Show Summary

One of the most common hurdles real estate investors face in building a rental portfolio is raising enough capital to hit their goals. Access to capital is critical, but if you know what you’re doing, raising money isn’t that hard. Daniil Kleyman has built up a nice rental portfolio, and shares his advice with us on raising money for rental properties in this FlipNerd.com Flip Show interview. Don’t miss it!

Highlights of this show

  • Meet Daniil Kleyman, learn his story from corporate refugee to successful real estate investor.
  • Learn how you can raise private or bank money to fund your rental property acquisitions.
  • Join the discussion on the importance of properly evaluating deals, the power of Joint Ventures, and more!

Resources and Links from this show:

Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Welcome to the FlipNerd.com podcast. This is your host Mike Hambright and on this show, I will introduce you to VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level.

We have three new shows each week which are available in the iTunes store, or by visiting flipnerd.com. So without further ado, let’s get started.

Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting VIP interview where we interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.

Today, I am joined by Daniel Kleyman. Daniel is a Virginia-based real estate investor, primarily a rehabber, which we’ll talk about today, and he is the man behind the popular Rehab Valuator software that tens of thousands of investors use to evaluate potential investments and deals.

Daniel has used a specific strategy to build up his rental portfolio in terms of financing and today he is going to share that strategy for raising money to build his rental portfolio with us. So it would be some great nuggets and great lessons in here.

Access to capital is one of the biggest hurdles in accumulating rental properties, or one of the bigger excuses I should say, and after today’s show you’ll know how to jump over those hurdles with ease. So before we get started with Daniel, let’s take a moment to recognize our featured sponsors.

Advertisement: RealtyMogul.com is an online market place for real estate investing, connecting borrowers and capital from accredited and institutional investors. Get a rehab loan fast and close in as little as 10 days. Rates start as low as 9%.

We’d also like to thank National Real Estate Insurance Group, the nation’s leading provider of insurance to the residential real estate investor market. From individual properties to large scale investors, National Real Estate Insurance Group is ready to serve you.

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 estate investing can be risky.

Hey Daniel, welcome to the show.

Daniel: Hey Mike. Thanks for having me.

Mike: Yeah, yeah, glad you’re here to be with me.

Daniel: Excited to be here with you.

Mike: Hey, I’m excited to talk about the topic today because I think there’s a lot of people that if they’re not building up a portfolio of rental properties, they have reasons as to why. Some of them have nothing to do with… motivation, things that we can’t necessarily solve for them. But as you know, a common problem is being able to get access to capital to do that. So it’s going to be exciting to talk about that today and share the tips from how you’ve done it yourself.

Daniel: Absolutely.

Mike: Yeah, great. Well, before we get started, why don’t you tell us your background? I know much like me and a lot of guests you have in your corporate refugee where you were working for the man and just had to get out on your own to spread your wings, if you will. So anyway, tell us about your background on how you got into real estate investing.

Daniel: Well yeah, like you said, I am a corporate refugee. I have worked in corporate finance and bond trading. I went to a good college but couldn’t wait to go out, get a job. And so where I was is, I lived in New York. I worked on Wall Street. I was there for six years and I had a pretty fun job. They paid me well but it was just a job and so my big thing was I couldn’t wait to just get out and… I was never a good employee. And no matter how much they pay you, no matter how prestigious your job may look, my big dream was just to get out and work for myself.
So market crashed, the best thing never happened to me. I’ve told the story million times so I don’t like to tell it to make a long story out of it now. So market crashed, my job really wasn’t, I mean my job was still around but I really wasn’t doing anything anymore. It really just turned it to more pay-per-pushing, face time, trying to keep my job.

So it was a good time to get out and at that point I really for years, dreamt of building a real estate portfolio, building an investor. I had read “Rich Dad Poor Dad.” I think like many people, that’s how people get started. So that was a good time for me to sort of go out on my own and move back to my home town and just start buying property.

Mike: Yeah, so in terms of building a rental portfolio and outside of reading “Rich Dad” which to be honest, I say this all time, probably a quarter to a third of the people I have on the show, usually say that in the first few minutes. Then I read “Rich Dad Poor Dad.”

Daniel: I’m telling you, it’s such a simple book.

Mike: Yeah, it’s the Bible, right? Yeah. But outside of that, did you know anybody? Did you have family members or friends or anybody who had invested in real estate? Does that have anything to do with what started your interest?

Daniel: No, and actually what signaled the market crash, I mean back in the way, it was the fact that my aunt started buying rentals. That was the only family member that was actually buying real estate and she was the last person that shouldn’t have been buying and producing property.
So that’s actually how I knew the market was going to crash. I knew we’re going to need… financial indicators. I saw that my aunt bought a couple of rentals and I was like all right, something bad is going to happen, which if you study history, and I by no means consider myself to be a super smart person. But I recognized the opportunity in a wink.

It was, when the market crashed, everybody was panicking. But to me, that was clearly time to start buying.

Mike: An opportunity, yeah.

Daniel: But it was an opportunity. But what signaled that to me, my personal financial indicator was when my aunt got into real estate, that’s when I knew bad things were going to happen in the market. So it’s kind of a funny story. If you knew my aunt, the story would make more sense.

Mike: Yeah. So tell me, you moved back home and you started… how did you know? I guess I know you do a fair bit of rehabbing and do you do that? I tell a lot of people that if you’re interested in building a rental portfolio, sometimes you have to do other things to support that habit, if you will. So you’ve got a rehab. You’ve got a whole, so you’ve got to do some things to basically open up opportunities for you to come across deals and kind of help fund your operation, right? So is that primarily why you do the other things?

Daniel: Well, I started buying property pretty aggressively and again, when you go back to ’08, ’09, the opportunities were incredible. That’s when I started building my portfolio and you could get into it and build at a much quicker pace than I’d say most people can right now in this market.
So I started building my portfolio pretty rapidly. But for most people, they’ll usually work a job. They’ll come up with the down payment. They’ll buy a rental property here or there. A lot of people, and I think it’s a great strategy, they wholesale to build up some cash. Buy a rental that’s free and clear, I think that’s a great strategy as well.

So for a lot of people the way they build their portfolio is incrementally, as income comes from other places, and I think that’s great. I had pretty quickly, I did some wholesaling but I pretty quickly jumped into building rentals. But I also wasn’t… I didn’t need a lot of income for myself as I was building my portfolio.

One thing I did really well when I left my corporate job was I just cut out all my expenses. I mean I had very little living expenses and I wasn’t married and have a family. I didn’t have a large housing expense. Virginia’s cheap. You can live here for nothing. So I could sort of build it not be in a hurry, if that makes sense.

Mike: Yes, so I know first hand, one of the challenges, because I started in 2008, was that most of the lenders that I knew of, the people told me, “Go talk to this bank, go talk to that bank. Go talk to this lender” is, immediately the people they told me to ask for, were no longer there, or people said, “Why don’t you try us back in a year.”
I think one person actually said, “We don’t lend to real estate investors anymore.” I think something literally said, “That’s an evil business.” So it was a different market.

Daniel: A lot of people still say that it’s kind of scary.

Mike: Yeah, it was a different market and I know, fortunately when I came in we had raised some private money. We had access to a couple of lenders that we had some sort of inside connection or somebody that was willing to help us get started because we knew somebody that knew somebody there, or whatever. So outside of those opportunities though, it was hard to get financing, certainly institutional type financing.

Daniel: It still is and for a lot of people it’s still impossible. So the traditional conventional lenders that people think of, which is your 30 year investor loans backed by Fannie Mae or Freddie Mac or FHA loans, and they’re still almost impossible to get. The amount of paperwork required, it’s insane. But their local community banks which are mandated to work and lend money locally, they still do a lot of business for real estate investors and they’re all over the country.
From talking to my own subscribers and talking to our software clients, a lot of them aren’t aware that these exist. So that’s a segment of the lending market that lot of people aren’t aware of.

Mike: Yeah, and I can speak to that a little bit. There are two banks. I have some private money but in terms of the two banks that I work with, I could walk in the door and talk to the president. I mean there are one or two branches. They know who I am. They want to meet for lunch every once in a while just to talk about stuff.

Daniel: Yes, and they want to do business and that’s the beauty of it. They’re mandated to lend. They have money to put to work and a lot of these guys are portfolio lenders, which means they keep all your loans in-house. They can make their own lending guidelines. They only have to have your blood type and your DNA sample to lend you money, and so they’re easier to deal with. I mean they’re still checking your credit. They’re still checking your balance sheet.
So they’re still unattainable to a lot of people that don’t have verifiable income or don’t have a great credit score. But there’s a huge segment of the investor market that you can actually tap into that lending, that they’re just not aware it exists.

Mike: Sure. So maybe kind of talk about how you started off with getting financing for rental properties and maybe how that’s evolved. I don’t know if it’s still the same way that you’ve been doing it from the beginning or if usually along the line you learned a couple of tricks and tips on how to get more efficient or more effective. But maybe kind of share how you started out and then how that’s evolved?

Daniel: Sure, and I’ll preface this with this. I am a huge fan of private money and we use private money. I use private money in my business. If you can use private money for long-term holds, that’s fantastic. There’s a huge market for that.
When I started building my portfolio I had some private money that was available to me on a short-term basis. I could deploy them to deals to go and buy rehab and then pay them back. So what I realized I was able to do is take that short-term money, put it into my deal, rehab it, use that private money for 100% of that deal. Then go to a local bank and get the property reappraised, pull out then entire investment amount to pay off my private lender, retain full ownership of the property with some equity in it and pretty good cash flow. Then go back to that same private lender and then use their money for the next deal and the next deal and the next deal.
Over the course of four years I probably built a $5 million portfolio that way. That cash flow is six figures a year. Again, when retaliations were lower it was a little bit easier to do. You buy something for 40, you put 20 into it. Now it’s worth a 100. It’s a little bit tougher to do these days in 2015, but still doable.

Mike: For sure.

Daniel: When the lenders go to look at the property after its rehab, local banks, the community banks, they don’t care if it’s seasoned. They don’t care about seasoning. They don’t necessarily care, a lot of them don’t care what you put into it. They look at the current appraisal. They look at the lease. They look at the debt coverage ratio and if the lease, the property can carry the debt, they’ll lend you the money.
So you can refinance 100% of what you had invested into it and build a portfolio where you’ve got no money tied up, if you do the right deals.

Mike: Yeah, and are you still doing that today? You’re still using private lenders as kind of a bridge line to get you to a longer term financing situation?

Daniel: Yeah, and I’m at the point now where I am using a lot of my own cash to get into deals and I’ve got credit lines with a lot of these banks. Again, look I’m not here necessarily to preach bank financing. There is a lot of cons. There is lot of reasons why you should not necessarily use bank financing. Private money again is a much better way to go and I use private money for some of my long-term holds as well.
But the bank money is so cheap and you get to a certain point where I mean it’s pretty easy money. So I still employ local banks for a lot of my financing. You can get construction financing really cheap. I’m developing, I’m actually breaking ground today on one of six duplexes that I’m building ground up and I’m financing the entire construction; 100% of my construction. I think at four and a quarter. It’s hard to beat.
And then that construction loan rolls over into a permanent loan automatically, so I don’t even have to refinance.

Mike: That’s great.

Daniel: Yeah, I mean there’s some reasons why it’s easy, especially when you’re trying to scale. So right now I’ve got, again I’ve got to try to do the math in my head because I’m not the smartest guy. But I’ve got probably about three million in development and that’s hard to get to with private money.

Mike: Sure, yeah.

Daniel: So instead I can call a local bank, which I did and I said, “Look I need a construction loan.” Boom. Done. It’s nice.

Mike: Yeah. So I want to talk about the private lending side for a long term potential, but first let’s talk about the bank stuff. One of the traditional challenges with bank money, even when you get it, is that it’s probably not really long-term in nature or at least there are hurdles in there every three years or every five years, depending on your line of rate adjustments. And probably in my experience a lot of the smaller banks and even the larger banks are not willing to do maybe 20 years. Certainly 15 years is more common. Probably never 30 years, in my experience.

Daniel: And you’re absolutely correct. So all of these local community banks, they’re what’s considered commercial lenders. They’re a little bit smarter than our buddies at Fannie Mae and Freddie Mac. Our government-backed lenders. So these guys are commercial lenders. They don’t want their money locked in at 4% out there for 30 years, which is kind of smart.
If I was lending money, I wouldn’t want that either. So everything they do from what I have seen is 20-year amortization and it carries a 5-year call. Now some bank structure it as a five-year call, some structure it as a five-year arm. A call means that it will probably end up being an arm. They’ll just, if you have a good relationship at the end of that five years, they’ll renegotiate the interest rate.
So it carries with it some pretty significant interest rate risk. I mean I’d never do a three-year call on my loans but I am doing a five-year call on most of them, and that’s…

Mike: So calls, traditionally that means that they could call the loan and/or you’d have to actually refinance versus just adjusting the rate?

Daniel: At the end of five years they could say we want our money back, and that’s dangerous. So traditionally, if your interest rate environment at the end of that five years is similar to where you locked in your loan to begin with, they’re probably not going to call it. They’ll probably renegotiate.
If the interest rate environment is much higher, they’ll probably still, if you have a good relationship and you have been making your payments, they’ll probably still renegotiate your rate. But you’re looking at a pretty significant rate jump. Of course anything can happen. These guys can have a new bank president who will say, “Well, we don’t want exposure to investor loans as much as we currently have. So what’s coming due in the next year, let’s not renew it.”
So yeah, I mean there’s lot of dangers. What helps a little bit is a 20-year amortization. You’re paying that note down pretty rapidly. So refinancing should be fairly doable if you need to refi. But yeah, I mean look, it’s a dangerous game, right? If you can build a $10-$20 million portfolio with private money in long-term, God bless you. You should be doing that.

If you want to scale to that level, it’s a trade off, right? So I’m taking on some interest rate risk and some calculated risk in order to build a big portfolio.

Mike: Well, let’s talk about the private lending side and I want to talk a little bit about where people basically turn this into little bit of a lesson where people might consider looking for private money because you and I both know that it’s pretty much everywhere around everyone. It’s just a matter of whether you’re asking the right questions or have your eyes open. But maybe talk a little bit about how that’s typically structured to, in terms of rates.
Some people would prefer a long-term vehicle that they’re not going to paid back in two months when you finish a project and then they have to figure out where to lend it again. And then also you and I probably both also know that this is contrary to what a lot of people listening, unless you use private money, my belief is that there is a lot of money out there that is essentially on the sidelines. In a CD, something earning less than 1% and you don’t have to pay people hard money type rates to get financing. In fact sometimes a fraction of that.

Daniel: No, and there’s lot of mis-education out there about what private money is. A lot of hard money lenders advertise themselves as private money, and they couldn’t be more different from private money. And you’ve hit it on the head, there is so much money on the sidelines out there that this just has no idea where to go.
People with money don’t know where to put that money into. I mean CDs pay you three-quarters of a point right now, a point. Stock market has ups and downs. What I don’t like about the stock market is that it’s almost impossible to get a good current return. Your top dividend yield on the stock is maybe 3%, three and a half percent, and that’s only on the small subsection of the stocks.

So people that want current income and want their money to be secured by something substantial like a hard asset and that want to earn more than 1 or 2%, there’s really only a few options for them. Most of them have no idea how to do real estate deals.

We teach this to people all time. If you can come to the table and you actually understand how to source great deals, how to put deals together, you’re bringing more to the table than the people with the money. The money is more common. Now I almost feel like every time I come across people looking for private money, they’re not approaching from a power position. They’re approaching from a position of “Oh I need money. I need a loan. I hope somebody decides to help me.”

Position yourself the opposite way. You’re helping people to put their money into a place where it can grow. It can be secured by hard assets and if you do the right deal, it doesn’t have to be reinvested every six months.

Mike: Yeah, absolutely and it’s probably not stuff like loan origination points and a whole bunch of other stuff because private money lenders don’t traditionally think that way.

Daniel: Never, and if they do think that way, they’re hard money lenders and you shouldn’t, if you can avoid it, you shouldn’t do business with them.

Mike: Yeah, so maybe just tell us some common places that people can look for that money, whether it’s friends and family or associates or friends of friends and family or whatever it might be. And then we’ll get into what some common deal structures might be.

Daniel: Yeah. I am a big fan of starting in your network and working your way out. I have never marketed for money. I have never mailed list of accredited investors. I’ve never done luncheons and spoke in front of hundreds of random people. Start with the people that know you and trust you, and that doesn’t mean you have to go out and you have to hit up friends and family for money.
Again, the biggest problem I see with people looking for private money is the positioning. How do you position yourself? If you position yourself from a point of strength, “I have the knowledge and experience to help solve people’s problems.” All of a sudden you don’t think of yourself as being out there looking and asking people for money. You’re looking for people whose money problems you can solve, who will benefit greatly from partnering with you.

And then even if you are coming to your friends and family, you’re not coming from a position of weakness. You’re coming from a position of, “Hey, I’m working on some really cool deals. There is opportunity to work with me and make some great returns. Do you know anybody that maybe interested that’s currently looking for places to diversify their assets or to put their money into?”

And sell with people that know you and trust you and branch out from there. Your network is much bigger than you think it is. You actually sit down and make a list of where do you go? What are your activities? Church, synagogue, local charities, your kid’s PTA, right? And I don’t have kids so I don’t know anything about PTA.

Mike: Have you gone to PTA meetings?

Daniel: Yeah, well without kids that would be a little creepy.

Mike: Yeah, that would be creepy, yeah.

Daniel: I mean it’s those places where you’re talking to people. People all over in your network. Start there. You’ll have to be mailing a thousand letters to people you don’t know.

Mike: Right, so talk a little bit about, one of the issues that I have seen with private money is it’s really easy to raise far more than you need. So people may have access. If you may find someone has access to a lot of capital, a lot of real estate investors might find themselves in a situation where they find somebody with a fair bit of money to lend and they’re like, “Okay, well how about a million bucks?” “Awesome. Well hey, right now I only 80,000. Can you just set the rest in an account for me earning no interest until I need it?” And of course that’s not a very good proposition, yeah.

Daniel: Of course, yeah.

Mike: So kind of talk about that phenomenon of, I think people very quickly go from having a hard time raising money because they haven’t perfected their pitch really, to raising far more than they would need, which is going to disappoint that lender as well.

Daniel: What I found is that when you initially do a deal with somebody, don’t tell, “Oh I have got the 50 grand to invest.” You do the deal and you do it right by them. You do what you say you’re going to do. You deliver on what you promised, and then all of a sudden it turns out they have a lot more.
Usually you’ve got, people will tell you they have a certain amount to put to work. It tends to be a lot more but you’ve got to prove yourself and you’ve got to show them that you can be trusted. And show them that you care about delivering what you promise, that you care about protecting their money.

And then all of a sudden, you’re going to realize these people have a lot more money to put to work and not only that but they know a lot of other people. If you just do a deal with somebody and let’s say it’s a short-term deal and you’ve delivered them a 10% return, five times what they were getting in their… ten times what they were getting in their CD.

They’re going to be talking their buddies about you because chances are affluent people hanging out with other affluent people and they have the same money problems. Where do I invest? And that’s what they talk about. So all of a sudden, like you said, you go from a little to all of a sudden having access to a lot.

I know the really savvy people and I haven’t done this, but you can then go on brokering this money. That’s one business model. I’ve never done it so I don’t want to talk about the details but that’s something…

Mike: You’re saying it in terms of relending it.

Daniel: Yeah.

Mike: Yeah, that’s how most of our money lenders work actually is they’re borrowing it from somebody else and relending it effectively.

Daniel: Yeah, that’s exactly what they’re doing. If you’ve got somebody that’s got a million dollars to put to work and you can only use a 100,000, maybe you’re best friends with somebody that’s doing the same kind of deals as you are. So put them in touch. Take a point. You don’t have to take hard money numbers. You don’t have to take six points and deal. Take a point in the transaction. That’s a good way to sort of monetize that relationship.

Mike: Yeah, so talk a little bit about… of course this is a little bit of a loaded question because anything you could possibly imagine, you could structure a deal that way. But talk about, I guess in your experience, how are some of your deals typically structured for short-term money and/or long-term money from private lenders I am talking about.

Daniel: On the short-term it’s generally been just a straight interest rate. I don’t take points. I take your money. I pay you 6-8% interest rate. I pay you off when, with my long-term deals if I am refinancing into permanent bank loan, I’ll pay you off on a refi. I don’t flip a lot. The few houses that I flip, obviously pay them off when the deal is done. It really doesn’t have to be more complicated than that.

Mike: Right, absolutely. So how about private money for long-term holds because I would say not that you want to take advantage of anybody, but they’re not bankers. So they’re not thinking about interest rate adjustments after certain periods of time and things like that typically. So talk about kind of the people’s general willingness to lock in a rate for maybe a longer period of time than traditional bank money would.

Daniel: If they’re smart, they don’t want a reinvestment risk. If I am looking at a place to put my money into, what I don’t want to do is have to figure out when I get that money back in six months, where I am going to invest it now. And then doing it again.
So that’s the way you sell long-term deals. You can put your money into something that’s going to work for you long term, and I’m not going to say forget about it, but you know what I mean. You don’t have to reinvest it. Reinvestment risk is not only an interest rate risk but it’s a time suck.

Mike: Right, absolutely.

Daniel: So the smart people want to put their money into long-term deals, as long as that money continues to work for them, either compound or continue giving them a good current return.
So the way we structure and I like this strategy, the way we structure long-term deals is a little bit different. We do 50/50 joint venture deals with long-term private money lenders. So you put up the money to buy and renovate the property. I structure the deal. We lease it out. There’s no debt. The property brings in rent. We subtract out the expenses you get to your non-operating income, and then we divide it.

Fifty-fifty, 75/25 and then we do the same thing on the back end. So we can say okay, we’re going to slid the cash flow of 50/50 to 75/25, hold the property three, four or five years, whatever the market dictates, until we see the correct amount of appreciation. Then we sell the property. You get your initial investment back and then we are going to share the up side.

So maybe I’ll give you 25% in the back end. When you run your numbers, the right deal will actually show your private lender, well you’re going to get a current return let’s say of 5 to 6%, but your annualized rate of return when you take the backend profits into account, is actually going to be double digits, assuming the projections are correct.

And ideally you’re doing deals with built-in equity. I mean as a real estate investor, you never want to obviously buy at market value, or you don’t want to buy for 50 and rehab for 50, now it’s worth a 100. That’s silly. So ideally you’re buying the built-in equity. That equity over time grows. You’ve got a pretty sizeable resale margin at the end.

Mike: Absolutely. So from your standpoint and for the investors that are listening that, just heard you say that and said, well, are you giving up more of the pie than you should over time? Well you and I both know there’s a lot of innovative ways to do deals and it allows you to do deals that maybe you couldn’t do otherwise. So that’s why so many people do JV deals or find ways to work with, certainly with lenders.
But at the end of the day, if you had, let’s say you had access to a bank line at 6% to do what you just said, and you are splitting the backend or effectively giving a private lender more than 6%, then you’re potentially leaving money on the table.

Daniel: Well, I’ll say a few things. First of all, I use a lot of bank debt still and the strategy that I described to you, that’s not my primary strategy. I still go to banks. But I can. A lot of people I come across have no shot at getting bank loans, even if it’s from local commercial lenders. They still look at your credit. They still look at your balance sheet. They still look at your income. They still look at your tax returns. They gauge you almost the same way that a conventional lender would, only without requiring DNA samples, blood samples, talking to 50 of your friends, all of that stuff.
So I’m still using bank money. If I am going to private money for long-term deals, if I am giving them the joint venture deal structure, yeah, I may be leaving some money on the table, but what I don’t have is debt. We’re 50/50 or whatever, we’re partners in this deal. There is no recourse to me.

If the property is vacant in the particular month, I’m not making that no payment. There’s no money to split, and the joint venture partner understand that and they’re on board with that. But at the same time, I’m able to sell a deal to them and make it more attractive because I am promising them equity. I am promising them ownership.

So it’s juicy for them. It’s a little bit more attractive to me because I don’t have notes to pay. It makes sense.

Mike: And there’s a… truth be told, when you do even with bank loans there’s always a bunch of hurdles to jump through, appraisals, waiting for a bank to… points. Just there’s a lot of little things that [inaudible 00:32:19].

Daniel: Rehab draws, yeah, all that stuff, absolutely. So if you can go the private money route, there is a lot of very good reasons to do it that way.

Mike: Absolutely.

Daniel: And the structure that I am describing, it’s one way to do it. I mean if you can borrow at 6% on long-term rental deals, cheap money. Go for it. You have a note to pay, and they can foreclose on. In the structure that I just described, your property is vacant for six months, it’s still yours, right?

Mike: You don’t have interest rate risk. There’s a lot of things yeah, for sure.

Daniel: Yeah, so there’s some pros and cons to each one.

Mike: Well Daniel, I have a couple of more questions for you in a just a second to talk. It kind of changed just a little bit but any kind of final words of wisdom for people that have that financing has been there thorn in their side to start building their rental portfolio. Just kind of some words of wisdom of how people could get started beyond what we just talked about, or kind of summarize it either way?

Daniel: Well, figure out what your resources, all right? I mean if you could go to banks, understand the pros and cons but look at the option. Private money is a great way and if you can raise private money, again that’s sort of the biggest thing that I try to beat into people’s heads, position yourself correctly. You’ve got the skill set that money is a lot more common.
If you’re a deal maker, if you understand how to find off market deals, if you understand how to rehab them, if you understand how your market works, if you have all the local relationships in your market, that’s less common than people with $100,000 in the bank. That’s everywhere.

So that’s really the biggest advice I can give is position yourself as somebody that comes from a place of power. What you bring to the table is far more important than the money, and it’s less common. If you can get into that mindset, it’s going to make raising money infinitely easier, because you’re not coming to somebody saying, “Please, please…”

Mike: Yeah, please form this deal. I have got to close quickly because immediately they’re like well, I could… they’re in a position of power. They could jack up the interest rates because you come off as desperate. Yeah, obviously that’s…

Daniel: Yeah, and it changes the entire dynamic of your interactions with people. That’s truly the biggest piece of advice I can give.

Mike: Yeah, great. Well hey, I want to shift gears for just a minute here. We just have a couple of minutes left but kind of talk about Rehab Valuator, your product for helping people evaluate deals which you and I both know. People could get themselves into trouble by doing things in the back of a napkin which a lot of real investors do. But just a kind of a shameless plug for your product here but just kind of tell us about it. I know a lot of people use it and I know it’s a great product so maybe tell us a little bit more about it.

Daniel: Sure. Well, it’s a software that I built for my own business initially. I had no intentions of being in the software business. I had no idea how to build websites. I built it for me and it sort of mushroomed into this thing that’s been downloaded 80,000 plus times and got a lot of users.
So a couple of things that the software lets you do very well is obviously calculating what the pay-per-deals but more than that, if you are a wholesaler you can put together marketing materials for your deals. You can put together flyers, and again that’s something that we sort of beat into people which is when you approach somebody, nobody cares what you need or what you want, right? When you’re communicating with somebody you want to show them what’s in it for them.

Mike: Right.

Daniel: So the way our marketing materials work is if you’re creating a flyer to sell your wholesale deal, you’re showing your wholesale buyers how much money they’re going to make. You’re showing them the comps. You’re showing them pictures. You’re showing them the info that they want to see.
There’s a separate marketing component for private lenders. Same thing, you can create a deal pitch for your property. You hand it to a private lender and they will tell them, “I am going pay you X percent of interest, if you want to pay in points. What the deal timeline is,” and here’s to the penny what they’re going to earn. Here’s how the deal is secured. Here’s the loan to value.

So you’re handling a very professional looking presentation to your private money lenders. But it doesn’t talk about your relevant stuff. It talks about here is why you should do this deal. Here’s why it’s safe. Here’s how much money you’ll make, and it builds huge credibility for you because it looks like you just created…

Mike: It looks like you thought about the deal a little bit, yeah.

Daniel: Yeah, it looks like you actually take the business seriously. You’re not calling somebody and saying, “Dude, can I borrow $70,000? I’ve got this great deal.” Right?

Mike: Right.

Daniel: It looks like you approached the business intelligently. So those are really the strengths of the software. Even if you’re brand new, it lets you put together marketing materials and when you communicate to people, you look professional and you’re showing them what’s in the deal for them because that’s really all they care about. It’s sad but that’s just the way the world works.

Mike: Oh yeah, that’s how everybody thinks is great for you. Once why am I, as you said, absolutely.

Daniel: Yeah. That’s it.

Mike: Well hey our folks want to learn more about you Daniel or some of the stuff you’re working on. Where should they go?

Daniel: I’m on Facebook probably a little too much and obviously they could go to rehabvaluator.com. If they want to download, we have a free version of the software. The free version lets you do all the analysis and number crunching, just not the marketing. So that’s rehabvaluator.com.

Mike: Okay, yeah we’ll have links for the stuff down below the video here as well for those who are listening. So awesome. Well hey thanks for your time and I appreciate you sharing some of your experiences and knowledge.

Daniel: My pleasure. It’s been fun.

Mike: All right, take care buddy.
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