walked through it and we’d come up with the best solution and we’d be like, okay, we’re going to now add a couple of sentences to paragraph 27.
So the agreements [inaudible 00:21:44], remain streamlined, [inaudible 00:21:49] and got the stuff in there. So what we do is, again, we want to make sure it is a business model, not a security model, its a business model what we’re really focusing on, its a partnership. And so on a day-to-day, week-to-week, the managing partner, the investing partner, not the money partner but us, the managing partner, we have control and we make decisions on all major decisions. There is a consultation with the investor and what he decides. And then there is provisions for a sale. There is provisions for that. Provisions for buy-out, there’s provisions for almost always amicably there will become an agreement, but if wasn’t amicably in agreement, here is how we default and what we do.
John: That’s just business stuff. I learned a long time ago, the only people you do business with on a handshake, have learned the hard way never to do business on a handshake.
John: And the guy who wants to do business on a handshake, you better run quick, because you don’t do business on a handshake with them. For our students, we provide the documents. We dot the I’s, we cross the T’s. Been through it over and over and over again, tested how works.
Mike: Sure, sure. And from the money partner side, John, it would seem like the big opportunity is the acquisitions, people are finding the deals. A lot of time, the two biggest limitations in my experience in the real estate space are, finding the deals and then finding the money, because there is not an unlimited number of deals out there. So talk about, in those models, who is finding the deals? As the managing partner, are you the one finding the deals?
John: Yeah, so the deal is fantastic from both sides. From the money partner side, they have the money, and like most people who have money, what comes with that money also is they generally work full-time, and a lot of hours. And they don’t have the extra time. So most of my investors have done a few deals. They know real estate works, but they also know the reality is to really find a great deal, to really rehab it for under-market rates, to really put a great resident in, to manage that, keep the resident in there for the long term, and make that thing churn and work over and over and over again, they know its a lot of work. And so what they found, its like what Robert Kiyosaki and Kim Kiyosaki found. They found giving me half and letting me manage it, they made more money than they did managing it on their own.
John: Because I have the time, the expertise, it’s what I do, especially for my investors. So I find better deals than they’re going to find on their own. Most of our deals right now we’re buying are off-market, they’re not on the multiple listing service. We’re buying off-market with almost all of our deals, which is where traditionally the good deals always have been is off-market. The good deals are rarely on the multiple listing services.
John: We make offers literally every week. We buy properties every month on the multiple listing service. But that’s not where we get most of our deals. Most of them are off-market.
John: So we find the deals that our money partners would never find otherwise. We actually give them a rate of return that’s [inaudible 00:24:40] what they get on their own. And the other thing is, we’re actually fulfilling their need. So when most people go talk to somebody to be a partner and give them money to do a deal, they’re asking for what they need and they’re never really understanding what the other person needs. So most people who are rich, have zero interest in flipping. They’re already in the maximum tax bracket, their problem is that they have too much capital that’s not working now. The last thing they want is to do a deal, pay the maximum income taxes, and then have more cash that’s not placed properly.
John: The real estate investor who is new, who is hurting for money, they’re thinking, flip, flip, flip because they’re thinking about their needs. I need money today to pay my bills. My investors don’t need money to pay their bills. They want money so that they can retire early and get a check every month for the rest of their life from me, which is what we provide.
Mike: Right. So John, share your thoughts on… one of the challenges in my experience, is that a lot of new investors early on, they have a hard time raising money or finding money partners because they’re inexperienced. They don’t have a proven track record yet. And then once they get experience, it doesn’t have to be a lot of experience. It is easy to raise far more money than you could ever apply because if you find someone that is wealthy, they’re like “Hey, that sounds great, I’m excited. I’ve got 3,000,000 to spend.” And you’re like, “I only need 80,000 right now. Can you just set the rest of it aside for me and don’t touch it until I need it?” Talk about that phenomenon of which, I think you agree is a very real issue. Once you happen to the so called mother load of somebody that has a lot of money to spend, they want to apply it. Right? They don’t want apply it over the course of many years.
John: Its really important you understand the psychology of investing, and deal flow and money flow. So we’re going to jump in a little advance right here. The main thing that I understand so well in addition to how to do a real estate transaction, finding the right deals, and nuts and bolts. That is all very easily learned. And when you put 30 plus years of experiments, meaning you’ve made a bunch of mistakes, you know what works and what doesn’t work. You’ve already screwed it up enough times, you’ve figured it out. What I need to do is, I understand with my investor, with anybody I’m in business with. I need to meet their emotional needs. And there are two types of emotional needs. There’s the emotional needs you’re aware of, there’s your conscious emotional needs and then there are the emotional needs you’re not aware of, there is your subconscious emotional needs.
In regards to money right now with the wealthy people in America, the subconscious emotional needs is what is not being met. So right now, you run into people all the time, and this is their story. I want to get in, I want to invest, I need to get this great return. They want 10, 12, 14%. They want these really high rate returns. And there are tons of people that offer these returns. I’m not saying they deliver them, but they offer them. And there is a big difference between delivering and offering. But there is tons of people offering, yet these people don’t do it. So most people I meet with, they have $600,000, $800,000, $1 million, $2 million, $4 million and $8 million, with 90% of it cash. They literally, in eight or nine, after the crash, took their money out of the market and moved it into the money market accounts, and it stayed there and remained there the whole time.
And this is what you need to understand. The wealthy, most people in this country that are 50 to 75 years old, their number one concern emotionally right now at a subconscious level, their need is, I don’t want ever to lose money again. And when you talk to them, they say things like, “I lost a third of every I ever made.” The facts are, they didn’t. The fact is that they lost a third of their investment account which was about 8 to 10% of what they made plus compound. So its no way near a third of what they made, but you can just see the emotional.
So they will talk to me all the time, “I don’t want to lose money,” but they’re not saying that. They’re saying I want this rate of return, this neighborhood, this type of property, yet their money is sitting in cash. So what I do is, I’ve learned, and what we teach is, there is six talking points. So I go through and I go through the talking points, I meet their subconscious, emotional needs. When I meet their subconscious emotional needs, the checkbook comes open and then we can place. Then when I place, I’m not placing for me. So in other words, I’m not going to take your 80 grand and buy one house and flip it and give you back your 80 gland plus 10, because that’s not what they want.
John: Just real quick. What they want. There are six things they want. Number one is safety. They want their money to be safe all the time. They do not want to take a loss ever. And we teach very specific questions that you answer when you do your presentations. When I teach people how to go and raise money, you don’t talk about real estate because real estate is irrelevant. You talk about the emotional needs. The first emotional need is safety. You say things like, “Tell me Mike, when I talk to other investors such as yourself, who are very successful, they tell me it is important. Actually they tell me it is paramount that their money be safe at all times. Would you agree your money being safe is important to you?” Every single human being who has money, is going to say what?
Mike: Yes, yeah.
John: Yes. It’s like, why is that important to you? Has your money never not been safe. So we go through safety. That is the number one need of about 75% of the people. And no one is offering it. They’re offering a rate of return, but having my experience and been through many markets, if the money is sitting in cash, rate of return is not what they need on a subconscious level. Because if they need a rate of return, the money wouldn’t be in cash. It would be somewhere.
John: So in 2004, almost all of my investment partners that came on, we were 1031 exchanging a 4-plex. We were selling stock in AT&T. We were selling another asset to move it into what they believe was going to be a better performing asset with me, make sense?
John: Today 99% of the money is coming out of cash to go into the new investment. So obviously safety is… their conscious list doesn’t have safety, but their subconscious emotion, who I have to know how to talk to, subconscious emotion says the money has got to be safe or I won’t place it with you.
John: Yeah. Number two is security, and then they want this with the… we need to understand is, its not about us, its about them. Most real estate investors, you want money now, but your client wants the money long term. They want the money, what they want is they want to be able to give you the money, have you place it, pay you to take it. People are like, “Why would they pay you to take it?” Every other investment they ever did in their lives, they paid money to the person who invested it for. Quite frankly if you don’t charge, subconsciously something is wrong and there is a red light going off, because every real financial advisor charges. If you don’t charge for the advice, the advice probably isn’t very good.
Mike: Right, interesting.
John: You’ve got to understand the psychology. They’re used to paying money and they’ve always paid money for every good investment they ever made. That’s how they do it. And then what they want is they want it long term. They’re not looking to get rich. They’re already rich. What they want to do is that they want to take the $2 million that’s sitting in the cash account and they want turn it into 15,000, 16,000, 20,000, 10,000, so many thousand a month so they can then retire.
John: So that’s what they want. The fourth thing they want is they want cash flow. They want an income stream that’s going to come in every month, month after month after month. Not just a flip deal. So I don’t do flip deals with these people. And so they place the money, they give me the money, we then buy the deals, we’re able to burn the money in faster because we’re not flipping it. So the money is not coming back, it stays. With many we leveraged, with others we don’t. If we leveraged, its 20, 25% is the normal loans for people who are buying a lot of real estate. We’re not doing a loan, [inaudible 00:31:47] deals with them. And they don’t want that because they want to place the cash. So we understand from a money flow point of view, we’ve got to burn it.
From a deal flow, what I’ve got to learn, is I’ve got to learn that when you’re doing a lot of business… if you’re doing a couple deals a year, go for as good as you want, as much as your psychology will allow you to take the rejection of being turned down on most offers. But for most people right now, most markets right now, sure, we’re not the bottoms of 2010, but we’re also below the historical values. We’re below construction costs. And with the low interest rates, we’re way below what the monthly should be on a historical normal level. So most deals, retail, are pretty good deals for the average investor, agreed?
John: For a long term, I mean they’re going to rent positive cash flow. And so what I say to people is, “Look, if you’re trying to place a lot of money, you can’t get a deal of a lifetime on every deal.” So if I’ve got several million dollars to place in a given month, which would not be abnormal, I can’t be getting every deal the most spectacular 30, 50, 60 cents on a dollar deal. I’m looking for good solid deals that give me good solid cash flows so I can place the money, because I’ve got to place the money, because today once money commits, if you don’t place it, it goes somewhere else.
A couple of years ago, it wouldn’t go anywhere else, it would still wait for you. But it is not waiting any more. The psychology has changed. And then we give them safety. We give them security. We give them the long term. We give them cash flow. They want the tax benefits that real estate offers. And we give them a good rate of return. And then there is an upside to the property but you don’t want to talk about appreciation and growth because that’s what got them into trouble last time.
So we’ve learned the subconscious emotional needs of our investor, and I did a 30 minute presentation in 10 minutes and we literary have an audio program that is three days that does the presentation [inaudible 00:33:35] step-by-step. So there is a lot more to that. But what we do is we’re meeting people’s emotional needs. They invested with us because we’re giving them what they want, they don’t have the time to do it on their own. And quite frankly these days people are tired of being burned by people who don’t have an invested interest in the result of their investments.
Mike: Yeah, when you’re aligned, you’re working with people that any event that the investment doesn’t work out, you’re going to miss out too obviously.
John: Yeah, the only way I get paid well, is that I got to make the deal sing.
John: And I’ve got to put up with everything bad. So one of the big things we strive from the opposite is don’t buy any lemons, because for the investor, they just make a little less money. For us, we have to do a whole bunch more work, for years and years and years and years. So it’s like, we strive to only buy deals that are good. And just consistently do it.
So we do a larger volume than most people, although a lot of my students do volumes bigger than mine, some do larger volumes. So we have many people that are doing that 50-100 plus deals a year which is a lot more if you’re keeping them than flipping them. A lot more work to keep them than it is to flip them.
Mike: Absolutely. So John, if you could just take a couple of minutes and kind of give people advice on how to… I know you have some training programs on this, but how do people get started if this sounds interesting in they’re like, “It’s a different model than I thought of before. And I want to get started in this.” Who do they go after to try to find people to work with? Probably people that are in their network already?
John: So what I recommend you do is you go to your sphere of influence and we teach a presentation. You learn the presentation, you go to your sphere of influence, when you go to your sphere of influence, keep in mind it is not about real estate, it’s about meeting their subconscious emotional needs, that need is primarily safety. You share with them the opportunity, what you’re doing. You bring them on, you have them to go.
For most people, you are already know enough people to do it. I hear people say, “I don’t know anybody rich.” I’m like, “Really? You’ve never been to a dentist once?” “Well I’ve been to a dentist,” Okay, that’s one. “You have children, right? So your wife’s been to an OBGYN. That’s two.” And we all do know some people who would have interest if we had signed and met their needs.
When you walk in and go, “Do you want to invest in real estate?” Almost everybody is going to say no, of course. Because you asked the wrong question. It is not about real estate. Just like a good stock broker doesn’t call up and go, “Do you want to buy stocks?” They talk about your needs and they lead you to it. So we teach the model. We teach about matching with people and we just find people who want to do it with you. When you’re new, stop pretending the money is not important. Stop pretending that the problem will go away. It never will. The businesses that are successful, here is what they figured out. I’ve got to monetize, I’ve got to get paid today. And I’ve got to have the money I need to continue to do business for the long term. Having a great idea is not enough.
Mike: It’s true.
John: And when I talk to real estate agents, they’re like going, “Oh, you’re one of those real estate investors.” I get the same gunk that everybody else does. They’re like, “You’re looking to get the pipe dream. You’re looking for a needle in a haystack.” If you were my realtor… if I was talking with Mike, I’d go, “Hey Mike, here’s the deal. Mike, I don’t want you to find me a needle in a haystack. Here’s the money I have.” And I’ll show them the bank account where we have the investors money. So I’ve $800,000 or a million or 5 million or whatever it is at that point in time. “Here’s real time, all this money in the bank. I don’t want you to help me find a needle in a haystack. Here’s what I want you to do. I want you to help me find some haystacks wholesale. I’ll find the needles all by myself.” And when realtors see real money, cooperation changes entirely.
We suddenly have best friends everywhere. And then you sort through the real estate agents who can really find good deals and the ones who can’t. But there’s a lot of agents that find really good deals but they only work for people who have money.
John: If you’re really good, why would you work for somebody that doesn’t have any money?
John: I’ve got agents on my staff and agents we work with outside, but none of them work with anybody who doesn’t have money for real up front.
Mike: Yeah, awesome. Well, John, if folks want to learn more about you, what you’ve got going on and I know you’ve got some events coming up and training programs, where should they go?
John: Yeah, thanks much Mike. Go to JohnBurley.com, J-O-H-N B-U-R-L-E-Y dot com. You can check out our website. You can call us 1-800-561-8246. We do a flagship event once a year, next one is in 2016 and we’ll be doing the 24th annual Burley Bootcamp. I also do three events a year, one is coming up in a couple of months. The events are all different, they’re all unique, so I don’t do a [inaudible 00:38:15] before we started. I don’t do the normal seminar model where I have these filler events to upsell you to the big events. We don’t do that.
I do three unique events every year and they’re based on what is going on in the market right now. I have people who’ve been coming to events for 5 to 20 years literary. So when you come, those of you who’ve been to events, its pretty cool for the students point of view because about a third of the audience are hitters, they’re making a lot money. So I always joke with people, when you’re in the bathroom, you don’t want to talk about work, because the guy next to you in the stall might have 80 houses. Because we just have a lot of successful people in the room. So they’re very unique, very, very high end content. But we slow down enough to where the new investor will pick right up and move in the flow with us.
Mike: Great, great. We’ll add a link down below the video here for those that are interested in learning more. Thank you so much for your time today. I definitely appreciate spending a little bit of time with you.
John: Its been awesome I appreciate it. Thank you very much. I want to say to everybody out there, thank you and God bless.
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