Rates, Returns, and Protecting Investors

David:
This is the BiggerPockets Podcast Show 655.

Amy:
And never say, “I don’t know.” And a lot of us are still learning, right? A lot of you are going to get out there and implement that four-second power pitch and you’re not going to know what to say next. So instead of saying, “I don’t know,” just substitute that with, “That’s a great question. Let me turn back to my team of experts and I’ll get back to you within 24 hours.” And then get on the phone and reach out to your community or other people in your network who have done this before, if you have a coach, and be like, “This just happened, what do I say? What do I do?” So we always want to position ourselves as the polished professional poised for aggressive growth.

David:
What’s going on everyone? This is David Greene in the Smoky Mountains, checking out cabins, recording from one of my own cabins. I’m actually in the theater room right now joined by my co-host, Rob Abasolo, fellow cabin investor, fellow short-term rental investor, and fellow co-host of the best freaking podcast in the world, the BiggerPockets Real Estate Podcast. Rob, how’s it going?

Rob:
Good, man. Yeah, it looks like you’ve got the whole theater system there, so you can finally watch Interstellar after all this time.

David:
You know, you did see that I posted and tagged you on an Instagram thing, but I wasn’t able to watch the whole movie. It just took too long to get going to that.

Rob:
What? How did you stop watch… Oh my god. I would rather have you just not watch it. How are you going to tell me this on air? You didn’t prep me for this?

David:
No, I got to watch it again. That’s what I’m getting at. I’m trying to be honest here and confess that. That doesn’t count.

Rob:
Right.

David:
We were shooting pool and I kept winning and I just couldn’t stop. Nobody could beat me. I ended up getting distracted. Wasn’t able to watch the show. There’s a little humble brag about how I was better at pool than all the people that never play it, which really isn’t saying a whole lot. But our house is just so much dang fun, man. It’s hard to do one thing at that property in Scottsdale.

Rob:
You’ve seen the final product of our Scottsdale mansion, right?

David:
Yeah, I was there. I will be going back. So if you guys follow me on social media, you will see about a potential trip that you can sign up for to take. But I’m going to be going back there again, because that place is so much fun. I just like being there. Rob, when’s the last time you were there?

Rob:
When we set it up, but I am flying out there hopefully in the next month to go and get the final footage of it so that I can release like my… I’m cutting together like a TV show, HD TV riff on… I’m trying to make a very funny version of an HD TV show out of the episode that I shot out there. So stay tuned for that. That’ll be fun, I think.

David:
Did the episode that you made with me in it, did you put that out yet?

Rob:
No, that’s not out. That’s the one that we’re editing together. It takes a long time to edit a 40-minute video in my style with Caleb and stuff. It’s taken weeks. But we need the final B-roll that shows everything coming together and then the resolution, and then boom, we’ll get all the TV offers.

David:
If the length of time that you took to get that place ready for the market is any indication of the speed you work at, I’m sure that video will be released sometime in 2028.

Rob:
That’s right. Yeah. Well, we’ll see. Stay tuned everybody. 2028.

David:
Yes. Stay tuned. And tune in for today’s podcast. I suppose you already are. That is really good. So this is the finale, the wrapping up of the four-part series with our guest, Amy Mahjoory, who specializes in raising capital to put into deals and teaching other people how they can do the same. So in the first three episodes, we went over Amy’s four-part system. It’s an acronym that spells out FACT. I will let Rob give that to you guys in a second here. But in today’s episode, we actually dive really deep into what to do with the money once you’ve raised it, red flags to avoid getting into both in raising money and who you should be giving your money to. And then we get into some questions that people asked on previous episodes where Amy and Rob both weigh in.
It gets a little spicy at the end. So I want to make sure you listen all the way there, because this episode turns down Tapatioville and I want to hear what your guys’ comments are. So listen to the stuff that we talk about, leave us a comment on YouTube, ask some questions there. We read those. In fact, today’s questions that we played in the show came from the YouTube comments. We look at all of them and we try to include them in future shows.
Part of the topic is free content and for today’s quick tip, I’d just like to remind you, BiggerPockets is almost completely free. 99.9% free. So use it. Go to the forums and read the questions or ask your questions. Go to the blog and read the stuff that people have taken their own time, effort, and I can’t really say sweat. Because typing on a keyboard doesn’t make you sweaty, but I suppose you do get a little bit of finger exercise when you’re doing that. Listen to all the podcasts that we have. Listen to the other podcasts that we have. Cruise through our YouTube channel. You can immerse yourself completely in BiggerPockets and get a free education that will make you much more money than you would spend if you went to actual college. I’m going to put a pin in it right there and I’m going to leave it with you, Rob, for last words, before we get into the show.

Rob:
No, nothing significant here, other than I want to say that actually, this might be my favorite episode of the series. Every single one is always an eye opener, but we get into some pretty tactical nuances of just, oh man, private lending and the power of that can just be so specific to every scenario. So we kind of talk about the good and the bad and the ugly for every single scenario. No, not every single scenario, but a lot of them.

David:
I never thought about this till right now. But you built almost your entire portfolio up to this point using private lending, right?

Rob:
It’s true. Yeah. [inaudible 00:05:15]. Yeah. Yeah. The first couple were privately funded. And then after that I just started partnering up with people and using all my sweat equity to basically run it for them. And yeah, it’s paid out very well and-

David:
Yeah, but partnerships is a form of still like-

Rob:
Yes for sure.

David:
… private lending. They’re lending their money and they’re getting equity in the dea.

Rob:
100%. Yeah. So it’s worked out really well and now I’m scaling even past that. So it’s been really exciting and I think a lot of people will be really empowered after this.

David:
All right. Well, BiggerPockets Nation, thank you for being here. We are going to get into the show and we’re happy to bring it to you. Amy Mahjoory, welcome back to the BiggerPockets Podcast. How are you today?

Amy:
Thank you, sir. It’s great to be here. I’m doing well. Excited to catch up with you guys.

Rob:
Awesome. Well, I’m really excited to get into the rest of the final installment of the series, where we’ve talked about how to raise money for newbie investors and even experienced investors. We learned a lot, me and David, just in how we can apply your different principles to the practice of actually going and getting money.
So to sum up here, you have a framework that we call FACT, F-A-C-T. And that F stands for foundation. So that’s where you go in and you meet somebody and you set the foundation. You let them know what you do. So you call this your four-second power pitch. It’s 13 words. And if I recall correctly, I believe it’s, “Hi. I’m Amy. I teach people how to make double-digit returns in real estate.” And so if they’re interested, depending on their interest level, you follow up with them.
And then you go to the A, in fact, which is action. You take action. This could be many different ways, but I believe some of the, I think you gave us four or five different ways, but this could be hosting a meetup to basically establish yourself as a local professional. There are many different ways that you can take action. But however that is, it’s effectively moving your leads down the quote, unquote pipeline, if you will.
Then we have C, where you establish credibility. And this is where you basically go from a group setting or the more informal setting down to a very personalized setting where you’re actually telling them about the financials of the project, what you do, your experience, and just basically proving your financial acumen and that. If they give you your money, you’re going to deploy it correctly.
And then finally we get to T, which stands for transaction. And that is actually closing the deal, right? They wire you the money. And what happens at that point? What are the logistics of them giving you the money? And then after that, we move into a little bit more of the complex side, which is nurturing and making sure that there’s a little bit of a high touchpoint there after you close them. And you make sure that they’re excited about the deal and that there’s communication to make sure that they understand that their money is safe. Did I sum that up correctly?

Amy:
That was perfect.

Rob:
Whew. All right, good. I was getting nervous. I was like, I’m pretty sure this is all correct. But I know all this, because we just did it like an hour ago. But I believe we left off on the last episode with a bit of a cliffhanger. David was going to answer it and then he was like, “Hey, let’s do it on the next episode.” And I believe that question, David, was, how do you feel about getting your investors kind of involved in the project? Not necessarily giving them a job responsibility, but actually having them come out to the site and getting them amped up about the different project that they are investing in.

David:
I’ve had some time to think about that since you first asked me. I think for some people, the short answer is every investor, every person raising money is going to have a different skillset, a different value to add. So they’re going to want to structure it differently. And I think in this episode we can cover some of the ways that it can be done. And so as people are listening, they can ask themselves, well, where do I fit in? And how would I want to structure mine? Because it’s definitely not a one size fits all. The way that Rob raises and deploys money is going to be different than the way Amy does it, different than the way I do it. So it wouldn’t make sense to put the same system together, because we’re all deploying the capital differently and we’re appealing to different lenders or investors depending on how you structure it.
So if I was trying to set something up where I had repeat business, you were going to give me your money, get paid back, give me your money, get paid back. I think it makes sense to bring them out to the project. Have them walk the property, see what’s going on, meet the contractor. He comes up walking with this hard hat and a big smile and they get to feel good that they’re meeting the people. It sort of becomes personalized. It shuts off the part of their brain that’s always saying, what if this and what if that? And what if this is a big scam, or what if they’re not even putting the money in the property? If they can drive by and they can see progress being made, oh, the framing is up. Oh, the drywall’s up. That’s going to put people at ease. I think that’s a smart idea for a situation like that.
I personally don’t want something like that, because what I’m going to get is a bunch of people that are going to say, oh we’re here. We have a full-time real estate investor. Let’s ask a bunch of questions. Let’s see if we can get some of these contacts for our own deals, right? Or let me use this as an excuse to say, I need an update on every single thing that’s going on because they want to learn. Then I’m not going to want to be raising money from those people. I’m going to want the passive investor. And I’m going to turn down that person who would’ve been able to make money and now they can’t, because they kind talk themselves out of the deal.
The other thing that I would point out is there’s different ways to structure how people get compensated. So I would say the more common way is you give away equity in a deal. So they get the upside, but they also get the downside. And while the market has been rising, which it has been for the last eight to 10 years, very rarely did downside come into play. And that’s why I want to make sure we highlight this. Because you could do everything wrong and there was so much appreciation, you still paid people back. Maybe they didn’t get as high of a return as what they wanted, but they didn’t lose capital. And as we’re entering into this bear market, no pun intended, because I’m in the Smoky Mountains and there’s bears everywhere up here, that’s changing a little bit. You’re at a point now where, if you miss your numbers, if you don’t execute on the deal right, it is very possible that your investors could lose money, especially when it’s structured with equity.
So the first thing people have to understand is, if you get the upside, you also get the downside. If you lose the ceiling, you also lose the floor. There’s nothing wrong with that. You need to know going into it that’s the case. I don’t want to structure my deals that way because to be frank, if somebody lost money in a David Greene deal, the hit to my reputation would be worse than if I just paid them back their money so they didn’t lose it. Right? If I lost money with the platform that I have as a level of trust that I have with the audience that makes BiggerPockets look bad, that makes me look bad. That makes real estate investing as a whole look bad.
I’m not a random person without a platform who’s like, hey, invest at your own risk. If it doesn’t go well, well, that’s investing. I don’t think I’m in a position I can get away with that. And then there’s an emotional price to pay. I just wouldn’t sleep at night. If I lost my money, I can make more money back. If I lost someone else’s money, I think, as just my personality, that is not worth it. The price I would pay feeling bad is bigger than the upside if I made them some money and made some myself. Basically, I’m going to guarantee any money that anyone lets me borrow, they’re going to get it back. They’re getting their capital back and they’re going to get back the interest that I told them they were going to receive.
So that doesn’t make sense for me to invest with equity just based on that strategy. If I’m going to guarantee their return, which I’m going to have to, I might as well just make it debt. I will pay this interest rate on your money for the period of time I have it. Now, I’ve structured mine where not only is it a guaranteed payment to you that isn’t dependent… When I say guaranteed, I mean, it’s not dependent on the performance of any one property that I put the money into. It’s guaranteed by income from that property, income from other properties, income from book sales, income from the businesses that I own, income from every single thing that I do is guaranteeing that person their return. So I know that I can pay them back their debt. And because I know I’m set up this way, I also want to make it as convenient as possible.
So what a lot of syndicators will do is they’ll say, “Okay, I’m going to borrow your money. In five years, when the deal sells, you’ll get all your principle and you’ll get all of the interest. You’ll get it back at the end.” Or some of them will say, “You’ll get a check every quarter when my bookkeeper reconciles the books and you’ll get some money.” There’s nothing wrong with that, but it makes it harder for the person who let me borrow their money to sort of use it. So I’m set up towards more convenient. They get a check from me, or not even a check, they get an electronic deposit in their account every month for agreed upon whatever the interest rate is. Right now I’ve been lending at 10%. So they let me borrow their money. They get a 10% annual return.
One 12th of that every month goes right into their account. They don’t have to think about it. They don’t have to ask about it. It goes right there. They can use it for whatever purpose they want. They want to pay down other debt, maybe they’re lending money to me at 10% to pay down interest at five or 6% on something else, they’re actually making money to do that. Maybe they want to live off it. That becomes passive income to them. It’s paying their mortgage for them. It’s paying their rent. It’s easier for someone in that position to figure out, what can I expect? What money do I have coming in? How much do I have to work?
So I try to make it as convenient as possible and as safe as possible. The downside is they’re not going to get an amazing high return in case I go do an incredible deal with that money. If I go find the best deal ever, they’re not getting half the equity in that deal. But on the other end, if I go after the best deal ever, and it doesn’t work out, I run into permitting problems, construction balloons, the cost of supplies, everybody’s kind of dealing with that right now, they’re not on the hook for it.
So I think this is a good example of how someone in my position, I feel much safer giving a guaranteed return versus someone in a different position. Maybe for them to be able to raise money, they almost have to offer more of an equity position with less guaranteed money because they don’t know how the deal’s going to work out. I’ll throw it back to you, Amy. What are your thoughts on these different approaches and who should be taking which approach?

Amy:
Oh man, that’s a loaded question and my mind is all over the place, in a good way, because I’ve experienced all this stuff. Wins, losses. What do we do? Liquidating assets, draining my retirement account. Because similar to you, David, I mean 2017, and I’m very transparent about this on webinars, from stage, it was the worst year of my life. And, David, I didn’t sleep. I’m getting emotional now. I cried every day. I problem solved every day. It was the perfect storm for these properties I’d bought in Downtown Chicago and I could have filed for bankruptcy, but I came up with every solution. Half those deals had personal guarantees, which I still sign personal guarantees today, because I agree with you. And it sucked.
And it was just a matter of liquidate, selling all my rental properties, draining my retirement account. I had to put private money lenders on payment plans. I mean some people, eventually I had nothing more to give. I secured their investments on future projects. Those projects went south. So eventually some people didn’t even get their interest back. Most got their principle back, but it was like, I have nothing more to give. I gave everything that I could. That was also… However, the silver lining is that’s why I’m way more conservative now in my analysis of projects. Back then when I was buying properties, I had assets. So I was going into these deals and buying them. They were a little riskier. I wasn’t sticking to my standard net ROI of 10 to 15%. I didn’t do my due diligence as my company blew up and hiring general contractors. One guy took off on me. Anyways, it was the perfect storm.
To your point, there are so many ways that we could structure deals. It’s a matter of what works for you and what your goals are. So even today, 10 years later, I still raise all of my capital from private money lenders who they’re debt investors. And I also make it very clear in a respectful way like, “Hey, you’re a silent stakeholder. You’re not going to have a say in the design aspect. I will proactively keep you informed every single month through progress picks and executive reports, whether it’s good or bad. I’m very transparent. And at the same time, we’re going to start syndicating deals.” So those offers are going to look very different.
Even in today’s market, one of the things we’re going to be talking about in the October conference is everything is shifting. Even hard money lenders, they’re not allowing second lanes now. So how do we structure deals with our private money lenders who are in a equity position and bring them onto the LLC so that they feel better about being in the first lane? But then you’re right. Do they take a loss if we take a loss or do we eat all of that? Right? So there are so many ways you can structure it. You have to do what makes you comfortable and what makes sense for you.

David:
Yeah. And this is especially relevant right now because, like I said, the market is turning and technology, social media, I mean you can be a person with a charismatic personality and relatively good looks and get on TikTok and get a million followers pretty quickly and raise money very easily. And to the person who’s new, listening to this podcast as maybe one of the first because they just saw someone talk about real estate investing or they heard passive income for the first time, they’re getting into the space, very naive. They wouldn’t know what questions to ask. They wouldn’t know how to vet if this is a person. That’d be terrifying to be in that position where someone’s saying raise money and they’re offering a return. There’s no way you can know how accurate that would be.
And then you throw into it, all these fake spam bots that are online that are pretending to look like us and they’re using our likenesses to raise money. Then they’re having different people say, I made this much money in crypto. I made this much money in NFTs. I made this much money in real estate. So your FOMO is at an all-time high like, well, I have to do something. I need to take action. Which one of these people should I give my money to? It’s hard to know how to go about doing this. I don’t think that there’s an easy answer. I know people want to say, well, who should I give the money to? I don’t think it is a quick, easy answer. There’s principles that you can follow that will reduce the risk. Rob, what’s your thoughts on this entire thing?

Rob:
It’s a choose your own adventure, Dave. I mean, I really don’t think that there is a right or wrong. I’ve done a little bit of both and I think that it makes sense in certain applications, right? So you’re talking about your structure, which we’ve talked about this at length, even for our partnership and raising money on different luxury properties and everything. And I like it, because it is property specific and it keeps the equity side out of it. And you don’t have to really answer to investors in the same way, because there is a difference. If you’re raising money from somebody at, let’s say a 10% return like you’re talking about, basically I feel like that’s going to be different than if I bring on a partner that’s 50/50, because now they’re vested in it. Now their name is probably part of the debt and there’s a little bit more emotion there from the investor. Not everyone can be a passive investor.
And so I think that’s a little bit tougher to manage. So I certainly see the application of, hey, I’ll give you a 10% return. You give me your money. I don’t really think the equity thing makes sense for anything that’s necessarily in the short term, right? If you’re doing a flip or if you’re doing a set of flips, those in theory are very quick investments a lot of the times. If you go and you buy a house, you’re going to remodel it within three months, maybe sell it within six, depending on how big that remodel is. And in that instance, I think a quick flip and a quick return for that investor makes sense.
But it also comes down to what options do you have? Some people don’t have options, right? If you’re new into the real estate space and you’re approaching a private investor about money and it’s your first deal and they say, hey, I want 50% equity. I think that newbie should take it. I don’t think they should say, oh, it has to be a 10% return. Because again, like I said on the last episode, I think the experience is incredibly valuable to work through the nuts and bolts and learn what it’s like to actually get into an investment like that. Now, obviously there’s a lot of caveats to specifically that scenario, I’m not saying just give up everything, but there are scenarios where that makes sense.
But I think where I disagree on the fun side of things is, and where I don’t like this model nearly as much is, yeah, I mean we can go and we can raise 10% and you’re guaranteeing that. And I like that. I mean, I really do. I think that’s a very good way to do it on a deal-by-deal basis. But how, David, can you go and buy a 100 or a 200-unit apartment complex? I think there’s a moment there when it comes to scaling that you’ll need to go and raise some of those funds that you… I mean, there’s some level of guarantees with funds and syndications, but if you ever want to go the big 100, 200, 300-unit complexes, I just don’t really know how that model really makes sense at that point. And if the investor doesn’t want that, no big deal.
But for me, I am. I do want that. I do want 100 properties or 200 or 300 properties. Right now, this year, I’m going from 15 units. I just closed on another 20 units. And I actually raised that with a private investor funny enough. So now I’m at 35 and then I’m raising money for another 23 units. And pretty soon I’m going to be at 50. I’m going to be halfway to my goal of 100 units this year. But the only way I can do that is by going out and raising money and kind of going to that next level because the small secured debt, that format to me, doesn’t seem to make as much sense.

David:
I do what you just described sometimes. So I closed a couple months ago on an apartment complex in Fort Walton, Florida. If you guys watched the episode with Andrew Cushman, he and I buy apartment complexes together and we do structure them that way. Those are a little different because people know when they’re buying one of those, they’re not investing in… How do I want to say this? That’s very clear this is a deal outside of David. It’s an entity that is not David Greene. They’re not lending money to David, right? It’s marketed very differently. That’s made more clear.
And you’re also dealing with a different type of investor. That’s typically someone who understands that space, has done that a little bit more. I sleep well at night knowing this is a credited investor who understands these deals. This is kind of what they do, right? That’s not the same person who’s like, David, I have $100,000. I think the market’s going to go down. I don’t want to buy anything right now, but I want a return on my money. Can I let you borrow it for two or three years? And then I’ll get it back from you right around the time I think the market’s dipping. That person doesn’t really know real estate very well and I would never want them investing in the apartment complex, because they don’t understand how to even read the prospectus that we put together.
Amy, I’m going to ask you for your opinion on, in today’s market, how this should be approached. Because there’s certain people that are used to seeing the syndication model where the risk is shared amongst the investors, and then there’s other people that are terrified of getting into this because they want to invest and they don’t know what they’re supposed to look for. In my mind, maybe they should be debt investors as opposed to equity, but they don’t even know that they’re supposed to ask for that.

Amy:
Right. So one of the things I always try to do is I explain to private money lenders, “Hey, if you’ve never done this before, or even if you have, I’m always going to just educate you, educate you on our standard process. I will educate you on the different types of investment options that we have.” There was a gentleman I spoke to a couple of weeks ago and he said, “Hey, I only want to invest into commercial syndications.” So I don’t feel like there’s a right or wrong way. I just feel like there are different ways of investing your money. And we, as the real estate investors want to just educate our private money lenders on the different investment options that we have. And I still will tell them, like the gentleman who wanted to invest in a syndication, I didn’t have a syndication available at the time, but I said, “Hey, I’d be more than happy to introduce you to a credible investor in my network who is launching a syndication right now and raising capital. And if you want to park your money with him, great.”
So I’m all about collaborating and sharing resources. I just want our lenders to know what their options are. I’ve even gone as far as getting my underwriter on certain deals on the phone, my CPA to explain benefits of investing and leveraging out of your retirement accounts or life insurance policies, because that’s not something I’m an expert at and I don’t want to be an expert at that, but I want my private money lender to have enough knowledge, to make an informed decision for what makes sense for him or her.

David:
Let me share an example of how money flows in and out of smaller deals versus bigger deals. Because I think this can clear up some of the confusion that people may have with what type of deal is better for them. Most people that are investing in real estate, we’re looking for cash flow. At its basic general level, real estate with training wheels, you go buy a house, it collects a certain amount of rent. You figure out the expenses. The rent is more than the expenses. You take the difference. You multiply it by 12. That’s how much you make in a year. You divide it by the money you put in, you get an ROI and you want that ROI to be high, right? Double digits would probably be pretty good, right? Then maybe you factor in a little bit of, is it appreciating or is it stagnant? And that’s kind of all, you got to figure out. At entry level real estate, that’s how it works.
When you start getting into these bigger deals that someone needs to raise money for, because the ones I just described, you don’t see a ton of people raising money to buy stuff like that. The thing is, value is being created in these bigger deals, like a development or an apartment complex that someone’s going to buy and they’re going to put $6 million into a $20 million apartment complex that’s going to raise the rents over a three-year period of time and then add $10 million of value to the apartment complex. The tricky thing about understanding those is that the deal can be progressing just fine. The rehabs are happening. Rents are slowly going up, but they happen over a 36-month period as tenants move out, then you fix up that unit. Then the rent’s up on that one, but you still have the other 300 that you haven’t got to yet. You can’t just go in there and rehab the whole thing if it’s a duplex that people are used to buying.
So you run into a scenario where value is being added. Equity is being added. The NOI is going up, but your cash flow does not keep up with the rate of return that the investor would want. So when you’re offering a 15% internal rate of return, you can’t get that money every single month like you would when you bought the duplex. I’m trying to make sure I’m explaining this right. Maybe you guys could clear it up for me. Cash flow is one way that money flows in and out of deals. Like, if you look at blood, you need blood flow coming in and out.
But then there’s other ways that value is created inside of the deal that you can’t necessarily pay people back with. So with a bigger deal, you may have to wait five years before you can get that money out because there isn’t enough cash flow being generated, even though there is value that’s being created. And at the end of five years, there typically would be that kind of cash flow. And if you don’t know that just because it isn’t cash-flowing, doesn’t mean it’s not working or it’s not performing, you would be afraid of those kind of opportunities. Am I explaining this very well?

Rob:
Yeah, I think so. I mean, there are a few ways that that works out, especially if you’re talking about a bigger deal like that. I mean the cash flow typically, obviously you want to… That goes into the return. But a lot of the times the funds and the syndications, like the ones that I’m doing, for example, we put a sale date on it between it’s usually three to seven years. I think the one I’m doing right now is five to seven years. But because of the added value that you’re talking about, a lot of the times what we’re doing is we’re going to go in and we’re going to fix up a hotel, for example. And we get into pretty specifics here, but you’re talking about an apartment complex. There’s tenants. You have to wait for them to leave. I like the hotel model, for example, because people are in and out every day. And so we can just block off that.
But our idea is we’re going to go in, we’re going to renovate it. We’re going to get the value up. And then ideally do a cash out to pull most of that money back out and pay back to the investors. Every single fund is obviously very different. Not everyone does this. But for the funds that I’ve been a part of, we try to pay back the investors as soon as possible. That way, basically whatever cash flow does come from that, it usually ends up being a good return because a good portion of the capital has been returned at that point. But again, that’s like one way to do it.

Amy:
Yeah. I mean, there are some private money lenders who don’t need the income in the form of a monthly cash flow. And they’re more interested in taking advantage of all of the tax benefits they get by investing in a commercial syndication, forwarding the depreciation, 1031 exchanging certain investments. So it really just depends on… This goes back to knowing your audience and understanding what they have experienced in the past as a private money lender and what their expectations are moving forward.

David:
Yeah. That’s a great point. So thank you guys, you’ve kind of brought me to the point where I can clarify it now. If you’re trying to build wealth, you’re probably not going to have access to your money during the period of time it’s working. Okay? You’ve sent it out overseas for five years. It’s out doing its job and it’s going to return with a … full of spices that they’re going to make you are rich. Okay? That’s how the people that make good money in real estate, that are putting into these bigger deals, they don’t expect cash flow to come in every month or even every quarter. But when the money comes back, it comes back with a very big return.
If you’re someone who’s trying to find financial freedom, if you’re someone who’s trying to get yourself out of debt, if you’re someone who’s just trying to build momentum to where you can get yourself financially solid so that you can save money easier so that you can go take on some of these deals, maybe you want to focus on something that will get you monthly cash flow in the beginning. And I don’t think it’s an either or. I don’t think it’s which way is better. I think it’s, in this season of your life, do you need money coming in every single month so that you can get ahead or are you relatively safe and now you’re at a point where you don’t need to see that money right away, as long as you know that it’s working?

Rob:
This is quickly becoming my favorite episode of the series, simply because we’re actually getting into very… It’s very nuanced, right? I hate that, as a educator in the space, a lot of people ask you a question and it’s always like, it depends. But it really does, because every single investor’s different. And I’ve talked to at this point 100 investors in my real estate career and every single one is different and some care about one thing and the others are like, no, I don’t care about that. I just care about what’s the ROI on it or what’s the IRR, right?
I wanted to ask you, Amy, because I know you do raise a lot of money. This is what you do, right? And you talked about in the credibility aspect of the FACT framework, how you take them through how the money is deployed. So when you’re raising money and, again, I know this will probably be a “it depends” answer, do you not necessarily have a project intended for that money? If you’re going out and someone says, “Hey, Amy, I’m going to give you a million dollars.” Are you like, great. I’ll take that. And then you then go and figure out how to deploy it. Or do you usually present what deal that money is going to go into?

Amy:
So I’m always proactively looking for capital and building rapport and trust with individuals. If I don’t have an active project… Like right now, I have a couple. If somebody says they’ve got capital to invest, then I will turn to other trusted investors in my network and make an introduction. Hey, I’ve got a friend of mine in Scottsdale right now, who’s doing a million-dollar raise on a small syndication. And there’s more money coming in to my business than I need based upon my project. So I’m introducing them. So I’m all about collaborating. No, I don’t have that scarcity mindset where I’m worried about what if I get a deal tomorrow and then I need that million dollars. Because when you’re following a proven system and you know how to raise capital the right way from the right people, it’s not going to be difficult to get out there and raise capital from your existing network or a new network that you’re developing.

David:
And that’s why we wanted to have this conversation. Because if you follow the steps that Amy has laid out, you’re going to have people that say, “Yeah, I’ve got some money. What do you have in mind?” And you don’t want to be like, “I didn’t think I’d get this far.” Right? There’s that old meme of you start talking to the pretty girl. And then she’s like, “Yeah, you can have my number.” And you freeze like, I don’t know what I’m supposed to do now. You want to have some idea. And so I’m trying to plant some seeds in people’s minds that depending where they are, what opportunities to deals they have, how they can structure that.
And then the reason I think that’s valuable is, if I know I’m looking for someone like the people that I described, I’m looking for a person that has a lot of money in the bank, doesn’t want to invest in the market right now, whether that means they don’t have enough time, they don’t like the risk factor. They think that the market’s going to drop. Doesn’t want to have to learn the asset class. They just trust me. I’m looking for a different avatar person to give my 13-word speech to versus someone in Rob’s space. He’s looking for a very different classification, a person who’s going to put their money into his hotel that he’s going to be building. And then the money that Rob and I are going to raise eventually for the Scottsdale place that we bought, completely different person. You want to know who you should be talking to in the elevator, right? You’ve got a couple different people in there who you should be focusing your time on.
I want to ask you, Amy, as someone who is experienced in doing this for a while, what are some of the red flags that people should look out for if someone’s trying to raise money from them? And then, also, if they are raising money, what are some red flags they should avoid so that they don’t trigger that stereotypical Nigerian print syndrome that other people think, oh, this is a scam. I don’t trust you at all.

Amy:
Sure. As I’m putting myself in the shoes of a private money lender, if you guys are approaching me and you’re trying to raise capital from me, a red flag to me would be you on the first phone call asking me for money, trying to convince me of this amazing deal that you have. Or if I get an email from you that says, “Hey, I have a deal.” We’ve never even met. We’ve got no rapport. “Hey, I’ve got this deal.” Don’t put your private money lenders on an email blast until you have an established relationship with them. So if I see those types of emails come in, it’s a red flag to me. I will not give you guys the time of day.
If you reverse that and now we are out there and we are raising capital, things to look for in somebody that’s lending you money, I mean, there’s a lot… I always say, hey, we’re going to raise money the right way from the right people. And it starts with mindset. We have to believe that we really are providing these private money lenders with an opportunity to invest. And I believe that we are. Where else are they getting double-digit returns backed by real estate, above and beyond all the other controls we put into place, right? Because as control goes up, our risk goes down. And we control everything in our real estate business. So it’s a matter of educating this to our private money lenders.
So number one is we have to have the right mindset. If our private money lender doesn’t share a common mindset, if we don’t align on our moral or ethics, I don’t have time for that. That’s not somebody’s money who I want to put to work in my business. There are going to be people who… This has happened to me. I had one private money lender who just bullied me around with his money, but it wasn’t until he had actually processed the wire. He was great. He was my best friend. The minute he processed that wire, the next seven days were the most daunting.
He actually showed up at my property unannounced, which means he flew in from Florida on his private jet to Downtown Chicago, left me a voicemail saying, “Amy, we’ve got some big problems. I need you to come to the property right now so we can talk about what’s going on.” I didn’t call him back till the next day. And then in my passive aggressive voice, I was like, “Oh my god, I understand you were in town. Did I miss the memo?” And I said to him, to make a long story short, “This isn’t working now. I’m going to need your wire instructions and I’m going to just cash you out.” And I gave him seven days of interest. I don’t have time for that, right? You’re a silent stakeholder.
Other red flags for us is let’s make sure that we’re not data dumping on people. Until a private money lender asks for more information, don’t just give it to them. And never say, “I don’t know.” And a lot of us are still learning, right? A lot of you are going to get out there and implement that four-second power pitch and you’re not going to know what to say next. So instead of saying, “I don’t know,” just substitute that with, “That’s a great question. Let me turn back to my team of experts and I’ll get back to you within 24 hours.” And then get on the phone and reach out to your community or other people in your network who have done this before, if you have a coach, and be like, “This just happened, what do I say? What do I do? Right? So we always want to position ourselves as the polished professional poised for aggressive growth.

Rob:
Yeah. There’s a lot of gold in what you just said. I mean, I think first of all, just because you can take money from somebody, does not mean that you should. And obviously this is a good problem to have, if you do have all those options, but you really do want to vet your investors just as much as your investors are vetting you. And this is something I don’t think a lot of people realize because we’re so hungry to get into a deal. We’re so ready to get into our third or fourth and scale up, right? And so when someone’s like, “Take my money,” in your mind, the obvious answer is like, heck yeah, give it to me.
But for me, for example, I get people that reach out, I mean, several, several times a week, that will just out of nowhere, say like, “Oh, I’ve got a million dollars. I’d be interested in investing. Give me a call.” And I’m like, “Thanks, but no. First of all, how about just say hello first? Don’t just say, give me a call right now.” Because that right there shows they’re expecting a phone call. If they’re expecting a phone call from me before we’ve ever met, that already for me is a red flag. I don’t want that. And plus I don’t have… This kind of goes back into, don’t just take money because people are offering it to you.
You might disagree with me here, Amy, but because of the influx of investment inquiries I get, I don’t always have projects to deploy them in. And so that for me is my struggle right now is I actually have really great investor deal flow, several times a week people reaching out, I just don’t have anywhere to deploy it. And so it’s always like a, “Hey, thank you anyways. When I have a project, I’ll let you know.” So I’m always now actively working on what the other side of this equation is, which is deal flow, right? I think investor deal flow is important, but the actual deal flow is equally important.

Amy:
Just to piggyback off that. The power of raising capital, it is endless opportunity. Whether it’s to the listener out there, those of you who are experienced or not experienced, when you know how to raise capital within raising in ethics, you can do whatever you want in the real estate world. You don’t have to be a fix and flipper. You don’t have to wholesale properties, go raise capital and become an equity partner to somebody who is syndicating a deal. This is an opportunity that someone just presented me with a few weeks ago. I’ve been doing this for 10 years and I never thought of it. He said, “Go raise capital. I’ll give you 5% equity in this syndication.” So you don’t even have to have experience in flipping or wholesaling. You don’t even have to want to flip or wholesale. Just go raise capital and partner with other people who will give you equity stake in their company.

Rob:
Yeah. I’ve figured this one out recently where I was like, I should probably not always just not follow up with these investors that are like, “Take my money.” Because again, for me, I do have the fiduciary duty to perform well. So if I can’t perform well, if I don’t have a deal that I feel I can do that, I’m not going to really pursue that lead.
But I want to go back to what you were saying about what newbies are saying that could be a red flag to an investor because I think that’s where most of the people are going to be at for this episode. And you said one already, “I don’t know.” And just a very small shift in your language going from I don’t know to that’s a great question. Let me figure that out for you because actually partner handles this side of the business. Or, we have a couple ways we do that, but before I speak too quickly on it, let me send you the actual document where it’s written after this phone call or after this meeting because I don’t want to speak out of turn. Because what people will do is they’ll either say, I don’t know, or they’ll try to fake it till they make it, quote, unquote. And by faking it till they make it, they’re going to give bad information that they’re going to be held accountable to whenever the actual terms come to light. So are there any other things that newbie investors say that are kind of in that camp?

Amy:
Aside from what they’re saying, I mean, that’s a huge one. A lot of it is also our body language and our tone going into these conversations in person or over the phone. We got to be confident in our delivery. If anyone senses any sort of timidness or uncertainty in our voice, they’re not going to invest with us. Right now, take the script we’ve given you, that four-second power pitch, practice it at home. Perfect it. Even if you don’t know what comes next, just be able to rattle off those 13 words with confidence because that will be a red flag to a prospective lender is if you don’t sound confident in your delivery.

Rob:
Yeah, for sure. I think there’s a few ways you can do this. So A, if you end up not closing an investor, I actually don’t think that there’s anything wrong to ask like, hey, where did I go wrong here? What was something I said? If you’re close. Because a lot of the people that I know will reach out and you may have that relationship with somebody, but, hey, I’m just curious. You’ve already said you’re not interested. That’s totally fine. I’m just curious. Where did I go wrong? To not mince words here. And kind of find out and then also talk to other people who have raised money to find out their tips and tricks.
I recently had a similar story. It’s a little bit adjacent to real estate, but I’ll tell it anyways, because it’s something that I figured out that talking to a pro was really able to help me out. I’m becoming somewhat of a watch guy. I’m wanting to get into watch collecting and build up that side just because I’m fascinated by this asset class. And so I started doing a lot of research and I got pretty knowledgeable. I fell on watches and these are tough to get. So I’ll go into the dealer and I start saying like, “Oh, I want this and I want this.” And, “Oh, you know what, give me these four. Whatever’s available, I’ll take.” And they’re like, “Sorry, bud. It’s a yearlong wait list.” And I was like, “Oh, okay. All right, sure, fine, whatever.” And I left.
And so I got connected with another watch expert/reseller. And I was like, “Hey, man. Yeah, I kind of struck out several times.” He was like, “All right. Well, tell me about the conversation.” And I said, “Well, I said I wanted these five watches. I said that I was willing to whatever it takes to get it.” I said this and this and this. And he’s like, “Oh, these are all the red flags that you just said in one conversation.” He’s like, “Congratulations, you actually broke the record for listing all the same red flags in the initial conversation.” And he was like, no worries. Here’s what you got to do. Here are the tips and tricks. This works for me every single time.
And so he said, “Hey, go in. And instead of talking about watches, why don’t you talk about your life? Strike up a conversation with the watch seller, the time piece seller, if you will. And let them know that you’re a person, that you’re not just there to get a watch.” And he’s like, “And also don’t go in guns blazing saying, ‘Hey, I want any watch. As soon as it’s available, you let me know and I’ll come by and I’ll buy it.’” He’s like, “The last thing you want is for that watch dealer to think that you’re a flipper because the moment that they think that you’re just going to flip the watch and sell it, then you’re already blacklisted.” And he is like, and also do this and this and this. And I was like, “Oh, okay. All right. I did mess up.”
And so I went back to two and I implemented exactly what I said. And I was like, all right, I’m not going to say these five red flags. And I was able to actually get the watch, instead of waiting a year, within three weeks, both times with two different dealers. And I was like, oh. So there is a practice to working with somebody and making sure that you are educated and that you’re not just, like you said, data dumping and trying to prove that you’re smart. Because I think what we’re trying to do at the end of the day is prove that we’re people first, that we’re people that we want to work with. And if we can prove to an investor that they want to work with us, then at that point you can start leading with a little bit more data and kind of nurturing that relationship.

Amy:
Yeah, absolutely. I get a lot of investors out there who will say, “Shouldn’t I be marketing my company?” And I believe it’s the opposite. We’re marketing ourselves. And when people know us, like us, and trust us, the individual, then they’re naturally going to invest in our business. And we really have to just wrap up mindset and confidence. Remember, we’re not asking for money. So we don’t ever want to approach a private money lender and say something along the lines of, “Hey, I’m looking for $100,000. Are you comfortable lending me money?” Right? It’s, “Hey, I’m in the middle of a capital raise. This is the investment opportunity. Let me know if you’d like to know more.” And we just got to deliver that with confidence.

David:
What do you think about the red flag, Amy, of starting with the interest rate before you give them ease that they’ll have the return? That’s something I’ve seen where there’s someone raising money and they’re like, “Hey, I’m offering 18%. Are you interested?” And immediately they’re like, “Oh, that sounds scary.” Versus, “Hey, I’ve got a deal and it’s under market value and this is the plan to add value.” And they’re going to receive their capital back after 24 months. And we’re anticipating a return of this much. I think that’s a pretty significant red flag where someone comes out and says, “Hey, you want to invest with me and get a 75% return?” as the way that they open the conversation.

Amy:
Right. Like, I don’t even know you, right? Along the same lines of what Rob said, I don’t know you. I know nothing about the deal, who you are, and what you’re doing. I don’t care about your 18% return. So it’s going to be the latter of the two. I’m going to highlight how we protect, secure and ensure their investment, how long we’ve been doing deals in Downtown Austin. And by the way, we offer double-digit returns backed by real estate. If you’d like to know more, great, let me know. And I’m still not going to ask when I frame it that way.

David:
One of my favorite books is Pitch Anything by Oren Klaff. We’re working on trying to get him on the show. The title of the book is a little bit kitschy. I understand, like it kind of turned me off. I didn’t read it for a couple years just because pitch sounds so negative. But what he is really getting into is how the human brain processes information. And one of the key points in the book is that the very first thought emotion anyone experiences to any form of stimulus is, is this going to hurt me? So when you guys say, I don’t even know you, nobody’s assumption is you’re probably nicer than Santa Claus, a stranger. No one’s like Will Ferrell and Elf is what we’re getting at.
Their first thought is always, how are you going to take advantage of me? How are you going to hurt me? They don’t listen to a word you say until you’ve already proven yourself to be safe, which is why, like Rob was saying, by leading with here’s who I am. This is what I do. I’m a regular person. And eventually this is why I want the watches. I’m a big fan. I want to give them to my kids someday, whatever the case is. Now that part of their brain that says, threat, bad, negative quiets. Now they can actually hear what you have to say and then the appropriate time to bring up the price you want to pay for the watch or, Amy, in your case, what the interest rate would be.
I love highlighting that because that’s a mistake I see a lot of people say, “Hey, huge returns. Invest here.” It gives you that same feeling of in the ’90s when a little popup would come on your computer that you just knew there was a virus behind that. Like, this looks so shady. Even I’m afraid to tap the X to make it go away, because for sure this is going to hurt me. There’s human beings that walk around giving that same vibe and you don’t want to have that if you’re an honest person looking to put money to use.
Right. I’m going to move us on to the next segment of our show. In this segment, we are going to read questions from people that have asked about this specific topic and we’re going to let Amy and Rob answer them. Question number one comes from Stephanie Mokris. She says, “Okay, I am officially addicted to the BiggerPockets Podcast. I’m a travel nurse with a one hour 20 minute commute. And I love listening to you guys while driving. Thank you for all the value you provide to your audience. I do have a question regarding this series. What is the strategy used to pay the private lenders back? I can see in a flip or a BRRRR, but how about if the borrower used the private money for a turnkey property?”

Amy:
Sure. I get that question often. You can still raise private money for a turnkey rental property. There are going to be a few differences. Number one, you’re more than likely not going to offer double-digit returns because the numbers just don’t make sense. What I have found is it’s going to be around a 6% annualized return. Number two, it’s not going to be a 12-month term, a 12-month promissory. No. At a minimum you’ll want to get a commitment of two years. And number three, you will make similar to Dave monthly interest-only payments out of the cash flow. And number four, just make sure you’re targeting rental communities that are in preferably type A markets so the property appreciates, so that in two years you can do a cashout refi. Even if you’re not implementing the BRRRR strategy, we want to make sure there is a little bit of work you can do with the property and it’s in an area that will appreciate so you can do the cashout refi in two years, pay off your private money lender, and then the house is yours.

Rob:
Yeah, I think that’s great. We’ve done it a few different ways. I actually have a buddy who said that whenever he’s buying his short-term rentals, he exclusively will go to friends and family and raise the money private. He says that they don’t know the power of HELOCs or they might have a HELOC line of credit where it’s just sitting there. I mean, I guess a HELOC is a line of credit. But a HELOC for those of you that don’t know is a home equity line of credit that you can use. And so they have that sitting. And so he’ll say, “Hey, your HELOC interest rate is 4%. If you give that over to me, I will give you a 6% return on that.” So a total of 10% debt for him. And he just chips away at that every single month.
Now caveats here, obviously that is pretty close to hard money rates. So if you’re going to do that, make sure that your deal works pretty comfortably and that there is margin on that just for errors and for market stuff and everything like that. But he does that and he loves it. And his plan is exactly what you said, Amy. He wants to go out and cash out in two or three years. In fact, just because of the crazy year that we had, he said he could cash out already and pay them back. But for him, he’s like, “Well, I’d rather just keep the cash flow and keep chipping away at everything.”

David:
All right, next question. Rob, I’ll let you take the last one. This one’s pretty good. And I like getting into this stuff that other people avoid. “What happened to the good old days where BiggerPockets had real estate investors on, who were willing to share their successes and failures? They just loved talking real estate and weren’t trying to sell anything. As soon as I hear a guest say, ‘One of my students,’ I immediately write them off, not as a real estate investor, but as some wannabe guru. The people who are out there really buying real estate, don’t have time to sit on the phone and coach people.”

Amy:
Another loaded question. So using myself as an example, I’ve been doing this for 10 years. It took eight years of investors all over the country asking me to coach them on how to raise private money because we all have strengths and weaknesses. I’m very good at raising private money. I’m terrible at a lot of other things. I’m terrible at marketing. There’s a lot. Because this comes so easy to me, for example, and because it is one of the top two most challenging things that we are tasked with as real estate investors, I enjoy coaching and helping and teaching others. Earlier I said, I wanted to help Josiah because he just seemed like a great guy who is actually implementing what I teach and starting to see results.
All that said, I’m still a student of the industry. I’m still learning. I’m still growing. I still go to events myself. So even through my coaching community, I learn from my students all the time. So I believe that when you coach and give back to others, that tool will find its way back to you, whether it’s in that same topic or other parts of our real estate business, or even other parts of our lives personally. So that’s why I do this.

Rob:
Yeah. I’ll try to answer this diplomatically. If you go to an electrician or a plumber and you said, “Hey, man, I love that you’re a plumber. Will you come do that for free?” What are they going to say? They’re going to say no, because you are paying for their experience and their time. And that’s effectively what education is. You’re paying for your educator’s time to help you go to the next level.
But outside of just the loaded aspect of this question, there’s a lot of free content out there. For me specifically, most of my content out there, it’s all free. Like TikTok, Instagram, YouTube, I give everything for free. Now, obviously I do have coaching and everything like that. But for those people, I’m always like, well, you’ve watched 20 of my YouTube videos and those 20 YouTube videos, they’re all 15 minutes each, it takes one hour to edit every single minute in that YouTube video. So, if you watch a 20-minute Robuilt video, that took 20 hours to create. So if you watch 20 of my videos, you’ve just watched 400 hours worth of my work and that is for free.
So I don’t think that there’s anything wrong with online education if you trust the person that is there to educate you and if they’re credible. On top of that, I think the way you can really start sniffing this out and really getting to things is, is that person still doing what they’re teaching? It’s very easy to rest on your laurels and not continue specializing in the thing that you’re teaching, right? But for me specifically, it took five years to get to 15 units. So far I’m at 35. Now I’ve more than doubled it so far and I will quadruple it by the end of 2022.
So I think if you’re having a little bit of pause with the online education part of it, go and see what that educator offers and then make sure that they’re still doing it. And if they’re not, then, at that point, I think you can start to question it a little bit. But education is so underrated. Hormozi was just on the podcast. He got super fired up about this too. And I was like, thank you, amen. Because why is it such a bad thing to become smarter, Dave? Why is it such a bad thing, David?

David:
I can understand… It was Matt Spangenberg’s comment here. I can see his point that if you are good at doing this, you wouldn’t be teaching it. And I think that applies to a certain subset of slimy people who talk a big game and they are internet marketers, and then they go sell information that you could have got for free somewhere else. There is many of them. It’s easy to throw the baby out with the bathwater. But there’s other people who do this at a high level, who can reach more people via the internet than they could possibly do individual deals.
So like I mentioned, I’m out here in the Smoky Mountains. It’s been three days in a row, I’ve been driving around, looking at cabins all day long. I can’t really talk on the phone. The Internet’s in and out. You’re on these windy cabin roads. You can’t really do much of anything other than look at these cabins. I’m not being productive for anything else while I’m out here. It’s not the best use of time. Now I won’t do this forever, right? I will learn the area. I will figure out how this works and then I’ll buy cabins with my long distance investing techniques.
But what I’m getting at is, if I was to coach 1,000 people at one time on how I do this, that would be more money per hour than I could possibly make buying these cabins when I’m having to drive around, to look at all of them, and then write all the offers, and then talk to the agents. And you know how agents love to talk, right? So every time you want to get anything done with an agent, you got to listen to them talk forever with their high I personalities. You can tell that I’m a high D and that kind of drives me nuts a little bit. There is a scenario where it’s not necessarily true, Matt, where, if they could invest, they would be doing that instead of coaching people, because you can reach so many people at one time. You’re also spot on with the fact that there are some slimy people.

Rob:
Oh my god. For sure. 100%.

David:
And that’s one of the reasons that BiggerPockets grew to what we did is we firmly stood against the slime bots, right?. There’s people making a whole lot more money than me selling those courses instead of being on this podcast, but I’m not going to do that because I don’t want to be associated with those kind of people. It’s something you have to… I get it a lot of the time from, “Well, he’s a real estate agent. Of course, he says to buy homes.”

Rob:
15.

David:
I just bought $15 million worth of real estate in the last 30 days. Because I’m an agent, I’m telling people to go buy houses. Amy, go ahead.

Amy:
But this goes both ways as far as expectation and personality is concerned. As a private money coach, for example, there are plenty of people who I have turned away and I said, “You’re not a good fit for my coaching program.” Because in the beginning, because I really love this, if you can’t sense the passion and energy, it’s been like this for 10 years, I’m tired trying to convince people on the opportunities that they’re missing out on, how they can go buy five rental properties tomorrow, they can grow and scale their real estate tomorrow just by knowing how to raise capital. So if you don’t have that mindset, I don’t want to coach you. I just turned someone away the other day. I was like, “Keep your money and go figure it out on reading books or listening to podcasts or on YouTube.”
I’m the type of person, and this is exactly how I started, I want the fast track to success. I want the shortcuts. I don’t want to make a bunch of mistakes that’s going to cost me more financially in the long run. Again, we all have different goals and expectations, and there are plenty of coaches who will respectfully turn away your money as well, if your expectations don’t align with theirs.

Rob:
100%. Hormozi, I think he said he spent $170,000 for each of his four calls with Grant Cardone. And he said it was worth it 20 times over because of the value that he got from it. So you just have to ask yourself, what value am I getting from this? Is it something that’s going to help me? And if not, then move forward. Or, if you’re not going to get the value, then move on.
All right. So let’s move on here. So this one is Tamaz Poznanski. Sorry, Tamaz. I feel like I mispronounced that, but I gave it my best shot, Tamaz. Okay. Question. “Hello. What the entire paperwork process looks like and how it’s backed up for the investor, for the house that I’m trying to buy. So I want to see what the pros are of private money over hard money. And also how do I set it up?”

Amy:
So you’re going to want to use three standard contracts and the three standard ones I use in my business to protect, secure and ensure my private money lenders include, number one, the security’s going to be in the form of a recorded mortgage. Go get that from your real estate attorney or a title company. But that’s what secures your private money lender’s loan to the property. You cannot sell the house unless you get their written authorization.
Number two, the way you’re going to protect the investment is through a promissory note. Go get that from your real estate attorney or title company. A promissory note is just a one-page term sheet that summarizes the conditions of your loan. I, Amy, promises to pay you, Rob, $100,000 over the next 12 months at a 12% annualized return. And this loan is secured by the property located at 123 Main Street.
So, so far you got the recorded mortgage, the promissory note, then the third thing you’re going to do is talk to your insurance agent and say, “Hey, I got to make sure that my private money lender’s listed as a beneficiary or lost payee on our builders risk insurance policy for their loan amount.” You’ll give a copy of that two-year private money lender. This way, if a natural disaster happens, your insurance will pay back your private money lender. Those are the three pieces of paperwork that you will use as a part of your standard process.
Now, why private money over hard money? I love them both. Love my hard money lenders. Love my private money lenders. It depends on you. It depends on the deal. When you work with private money, you’re not going to pay any points. Because I don’t offer my private money lender points. You’ll pay a couple of points in hard money. It’s the cost of doing business. You’re going to have higher interest rates. They’re going to check your W-2. They’re going to check your credit. It’s all a part of their standard process, but you’ll have the money tomorrow. They’re still not going to give you 100%. So whether you work with hard money or not, you still got to come to the table with that gap funding, the difference. I don’t want to come to the closing table out of pocket. I want to use whatever money I have to go build my passive income portfolio, buy more rentals, lend to other investors, and then use other people’s money in my fix and flips and wholesale deals to make that infinite return. Anything you guys want to add to that?

Rob:
No, that was pretty good. That was pretty good. I think you summarized that very concisely and intelligently. I’m going to step back from this one.

David:
I do find it slightly ironic that Tamaz’s question, one of the first thoughts I thought was this is such a specific question that this is probably best directed to somebody who is coaching you. We get this a lot like, “Hey, can you share your spreadsheet with me?” And this is a spreadsheet that maybe Rob has spent four years developing and tweaking and making mistakes to try to get it to where it’s at. Or, “Can you just send me the document that you use to do these deals together,” that maybe Amy spent $50,000 over lawyers to put together. And you get someone who is getting free content, here’s about what they do and then says, “Now, can you give me the thing you spent $50,000 for,” and gets kind of salty if it doesn’t happen.
It doesn’t hurt to ask, but just don’t get upset if someone’s like, “Yeah, I’m not comfortable giving you my entire system that I’ve spent years and hours and made so many mistakes and lost so much money to come up with for free.” That would be more appropriate if you’re being coached by that person and you’re paying them to coach you. And then they say, “As part of my coaching program, I’m going to give you my complex spreadsheet or my legal documentation I use.” Do you guys disagree about that?

Amy:
No. And it comes up all the time.

Rob:
Yeah. Fun fact. I give mine away for free. All my docs. I give that, furniture shopping lists, templates. That’s why when people are like, “You’re just slimy.” I’m like, “Dude, it’s free. I’m sorry that it’s free.”

Amy:
I give away plenty for free. I just had someone call me the other day. And I’m at a point now where it’s like, again, I don’t need your money. Keep your money. You’re not a good fit for this coaching program. Because I don’t do one-on-one coaching anymore. And he said, “Hey, can I just give you like 500 bucks per call and do a couple of calls with you?” And I said, “Thank you for the offer. And no. Save your $500 because I’ve got 71 different strategies that I teach. And whether you’ve done this before or not, we all start with module one. So I can’t teach you everything to get out there and raise money the right way with two phone calls. I could literally talk about this for two months. So if you want to be a part of this community and raise money the right way, then,” I told him, I said, “let me know if you want to talk more about my coaching program.” And he ended up enrolling that night. But it’s like, it’s more than just two phone calls.

David:
Yeah. And by no means are we saying you have to go pay for a coach or even that you should go pay for a coach. I never did that for a long time in real estate. I’m going to use a gym analogy, because it just always works out so good.
The gym has everything you need. It’s got all the machines, it’s got all the weights. It’s got the cardio, it’s got the different levels. It’s got the sauna, it’s got the pool. It’s got the basketball court. It probably even has instructional videos on how to use this stuff, but that is different than hiring a personal trainer. The personal trainer will get you in shape faster. They will provide more than just access to the gym stuff. They will show you how to use it. They will push you. They will make sure you get there. They’ll teach you how to use it better than you would’ve been able to use it without them. They are going to sharpen your learning curve and your success curve. And that’s why you’re paying them. But that doesn’t mean you have to. If you don’t want to do that, you could just go to the gym.
BiggerPockets is a gym. It’s got forums. It’s got blogs. It’s got very cheap books. It’s got this podcast and five or six other podcasts. It’s got a YouTube channel. It has free webinars. It’s got tons and tons and tons and tons of stuff that you get to go use completely for free. But if what you’re looking for is a personal trainer, it’s okay to pay the personal trainer for their time and for their experience, because this is how they make their living. They got in really good shape and now they teach other people how to do it. I’ll kind of put a pin on it there. Let me know in the comments, as you guys are listening to this on YouTube, what do you think about what we said? Was this too controversial?

Rob:
Give us some hot takes, guys. Give us some hot takes.

David:
Do you agree with us? Did we not cover anything that we should have? I’m not afraid of the conflict. You guys can go ahead and bring it. Tell me if you don’t like something I said or what you didn’t like about it or, if you did, I will be happy to address that maybe in a different YouTube video for BiggerPockets, because this is a very controversial topic, but I don’t see any reason why I need to stray away from it.
Okay, Amy, this has been fantastic. I think this was a very good interview. I appreciate you being willing to wade into these murky waters that we just did, because borrowing people’s money is a very nuance and complicated topic. And I want people to get good at it. I want them to use your system. I want them to have success, but then once you get the success, you don’t want to be stuck saying, I didn’t think I’d get this far. What am I supposed to do? Because we want people to be successful with their investing. Do you have any last words of advice that you can offer?

Amy:
You guys got this. Again, you’ve got plenty of resources out there. Let us know. Let me know. I manage all of my social media. I am here for you as a resource. Any question you have, I will respond within one to two days. Just send me a DM. And I got you. I’m going to try to get through as many of the comments and questions as I can in these videos. So whether you work with me or not, you guys, I’m always here for you as a resource in any part of your real estate business. So don’t ever hesitate to reach out to me.

David:
Rob, how about you? Any last thoughts on this nuanced and complicated topic?

Rob:
No, I think it’s exactly that, it’s nuanced. And honestly this whole four-part series was really, I mean, gosh, just a really good rollercoaster of knowledge, right? Because we talk about the actual tactile concepts from start to finish for the first and second, and even the third one. Today was all about the application and the nuanced aspect of it, because I think this is probably where we were answering a lot of the questions that people have been developing over the past three episodes. So Amy, thank you so much. I mean Josiah already did, but I know a lot of people are going to benefit from just putting themselves out there. A power pitch. The power of four seconds and how it can change your life with the real estate is absolutely amazing. And I don’t think people should sleep on that.

David:
I’ve got one last question for each of you. I’ll start with you, Amy. In today’s market, where are you seeing the best opportunities?

Amy:
Best opportunities to invest or to lend in, or all of the above?

David:
No. For someone who’s either going to place their money with an investor, someone who has money, they want to invest.

Amy:
It really is deal specific. I always say, even in a recession or an economic downturn, we make our money when we buy. So private money lenders, those of you listening, if you’ve got money you want to invest, just make sure that you are talking to somebody in a market where they know how to buy. They’ve got a strict buying criteria. They’ve got a proven track record and they know what they’re doing. But you can really make money anywhere as long as you know how to buy properties.

David:
Wonderful. Rob, same question to you.

Rob:
What a curve ball, you. What a curve ball, Dave. Okay. Obviously I’m biased, so I’m going to move on from this really quickly. I think short-term rentals are going to be the place where people are getting the most return on just most of the typical asset classes, because obviously with interest rates and prices going up, I think the longterm returns are going to go down. And so that means that with short-term rentals, maybe we’re not going to get those super, super crunchy 30 to 60% returns like we were in the golden days, but those will now go down a little bit and I think be the gold standard for returns for the everyday investor.
However, with that said, where I personally am seeing the opportunity with where I am in my life and the way that I’m scaling up is I’m actually going and I’m acquiring the hotels, like I talked about, which is something that I’ve been very anti for a long time, anti hotels, and basically renovating and turning them into my version of Airbnb. So I’m taking down hotels by turning them into Airbnbs and raising money to do that so that I can basically just scale up a little bit faster than, I mean, it’s a lot more faster than I have over the five years. So I think I’m going to have a lot of fun here. The returns will still be really, really, really massive because of the amount of value that we’ll be adding. But it’s still in the short-term rental space. I don’t feel like I’m leaving my first true love quite yet.

David:
Wonderful. If you guys want to know what I think about that, you can find out and you don’t have to pay for it. Just go to BiggerPockets’ YouTube channel and look for a video of Christian Bachelder and I, talking about where we see opportunity in today’s market, what we’re both buying. And then another video with Kyle Renke and I, talking about negotiating strategies that we are using to get the best deals possible. And this is all on-market stuff that anybody can find. All right. Thank you both. Amy, really appreciate your time and your transparency here. Thank you for sharing your four-step system. And Rob, thank you for being you.