Rigs to Riches EP03: James Behanick - Hard Money Lending (Fix & Flip Financing & Raising Capital)

Like, what is this concept? And now it’s grown into this, I think, really huge industry. But so tell us real quick though to the new people who’ve never done hard money like what what should they what do they need to bring to you or how should they position themselves to be able to be a good lender or good borrower? >> Sure. So every lender is going to be a little bit different. you can kind of talk through your loan officer and if you have a good LO, he should be able to, you know, explain the process, explain kind of industry standards and also really explain the difference of how they may be different than than a specific competitor, right? And so for us, for us specifically, we actually just rolled out, which you didn’t know about, we just rolled out some dynamic pricing, meaning that we’re we’re going to try to get a deal done if a deal makes sense. First off, use your lender to tell you if the deal makes sense or not. If they’re not willing to lend on it, that’s probably a signal to you that the deal might not be worth buying at the specific price that you got it at, right? And good good loan officers will walk you through what you probably should be paying for in order for it to be profitable because at the end of the day, we’re all in this together. Hard money lenders is different than a traditional bank. Obviously, we bring speed to close, which is super important and allows you to buy deeper than if you were going through like traditional financing that might take, you know, 30, 45, 60 days, right? uh we’re closing 7 days less depending on your ability to get us the information that we need, our ability to, you know, basically get a get a survey, maybe get an appraiser out there depending on the deal. Uh each deal is, you know, going to have a little bit of nuance to it, but a good LO should be able to explain, you know, the nuance of your deal to you so that you’re in it together and that you can kind of walk through the process. So, to go back to the original question, he was asking kind of what we look for. We’re going to look for do you have do you have any experience? And if you don’t have any experience, we’re going to rely more on the experience of your contractor in that instance. And then also what are the metrics of the deal and do you have what you know mean a minimum liquidity threshold in order to perform on the loan, right? We wouldn’t want to put somebody into a position to where 4 months down the road they can’t make a loan payment. They’re looking up at us and we’ve got to foreclose on the property. And so we don’t allow our borrowers to get into that into that situation. And so for us, RLLO’s are well trained in in comping. We have multiple staff on site that is trained in uh professional like budget preparation, right? And so we’re going to take your budget. We’re going to go through it line item by line item with you. And if we see something that you’re, you know, too too low on, we’re going to ask it like, hey, you know, where did this number come from? We’re going to kind of massage that back and forth until we can make sure that we that the scope of work, right, matches the actual product that you’re going to land. And then more so is the product you’re going to land match with the market price that you think that you’re going to obtain? Because that’s important. A lot of times you think you can buy a property for call it $200,000, put $50,000 into it, sell it for, you know, $375k. Well, does that 50k budget really get you to that $375,000 number that you’re looking for or are you really going to be kind of middle top market and your the true ARV at that point in time isn’t going to be 375, it might be 350. And the difference between that $25,000 might be the difference between the deal making sense or not making sense. And so that’s that’s one of the big things that we walk through with borrowers is we want to ensure that uh before they put any skin into the game, any money before we start, you know, going down the full list of of processing a loan and and and incurring a lot of cost that uh that everyone’s on the same page about what this project’s going to look like and the viability of getting it to where it needs to be. >> Love it. So, if you guys caught a quick tip, if you want to double check your underwriting and see you did good numbers, send it to your hard money lender because they’re going to look at it, too. And they’re, like James said, they’re going to give you feedback. Guys, when I first started using hard money lenders, it’s probably six, seven years ago. I remember I love this hard money lender cuz me and my partner, we’d quickly run or we’d get it from New Western or we get some wholesale deal and we’d look at it real quick and and we would underwrite it and we’d be like, “All right, I think it’s a deal. Well, let’s go send it. ” His name is John Pribble. I’m like, “Well, send it to John. ” And John would I was amazed. John would give us a response so fast on the It’s like cuz my And I got to know John and I got to know what he needed. And I’d be like, “John, what’s the ARV? What would you What’s the ARV that you would lend off of? ” Cuz if I knew that, then I could start to back in the numbers and he would give it to me right away. Right. But talk through on the back end like, “Why is that it it to me I was like, I can’t believe John’s giving me this much time and helping me. ” But talk, >> right? Well, at the end of the day, guys, another difference between a hard money lender and a traditional banker is it’s that uh we really are both the debt and in most cases the majority of the equity in a deal too, not the sweat equity, sweat equity is your profit, but in so far as the hard equity that’s going into the deal. And so, we do take ownership and and the majority of of the people that do do what we do for a living take ownership in in in the project because ultimately if it does if it does go wrong, you you aren’t going to be happy with the results. then we’re not going to be happy with the results either. Then we got to take the project back and actually perform on it. And so the last thing we want to do is I mean we’re we’re I’m here to lend money. I’m not here to go buy properties. That’s not that’s not what I do for a living. In fact, and I’m not going to name names, but there’s competitors in the marketplace that that do. And but at the end of the day, they’re out there competing with you. I don’t want to compete with you. I want to be your partner. >> I love that guys. I could tell you. Go ahead and I’ll go next. >> What’s the amount of experience needed? Um, >> so we we don’t require experience uh to to lend. But once again, now we’re going to rely on making sure that your that your contractor does does have experience that that you’ve you know, if you can come to me and you can impress upon me that you’ve created the proper network, right? It’s like here’s my you know, here’s my realer that’s bringing me this deal. they have, you know, this much experience working with investors or here’s the wholesaler and if it’s like and I mean it’s a small community at least in in Houston where we do the majority of our lending. So I know the wholesalers. So it’s like I’m going to know whether or not you know how they operate, what their numbers typically look like and and that’ll help me figure figure that out. But in so far as the experience, we’re just making sure that somebody there does know what they’re doing. You’re not going into it just completely blind. We’re here to help. we we can recommend, you know, contractors that we like working with, which also really helps with the draw process along the way, too, which we can, if you want to dig into that later, we can have a little bit of a conversation around the draw process as well. But it’s just it’s just for us making sure you’re buying the deal at the right price, making sure that you got enough liquidity to make it through call it the first at least 8 n 10 months of the loan depending on days of market and kind of where we’re at. and to make sure that that there’s a contractor that that is somewhat vetted and can get the project done. >> This might be a dumb question. What’s the difference between hard money and private money? >> Uh, a lot of times there’s a company behind hard money and not behind private money, right? And so I I would say that in 2017 when uh we founded Quick Lending, we knew we were going to mature ourselves into a hard money company, but the time it was me and a partner, right? It was that’s private money. Now we have 30 employees. Uh full back office support that that sort of stuff. Typically maybe if you work with a a private money lender, there’s going to be less over there. The trade-offs are you probably get a little, you know, you get cheaper. There’s no investors to pay on the back end, right? like like he’d mentioned, I mean, I run a private equity shop that funds the loans that we originate. And so, we had to make sure that we can make money, our staff can make money, our investors can make money. Uh, obviously, if you’re working directly with one person, the margins don’t necessarily have to be there, but also, they may not have the expertise to walk you through the deal or if something’s going wrong, they might not be there to offer support. And not only that, they have they’ve made run out of money. Um, I can tell you that I don’t think I’d be exaggerating to say that at least a hundred times in my career at this point in time, someone will come to me and be like, “Hey, I need I need you to ref finance out my private money lender, I got 40ks and draw 40k and draw reimburseables. ” And he didn’t have money. And so that’s the risk that you you know, >> at the end of the day, money isn’t the destination, it’s the fuel. But what is the real goal of freedom? Freedom is to be present with your family. Freedom is to choose how to spend your time. Freedom is to create legacy that outlives you. That’s why we created Revive Summit. At our past summits, we’ve had incredible success. 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So, if you’re ready to stop letting lack of liquid cash or whatever else is holding you back and start building wealth with impact, then join us at Revive Summit. two days, the right room, the right tools, the start of your next chapter of freedom. >> Yeah, I would just add, especially for some of you guys who are just trying to get started. Like finding private money lenders is a whole another skill set. And a lot of you guys are trying to find them at good competitive rates. The kind of hack or the shortcut is finding a good hard money lender that is aligned with you because they’re not so much like they’re built to lend money and they have, as James said, they’ve got a balance sheet or they’ve got funds to lend, not some guy in sub 2 that’s lending out money and wanting these crazy high rates cuz he’s only got 100k. You know what I mean? So, they’re more they’re going to be scalable with you and give you more options. And just to drive the point home of not all hard money lenders are created equal. I lived it guys. That same period I shared you guys rock bottom for me kind of how I had to reset earlier today and I’ve shared that on my YouTube story before on my YouTube channel guys when we we ran into this point where we couldn’t our properties wouldn’t sell and we had to fire stuff. We had to get rid of it. And I had to call my private money lenders and say hey guys I we’ve we’ve had this chain of events happen and we’re in trouble. And I called them. It was the tale of two hard money lenders, right? The first one I called and I communicated that, hey, I can’t make my payment here next month. And I was about a week ahead of it. And he was kind of working with me. Well, literally the second day of the month, so payment was due on the first. The second day of the month, he calls me. He’s like, “Hey, just letting you know we’re sending you the notice of default, like all the legal paperwork. Like my attorney is going to be reaching out to you. We’re taking this property over. ” like he was seemed like he worked with me on the first call, but immediately went into like this guy was no longer working with me, no longer trying to help me. He was like out to get me and it was very clear and it was very uncomfortable. Right now, I also had the other guy, which I told you a second ago, John, his name was John Prible. I called John and again, you talk about conversation calls you don’t want to make. I’m calling John and John’s been helping me. I’m like, “John, we’re in trouble. ” And I kind of I’ll remember this too. I was driving down this highway in West Texas on my on my job on my field or like during my two weeks on having to call him. I pull over and and I I told him this whole story and John’s like, “That sucks, Casey, but I’ve been there. And here’s what you do. You need to get those two properties listed and you need to price them well and if they don’t sell, drop a 10K every week. And in the meantime, don’t worry about your payments. ” like cuz he knew he had bought a we bought a he bought a good deal and we the deal was there was still equity so he knew he was protected and he helped me and we got both his properties sold he got all his interest on the back end and we still have a long-term relationships but those other guys that wanted to take advantage of me was much different so I’m just telling you guys that story I mean but anything you want to add to like >> yeah I mean I think I think that uh you just you just hit on it right there are some lenders out there that they they’re they’re called loan to own lenders right they’re they’re giving you the money but at the end of the day they’re if I have to own this, they kind of want to own it. They’re because they’re also owners. Us, we don’t that’s not the way we look at it because we don’t we don’t like owning property. It’s not what we’re in the business for. So, we’re going to do everything we can do to, you know, within the the confines of of reasonability to work with the borrower and help them get the project across the finish line. >> So, last question you guys go ahead. Go ahead, Chris. >> What’s the highest and the average amount of money that you give like residential properties? Oh. Uh, our average loan size right now is about $250,000. We do some commercial as well. And so I’ll leave that the statistics out uh for the sake of this conversation. We don’t necessarily have a a max on our on our residential, but we we typically are playing in that like 2 to $800,000 space. Case by case, we’ll go above. I mean, we’ve done a $2 million loan before on a house. So that’s uh that’s going to depend on experience, credit score, which we use soft pools, not hard pools, so it doesn’t affect your actual credit. Where the property is located and and a whole array of things, but it ranges from 9. 95 to 13 12 depending on those factors. I’ll ask one for you guys and I’ll let James answer it. Um you talked about draw requests, but I want to I want to put you guys in your operator shoes. You’re buying the property, you need a hard money lender, and so and these are questions I asked years ago. I’m like, “Okay, how, let’s be honest, our drivers are, how can I get a deal with the least amount of money down, preferably zero money down because I found a good deal. I want to be rewarded. ” Cuz if you try to go to a bank with a good deal, even if you’re buying 50 cents on the dollar, are they going to fund 100%. >> No way. Right? But I found a good deal. Let’s go off of appraised value. Doesn’t matter. You don’t have skin in the game. Right? So, my drivers been like, “If I find a good deal, how do I finance 100%? ” cuz I know a lot of you guys want to scale or even if you got the capital like me right now, I want to do a deal with no money in because I want to keep my cash in my operations, right? I want to keep liquidity. I don’t want to go put it all on a down payment. So, that’s part of it. Question one, James, is like how do we structure deals or how do we get to that place? And then the other big bottlenecks James mentioned is draw schedules and your rehab budget because what they don’t tell you when you go borrow hard money is you have a draw schedule, right? you’ve got, especially if you’re buying these fix and flips that have all these rehabs. And I was I remembered when I did when I first started using hard money, it’s like we had this $60,000 rehab, but we pretty much had to go fund it. Like I had to go fund it out of pocket and then I got reimbured and it was this whole process. And to get paid back, it was just it always there was always delays and I was always waiting. But my contractors, they weren’t waiting. They wanted to be paid. Right? Everybody ever lived that, right? your contractor doesn’t really care about your hard money lender not paying you your draws. So to me it’s like how do you get in for low money and how do you have a good construction draw process but what would you say like what and I’ve asked you this before but >> sure go ahead. Yeah I mean obviously uh the more the more experience you have and the better deal that is the less money you’re going to put into it. I mean it’s as simple as that. And so far as the draws are concerned I’ll also go off and say that not every lender is equal there. what you really the the big thing is is find somebody that’s going to communicate with you, right? I mean, if you call up to our office, you know, during normal operating hours, you’re going to get a warm body that picks up the phone and they’re going to be able to walk you through the draw process and and tell you if we aren’t reimbursing you 100% of what you requested, exactly why we didn’t, right? And so essentially prior to doing any we have a procedure in our office that prior to doing any any any lending we send and it doesn’t this is no cost to you. This is part of our due diligence. Uh we’ll send our inspector on site and he’s going to take your budget and he’s going to create his own budget and that goes back to what we were discussing before you know kind of in the due diligence phase the prior to closing phase. we want to make sure that we’re have we call it like a meeting of minds, right? It’s like this is what we’re going to do to the property and then we’re gonna do this and then we’re gonna say, okay, we agree. It’s like we agree that the scope that you’re presenting is going to get us where we need to be on the back end. If we don’t, then that’s step one is making sure that the scope provided is going to get you, which I obviously mentioned earlier. And then step number two is making sure the numbers numbers align. And now we have full transparency, full clarity. It’s like when you do these line items and it’s and it’s our budgets, it’s fairly detailed. Meaning like there’s no there there should be any wiggle room left. If you say you’re going to, you know, put in flooring over here in this portion of the house and then we go and you put flooring in that portion of the house, there’s not there’s you did what you said you’re going to do. We’re going to give you all your money back. It’s when you said, “Hey, we’ve put vinyl flooring throughout the entire house and our inspector shows up and like only 60% of it’s done. ” Like, we’re not going to reimburse you for all your flooring. You didn’t do what you said you were going to do. And a lot and a lot of times, and this is another actually like tip for for you guys, don’t take the contractor’s word for it that what he said was done was done. Um because you you’re going to call me, you’re going to put in a draw request and pretty much every lender out there, there’s going to be a fee associated with sending the person out there to verify that the work was actually done. They’re going to get there, they’re going to call you and be like, “Yo, dude, your contractor’s like, “It’s not done. ” You’re like, “Well, the contractor said it was like, “Did you see it? ” And they’re like, “Well, no, but he said it was done. ” It’s like, trust me, we run into that multiple times a week. And so that’s just part of the education process. So, it’s like if if you want to make sure that you keep your fees low, that make sure that you aren’t incurring additional, you know, charges and to make sure that like the company that is happy with you, go verify the work’s done before, you know, before you submit the draw because we’re really, really easy on releasing funds that are supposed to be released. And we’re really, really hard on releasing funds that aren’t. We have multiple full-time inspectors. And so if you go into our system and request a draw, it’s easy as clicking a button and then actually we built custom software which is pretty cool and you just go through and you click this line item, this line item, this line item. It takes 45 seconds to like click what you need to and then you submit it. It’s going to go directly into our system which then goes to our dispatch agent who works with the inspector. the inspector is going to get you on the schedule usually within a day, if not one day, two days, and then we’re going to be funding you, you know, 36 hours later. And that’s fast, you know, that’s quick for for the industry standard. So, and guys, it happens. I remember what you’re just a situation just gave. Anybody else ever been in that situation where you sent a draw in and your contractor said it was done and it wasn’t? I know it’s happened to me. It it used to happen to me cuz I’d be like, “Oh, yeah, he said it’s done. ” And then I and then how it’s so humiliating when your your lender’s like like James just said, “Hey, did you check on it? Have you seen what he’s done? ” I’m like, “No, I trusted him. I shouldn’t have trusted him. ” But what it happens. It’s funny. Well, a lot of times they’re trying to, you know, everyone’s trying to beat the float, right? They’re trying to be like, “Okay, I got to pay my guys on Friday and so I’m going to submit this work on Thursday. ” Well, two of the guys don’t show up on Fridays. They didn’t do the work. That usually is what happened, right? But they’re sitting there going, “Oh, it’s going to be done. It’s going to be done. It’s going to be done. And so he’s like, “Okay, cool. Well, he’s trying to everyone’s trying to get he’s trying to get me to pay him so he can pay him so he can pay the next guy. But if the guy at the end of the chain didn’t, you know, do the work and nobody checked on it, then we’re going to show up and you can be hating hand all you want, but we’re going to hold on to it till the work’s complete. ” >> Yep. And another dichotomy of that in private money lending, private money lending, you can get to where you can build a relationship to where they will give you all of your draws up front. So now I’ve gotten to the point with my private money lenders is they’ll trust that I’m going to get it done, but they’re taking risk on me not doing it, right? But versus a to answer your question, a hard money lender, they’re going to protect their interest, right? And they’re not going to get probably get to that point. Before I go into kind of capital raising, what any other questions you guys want to ask on hard money? Go ahead. >> Do you land on mobile? >> No, we don’t. I get asked that a lot. Um, if I had a recommendation of someone, I’d give it to you, but honestly, I don’t really know anyone that does. >> What else, guys? Go ahead, Joe. >> How do you feel about wholesale? >> Yeah, that’s fine. U, we’re going to look at it from what it is, right? So, uh, if you’re going to wholesale something that obviously we’re not going to lend off of the ARV, we’re going to lend off of where you think it’s going to be in the marketplace and make sure that our LTVs are adjusted accordingly. I mean, I mean, obviously they can be great deals, especially if we’re talking about that like I’m going to buy it. I’m going to, you know, do some trash out, demo, clean, you know, do a little, you know, make sure the, you know, little bit of curb appeal to it prior to uh we we love deals like that. We work with wholesalers. We do, you know, transactional funings, double closes, and and wholesale >> depends. Uh, it it depends on the deal, man. I’m not. I mean, I could tell you, but we’re going to look at every deal and it’s going to be a little bit different. >> But yeah, in theory, if you found a property 60 cents on the dollar, a wholesale >> Yeah. >> you could potentially fund all that, huh? >> We Yeah, we can potentially fund all that. >> Yeah. Cool. Go ahead, Ty. >> Um, you mentioned something earlier about private equity. I don’t know if that rolls into the next conversation, but could you kind of touch on how that plays a role in your your lending business? >> Correct. >> Yeah. So, a lot of uh a lot of the hard money lenders, they’re uh they’re either holding on balance sheet the loans and maybe they’re, you know, kind of smaller shop. Then you got your other lenders that are more of a volume shop, but they’re going to either originate on behalf of somebody else or sell their paper on the secondary market to a larger institution. We’ve kind of brided that gap. We’ve created our own uh funding source. We have multiple credit lines. We got 100 plus investors at this point in time. And so what makes us unique in that aspect is there’s no from the lender perspective and from and then how it actually translates to being a positive for you guys is that because we do own both portions of that vertical, we know exactly what we’re looking for at the private equity side in order to get you into a deal that makes sense. So, if you’re working with uh another shop that is selling 100% of their paper, they’re going to be beholdened to what that buyer is looking for, not necessarily what their in-house policies are. And that market can shift rather dynamically, which can uh cause closing delays, can cause pricing fluctuation, cause LTV constraints, can cause just additional paperwork that they may not have required in the past. And then we can kind of go into that phase. But for some of you guys who that was probably over your head and guys that was me for years even in the last year I fully started to understand like what he means by selling the paper. Just to break it down a little bit further. Sometimes when you go to so if you go to the private money lender he’s going to fund it himself like on his balance. That’s what he means by like they keep it on their balance sheet. There there are some hard money lenders that are just raising the money. Either they have it in credit lines or it’s their own equity or they’re raising money like they’re they’re going to lend out their own funds. But a lot of hard money lenders, what he means by selling the paper is they’re going to go originate the loan, tee it up, underwrite it, and then they’re going to go sell it to another bigger institution, right? So they’re not actually keeping it. So what James is saying is they can’t actually the end person’s making kind of the rules, >> right? So they don’t have as much flexibility. But what he’s saying is they can do both. So that is a really important question to ask when you’re working with your hard money lender is how that’s handled. Yeah. Let’s segue into the raising capital side and raising equity to do this and and maybe you could talk about how it evolved, but it’s going to be kind of cool to get your perspective on how you because he’s kind of talked about how we you partner with the investors, but ultimately how do you raise money and then protect your investors capital? Yeah. I mean, it just was when we started the company, we had friends and family that were, you know, excited about what we were doing and and we were able to to, you know, cobble together a little bit of cash and then we started running out of money. We’re like, okay, what do we do? >> Can you share actually if you don’t mind sharing numbers? Cuz I think a lot of you who wants to eventually like lend money out. >> Yeah. And maybe at scale. Okay. Yeah. Just curious how you scaled up. And >> yeah, uh, it was like 2 million bucks or something like that. I mean, can’t I mean, at the time, I think the average loans in Houston, I mean, obviously pricing’s gone up considerably since 17. I think our average loan size is like $120,000. It was like 30 loans, not enough to, like I said, once again, it was just glorified private, right? And so once we got kind of 15 loans in, we’re like, “Oh, I guess we can actually start creating a creating a company with this. ” And I mean a lot of it’s just finding people that are interested in hearing your story and and kind of believing in in what you’re doing. And then you know obviously we have and at that point in time we were working on actually creating creating the fund right so it’s like working through all the SEC regulations to create what a PPM which is called a private placement memorandum which essentially is outlining the risk and rewards that are involved with any sort of particular transaction and then at that same time pulled out the rolodex and started reaching out to those bankers that I was working with 15 years earlier like hey like cuz most people don’t don’t realize this and it is it’s it’s intriguing. It’s interesting. There’s a whole world of what’s called like note onnote finance or hypothecation. It’s a fancy word for it if you guys have ever kind of heard that term. So essentially what it is, it’s like we raise equity from individuals and then we go talk to banks to create credit lines, establish the credit lines, right? And then we’ll pledge the the collateral which is the note itself to the credit line, pair it with the equity and allows us to allows us to scale. And so for instance, our latest credit line, if if I’m writing like a standard single family fix and flip, the bank will actually give me 80% of of the advancement, right? And so if I’m writing a $300,000 loan, the bank’s going to give me $240,000 of it and the remaining 60 is going to come from from the investor, right? And that’s just that’s just the structure of of how that of how that looks. But now all of a sudden, if I go raise $60,000 from an individual, I can go fund an entire $300,000 note as opposed to me having to find five individuals that want to give me that amount of money just to do one one deal. This isn’t just another real estate event. At Revive Summit, family is at the center of everything we do. That’s why you’ll see my kids on stage with me, because this isn’t just about deals. It’s about legacy. It’s about teaching the next generation that money is a tool to create freedom. During these two days in Houston, we’ll show you how to unlock the capital already in your hands, build strategies for your next 90 days, and connect with investors who care about more than just profit. This is about family, freedom, and finances, and creating a story your kids will thank you for. That should really relate to you guys, right? Some of these people, you’re like, “How are they lending on such big deals? ” Right? They’re using what James just showed you. So what I would ask follow up to that. What does it take >> to get to that level? So again, think of like leverage when you go buy a property, you’re putting down your 20% and you’re the bank’s doing the rest. Now he’s doing that on the lending side, right? He’s to go fund your fix and flip. He’s only actually putting in 20k of investor money or 20% and the rest is funded by a bank. But what does it take to get to that point to where you can >> use that leverage? Okay, that’s been in my life for the past eight years. Um, so, so essentially, I mean, if it’s something you guys are are interested in, in doing it, it it just starts with backwards planning from what the bank wants you to look like and then making sure, you know, and this is no different than if you want to go get just your own credit line to go buy your own properties, right? Essentially, they’re going to want to see that you’ve, you know, that you formed an LLC, that you have a decent credit score, that and that you have the most important thing.

Actually, it’s funny that that this is the most important thing, but I can tell you from years and years and years of banking experience. They’re going to look at tax returns. They’re going to see two years of tax returns, see that you’re in business, how money flows, how you, you know, kind of what your books look like. A lot of it’s just professionalizing what you’re doing. Making sure that that um you know what what you’re presenting to the bank that you know that it doesn’t have a ton of spelling errors in it that the math checks out that you know I call it putting a bow on it. Coming from the broker world that’s what it was called. It’s called putting a bow on it. You would go collect all the information you’d package it up and you’d send it to a banker. Remember this guys, at the end of the day, this is like one of my things that one of the things that have helped me more than anything else in progressing my career is if whoever’s on the other side of the phone, if you can make their life easy, they want to do business with you. >> Yes. >> And so if you can put together a package for a banker that he doesn’t really have to make much tweaks to in order to go give it to his like chief credit officer, get you into committee, typically what’s called this it’s called a signature loan. Most bankers, most people don’t realize this, most bankers at any reasonably sized bank can write a $2 million loan to whoever the hell they want with just their signature. And so if you want to go get 2 million bucks from a bank, the easiest thing to do is do your basically do the banker’s job for them. Ask them literally ask them like, “Hey, what what’s your, you know, signing limit? ” And they’ll tell you because they’re in the business of remember he doesn’t get paid unless the deal closes. And so we always be thinking about how the person on other side of the phone gets paid, right? And so he doesn’t get paid until the deal closes. And and they’re like, “Hey, he doesn’t want to take if he’s if he’s a signature of 2 million and you’re asking for three, that’s a whole lot more work for him, right? So ask for the two. Uh cuz if you if you present yourself professionally and you do the majority of the work for him and you just ask for what he can sign off on without going to anybody else, you got a high probability of getting that done. >> That click, guys? We we talked earlier about going to the bank and having lunch with them and getting the answers to the test, right? So you can go create like basically like you said, reverse engineering. I love that so much. And you Yeah, it’s just all about getting getting the answers to the test. James, like you guys, >> any questions on that? >> What kind of rates like right now? >> I get I get primed from the bank. So >> that was the other point I was going to make is >> the good. So bankers I would say are either lazy or really busy. Right. >> Yeah. So >> that he’s right. >> So and if they’re really good, they’re really busy. So what James just said, go make their life easier. both. And either way, he he really polarized that, right? It’s like somebody here that doesn’t want to do any work and somebody here that’s got too much work, doesn’t have time to work on your file. Well, if you do the work for either one of them, guess what? You’re going to get there. >> 8020 rule. >> Unfortunately, it’s more like the 9010 rule. 955. >> Go ahead. >> Um, as a newbie, what does that look like? Like, what does that like for me? I have no idea what you need. Like, is that just asking questions to other investors? >> So, I’m just make sure I’m what specifically are you referring to? What does what look like? Make sure I’m asking your question. >> Like, um, you said like having a package together and getting that. >> Yeah. Well, it depends on your audience, right? So, if we’re talking like the hard money lender, they’ll they’ll help they’re going to guide you through what you want to see. a lot of times that my mys are trained not, you know, to actually put put together packages. So, if we’re talking about on on the hard money side, just submit the documents that are asked for. We’ll package that up for you. That’s no problem. On the banking side, that’s a much every bank’s going to leave be a little bit different. But just ask the loan officer for the checklist of items that he needs in order to get your deal across the finish line and then just put it together. Ask them. People never think, “What do you want? ” I mean, it’s like we’re like trained as humans not to ask that question. It’s the weirdest thing. It’s like just ask what what do you want and then just do it. >> Love it. So, raising capital. I want to hear more about how you guys kind of scale that up, right? So, you you >> So, it’s a slow scale. Um really, you know, the just a lot of just be ready to hear no a lot. No’s not no’s not bad. No. No. Sometimes nos’s weight. sometimes knows ask once again ask why if somebody says no it’s like well I thought we were it’s like were you not interested in in investing in this and if the answer is no then okay we could we can move on from there probably shouldn’t have taken taken the meeting right but if the answer is no I am I am interested like well what about I said did you know what didn’t appeal to you right and then at that point in time because it’s it’s it’s no it’s sales it’s just skill it’s just repetitions right I mean I’ve gotten way better at at raising money over the years just because I’ve been doing it for so long. But also, it has a compounding effect. There’s a snowball when you get your first investor and you start delivering him a decent return and then all of a sudden he’s going to talk to his friends and then people are coming to you and be like, “Hey, I hear that my, you know, my friend’s been working with you for the past couple years and you’ve been giving him a solid double-digit return. Like, what do you need to see from me? ” It’s just repetitions. just keep doing it and keep doing it and and then expanding your network and then go from there as a and now I mean we’re to the point now to where we don’t really do any cold outreach for for money just because we’ve built seven years track record of of doing what we said we’re going to do and and our network’s kind of working on our behalf at this point in time. >> It’s like SEO, right? SEO marketing. All the leads just come in now. >> Okay. I have two. One is with marketing. Okay. um cuz I’m kind of in the lending field as well and that’s just so interesting to me. So one of them is um did you utilize like social media or like at least yourself let’s say with LinkedIn were you posting as well like hey this is what we were able to give our investors this >> yeah we we use uh more more Facebook than LinkedIn honestly that’s probably something that we’re not not phenomenal at. Uh we’re about to to really ramp up that campaign. and our LL’s are uh in the process of you know doing some SEO refinement on our web page and and actually we’ve we’ve never ran a PPC campaign but we’re about to run our first one starting next week. So >> I know a guy >> I’m sure you do too. >> Keep going. >> Yeah. any anyway. So, uh, sorry. And >> oh, and then the second one was just, uh, more of like how how did you refine your systems to be able to deliver on your promises, whether it be to your investors or it be to your clients and >> uh, so we use something called uh, Vizio, Vizio or Lucid Charts. I don’t know if you guys are are familiar with that, but it really, and this kind of goes back to what was said earlier, backwards planning. It’s hey, so we do refinement of our processes every week. If something’s going wrong or if if something unexpected happened or a deal fell through that we don’t really understand why it fell through, we’re going to look into it and see, hey, could we have done better here or was it a timing issue that was outside of our control or whatever that it is. That’s not my strong suit. That’s my COO’s strong suit. But but I mean I I can show you guys like we have I mean if you were to print out our processes and procedures it would probably be this thick. >> But that was years and years and years of just somebody being hyperfocused on how do we get better? How do we get better? How do we get better? And then training, you know, the staff and crossraining the staff to one, you know, obviously always be respectful of of the customer and and and all those sort of things and and then learn how to either educate them on your process or refine our process to to the borrower’s expectations. >> Yeah, I’ll give you a chance to think about this one, but it’s like if you cuz raising money over time and proving track record is by far the easiest way to do it. But if you don’t have time, I want you to think about that one cuz cuz it’s like the chicken before the egg, right guys? It’s like how how many in here are like, I want to raise money, but I don’t have a track record. I haven’t done a bunch of deals, right? I haven’t paid back my investors. I’m done a bunch of that. I’m telling you, it gets way easier. But what would you say to those people that are just trying to get started? >> Well, and so that kind of goes to the point earlier that you’re talking about like the difference between like a hard money lender and a private lender, right? With a hard money lender, you don’t necessarily need to go raise a ton of money to do a ton of deals. You just need to make sure that you have the minimum requirements to do that deal, the first deal. Uh most lenders are going to require a full exit before they lend you any more money anyway. And if you’re just getting started, you probably only want to do one deal. I can’t think of a good argument against not being, you know, hyperfocused on your first deal, understanding, you know, kind of the nuance, making sure that you and the contractor are are clicking, making sure you’re and your you and your lender are on the same page, just kind of continue to build your team. And so that is what hard money is great for is in the beginning when you don’t have you don’t have a ton of money, you don’t have to worry about what you saying like the skill set of going to find a private lender. It’s time consuming and it is and it is a skill set. So if you don’t want to hone on that skill set, then allow your experience to grow via the use of of hard money until you’ve gotten your track record established, right? And then I know some other people here had mentioned that they were interested maybe getting into lending at some point in time. We actually have a white label product and so if somebody was interested in creating their own lending shop with their own name, uh we allow access to our capital stack and we’re actually we’ll actually do the due diligence, the underwriting and everything else to get the deal to the closing table. All you really got to do is bring the lead and have kind of those initial conversations with the borrower and we kind of take it from there and we only require that person to put in like a small percentage of the deal and then they get to participate. You actually be to be a lender. So you get portion of the origination and then whatever money you put into the deal, you can earn some capital off of that. >> Yeah, guys. Yeah, this is so cool cuz what >> what we’re gonna he he talked about it, but I don’t want to gloss over. >> What is the >> it’s called the it’s our our program is called the lending box. So it’s lendingbox. com. B Oxx. >> Yeah. So, but I want to dive a little deeper there just so you guys understand just going and lending out money that’s a lot of paperwork a lot of administration and if you want to scale it like do you really want to do all that and what they’re what he’s saying what they do is they handle all the backend all the administ he’s got a full team doing it right then you could just be the one going out and finding the money to lend to or be finding the deals right it’s really cool cool opportunity well let’s shift gears into your market outlook what are you seeing in Houston greater Gater US. What are you thinking? What are you seeing? >> Yeah, I would say Greater US. Uh my my pulse really is on Texas specific. Uh we only have a few loans outside of Texas and and while we’re looking to to kind of expand, we’re that’s just kind of the next phase of the company. And so I haven’t really dug deep into other marketplaces. I know Florida’s pretty hurting right now, but it looks like that, you know, prices have already dropped considerably there. Uh in so far as Texas, you know, Houston’s been flat. Actually, it’s slightly declining, but I feel that it’s trout for now. Austin obviously is 15% off its peak pricing and it feels like it has hit its at least local bottom for now. A lot’s hinged on obviously the overall mortgage rate, right? So, when you’re when you’re buying a deal, you got to always look at like, well, what does exit look like? It’s like, am I going to buy this deal to hold on to it for for a while and turn into a rental? Am I gonna buy this deal, turn it into u a short-term rental, an Airbnb type type thing, um or am I going to buy this deal and am I going to put on the market and flip it? Well, the things that matter here are if I’m going to hold it, how do I pay off my hard money lender, right? And that’s what’s called a DSCR product, debt service coverage ratio, maybe seen it called nonQM type type deal. and that has they they have their own specific underwriting and everything. And then so if that is your exit strategy, be upfront with with your lender that it is my intention to keep this as a rental. A good LO is going to ask that question to you anyway. And then there’s going to be a a different lens that the underwriter is going to look through because if you say, uh, my idea is to fix this property. I’m going to take it top of market and I’m going to flip it. Well, then we’re going to look at your budget and we’re going to look at the pricing accordingly. And then we’re going to look and we’re going to be um really focused on DOM days on market, right? Meaning that if this if the comp sets sitting on the market for 15 days, that’s a great indicator that you should be able to flip out of this fairly easily. 30 days, okay, 45 days starting to get a little higher than we might typically want to see. anything over 60, we got to start asking ourselves the question like why why is it why has it gotten, you know, so high and um and then what’s total inventory look like at that point in time? Because now we’re building into competition. A lot of times you really don’t want to build into into competition. And if if you’re going to build into competition, you have to make sure that you that you have best product. Because if you don’t have best product, well, the best product’s going to sell before yours. And if that sells and then another product gets delivered to that same market prior to yours, guess what? Now that house is going to sell. And you’re you’re going to end up sitting on that for a while and a while while maybe talking about doing some, you know, 10k drops, 10k drops, cuz the market’s going to find out where you’re at, right? At the end of the day, somebody’s going to be willing to pay what somebody’s going to be willing to pay, and that’s what the true market price is of the house. An appraisal can say what an appraisal is going to say. You can hope and wish that you can sell it for $300,000, but if the property is only going to sell for 225, the end of the day, it’s only going to sell for 225. Well, guess what? If you thought you were going to make 50k, you just lost 25 instead. And so, once again, the good a good LO to will walk you through that. But then on the flip side, uh if you’re going to turn it into a rental, it’s like, okay, well, let’s look at rental DOM. Let’s see how long rentals sit on the market before they get rented. And oh, by the way, what’s it going to rent for? And then you take what it’s going to rent for. And there’s calculators for this, guys. And you say, all right, I’m going to rent this house for 1,500 bucks. Okay. Well, what’s taxes on it? What’s insurance on it? What sort of how market ready did you really make your product? Meaning, did you fix the mechanicals? Did you fix the roof? What’s the driveway look like? Foundation, all you know, all these things. Like, you can rent with, you know, some of these issues. Uh, but at the end of the day, if the roof if the roof starts to leak and you can’t really patch it, you’re going to have to replace the roof. It’s like, well, was that in the original budget? Right? And so it’s just making sure that your plan to action matches with what you’re actually going to do. And then on the back side, it’s like, can it even rent for enough money? And this goes to the calculator that I was speaking about before to cover debt service with a takeout loan. And if it doesn’t, then it can never be a rental unless you want to continue putting money into the property every month. And I don’t think anybody wants to buy a negatively cash flowing rental property. >> Good. Any other I’m going to go to the our freedom for we’re going to shorten it a little bit today of but anybody got one before I go there. Any other more questions? >> Go ahead. >> We will give you Absolutely. We’re going to get you that. >> Yeah, we’ll get you that here in just a second. Um >> should you get a QR code? >> Yes. Go ahead. Could you give me an idea how how do you structure the deal or how or what percentage you offer when you raise in capital? >> Oo, that’s a great question. Uh, well, so we do a profit split basically. So I get paid so I I take zero management fee and we just do profit share. I think I’m I think I’m answering your your question. And so it’s structured to where they after all expenses are paid, we take a certain percentage of the deal, our investors take another percentage of the deal, and then historically the uh investors made about 12%. Is that your question? >> So he has a fund structure, right? So he’s grouping multiple people in a fund that’s lending out money. So there’s profits, right? And he’s >> right. Yeah. I don’t we’re not doing things deal by deal. We do it. I I have a portfolio of 350 loans and so it it’s constantly recycling. >> Oh, and the security on that. So, how are your lenders or your investor secured? I mean, there’s the security on the property, right? And then it’s the PPM. Just give that. >> Yeah. It’s just basically it’s saying that we’re not going to, you know, we would become liable if if we were, you know, acting fraudulently like embezzling, you know, that sort of thing. And so basically the the risk is is that if the portfolio is not performing then we wouldn’t you know they wouldn’t be getting paid but to align ourselves with our investors if they’re not making any money we’re certainly not making any money because we only make money on profit. >> Does that make sense questions on that? >> So it’s 12% cash on cash. >> Yeah. Right. Uh right now it’s about that’s historical. Um we’re about I think 1075 right now but trending back up >> but it changes right every year it’s changing based on >> yeah it changes it’s a quarterly distribution >> K1 okay I’ll go to the the freedom for two of them here James what do you feel like most investors overlook >> I would say that and and you you used the name earlier so I’ll use it so if you’re if you’re working with like a like a new western deal I don’t know if you guys look at those sometimes they’ll overinflate an ARV and they’re going to and they’re going to you know make the budget it less than what it might not necessarily be in order to get the project where it goes. Right. I think that what gets over overlooked is where a property is located and and what and what I mean by that is it on a cutthrough street in neighborhoods. There a lot of traffic, right? And then sometimes that might not even affect pricing, but it is going to affect audience, right? So, if you’re trying to flip a house in a in a neighborhood that doesn’t have sidewalks and it’s neighborhood full of young kids, well, mama’s not going to buy that house on that cutthrough street. She ain’t going to do it, y’all. And so now all of a sudden, you look and you’re like, “Oh every single house here has a swing in the front yard. That means every single house here has got a young kid. ” And so, you just got to be careful, you know, kind of about something like that. And another thing to look for is more than anything else. What drives comps are schools. Make sure that your comp set matches the schools that your property goes to. And it is not at least as good. If they’re better schools, great. But if the schools are better than your property’s schools, that is where I find people lost more money than anything else. I can show you actually in our in our neighborhood there’s a Kirkwood runs north and south and if you are on one side of Kirkwood versus the other side same elementary school, same high school, different middle school and the houses trade for $100,000 less on the one side of the road than they do the other. And so there goes your entire profit margin. So make sure that the schools align with your comp set. >> That’s cool. I no one really talks about that. James, that’s good. >> Okay, second one. >> Go ahead. >> Close two elementary and there is things just >> Yeah. >> Just because of that >> it matters. >> Yes. So another we’ll wrap up on this one James. So you guys a lot of you guys could see where James is at. I want you to think, James, a couple years ago, what you would what you would tell him and what you tell this audience because a lot of these guys are maybe thinking about raising money or they’re thinking about doing more deals with hard money lenders, right? But what advice knowing what you’ve seen? You’ve seen so much and you give so many golden nuggets throughout this pre uh throughout this chat, but what would you say something that you would tell James a couple years ago that you’ve now learned that you tell everybody else? Given tons. >> Put me on the put me on the spot, man. I feel I know. One of the biggest you’ve given so many takeaways but something that you’ve learned whether through capital raising through relationships through >> I will say this own up to your mistakes because they will come to bite you like you don’t put your head in the sand just raise your hand and say I’m I messed up and here’s what I’m going to do to fix it. >> Yeah, love that cuz Yeah, you’re going to hit those bumps in the road. >> Absolutely. Especially if you have partners. >> Yeah, that’s a good point. have partners and yeah, you’re going to have a choice. You can own up to it, you can point blame or yeah, you can take ownership. Yep. >> That’s good. Any other last minute questions, guys? Go ahead. >> Question. >> It’s interesting that you said about the whole school thing and how it changed the AOB. >> Um do you guys when you guys look at comp, do you um do lenders actually look at stuff like that or is that just based on your personal experience? >> No, no, no. We look that’s the first thing I that’s like literally the day one like comp 101 in my office is did the schools match? It’s very easy to prove out. Just pull up your H app and look around and be like why is this house selling for $795,000 in this house selling for $425? And you go, “Oh, I bet they go to different schools. ” You pull it up and sure enough they do. That’s not what general teaches in the NOL challenge when he learning how to do comps >> who he didn’t bring up to schools. That’s what I mean. >> I mean, that’s what I mean. It’s >> I just want to make >> really No, I’m just telling you guys I’ve never heard of too many lenders that are doing that. I mean, the good ones are. And the big takeaway I want you guys to think is now you guys all know a good question to ask your hard money lender. Say, “Hey, do you guys look at this? ” Because at the end of the day, you can leverage your hard money lender to help you stay out of trouble, right? These guys don’t want to do bad deals. And they are unpaid. You don’t have to put them on your staff. You don’t have to pay them a commission. They’re going to help you underwrite deals >> better than anyone else. >> What else do you look at? >> Uh well, once again, the the cross streets are uh cross streets are a big thing. We’re uh making sure that the uh the floor plan, not even just the bedroom count. That’s important. But remember, we send an inspector on every on every project. And so, they’re trained to walk into a house as if they were going to buy the house because like, you know, you I don’t know how many how many people here have bought bought a home, but like when I bought my last house, we probably walked 50 houses >> before we before we bought a house. And it was well, I don’t like that this is over here, this is over there or or whatever. And then and then sometimes look that that’s that gets very personal but there are certain things that are more universal. For instance, if you’re going to if you’re going to uh let’s let’s talk about more like the upper middle class like price point, right? So, if we’re trying to sell a house for, you know, $600,000, use that as an example, and you walk in to the mudroom and you got to walk in like this to get through to the back door and your wife’s going to be like, I I ain’t buying this house. And every other wife’s going to say the same thing. Now, that house has a problem. That house has a very unique issue that’s going to prevent that house from selling. And we see this all the time. We see things where it’s like, and we’re ahead of it now, but we didn’t start really honing in on this. It’s just things that we’ve done over time since now we’ve done about 2,000 loans that we’ve seen, well, what went wrong? And once you see something go wrong a couple times, so now our inspectors used to not be trained at going into a house and making sure that the flow makes sense. Well, now we do. And if somebody says, “Well, I’m going to do I’m gonna, for instance, about 10 years ago, the common thing to do on the on the in the home plumbing business was we’re going to fill this garage and add 400 ft. ” Oh, >> yeah. >> No one really does that anymore, but like people still try to say, “Well, I’m going to go fill this garage in 400 ft² and this house sells for 200 square, you know, 200 bucks a square foot. I just added $80,000 to this house. ” It’s like, “No, you didn’t. you added a bunch of cost to your bottom line and you have a house that won’t sell. >> That happened to me recently. >> Yeah. >> Yeah. >> And so it’s just making sure that if you are going to convert a garage that the neighborhood has shown that it’s willing to absorb converted garages and use converted garages in your comp set. Awesome. Well, this has been good. We could go all day. >> Let’s go one more being two floors or single or one floor. Do you look at that? >> No, we don’t really we don’t really look at that. No, I mean, typically a ranch style is going to sell slightly higher price per square foot. Um, but also you’re going to eat that backyard, too. So, there’s a trade-off, but we don’t we’re not putting consideration on that, though. Thank you for asking. >> Do you have a referral network for other states other than the ones that you do? >> We uh we do. I have a guy that we work with that we refer all of our stuff through. >> Tina did that. Perfect. Let’s go ahead Drew. Last one. So last going back to like copying and looking at properties, how far do you go back on the year bills because in Houston and you can get pretty different area especially in like the lower price point. So how far do you go back as far as coffee goes? >> Uh are you talking about like since the last sale or the actual age of the house? >> Age of the house like adding comparables. >> Yeah, I try to stick I like So if a house was built in 75, I’m going to try to use anything in the 70s. Uh if there’s not, then I’ll and anything or older. Uh and if not, you know, whatever. I’ll go to like 84 or 85. Uh typically >> 10 years. >> Yeah. I’m I’m gonna try to be plus or minus 10 years. I mean, sometimes it just doesn’t work out that way. Then you as the buyer got to ask yourself why why like what? And and then I’d probably if I was the buyer and we probably wouldn’t even make this adjustment, but as the buyer, I’d probably make an adjustment in my own head. >> Good stuff. Well, you you teed it up, Lisa. James, we’ll wrap up here. Where can people find you if they want to >> look for a hard want to work with quick lending or if they want to do if you want want to go raise some capital and do some lending and work with these guys do all the backend stuff? >> Yeah, best way to hold me is my uh email just jamesp@quicklending. com. Most creative email on the planet. >> Did you say quick lending? >> Quick lending. >> Is there a minimum to like join with you guys to line like,000? >> That’s a good question. >> Yeah, our our fund takes uh $50,000 minimums. >> Oh, okay. Okay. What’s the return of death now? 15 or 50? >> 50. We had some commercial deals that we’ll take 25 on, but we didn’t really get into that today. Right now, it is about 10 12 trending up. We had our actually, funny enough, we had our uh lowest performing quarter last quarter and it was 10. 3 and we expected to be back 11 12 or so by next quarter. I love that too. Most other people would be like talking about the historical. We’ve been hitting 12, but he’s like honest like, “Hey, we had our lowest quarter, but we’re going up. ” Appreciate that. Well, anyway, appreciate you guys tuning in today live on YouTube. You guys know where to find James. He just shared his contact information and hope you guys Let’s give a round of applause to James. If you’re listening to this because you’re chasing freedom, not just for yourself, but for your family, then don’t let this just be the background noise. Take action. Shoot me a DM. Reach out. Find a property. Make a call. Remember, small moves today create the life your future self and your family will thank you for tomorrow.