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Lawrence Yun, National Association of Realtors chief economist, joins ‘Squawk Box’ to discuss the state of the housing market, why he believes it’s a strange market of record-high home prices, deep-slumping home sales, and more.

Putting the Tech In Bio: Why Cash Still Flows To European Biotech Startups

Amid ongoing concerns about declining VC funding in the United Kingdom, Biotech startups have been doing rather well. According to the U.K. Bio Association, businesses working in the sector raised £563 million in venture capital and public funding in the three months to September. Following a sluggish start to the year, the Association predicts the industry is on course to exceed the levels of funding seen in 2022. Meanwhile, KPMG’s latest U.K. Venture Pulse report notes that Biotech – along with AI and climate tech – is set to dominate the investment agenda.

So what is going on? Why are Biotech startups enjoying a moment in the sun?

James Field is CEO and founder of LabGenius, a London-based Biotech company focused on discovering the “next generation” of therapeutic antibodies. As he sees it, the growing importance of the U.K. Biotech sector is partly due to the coming together of two previously distinct disciplines – namely biology and machine learning.

The combination has the potential to accelerate the development of treatments that would previously have either eluded researchers or taken many years to develop. Referencing his own company’s work, he says: “The human brain has zero intuition about the design of these molecules,” he says.

To augment the work of human researchers, Lab Genius has created a robotic platform that designs experiments, analyzes the results and also learns from previous experiments.

Accelerated Development

What will this combination of AI and biology mean in practice? Umza Choudry has worked as a research scientist in the fields of photochemistry and synthetic biology and today she leads on Tech Bio strategy at VC fund Octopus Ventures.

In Choudry’s view, researchers have often struggled to understand the sheer amount of biological information at their disposal. “There is an enormous amount of material but it is hard to visualize,” she says.

That is changing. The power of AI to automate workflow and analyze data is paving the way for new treatments. Hence the upturn of VC interest in the Tech Bio sector.

Choudry cites a number of areas where the combination of AI and biology is set to make breakthroughs. She expects new and more targeted therapies and also – crucially – lower costs. Whether healthcare is funded by tax – as in the UK – or private insurance, the cost of treatment is a crucial factor. One potential benefit of the Tech Bio revolution is its potential to “democratize” access to cutting-edge medical technologies by making it easier to develop and scale new solutions.

To some extent, we’re already seeing that democratisation in action. As Choudry points out, reading human genes is now simple. Editing them is nother matter. However Crispr editing tools are not only paving the way for new treatments, they are also making the process of manipulating genes a lot less costly.

So naturally enough VCs are taking notice. Sajith Wickramasekar is the founder of Benchling, a California-based company that provides a cloud-based data management and collaboration platform for companies working in the biology, and Biotech fields. He cites the breakthroughs that are creating new business opportunities. “RNA, Gene Therapies, Antibodies. That is what investors see.”

Risk Factors

But as Choudry acknowledges, Tech Bio is risky. The timelines are long, the development of new technologies tends to be capital-intensive and there are no guarantees of success. However, it is a risk that increasing numbers of VCs are willing to take. “Around 2021, investors were starting to get interested in riskier areas, Choudry says. “We are also seeing European VCs wanting exposure to more specialized areas, although in Europe we don’t have many specialist fund managers.”

One potential limiting factor for traditional VCs is the time it takes to bring Tech Bio-originated products to the market. “The timelines are slightly longer,” Choudry says. “The hold time could be about 10 to 12 years.” That won’t suit many VCs. Octopus, however, is an evergreen fund, making it easier to commit capital for longer.

Despite a robust investment environment in 2023, there are some concerns about the immediate future. “A lot of money went into Tech Bio in 2021 and that was helpful. The big challenge now is that the markets have turned, we’re in a non-zero interest rate environment and a lot of Biotech companies on the public market are trading below cash,” says Field.

On the plus side, here in the U.K., the life sciences are a priority area for policymakers – not least because there is an opportunity to support a well-established science base that could yield huge commercial returns. There is a considerable amount of grant funding and also tax incentives to underpin R&D.

The Talent Challenge

Arguably one of the biggest challenges in the Tech Bio field is access to quality data. That raises the question of where the information required to build AI models actually comes from.

In the case of Labgenius, biology provides data for the AI operation. “We have a sophisticated wet lab that generates data,” says Field.

That double-sided operation points to a further challenge. As Wickramasekara points out, Tech Bio companies are recruiting from two highly competitive pools.

“Another challenge is talent,” says James’ company has a wet lab and also a data side. That’s not unusual in this sector. But now you have to walk and chew gum,” says Wickramasekar.

Not only must Tech Bio founders recruit people with the necessary skills, they also have to create an environment and culture where people can work effectively together. Sometimes the collaboration is remote. For instance, Labgenius has its biologists working in Oxford while the AI operation is in London. However, Wickramasekara is keen to stress that cross-fertilisation should be celebrated. “‘I’ve seen people moving over from tech to biology,” he says. That is very exciting.”

Umza Choudry agrees. “When you bring together different disciplines you are also bringing together different mental models. That’s not necessarily a bad thing. You have people approaching the problem from different angles.”

It’s still early days for Tech Bio, but the potential to accelerate the development of new treatments suggests it will continue to suck in investor cash.

Rob:
Welcome to the BiggerPockets Podcast, show 848. We know you’re going to get a lot out of today’s story. We’re here with Keleisha, and she’s going to be talking about how she built a portfolio that brings in $5,000 per month.

Henry:
She’s also going to be talking to us about the things she’s changing and tweaking to adapt in this current market.

Rob:
Yes. Yeah, and I’m here. I’m Rob Abasolo, your host of the show, joined here by my good friend, Henry Washington. And this is what we try to do on the BiggerPockets Podcast show every single week. We bring you stories, how-tos and answers that you need in order to make smart real estate decisions now in today’s current market. Keleisha, welcome to the show. How you doing?

Keleisha:
Hey guys. I’m doing fantastic. I’m so happy to be here. 2019 in the making. It’s here.

Rob:
A little bit of background on you, Keleisha. Your portfolio is currently five units in the Smoky Mountains, San Antonio, Florida, Atlanta and Virginia market. You’re joining us from Tampa. You’ve done 15-plus deals in the past three years, and I think you gross $18,000 per month from properties, but your net is about $4,000 to $5,000 per month. Did I miss anything?

Keleisha:
No. You’re solid, right on point.

Rob:
Awesome. And what about you, Henry? Where are you joining us from? It looks like you’re in Nashville at the moment with your collection of guitars in the background.

Henry:
It does look like I’m in Nashville. I am not. I am here in Northwest Arkansas, but I’m recording this at a good friend of mine who owns a recording studio here. I’m actually having a meetup later here. So thought I’d come and take advantage of this beautiful background and make myself look cooler than I am.

Rob:
Awesome. Well, a little surprise for everyone that sticks around until the end, Henry’s actually going to pull one of those guitars down and serenade us a little song, a little ditty. So it’s a special tune he wrote for the BiggerPockets’ listeners.
So to jump right into your story, Keleisha, you moved to the US in 2018 from Jamaica. And when you got to the US, you picked up a job, busing tables and hostessing. Can you tell us what your first summer felt like and what was going through your mind at that time?

Keleisha:
Man, it was scary. I was going into a whole new playing field because I’ve never worked in a restaurant before, coming from corporate Jamaica, doing marketing. And to give up that job to go busing tables, I’m like, “What am I doing? This is too scary.”
And it was at the same time, very exciting because I was touching on something completely new that I’ve never done before. So that little scariness, I think it pushed me to be like, “Try something new.”

Rob:
That’s cool. What were you doing in Jamaica? What was your line of work at that time?

Keleisha:
So I was doing marketing for an insurance company, one of the biggest insurance company back home, and I got the ideal job everyone would say after graduating. But I think after that, the marketing… Corporate sucked the life out of me and it made me lost the passion that I had for marketing. So I’m like, “I needed something new. I needed to take a risk with my life and decided to move to the US.”

Henry:
I was just about to ask that. I wanted you to dive a little deeper. What was driving that decision? Because that’s a big leap of faith. We just casually covered that you just moved to another country.

Rob:
No big deal.

Henry:
And took a job, waitressing instead of marketing like it was nothing. That’s a big transition. What drove that?

Keleisha:
Man, I was at the part of my life where I was trying to figure out what I need to do. And I think I was just being surrounded by people who were just there in the job for years. And all they did was complain, “I hate this job, I hate this job.” And I’m like, “I don’t want to be in this position.”
And I think that year, for me, the theme was “take risk.” I didn’t know what that was, but it was just to take risk. And I was like, “I’m going to quit my job and I’m going to move to the US.” I know a lot of other Jamaicans who quit their job, left the country to go to the US to chase the American dream. And for us too, it’s also to make more money. So I was like, “I’m going to do that.”

Rob:
And did you come alone or did other people in your family… Did someone join you or was this a solo journey?

Keleisha:
So that’s the crazy part. I did it alone.

Rob:
Wow.

Keleisha:
I did it all alone, left my mom and my brother back home. She didn’t want me to leave either. She was like, “Are you sure you want to do this?” But at the end of the day, she was very supportive with everything that I was doing.

Henry:
And I heard you say something when we talked about you taking the job in the restaurant industry, you said that that was scary. You were doing a corporate marketing job, but talked about the restaurant industry as a scary job. What made that scary to you?

Keleisha:
Because people think that working in a restaurant, it’s easy. And for me, back home, our culture, for you to give up the perfect job to go serve someone, they consider you to be the help. And I think in the restaurant space, a lot of persons look down on you based on what you’re doing.
And I’m like, “I’ve never done something like that before.” And it was very insulting. It was a lot of pride for me. I didn’t tell a lot of friends what I was doing. I was very active on social media, and I wasn’t even posting those things I was doing on social media. Only when I went for a break, then I would post, “Oh, I’m traveling.” And people would be like, “How are you traveling?”
But I was embarrassed too. I was very embarrassed because to leave, as you said, your corporate job to go clean tables, clean toilets, to have someone do this, snap fingers at you and stuff like that, it’s something that I’ve never experienced and it was also a very humbling moment for me as well.

Rob:
Got it. The first job I ever had, I was actually a busboy and I used to serve chips and salsa. And when people run out of their chips and salsa, they are quite feisty and they are not the nicest person to you. So I totally feel for you there, and I think it’s a really brave leap. It’s hard enough to move.
I’ve moved a couple times with my wife across the country and that’s really scary. So to do it by yourself shows a tremendous amount of bravery and courage. And we’re going to talk about how your waitressing job was actually a good thing for your future in real estate. But before we do, we’re going to have a quick break.
And we’re back here with Keleisha, and we just talked about how you had this big move from Jamaica back to the United States or to the United States rather. And you quit your job in corporate to work in the restaurant industry. You mentioned you still had family back in Jamaica. Can you tell us about your relationship with your mom and your brother?

Keleisha:
So I have a very tight relationship, a really good relationship with my mom and my brother. I grew up as an only child, so it was always just me and my mom, and then my brother came in the picture 15 years ago. So everything, all I’ve known is just Keleisha and Nadin. And even when I moved to college, back when I went to college, it was hours away and we still had a great relationship there as well.
But I think one of the scary thing when I moved was my mom also depended on me. What that mean is she looked towards me in terms of making better for her, making better for me because she didn’t know better. So when she saw me pushing myself, I think that’s why she was so supportive because she’s like, “Okay, I don’t know how to guide you, but it seems like you have that drive and you know what you want. I’m just going to support you in what you’re doing.” And I think when even my brother was born, which is crazy, I hated it. When I found out she was pregnant. I was like, “No, I want to be the only child.”

Rob:
Typical big sister.

Keleisha:
I was like, “I want to be the only child.” But then when he came in the picture, I saw the same trend that was happening to me growing up. So as I said, it was just me and my mom and my father. He wasn’t that involved financially. And I saw the same thing with my brother as well.
So I was like, “Yeah, I need to break that trend. I’m here, I left them. I need to make sure I work and I make some money so I can take care of them, whatever is it that they need. Even if I’m here in the US and I’m suffering, I don’t have food or anything like that, as long as I know her rent is covered, food and she’s good and they’re good, I’m solid.”

Henry:
First of all, I want to comment on the sibling rivalry. I have two daughters. I have a five-year-old and a three-year-old. And I remember when we brought home our youngest daughter, my oldest at the time was two, and we were like, “Here is your new sister.” We handed her the baby, and she put one hand on her, looked at her and goes, “Hmm, all done, baby. All done, baby.”
So this sounds like you had a similar experience. Here’s what I love about what you said, it’s that you took this giant leap of faith and you knew you wanted to do something better for yourself, but felt this obligation to take care of home and the people at home, and this is something you were doing before real estate.
A lot of people are probably thinking, “I came and I did a bunch of real estate and then I could send money home.” No, you were doing this when you were waiting tables and being a server and taking care of those around you. And I just want to make sure that you get your flowers for having that heart and that mindset.

Keleisha:
Ah, thank you.

Rob:
Yeah. So Keleisha, was it ever an option for your mom and your brother to come to America with you?

Keleisha:
So the crazy thing is first, my brother is a citizen and the condition that they knew I was living in, they knew I was trying to figure it out. It wasn’t an option for them to come yet. But this is one thing I always tell them. I always said, “When the time is right, you guys will come.” Because I don’t want you guys to come here and suffer the way how I was. I don’t want my mom to be doing certain jobs that I didn’t want to do.
So I said, “When I know that I make enough money, when I can get you your house and you have your place to rent…” Because I can’t live with my mom, and she knows that. I was like, “We’re not living together at all.” So when I told her that, she was like, “You know what? I understand.” She always tell me… And I’m going to quote this in Patwa. She always like, “Do what you have to do, me girl.” What that mean is, “Do what you have to do. Whatever it is that you need to do, just do what you got to do. I’ll be here when you’re ready.”

Henry:
How important was it for you to know you had that support back home backing you up no matter what, win or lose?

Keleisha:
Man, it means so much. Even getting ready for this interview, my mom called me, and she just started praying and she started crying. And she started going back down memory lane. She’s like, “I remember when it was just us and we were doing this.” And she’d be like, “We’ve been coming from so far.” And I was like, “Mom, just calm down, just relax.”
But I think it truly means a lot. And I’ve heard so many different stories where persons don’t have a strong support system. And I think that’s something I’m extremely grateful for. Your support doesn’t have to be a large group of people, but if you have that one or two persons that means a lot to you, if you know that you have their support when you feel like giving up and you can just call and be like, “Hey, it’s tough.”
My mom used to call me and she used to see bags under my eyes and she starts crying. She’s like, “Come back home. I don’t like how you look. Come back home. You’re not eating, you’re not sleeping.” I lost so much weight. And I was like, “No, I’m not coming back home.”

Rob:
So tell me more. You’re busing tables and at first, you think that you’re going to be in the US temporarily or you’re going to be working this job and work through it and move up the ladder. Then what happens? How does that job go?

Keleisha:
So it’s crazy. So I went to that job on Martha’s Vineyard for one summer. And apparently, it seemed like I did a good job. The owner was like, “Can you just stay for the rest of the season?” I’m like, “Sure.” I went back the following season to do food running. So I got promoted from hostessing and busing tables to food running, which is taking the food from the kitchen to the table. What crazy enough is that the year after, I ended up doing food running and got promoted to being a manager.

Rob:
Whoa.

Keleisha:
So I was doing two roles at once. Yes.

Rob:
That’s cool.

Keleisha:
And after he was like, “I can’t have you doing both roles. Let’s just switch you over to managing the restaurant full time.” And for me, again, this is completely new for me. I’m managing staff, everything like that. But I think in being in that position, it opened my eyes to so many different things. I learned a lot about myself, how to be patient, how to come up with solutions, especially being under pressure.
And it also helped me to connect with so many different persons. Because now I am having conversation with customers who are coming in, and they’ll be like, “Oh, what do you do? You’re such an intelligent young lady, blah, blah, blah.” And I’m like, “Oh, this is my background, and I’m looking to get into real estate.”
That was the kicker because when I mentioned that, everyone thought it’s an opportunity for them to tell me that, “Oh, I do this here, I do that there.” So I’m like, “Oh, really? Tell me more.” So it was also a learning opportunity for me even though I had no clue about real estate, but other persons were telling me about their experience and giving advice of things, what I could do.

Henry:
Man, this is fantastic because one thing you said that I love was that when your mom mentioned, “Hey, do you need to come back home?” when she saw you were losing weight and took that as a sign that maybe you weren’t able to feed yourself, this was a plan A, there’s no plan B. This is going to work. And I think that that is the exact mentality that new investors need to have when they’re getting into this space.
Because I think a lot of people try to get into real estate and they try, they give it a go. And trying doesn’t mean success. You really have to have a mindset of, “I’m going to find success no matter what it takes,” because this business is hard. The past maybe three years or four years, it’s been a whole lot easier than it has been now.
But I think people are really starting to see that, “Oh, crap, you can screw up in this business and it will hurt if you’re not paying attention.” And you’re seeing a lot of people quit now because it’s a lot harder than it was a few years ago. And so having that mindset, I think obviously was beneficial to you starting your business. And I think that more people need to take that from your story and have that mindset.
And the second thing is you tell everybody what you do and you introduce yourself with that title, whether you’ve had success in it or not. Because if you introduce yourself as an investor, even if you’ve never done a deal, it’s going to open the door to people wanting to help you and give you the things that that person or that type of person gets.
If you want to be an investor and you say, “Hey, yes, I’m a server, but I am a real estate investor. I’m looking to do my first deal.” And they know you’re waiting tables.

Keleisha:
Oh, my God. Yeah.

Henry:
Real estate investors want to help. They’re like, “Oh, yeah, we got to help. Yeah, let’s help you get up out of here.” And it opens that door.

Rob:
We had Amy Mahjoory on the show, man, I want to say about a year ago. And her thing is she raises money from people, and the way she introduces herself to her Trader Joe’s cashier or her Uber driver or whatever, she’ll say, “Hi, I’m Amy, and I help people get double-digit returns back by real estate.” I think she calls it her 10-second power pitch or something like that.

Keleisha:
Power pitch. Mm-hmm.

Rob:
It’s 13 words and it just gets someone to say, “Oh, what does that mean?” And then you start the conversation. So I think it’s a good lesson for everyone at home if you’re breaking into the business, make it very clear to everyone that you ever talk to or ever meet that you want to get into real estate. Because oftentimes, when someone’s a real estate investor, they want help from a newbie to do free work. And I think that’s a really great way to break into the business.
So with that, I have a quick question about this whole situation. You said that you’re moving up the corporate ladder, if you will, in the restaurant business. Do you happen to remember what you were making back then? What was the income like then, especially compared to what you were earning back in Jamaica?

Keleisha:
A lot of money. A lot.

Rob:
Really?

Keleisha:
Oh, yes. When I got into hostessing, the first job and when I saw the money… So when I just started, I think I was making about 700 bucks a week, and that doesn’t include tips. That would work out to be what my monthly pay would have been back home.

Rob:
Wow.

Henry:
So you were making per week what you would make in a month in Jamaica?

Keleisha:
Yeah. When I told my mom, I was like, “Oh, my gosh.” And then when I started making crazy tips, I was like, “Huh.” But I think the thing was, for me, I was like, “I want to keep making more money, more money.” I was like, “I need to have enough money.” But I was being trapped in the cycle of, “I just want more money.”
And it’s so hard to come out of that cycle because you see all the money that you can make and you’re like, “I’m just going to give it one more season.” And I think the money can be bad, but it can also be good. But I think it got to a point where during the off season, because we’re a very seasonal restaurant, and I was like, “I need to do more with my life. I need to do something else.”
Because I’m the person who I always have things figured out. And I didn’t have a clue at that time what I wanted to do at all. And honestly, persons asked me how I made the decision and I said, “Hey, I asked myself two questions. I love watching HGTV and I love watching Food Network.”

Henry:
Me too.

Keleisha:
I love eating the food. I love it. I was like, “I love eating the food and I will try the food, but I’m not going to cook it.” And I was like, “Well, let’s try this thing called HGTV, let’s try this real estate thing.” And honestly, guys, all I did, like everyone else, I went on Google, “How to start investing in the US?” And BiggerPockets came up, and that’s how I started. Literally, just putting it all in Google. And from there…

Rob:
That’s amazing. And so did you jump into the forums? Were you listening to the podcasts? What were the big moments for you whenever you stumbled upon the BiggerPockets community as a whole?

Keleisha:
I would say the forums was it. But for me, it was so overwhelming because I didn’t know which direction to take, where to start. I didn’t have anyone that I could ask for guidance or anything like that. But I got into the forums, and the forums, I saw a lot of person being engaged, asking questions and then I pivot into the podcasts.
And so I was doing both the podcasts, the forums, and I was also doing, I think… I don’t know if you guys still do, but the Free Guides, Beginner’s Guide to Real Estate Investing. So I went through all those. I was like, “Give me all the free books.” And I went through those, and I think one of the hiccup that I was getting into was I thought I could get a loan.
I was like, “All right, I’m ready to go.” And I’m talking to lenders and they’re like, “What’s your credit score?” I’m like, “700 and this.” They’re like, “Okay. How much money do you make?” And I’m like, “This amount.” They’re like, “Oh, you’re the perfect candidate.” Guys, there’s something on the loan application that always ask you, “Are you a US citizen?” And I’m like, “No.”
And I was like, “But I look good on paper.” They’re like, “Yeah, you’re not a Green Card holder either.” I was like, “Well, if I give you a case number, would that help?” They’re like, “Nope, we need a government issue ID.”

Henry:
So when you say case number, you mean you would apply for the Green Card, but it wasn’t approved yet?

Keleisha:
Correct. So still going through that process. And I think during that time, you know when you think that you got over analysis paralysis and then you think you have everything figured out, but then you hit this other roadblock?

Henry:
Yeah.

Keleisha:
And I’m like, “All right.” But then the crazy thing is a lot of lenders weren’t giving me solutions. So then I went back to the forums because again, the BiggerPockets forum, that was my network of people that I could always go and ask question for. So I went back to the forum and I searched, “How to get a loan as an immigrant?” So I made sure to put that in. And then someone directed me, which is crazy… directed me to an episode with Diego Corzo.

Henry:
My God.

Rob:
Oh, he is so-

Henry:
My God

Rob:
… nice. Yes. Oh, my God, he’s the best.

Keleisha:
Let me tell you that episode, when I listened to that episode, I was like, “Yes, I knew there is a way. I knew I’m not the only person who want to get into real estate as an immigrant.” And everything that he shared, how he got his first investment property, I was like, “This is insane. This is amazing.”
And the fact that he didn’t have a lot of the things that I still had, he had really bad credit score or no credit score at all. He just had money and his passport. And I’m like, “If he did it, then I can do it.” And I remember just DMing after that episode. Spoke to him, talked to an attorney, and that’s how I got my first property too. So shout out to Diego.

Rob:
Diego, I think he’s realdiegocorzo on Instagram. But he does the Tip of the Day. And he found me at BPCON two weeks ago, and I was like, “Can you do a Tip of the Day?” He’s a very nice guy. Highly recommend checking out his content. Very, very nice and a bucket full of sunshine, if you will.

Keleisha:
Yes.

Rob:
So to clarify, Keleisha, what was the takeaway from that episode that made a difference for you?

Keleisha:
So with Diego, he mentioned that he just partnered with his uncle and they just got an LLC. He funded a deal and his uncle was a citizen. And then he ended up just getting a loan using the LLC. When I heard what he explained, I realized that I need to get a partner in order to figure out this financing option.

Rob:
So you come across this episode and you feel inspired, you start working with an attorney. Tell us about your first deal. What ended up happening?

Keleisha:
So first deal, firstly, I did out-of-state investing. So my first deal was in Memphis. And it took a little while for me to figure out Memphis because again, I don’t know much about the States, so I don’t know which states to start from. So BiggerPockets, the person on the forum recommended three states: Kansas City, Cleveland, Ohio, Memphis. So I did a full-blown research, my partner and I at that time.
And we decided to go in Memphis. Took us a year because we were like, “We need to learn the area, learn the zip codes, all that stuff.” Got our first BRRRR deal in Memphis, Tennessee. Should’ve been a BRRRR. We got this deal from a wholesaler because again, we were taught that. I learned that the best deals come from wholesalers. So went on Facebook groups, got connected with a bunch of wholesalers and stuff like that, found a wholesaler.
And I told him, “Hey, we’re in town. Do you have any properties that you can take a look at?” So again, we took the risk and went to the city just to see if we can get a property. Got the first deal. It was in an ideal neighborhood of Memphis that we wanted. And he was selling for about $30,000. And we had our contractors/project manager, which we also found on BiggerPockets. Guys, I’m going to mention them a lot because-

Rob:
Hey, that’s okay. You can plug us. It’s our podcast.

Keleisha:
They’re all my resources. And he walked the property with us and he’s like, “Oh, my God, guys. This is going to need a lot of work.” We’re like, “Yeah, we know. We’re excited about it. We want to do it.” He was like, “Are you guys crazy? You live out of state. This is a full gut.” Roof was missing, only had framing. You could see the plumbing in the floor, everything.
We were like, “No, this is where the money’s at. This is what we learnt about.” So we made an offer for that deal for 19,000. The wholesaler said, “No, you need best and final offer.” We got it for 25,500. So we beat out another investor. And then we use hard money to get the rehab and the purchase.
The great thing, guys, was that we had money saved up because we thought we would need money for the deal. But we found a fantastic hard moneylender who gave us 100% finance for the purchase and 100% of the rehab.

Rob:
Oh, wow.

Keleisha:
So we were like, “Yes, this is going to be the perfect BRRRR that David always talk about being zero out of pocket. This is going to be amazing.”

Rob:
So walk me through this really fast. So you found a wholesaler in Memphis and they had a property that was 30,000 bucks. And you made an offer. This wholesaler was like, “Dude, how are you going to do this? There’s barely walls in this place.” And you guys came in and you offered a lower amount. You settled on 25,500 bucks. And then you actually found a hard moneylender who would finance pretty much the entire thing. And was it a pretty easy-peasy renovation?

Keleisha:
Oh, no.

Rob:
Okay. Yeah, thought so.

Keleisha:
Oh, no. No, no, no.

Rob:
The beginning of this was just too positive. I was like, “There’s no way.”

Keleisha:
No. Trust me, it wasn’t. Firstly, we found out that the plumbing and the electrical was done incorrectly.

Rob:
Perfect.

Keleisha:
When our contractor told us, we were like, “Come on.” We were like, “How much is this going to cost right now?” So we did a couple bids and it came up to 7,000. And I was like, “Please don’t… I don’t want anything else to go wrong.” After that, thank God, everything went smoothly. When we were almost getting ready to do the refinance, this is where the nother issue came in.
You’re not a US citizen, I can’t refinance. I’m like, “Guys, come on. You run our credit,” my partner at the time, “you run both of our credits two times and said, ‘You guys are good to go, and she’ll let you know when it’s time to do refinance’ and then nothing. Now it’s an issue.” So here’s a tricky thing, and I would highly recommend with anyone getting in, when talking to lenders, talk to as many lenders as possible because you always need to have a backup plan because one lender said that, “You guys are good. It’s a solid deal. Let’s do a refinance. We’re good.”
Only find out that my partner, who had his Green Card, “Oh, he needs two years of self-employment tax return.” He only had one. Then I still look good on paper. So remember what I mentioned that Diego directed us on what to do. After speaking with our attorney, we got an LLC. So we got an entity to show that we’re both partners and then that way, we would get a loan in the entity itself. So in doing that, it was still an issue because I could not own more than 25% of the entity. So you see all the roadblocks that keep-

Rob:
Right. And I’m sure you’re finding this out seconds before closing. I feel like that’s how it always is, is-

Keleisha:
All of it.

Rob:
… the lender says, “No, you’re good.” And then you’re at the closing table. They’re like, “Well, actually we need this receipt from your chipotle order in 2013.”

Keleisha:
All the time. And keep in mind this time too, we already figured out we can’t even use the first lender to do refinance. We’re now on month seven. So we had to pay for a hard money loan extension, the renewal fee.

Henry:
Those are cheap.

Keleisha:
Plus the extension. Ah, so expensive. But I’m so glad that hard money allowed us to wrap the interest payment into the loan. So at this time as well, we were not out of pocket for the interest payments at all. And he was like, “If you guys hit to month eight, you’re going to have to start paying the interest payment.”
So I think we still were having hiccups and we had to make a decision in terms of, “Do we really want to keep this house or do we sell?” Because these are now three lenders who said that they can refinance, but they can’t. So we really had to just make the decision and just end up listing that property for sale.

Henry:
So you got a crash course in real estate investing on your first deal. I call that project that you did a fix and flip. That’s pretty much how they go. There’s very few where it’s like, “Hey, we got it and then we painted it and then we sold it for all kinds of money.” But that’s the whole point is you learn lessons along the way. You made pivots, you made the right pivots, you didn’t let anything just stop you.
You always looked at things through a lens of, “How can I resolve this?” or “How can I get this fixed?” And that mindset will always serve you well. One thing I want to ask you that I think people are going to want to hear about is you mentioned that you had looked at three markets. So you went and you got recommendations on three markets. And then you did, I think you said, a year’s worth of research before you dove in.
I think that that’s hugely important that we highlight that you didn’t just go and say, “Hey, BiggerPockets people, tell me where to invest.” And then they say some cities and then you go buy properties there. I think people do that. And so what would you say or what advice would you give to people or what should people be looking at when they are evaluating markets out of state to invest in? What did you guys look for?

Keleisha:
What we did was we just found other investors in the area and asked them to share their experience in terms of, “Hey, why are you investing in using this strategy in that market?” And we would take notes. And if we learnt that it’s a zip code basis or a street by street basis, then we ask those investors, “Which zip codes should we look into and why?”
So when we did that portion of it, the zip code was very heavy for us. Then we looked on, “Is this a market where persons are renting a lot or are they buying?” It came down to Memphis was where you can get the 1% rule, one of the best market where you can get 1% rule. What that mean is if you purchase a house for 100,000, you can get rent for 1,000 or more or even 900 bucks.
So it came down to the 1% rule, it came down to the zip codes, and it also came down to, I think, with Memphis, the big companies. What big companies are there in that market? For us in Memphis, it was Amazon, it was Nike and it was known as the distribution hub. So a lot of big companies stop in the middle of Memphis. So we’re like, “Bingo.” And we decided to choose the zip codes that were super close to Amazon and Nike because those people are going to always need somewhere to live.
So we didn’t go far away. And all of this, guys, we figured it out after just talking to other investors. Each investor told us something completely new, and we just start adding it to… I had a full notebook. You know those section notebooks where you can section it off? Each city had a section. And everything that we learned, sticky note, just making notes. And while we were going along, building our team as well for each person that we spoke to.

Henry:
So you made an out-of-state investing scrapbook.

Keleisha:
Yes.

Rob:
That’s really smart, Keleisha. I think yes, finding some of these big business hubs and putting properties around there, never going to be a bad idea. Can you tell us what the actual total price of the renovation and then the total sale price, so we understand the numbers on this one? Because I know you said you bought it for 25,500 bucks.

Keleisha:
So bought it for 25,500. The rehab amount was 52,000, and then it increased to 59,000.

Henry:
That ain’t bad.

Keleisha:
When we bought this property, we estimated the ARV to be 100,000. When it was time to resell, we listed it for 117, and then we sold it for 125.

Rob:
Hey, there we go. Wow.

Henry:
That’s solid.

Keleisha:
Yeah. We were like, “Yay!”

Rob:
That’s solid. Nothing like coming $25,000 over your initial ARV.

Keleisha:
Listen, I remember when we got the direct deposit, my partner was like, “Oh, my God, we got paid.” And for us just to see that amount, again, from our background, that’s a lot of money from one deal. And we got this drive to be like, “Oh, we need another one. We need to get one more deal.”
Because we saw the money and it looked so good. But I think one of the biggest lesson for me then was to pause and enjoy the moment and soak it all in, instead of want to get to the next step because we tend to forget that a lot. So when I look back on when we just started now, every deal that I close, I take time to soak up that moment and celebrate it.

Rob:
That’s amazing. That’s amazing. So you pull a $40,000 profit on the first property, rough numbers there.

Keleisha:
Roughly. Mm-hmm.

Rob:
So you did one more fix and flip and then you shifted to short-term rentals, if I understand that correctly.

Keleisha:
Yeah.

Rob:
What were your biggest lessons from fix and flips in general?

Keleisha:
Oh, it’s not for me. It gives me anxiety.

Rob:
That’s a great lesson.

Henry:
That’s a fantastic lesson.

Rob:
That’s the best lesson you could learn. That’s a lesson I’m learning right now every single time I get into a flip.

Keleisha:
Listen, it’s too much anxiety. I like anything that is buying whole, minor rehab. Plus, we were doing all of this remotely too. So I’m like, “No way. I’m not doing that again.” And just the fact that you list it, you’re like, “How soon am I going to sell it? Are we going to get any offers?” I was like, “No, that just gave me too much anxiety.”
But it was also too that everything that you do, you need to have two exit strategies. And that didn’t hit me until this year to be like, “Everything that you’re doing, make sure you have two exit.” And when I look back, I feel like every single deal, I always had to pivot. Every single deal. I can’t think of any one deal where I started with one strategy and ended with the same strategy. I was like, “Okay, this is a trend. This is completely a trend.” Stick to your criteria.

Rob:
I think the important thing is that you tried it, right?

Keleisha:
Yes.

Rob:
You tried it, you did it, you found a solution, you pivoted. I think the most important skill you can learn as a real estate investor is how to pivot instead of sitting there and floundering. And if you can pivot quickly, you can be successful in whatever type of real estate you learn to do, so long as you have multiple exit strategies, which I think is a very important lesson for people.
So you found out fix and flips not really your thing. You shifted into short-term rentals, and I believe you have three. How are you funding these now? And how do you keep an edge in this particular market?

Keleisha:
Ooh, creative financing and private money all day every day.

Rob:
And what do you mean by creative financing?

Keleisha:
So creative financing, meaning you’re taking over the property subject to or seller financing. So I’m going to go back a little bit before knowing that I was one, using private money or two, structuring these creatively. When we got the first property in the Smoky Mountains, we got a DSCR loan. And with the DSCR loan, you need about 20% to 25% down. That time, for us, it was about 130,000 altogether that we needed.

Rob:
And really fast, for everyone at home that doesn’t know what a DSCR loan is, it’s a debt service coverage ratio loan. And it’s basically where they use the income of your property to underwrite instead of using your personal DTI and credit and everything like that.
There’s a few other parameters, but essentially they’re using the income, the projected income of that property to qualify you for that loan. Sorry, I wanted to clarify that because I know a lot of people, they just hear acronyms sometimes. So carry on.

Keleisha:
So we used the DSCR loan and then we had money from our fix and flip, but we were still short. So because we were telling friends and family what we were doing and what we were hoping to do, we went to them and we were like, “Hey, we want to get this property, but we’re short about 50 to 60,000,” just putting it out there. And then two persons from our network decided to give us money.
So even though they’re friends and family, we didn’t know it was private money. So what we did, we were like, “Hey, can you just lend us this money, and we will just give you a percentage of the cash flow?” We were just throwing things out there. We didn’t do a promissory note, a mortgage deed or anything like that. We were like, “We’ll give you a percentage of the cash flow for anything that we make, and whenever during the slow season, you can go to the cabin and stay there.”
That was the agreement. That’s it. So that was the first creative deal that we got. And then after now I just buy most of the properties, creative financing and then whatever I need, closing cost or decorate, furnishing costs, I raise that amount in private money and get the deal funded. So most times I’m zero out of pocket.

Henry:
I’d be willing to bet too that a lot of what made this research of learning how to do creative finance and subject to financing more maybe achievable for you is because of your background and you knowing, “I need an alternative strategy.” And so when your back’s against the wall, there’s no other option. You’re going to go figure out, “How can I get this done?”
I’m not saying that to discourage people from going to learn how to do these things. I’m saying that from the perspective of put yourself in that mindset, what if you could never go to a bank again? Would that mean you’re never going to be a real estate investor? If you think from that perspective, “Okay, I’m going to pretend I can’t go to a bank for my next deal. So I got to go and learn how would I buy a property if I couldn’t.” And that just helps you sharpen the tools in your tool belt.
So I think that that’s super cool. You also are pivoting or have pivoted to more of a mid-term rental strategy. Is that correct? And so how is this mid-term rental strategy going for you? And how are you either growing or expanding that? What have you learned that’s making you push to that direction?

Keleisha:
So full disclosure, I haven’t done my first mid-term rental yet. I’m literally still going through that process.

Rob:
Cool.

Keleisha:
The reason being trying to pivot is that I think I got spoiled with the Smoky Mountains. I got so spoiled.

Rob:
As we all do.

Keleisha:
Because for the entire year, it’s a great market. I’m always booked. And then when I got another property in San Antonio, I was like, “Hmm, I’m not used to with just this weekends type of thing, and my calendar is open during the week.” So I always heard about mid-term rentals. So what I did was I had a really good friend of mine in one of my mentorship, and I asked her about… She’s the expert again. This is why I go to persons who are doing it. I don’t want to figure out everything.
So I was like, “Hey, this is what I’m trying to do. What are some things that I can do?” And she’d be like, “Okay, go on ALE, list a property there. Go on Furnished Finder, list a property there.” Did all of that. Not working. I’m like, “Okay.” Spoke to someone else. They’re like, “Hey, put ‘Extended Stay’ in your listing in the title.” I was like, “Okay, I’m going to try that.”
So in doing all of this, I went back and look on the algorithm. I’m like, “Ooh, I put ‘Extended Stay’ in my title. My views are going up. Okay, still no bookings.” But I would go in these Facebook groups and just put, “Hey guys, I have this property in San Antonio. If anyone needs a mid-term rental or have connections, just let me know.”
I did that and someone was interested in the booking. Here was the worst thing. My calendar was open for one month. Guys, one whole month. And then I got a two-day booking. Right after that, someone is interested for a whole month. And I’m like, “Really?”

Rob:
Yeah. It doesn’t work exactly like that. When you’re doing the short-term rental, mid-term rental hybrid. It is one of those things where it’s best to focus on the mid-term rental strategy first and then fill your spaces with short-term rental. That’s the ideal scenario.
Unfortunately, it doesn’t always work that way. And the thing that hurts with mid-term rentals the most is it’s an amazing business niche within this market, but the vacancy does hurt.

Keleisha:
Oh, yeah.

Rob:
The vacancy is a lot bigger than it typically is with a short-term rental.

Keleisha:
I’m like, “Mm-mm.” And I think that was a tough part, and I was so close to canceling that Airbnb guest. But I was like, “Nope, I’ve worked too hard for a Superhost. I’m not even going to cancel unless the guest is sure that they’re going to book for 30 days.”
So we did more research to verify a few things like, “How soon are you looking to move? Does this budget work for you? Do you have X? Do you have a pet?” All these things. We verified all of this. We had back and forth conversation. But guess what? The guests stopped responding. So they were never interested again. So I was so happy I didn’t go and cancel that one booking that I had.

Rob:
Yeah. I think that’s the philosophy I really ingrain in everybody is to never cancel a booking ever, no matter what. I’ve had to cancel bookings because I had a glamping tent that got blown away by a monsoon. But other than that, there’s no reason to do it. Because people really do create their vacations around your Airbnb, and if you cancel on them, it could be a bummer on their vacation.
So what we try to do is we have multiple units nearby, and so if we get a mid-term rental booking, we will just reach out and say, “Hey, we’re going to move you to this unit. It’s a little different.” And then if they get mad about it, we’ll give them a little discount.

Henry:
So you’re saying the only time you’ve ever canceled on anybody is because their actual property blew away? Where they were going to sleep was no longer there?

Rob:
That is correct. And Airbnb has a very strict policy. They’re like, “You can never cancel.” And then I was like, “Yeah. My tent is literally not there.” And then they’re like, “Can you send photos?” And I was like, “Do you want me to send you a photo of air? It’s not there. It’s gone. Listen to me.”

Keleisha:
That’s hilarious. Oh, my gosh.

Rob:
Well, listen, Keleisha, I think it’s awesome that you’re trying… You’re the pivot queen, and I know that you’re figuring things out. And this is actually one of my favorite episodes in that there are a lot of things that you’re still figuring it out. A lot of people come onto this and it’s hard to really understand. But I think most people are in your position right now where… I’m still figuring stuff out too. I try different things all the time.
I’m throwing darts at the wall and I’m trying new business models and I say, “Hey, maybe this isn’t my thing, but at least I tried it and at least it reinforces that I should really stick to the things that I’m really good at and the things that I’m passionate about.” So a lot of lessons to be taken out of today’s episode. But in general, what actions do you think you consistently take that have made the biggest difference in your investing?

Keleisha:
One of them is understanding how to underwrite deals. So when I got into real estate, I always heard Brendan talk about, “Analyze a deal every day.” And I’m like, “Yeah, I’m doing that. I’m not getting it. Because I don’t know what the rehab is, I don’t know what closing costs are. I don’t know all those stuff.” And it was very discouraging.
And I think until one day I was just analyzing a deal every day, and that’s when the light bulb went off and I was like, “Oh, my God, I get it.” He said, analyze a deal every day. So that way, you understand what numbers affect what. What that mean is you will know, “Okay, if I want to increase my cash flow, do I need to increase my income or do I need to reduce my expenses? If I want to increase my cash-on-cash return, do I need to reduce my total cash invested or do I need to also reduce my expenses?”
So the point of analyzing the deal every day is to understand what numbers affect what, so then you can master napkin underwriting. Another thing that I do for my short-term rentals, I would pretend as if I’m a guest, because I always had guests tell me, “Oh, my God, I love your place and this is what I experienced.” So I’m like, “I want to experience it myself.”
So I would book any of my properties. I don’t tell cleaners, I don’t tell anyone. And I pretend as if I’m the guest. And when I get to the house, I follow the check-in instructions. Everything that a check-in instruction tell me to do, I’ll do that. The first thing you do when you go to a hotel or Airbnb, you guys walk around because you want to see what this house has to offer. I do the same thing.
I walk in, I want to know what it smell like, I want to know what feeling I get. And then I’m seeing all these switches, for example, and I’m like, “Oh, I wonder where this switch goes.” And I’m just testing it all out. And in doing those things, I know that, “Okay, I need to label my switches.”
I get to the living room, I see two remotes. I don’t know which remote belongs to the TV. I was like, “Ooh, I need to label the remotes to say living room remote.” Those simple things, when you put yourself in the guest’s shoe, it sets you apart and you know what you need to fix without even depending on your team as much because you’re going to see things that your team won’t.

Rob:
Smart. It’s always a very gratifying and disappointing experience because you realize all the little things that get moved around and everything over the course of a few months or six months, and I think that’s a really important lesson to go and walk your properties. I know it’s a novel concept and it’s hard to do, especially at scale.
But it is something that can be a little eye-opening and can really be pivotal to the optimization of your portfolio. Tell us where you’re at today. Are you feeling gratified about the steps and the risks that you’ve taken? How are things with your mom? Have you been sending her money and showing your success? How’s that all been going?

Keleisha:
So it has been going really well. I’m very grateful for it. But one of the biggest thing that I’m learning is that I’m planting the seeds. What this mean is everyone thinks that when you get into real estate, you’re going to be making a ton of money when you get in. No, you are not. You guys will hear Rob mention at the beginning that I’m making $5,000 net. Yes, but that’s not going in my pocket. It’s either going into reserves or it’s using to pay off debt that I used to get in to all these mentorships and courses and all those things.
You’re going to be broke, honestly. You’re going to be broke. You’re going to feel like giving up. I think I’m going through one of the toughest time now in my career. And what’s pushing me through is that I keep looking back to be like, “You’ve come this far, you can’t give up now. It’s just a phase. Just go through it.” And each time I’m just figuring it out.
And I think as well, it’s just how can I get ready for the next season of my life. I’m not the type of person to have a two-year goal or a three-year goal. I have 90-day goals. When that 90 days come, I create a whole new goal. So right now, for me, I just want to finish the year strong where my properties are cash flowing and I’m able to pay off all my lenders.

Henry:
Okay, awesome. So we understand that you recently had a full circle moment with that same podcast guest who showed you that this could be possible for you. So can you tell us a little bit about that?

Keleisha:
Yes. When I listened to Diego’s episode in 2019, we were going back and forth. And in 2023, who would’ve thought? In August of 2023, I got a message from Diego. When I saw his DM popped up, I screamed. You guys scream over celebrities. BiggerPockets people are like my celebrities. I get starstruck. And when Diego messaged me and invited me to speak to his Mastermind about capital raising, I was like, “No way.”
I sent him a voice memo, I started screaming. I’m like, “Dude, you’re the person who got me to my first investment property because you shared your story.” 2019, I never thought that would’ve happened. A girl from Jamaica, I’m cleaning tables, and you hear about real estate and wealth, you’re like, “Oh, you need a family. It’s going to take 10 years, 20 years.”
And just to see, even after quitting my job last year and seeing how much I’ve accomplished in a year, it’s mind-blowing. It just goes to show that anything can happen. It’s like with you guys as well. When we met at BPCON, I saw you guys. I’m like, “Oh, my gosh.”

Rob:
That’s how I get when I meet Henry too.

Keleisha:
I was like, “Oh, my gosh.” And it’s just showing that so much things can change when you start putting yourself in the right rooms, you start putting yourself out there and telling people what you’re doing and sharing your story and your journey. It’s like the universe starts sending things your way that you never thought would happen.

Rob:
I think that’s what real estate is all about, taking small steps. It’s a marathon, not a sprint. And I think you’re right. I think it’s really, really crazy to see what you can accomplish in a year. I think there’s a phrase that’s like, “We overestimate…” Hold on, hold on. Maybe you know it, Henry. “We overestimate what we can do in a day, but we underestimate what we can do in a year.” Does that sound about right?

Henry:
Yeah.

Rob:
And I think that’s true. And we get so caught up in this daily grind of working, and we’re in meetings all day and there’s never real progress day to day. And you look back and you’re like, “Whoa, what I’ve done in the last year, two years, three years, is a really life-changing thing and it’s the thing that I wanted more than anything else in this world when I started.”
And I think you’re the perfect encapsulation of that idea. So thank you so much for bringing your story, and I think a lot of people are going to be inspired by it. I know I am. Can you tell us a little bit more about where people can learn about you online and connect with you if they want to reach out?

Keleisha:
Yes. And I also wanted to say I always had this vision in my head when I started listening to the podcast. I’m like, “One day I’m going to be on this podcast.” I had even an image in my head of what I’ll be wearing. “I’ll be wearing a black shirt.” But I’m not wearing a black shirt today.
But I’m grateful for just being here and sharing my story. And you guys can find me on Instagram, Facebook, LinkedIn @keleishacarter. So everything, all social media platform, my website, my YouTube channel, it is all my full name, Keleisha Carter.

Rob:
And how do you spell Keleisha, just for everyone at home?

Keleisha:
K-E-L-E-I-S-H-A. And last name, C-A-R-T-E-R.

Henry:
So first of all, I want to congratulate you. I want to congratulate you on-

Keleisha:
Thank you.

Henry:
… quitting your job and finding your success in real estate. You’re netting 5K a month with your current portfolio. That’s amazing. And it takes a lot of hard work.

Rob:
Amazing.

Keleisha:
Thank you.

Henry:
I want to say that I am proud of you for the leaps of faith and risks you were willing to take to better you and your family’s lives. And I think that that’s commendable. And I also want to say I think there’s a lot of power in having those visions. It’s funny, I also had a vision of being on the BiggerPockets Podcast. I’ve told the story before, but I have. And I still, to this day, have a vision board on my phone. And one of the tiles is a BiggerPockets Podcast tile because I wanted to be a guest on the BiggerPockets Podcast.
And when I started, when I actually got word that I was going to be a guest, I had listened to tons of episodes, and then I had stopped listening to episodes. And so I was like, “I need to get a refresher on how this goes.” And so I started to listen to episodes again before I was going to get recorded. The very first episode I started to listen to again, before I was going to be on the show was Diego’s episode. And that’s where I first got-

Rob:
Wow.

Keleisha:
Wow.

Rob:
Really?

Henry:
Yeah, 100% absolutely true.

Rob:
That’s amazing. Well, for anybody that wants to go and listen to that episode with Diego Corzo, it’s episode 352. And if you’ve got a story just like Keleisha’s or you’re working through your own thing and you think you have something to share with the BiggerPockets community, you can go and fill out a form over on biggerpockets.com/guest, if you want to share your story with our team. And then maybe you’ll be selected to come and be an inspiration for everybody that listens to our podcast. Henry, if people want to find you online, where can they go?

Henry:
Best place is Instagram. I’m @thehenrywashington on Instagram, or you can check out my website. It’s www.seeyouattheclosingtable.com.

Rob:
Cool. You can always find me over on Instagram or YouTube. I can’t even plug my own stuff. You can find me on YouTube or Instagram @robuilt, R-O-B-U-I-L-T. I did spell that right, didn’t I? Don’t be laughing at me.

Henry:
You nailed it that time. Congratulations.

Rob:
Okay, good. I nailed it. I can do this. Look, when David’s gone, there’s a lot of pressure to perform. But we’re grateful to everyone at BiggerPockets and for all you guys listening. If you want to leave us a five-star review, head on over to the Apple Podcast platform or wherever you listen to your podcasts, and tell us what you thought about today’s episode.
But other than that, thanks everybody for listening, and we will catch you on the next episode of BiggerPockets. Welcome to the BiggerPockets. Oh, no. No, no. Wait. That does not count. Don’t take this away from me. Welcome to the…

Ben Harburg of MSA Capital says more effort is needed to restore confidence in China and thinks the fears in China’s property market are excessive.

One of the noteworthy trends in the latter half of the 20th century is the gradual recognition that we, as human beings, bear the responsibility of stewardship for our planet. This realization places a significant responsibility on all individuals, particularly those who wield influence.

One of the ways in which you can have a huge positive impact on the future is to be one of the innovators who can take what’s technologically possible and make it commercially viable.

Another noteworthy point is that sustainability is the area in which governments are arguably offering the most funding for innovation. Fundraising is one of the big challenges for early-stage projects, so being able to rely on alternative funding sources could make a big difference for small teams and projects.

That’s why in this article we cover 5 promising clean technology areas in which we believe there are opportunities for innovative startup projects.

1. Renewable Energy Platforms:

Renewable energy, particularly solar and wind solutions, is a cornerstone of clean technology. The global shift towards sustainable energy sources creates a compelling opportunity for startups to contribute to this green revolution.

А good example in this niche is SunPower, a company excelling in solar energy solutions. Its success stems from addressing the increasing demand for clean energy alternatives.

With governments worldwide investing in renewable initiatives and consumers increasingly favoring eco-friendly choices, startups entering the renewable energy space are met with a growing and supportive market. At the same time, making clean energy technologies commercially viable without governmental help is a huge challenge, which means that starting a business in this niche might be easier than making it self-sustaining.

2. Smart Grid Technologies:

Efficient energy distribution is pivotal for a sustainable future, and smart grid technologies offer a pathway to optimize energy management. Startups in this niche leverage data analytics and advanced sensors to enhance the efficiency of energy delivery. GridPoint is an exemplar in this space, providing intelligent energy management solutions.

The imperative for organizations to reduce their carbon footprint and enhance energy efficiency positions smart grid startups as key players in the evolving landscape. Early-stage ventures have the opportunity to pioneer cost-effective and scalable solutions that contribute to a more intelligent and sustainable energy infrastructure.

3. Energy Storage Innovations:

The rise of renewable energy sources underscores the critical need for advancements in energy storage. The problem is that most sustainable energy generation technologies are dependent on outside factors (most commonly weather). This means that at certain times they generate more energy than needed, and in certain – less. Adequate energy storage is crucial to link painlessly the highly varying energy supply and demand.

Tesla’s Powerwall – a home battery storage system, is a good example of the impact that energy storage innovations can have.

As the demand for renewable energy rises, startups focusing on efficient and cost-effective energy storage would be some of the best-positioned organizations to contribute to the wider adoption of clean energy.

4. Waste-to-Energy Conversion:

Transforming waste into a valuable energy resource is both environmentally crucial and economically viable. Startups delving into waste-to-energy conversion address two pressing issues simultaneously—waste management and sustainable energy production.

The immense volume of organic waste globally presents an ample opportunity for startups to pioneer scalable and efficient waste-to-energy solutions, aligning with the increasing emphasis on circular economy practices.

5. Eco-Friendly Transportation:

The transportation sector is a significant contributor to carbon emissions, presenting a substantial opportunity for startups focusing on eco-friendly alternatives. Companies like BYD and of course Tesla, exemplify success in this niche.

Of course, manufacturing vehicles is extremely capital-intensive which makes the field a hard one for brand new projects to enter. That said, the electric vehicle ecosystem has a lot of needs that could theoretically be satisfied by innovative early-stage projects. For example, fleet management solutions, last-mile delivery solutions, educational platforms, and charging infrastructure software are all software solutions. Hence, they have a much lower barrier to entry.

Ashley:
This is Real Estate Rookie Episode 342. My name is Ashley Kehr, and I am here with my co-host Tony J. Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we’re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today we’re switching it up just a little bit. You guys don’t get a bunch of questions from the Rookie audience today, but you get to hear from me from my experience. And Ashley’s going to interview me today to talk all about private money lending.

Ashley:
Yeah, we’re going to do a deep dive into everything and anything you need to know about being a private moneylender or getting money from a private moneylender. We’re going to talk about putting together the contract, the amortization schedule, what kind of document you need to file with the county clerk to make it official. We’re going to go through those documents that you need. We’ll give a little tax advice as to things you should consider for your taxes.
And then Tony also tells us how much money he had to pay out of pocket to a private moneylender when his flip didn’t sell. So it’s a jaw dropping amount of money, Tony, so make sure you listen for that. And I think it’s a great example as to the kind of character and trait that you should look for when you are investing with somebody too. And we definitely talk about scenarios where you can protect yourself and also what kind of standards you should have for the person you’re investing with and also as the private moneylender.

Tony:
So today we’re going to dive into one of my secret weapons in my real estate business, and that is private money, raising private money from other people, using that money to fund your deals. It’s been an absolute game changer for my ability to transact on deals and I’m able to scale at a rate that I wouldn’t have been able to if I was just using my own capital. So today we’re going to talk a little bit about what a private moneylender is, how to set those relationships up, how to navigate the water to private money lending, and hopefully give you a roadmap for doing this in your own business as well.

Ashley:
Tony has a lot more experience with private moneylenders, so we’re going to be focused mostly on Tony’s story today to kind of guide you guys and give you an all-inclusive kind of guidebook as to what private money is and how to actually get a private moneylender. So I’m going to be leading the questions today, Tony will be my lovely guest on the show.
First off, I want to start with who was your first private moneylender? When did you take that leap? Because you have talked about your first properties a lot. You went to that bank in Louisiana, they funded the purchase price, the rehab. What kind of made that transition from using bank financing to private money?

Tony:
Yeah, that’s a great question, Ashley. Maybe we should even start just with what the differences are between traditional bank financing, hard money loans, and then private money. Traditional bank financing is what most people think of when they think of going to get a loan. You’re going to your local credit union, your local regional bank, your big national bank, and you are applying for a mortgage with that institution. So that’s traditional banking.
And then you have hard moneylenders which focus more so on the real estate investor, and that’s where a lot of people who are doing the fix and flips or BRRRs are going with the hard moneylender. Hard moneylenders are typically also institutions, significantly smaller than some of the big banks that you’re going to be working with. But typically, these are businesses, right? These are people who make a living, right? These are businesses who generate revenue and profits by lending money out to investors. And hard money’s a good in-between because you’re going to be able to get debt on properties you definitely wouldn’t be able to get a loan on from Bank of America, but it’s typically a little bit more expensive as well. You’re going to pay a higher interest rate, you’re going to pay more fees. And typically hard moneylenders are a bit more rigid in what they want from a borrower and from a property, but it’s a good stepping stone, right? But as a rookie, honestly, sometimes hard moneylenders are tough to get into. They’re going to want more capital down, higher interest rates, and things of that nature.
And then the third type is the private moneylender, and to me this is like the holy grail of getting your deals funded because there’s significantly more flexibility when you’re working with the private moneylender. Typically, when we say private money, we’re talking about an individual or maybe one or two people that are working together. But the benefit of going with private money versus hard money is you get to really kind of have a say in what those terms look like. So how much down payment, if any, the interest rate, the term, all of that is negotiable when you’re talking with a person as opposed to doing it with a business. So at a high level, that’s kind of the differences there.
Ash, I’ve never used hard money. Have you used hard money for any of your projects before?

Ashley:
Yeah, I’ve used one hard moneylender, and I actually did a line of credit with them where I was able to get up to I think it was $1.5 million line of credit. So I was already basically approved to borrow that amount from them. I still had to bring each property to them. They would vet the property and then loan me the money, and it was the max $1.5 million. I couldn’t have more money out than that with them. So I actually did it for three properties, and honestly it was a nightmare. I hated it compared to private money or even bank financing.

Tony:
Was that the hard moneylender that you had recommended to me, the one that … I think I remember this, and yeah, if I recall the person, I remember some headaches with that one. But to go back to answer your other question, Ash, about what caused the transition. As we were building out the business, we realized that we needed to go after properties that needed some work and the ability to get turnkey deals, it was drying up a little bit. We couldn’t find as many good deals just sitting on the MLS that were turnkey, ready to go. So we were kind of forced into rehabbing properties.
So once we made that decision to start going down that route, I definitely didn’t want to go the hard money routes. I said, “Hey, let me tap into my network and see if I can find some folks that might be willing to fund these deals for us.” And luckily, I already had some folks that I knew that were successfully leveraging private money. So you ask a few questions, kind of understand how to set things up. And I had a really, really good escrow officer that I work with here in Southern California, and she honestly educated me quite a bit on the process as well. So it was really just out of necessity that we needed to go down the route for private money.

Ashley:
Yeah. For me starting with private money, it was working for another investor and I managed a lot of his companies. And one of the companies was kind of at a stalemate where it wasn’t really doing anything, and it was collecting interest from loans on vehicles. So this company had created with another business partner actually almost like a loan shark on vehicles. So if you couldn’t get a loan on your car, you could come to them and they would charge you 15 to 20% interest on your car loan and you would pay them. And there was no activity anymore. They had maybe four loans that were still being paid over the amortization, and there was a line of credit with this company.
So I approached him and said, “What if I paid you more interest then your line of credit and I this money to purchase this property?” And so that was my first private moneylender and still one of my private moneylenders today. But very, very casual as in the agreement of that private money. As far as the documentation and stuff like that, there was no actual lien on the property. It was just we had a note payable and a contract between the two of us for that. And that was just because of the trust we have built up. If I was to do it with anybody else, we would do it the property way that Tony is going to explain today, the proper way to do it and not this way.
So Tony, let’s start off with what are some of the documentation that you should actually use when you’re putting together private money?

Tony:
Also, you said something important Ashley I just want to circle back to, but the trust piece. And I definitely do think that that plays a role in how this relationship looks. If you’re lending from someone that you’ve worked with a dozen times, maybe you don’t need to go through all the hoops that I’m going to talk through today. We have a mutual friend Cam and Lexi who flip out in the Midwest, and I know that they typically, their step is a little bit different than mine, and I think a little bit more lax. Amy Maggiore, who’s been on a few episodes of the Real Estate Podcast, I think it was like 636 was her first episode, but if you go back and listen to Amy’s episode, I’ve spoken with her and a lot of times she’ll take the money directly from the private moneylender. So everyone kind of does it differently. So as long as you’re not breaking laws in your state, don’t feel like you have to do it my way. My way is just one approach. It’s worked well for me, that helps me sleep better at night with the way that I have it structured.
But one other thing that makes me think about too Ash is that the trust thing is important because the private money relationship is a partnership. It is a form of a real estate partnership, which if you haven’t picked up the Real Estate Partnerships book, hit over to biggerpockets.com/partnerships. And we actually do have a chapter in the book where we break down the differences between a private money partnership and an equity partnership. So if you want to understand what more of those nuances are, you can jump into the book. We just know there are differences.
But anyway, going back to your question Ass, Ash, about … Sorry, did I just call you [inaudible 00:10:14]?

Ashley:
If you did, I didn’t notice.

Tony:
You guys can cut that or just leave it in.

Ashley:
Or leave it.

Tony:
Yeah, and just bleep it out. But going back to your question, Ash, so there’s I guess really three main documents that I create whenever I’m entering into a private money partnership. We have the promissory notes, we have the deed of trust, and then we have the amortization schedule. And I’ll break down each of those in a little bit more detail.
So first is the promissory note. This is basically the outline of what this loan looks like. So myself and the private moneylender are entering into an agreement about the amount of money they’re going to give me. How long are they going to lend that money out? What’s the term of that note? What is it going to cost me to borrow that money, so what’s the interest rate? What happens if I need to extend? What happens if I’m … Whatever rules you want to put into your note with that person, that’s what goes into the promissory note.
So for us, like I said, typically we’ll have the actual loan amount, so someone might loan us 350,000 bucks, so that’s the note amount. Then we’ll have the actual terms. So how long can I hold this money from this person? How long are they loaning it out to me? We typically set our terms to be about 12 months, not about, to be exactly 12 months. And then we usually have an option to extend, and if we have to extend, there are some incentives for the lender. We always have the interest rate, and that’s an annual interest rate. So say that someone lends us … I’ll use round numbers here. Say that someone lends us $120,000 and they’re doing that at a 10% interest rate. That means over the course of an entire 12 months, they’re going to get back 10% or 12,000 bucks, which would be 1,000 bucks per month in interest that they’re accruing. So that’s how we set up our notes is that it’s an annual interest rate that they’re getting.
And then we also have the terms of repayment. So we typically set our notes up so that we’re not making any monthly payments during the life of the loan. We pay the private moneylender back at the end of the project, that’s either when we sell or refinance the property. But during the actual rehab itself, we’re not making any payments. And again, that’s something that we’re able to negotiate with the private moneylenders. If it was a hard moneylender, it might be different, but private moneylenders, we have that flexibility.
And then we also talk about the … I guess I’ll get into this later with the amortization schedule, but it’s also like how is this loan being amortized or how is this loan being structured from a principal versus interest? Our loans are always … we’re not paying down any of the principal balance during the life of the loan, so that interest is just accruing. So if someone gives us money, their principal balance remains the same, and then we’re just adding interest on top of that every single month. So that’s kind of how we set it up from the note perspective.

Ashley:
Yeah. So with the note, is this something your attorney is drawing up? And what is your recommendation for should you get a sample from somebody else? Should it be specific to your state, the private moneylender’s state, the state the property is in, or does it not matter?

Tony:
Good question. So I had my attorney draft up the note for me. Typically, she’s the one that does it. Actually on a refinance we just did, my escrow company did it for me. So I’d say go to an attorney in the tenure 10-year state or maybe in the state where the property’s at. That probably maybe makes more sense. I don’t know. I don’t know which one is more important, either your residence or the property’s residence. But my attorney is the one that usually drafts it up for me, and I actually have just a template that’s like fill in the blank. So every time I have a new deal, instead of me going back to my attorney, I’m just filling in the specifics of that deal. What’s the amount, what’s the term, what’s the interest rate? That’s typically all the information I need to update. And then that person’s name. So the attorney’s the one that usually drafts it for me.

Ashley:
And what about your name? Are you putting your personal name? Are you putting the LLC of the property? Do you have another company that’s going on the document?

Tony:
Yeah, so we usually put the name of the LLC on the note and usually because it’s our LLC that owns the property as well. So yeah, but we put our LLC on the note. I’ve only had one instance where a lender asked for a personal guarantee where if for whatever reason the entity itself wasn’t able to pay the loan, that I would then become personally liable. But outside of that, typically it’s just our LLCs that are signing for the property.

Ashley:
So you want to move into that amortization piece as to how you’re defining the terms of it. Are you making monthly payments? Are you paying at the end? Is it interest only? What are some of the options you can do as far as that repayment term and how are you putting that into the contract?

Tony:
So I’ll go into the amortization schedule and I’ll finish off with the deed afterwards because the deed kind of ties it all together. But we always create an amortization schedule. So if you’ve ever purchased a home, in your loan, that big loan packet they made you sign, somewhere in that loan packet is an amortization schedule. And that schedule basically says over the term of your loans, say you typically have a 30-year fixed mortgage, you’re going to see monthly payments stretch out over 30 years. And then every single one of those lines for every single month will show the payment amount that you’re making and then of that payment amount, what amount is going towards your principal pay down and what amount is going towards your interest payments. And you guys can just Google like amortization schedule, you’ll see an example of this. But with a usual mortgage, with a traditional mortgage, when you make a payment, that payment every month again goes towards both your principal and a portion goes towards your interest.
When we set up our private money deals, these are typically interest only. So it means we’re not making any payments that go towards principal reduction. So at the end of the term, the 12-month term, we’re paying back the entire initial principle that someone gave us, plus the interest that’s accrued. So it works out well for us because we don’t have to make any payments during the actual loan, but it also works out for the private moneylender because their interest is based off of that principal balance position isn’t getting smaller. So they’re getting a nice big payday back at the end, but that’s typically how we set it up.

Ashley:
Okay. So then the deed of trust, explain why that’s important and how you include this as part of the documentation.

Tony:
Sorry, just actually one other thing on the amortization schedule. I would recommend that everyone include that when they’re talking with their private moneylenders, just for sake of clarity, because it’s very clear both in the notes, but then people can also see it visually in the amortization schedule that they’re not getting any payments during the life of the loan and they can see how much interest is accruing on a monthly basis. So they know, “Hey, if this project goes four months, here’s the interest payment that I’m getting back in addition to my principal. If it goes eight months, here’s the interest payment that I’m getting back in addition to my principal.” So it really lays it out clearly upfront for the private moneylender before they make a commitment to investing with you. It just kind of reduces any ambiguity there.

Ashley:
I do have a couple recommendations. So you mentioned just Googling the amortization. Bankrate.com has a very user-friendly one to generate it, just put in $100,000, 5% amortized over 10 years, and just see what it spits out. There’s also an app, Easy Calculators, which also has the amortization in there for a loan too, or all different types of loan products. You can play with the numbers, even for seller financing, to try to put an offer together. Those are some great resources there.

Tony:
And I’d take the easy route. I just made a simple Excel Google sheet template, so every time now I just go in, I update the loan amount, the interest rate, when it starts, and I’m just able to drop that into the note every time.

Ashley:
So everybody always says to me, “Lady in the streets, but a freak in the spreadsheets,” and here’s Tony, “Here’s a spreadsheet I created.”

Tony:
But it worked out really well for us, right?

Ashley:
Yeah, yeah.

Tony:
So then the third document is the deed of trust. And if you guys go back and listen to Pace’s episode, he does a really good job of breaking down the difference between the deed, the title, the mortgage, these are all separate things. So when we have a private money relationship, we are on title for the property. My LLC, like Tony Robinson’s home flipping LLC, is listed as the owner of that property. We’re then listed as a person that’s on the note, so we owe the Jane Doe $350,000. But then when you look up the county records, even though we are listed as the owner, the person who has the note has a lien against the property. So their private money note is shown as a lien against the property in the same way a traditional mortgage is listed as a lien against your primary residence.
And the way that that happens is through the deed of trust, and it has a different name in every state. In California, it’s called the deed of trust. I think the general name is a mortgage security document. So every state has some sort of mortgage security document. In California, it’s called a deed of trust. So that deed of trust basically takes the promissory note, the debt that that person is giving us, and it ties it to the property. It ties it to the property. And what happens is that if for whatever reason, some worst case scenario, say that we are unable to complete the rehab or we’re unable to sell the property, we’re unable to refinance, or we’re unable to fulfill our duties to repay that promissory note, that deed of trust then gives the private moneylender the right to foreclose on the property, take it from us, obtain ownership, and then they can go out and fix it themselves, sell it, do whatever they want with it. But the deed of trust is that document that really solidifies everything and gives the private moneylender protection in case we ever stop making payments.

Ashley:
Okay. So now you have disclosed all of this, you’ve presented it to your private moneylender. Before you’re putting these documents together, to kind of backtrack, are you agreeing on these terms before you actually put the documents together? Or is this part of your presentation as to, “Here’s the terms I’m offering,” and you are giving them everything right there? Or is negotiating taking place beforehand?

Tony:
Great question, Ashley, and it is usually the latter where we’ve already kind of set up the terms that we feel will make sense for this deal. And honestly, our terms are pretty much the same always. The only thing that will change is the interest rate kind of given where interest rates rather than general, right? When the market was at a 3% interest rate, I think we’re offering folks 10. Now that we’re at 7, 8%, right, we’re offering a little bit more than that, but we typically present to people, “Hey, here’s the amount that we’re looking to raise, here’s the interest rate that we’re offering, and here are the terms of the deal. And if this is something that you’re interested in, reach back out and let us know.”
And what I’ll usually do is when I send out the information, I’ll send basic details of the property itself, and I’ll always include a short Loom video of me walking through both the promissory note and the deed of trust so that way people who maybe haven’t been private moneylenders before have an understanding of what the process looks like. So a lot of the breakdown I just gave right now, I have that in a Loom video. So I’ll send out the details of the flip of the rehab that we’re looking to get funded along with that Loom video. And then I’ll say, “Hey, if you’re interested, reach back out to me and my team.”

Ashley:
As far as the contract, so when the lender agrees already to sign, who do you recommend they put the name of the contract in? So we talked for you, you’re putting it into your company name, but what about for the lender? What is your recommendation? Should someone put it in their personal name? Should they have their own LLC?

Tony:
That’s a good question. No one’s ever actually asked that. And I’d say all of our lenders are doing this in their personal names. So all the notes are their personal names. When you look up on the county records who has the lien, it’s their personal name. So yeah, everyone’s sending it through their personal name. And again, I think that’s because most of the folks that I work with, these aren’t professional private moneylenders that do this a ton. So I don’t know, maybe that’d be a good question for Amanda Hahn or some of our legal folks to see if there’s an incentive from a tax perspective to run it through an LLC as opposed to their personal name. It could possibly be because interest collected I think is considered as active income, so if you’re running that through an LLC instead that’s taxed as an S corp, you might get some favorable benefits. But again, we probably need to pull Amanda Hahn on to get some insight there.

Ashley:
And one other thing we need to talk about too is if you are paying somebody interest, especially if you’re doing it out of your LLC, is that sending them a 1099-INT at the end of the year so it’s reported as to how much interest you paid them, and then it has to be claimed on the lender’s taxes too that they received this income of the interest too. So take into account that you will have to most likely pay somebody to do this. Everybody always forgets to factor into their numbers the bookkeeping, the cost of the LLC, the cost of the tax return.
And also if you’re using private money, we’ll have to file the 1099s and you can do them online, they’re pretty fairly easy to use. But there’s also software that you can pay to do it or you can have your accountant or CPA do that for you too. But something to really think about is make sure that you are filing those when you are using private money and sending them to … If you are doing it in your personal name, I don’t think you have to issue a 1099 though.

Tony:
I did ask my CPA and she said that we didn’t have to and that it was more so up to the lenders, scout’s honor, to report that on their personal tax return. So we haven’t issued any 1099s in our business.
But it does bring up an important point actually about the entity piece. So we have a separate entity. I guess let me take a step back. So the tax advice that I’ve been given is that you always want to separate your rental income from your active income. So rental income, short-term rentals, long-term rentals, all that is rental income. And then things like flipping, wholesaling, that’s all active income. So we have one entity for all of our rentals, and then we have a separate entity for our active income, so our flips. I don’t want to be wholesale as much anymore, only did that a few times. Our events, our coaching program, our media stuff, all that’s in one entity. And again, the reason why was because apparently you don’t want to mix your active income and your passive income into one entity because some of those benefits of the passive investing go away if they’re co-mingled in the same entity with your active income. So from the borrower side, that’s typically how we set it up as well.

Ashley:
Okay. So one of the other questions I have is regarding insurance. So are you putting these private moneylenders as a mortgagee on your insurance policy you would do when you have a mortgage on the property?

Tony:
We are not. Yeah, so we just factor in the cost of the insurance policy. We usually buy a year upfront and we’ll just make sure that that’s done during escrow as well. So the homes are always insured, but some lenders, like real lenders, like actual institutions-

Ashley:
Banks, yeah.

Tony:
-They’re going to want to make sure … Right, they’re going to want to make sure that you have that they have proof of insurance and if they don’t, they’re going to put the lender approved insurance, they’re going to force that onto your property. Again, that’s the benefit of going with the private moneylender is that they’re just more so focused on the return. They’re trusting us to make sure that the asset is insured. And that’s typically how we set it up.

Ashley:
Yeah. And part of the mortgagee side of it too is being listed as the mortgagee to make sure that the bank gets paid out first so that the check actually goes to that and not you too. So I was just curious if any of your private moneylenders had that requirement at all or asked for that, but I think it’s something a lot of people probably don’t even think of or they have that trust that … Is there anything in your contract that states if the property were to burn down or there was the loss of the property, that the insurance proceeds would go to the private moneylender or a portion of it would, or it’s a complete loss, they don’t get anything? If you will rebuild and they have to keep their money in the deal until you rebuild? Anything like that? I’m thinking all this off the top of my head because I’ve never thought about it either that way.

Tony:
Yeah, no, yeah, it’s a good question. So we don’t have anything in the promissory note specifically that dictates that, but here’s the thing that I always tell all of our private moneylenders, it’s like all it takes is one angry private moneylender to go on their Instagram, go on their TikTok, go on their Facebook, in the Facebook groups, wherever and say, “I lent money to Tony J Robinson, and it was the worst experience ever.” And now our ability to raise capital for all of our future deals is significantly impacted. So I’ve always shared with every person that we’ve done a deal with what’s most important to me first is my reputation, and at the end of the day, I’m always going to do whatever I need to do to make our private moneylenders whole.
So we had an episode earlier this year where I shared one of our flips where market shifted, we have a buyer that backed out. By the time we found that next buyer, things just weren’t working out how we wanted them to. We ended up having to refinance the property and it was a flip where we were supposed to make six figures on the actual flip and it ended up turning into a refinance where I had to put in over $200,000 to make sure that we pay back our private moneylender on time. So I’m always willing to take the hit myself personally to make sure that we’re mixing the private moneylenders whole so that way I can continue to raise money from people down the road.

Ashley:
Well, what if everyone isn’t as ethical as you Tony? If you are lending the money, would you suggest somebody ask that question as to what happens if this happens? The place burns down, or even in your situation, maybe let’s go into that. How are some ways that you can protect yourself as a private moneylender? So in your contract, what are some things in place where people who are lending you money feel safe and secure?

Tony:
First thing I’ll say is that I think that’s why a big piece of a successful private money relationship is the preexisting relationship where it’s like you’ve met this person a couple times. You’ve maybe seen some of their track record already. You’ve got a good sense of who they are as a person. If someone just walked up to you and you’ve only had one conversation at a meetup, maybe don’t give them $500,000 to go fund their very first flip. So I think have a little bit of not common sense, but have a little bit of, I don’t know, vetting this person and vetting that to make sure that this is someone that you want to get into bed with. But I think if a private moneylender really wants to protect themselves, just look at what a hard moneylender does because hard moneylenders do this as a true business and they’ve perfected the art of protecting themselves because that’s their first priority.
So hard moneylenders typically want down payments, right, they’re not going to let you fund the entire thing. Whereas for us, with our private moneylenders, that’s a requirement for us. We want to make sure that whoever we’re working with trusts us enough to fund the entire deal. Hard moneylenders typically charge higher fees or maybe don’t even work with new investors at all, right? If you’ve never done a flip, some hard moneylenders don’t even want to look at you, right because they’re like, “Hey, there’s too much risk inherent in that.” So I think if private moneylenders want to protect themselves a bit more, just go fill out an application for a hard moneylender and see what all those things are that they’re looking for and see what you can pull into your own private money relationship, and it’s a great way to steal from someone else.

Ashley:
Okay, let’s keep rolling with questions to be asked. And this one would be from somebody lending you money. What happens if I want my money back beforehand, so before you sell the flip or before you refinance?

Tony:
So it’s a question that’s probably one of the top two questions that come up. And so the first one is like, “Hey, what if I want my money back sooner?” Second question is, “What happens if you can’t sell this property for what you think?”
So on that first piece, like what happens if I want my money back sooner, the way we’ve set up our notes is that once it’s inside, you can’t touch it until the project’s done. And we communicate that very clearly upfront to say like, “Hey, this isn’t like a stock that you can just kind of trade in and trade out whenever it’s convenient for you. Don’t invest this money if you aren’t comfortable with the idea of it being locked up for at least 12 months. If you know you’re going to need this money back in four months, don’t do the deal. We’d rather have someone tell us no upfront, then get into the deal and down the road say, ‘Hey, we want to change things up.’” So we communicate that very clearly upfront that you can’t.
And then like I said, that second question that always pops up is, “Hey, what happens if you guys can’t execute your business plan?” And like I mentioned earlier, our goal is to always make our private moneylenders whole, and whatever means we need to do to make that happen, we’re willing and ready to do. So like I said, that last flip, we came out of pocket over 200,000 bucks to make sure we completed that refinance and paid that person back. And if we need to sell it for a loss, we’ll do that. Luckily, we haven’t had to do that yet, but whatever steps we need to take, that’s what we’re willing to do to make sure that those lenders get paid back.

Ashley:
And hopefully everybody that lends money to an investor is an investor like you where they’ll do everything to get paid back.

Tony:
Well, just real quick Ash because we also had … I wish I could remember what episode, maybe our producers can help us out. But we had, gosh, was it JP Desmond I think was the one that lost the money on those flips?

Ashley:
Wasn’t it like half a million or something? It was a lot.

Tony:
Yeah, it was a good chunk of cash that he had and his flip kind of fell apart, and he basically just refinanced or restructured that debt into a longer term. So I think he was paying them back over three years, even though the flip had already fallen apart. So there are always ways, again, assuming you’re working with someone of high character, that they really does want to make sure that they protect that relationship, there are always ways to try and make that person whole again. Ideally, best solution is you go into it, you knock it out, everything works perfectly, and everyone gets paid back on time and on schedule.

Ashley:
And that was Episode 279 if you want to hear that story. Okay. So now Tony, what happens if you can’t sell? You’ve kind of alluded through this throughout the episode. What are some maybe restructuring ideas somebody can put together or different extra strategies they could maybe present to the private moneylender?

Tony:
I guess I’ll give you two different scenarios. So I already gave you the first one where we basically just refinanced the property ourselves and came out of pocket a significant amount of cash to get that refinance done. But we had a second rehab where we didn’t want to complete the refi because rates had just gone up and the amount of cash we’re going to have to put down plus the increased interest rate, it just didn’t make sense for us. So we were able to negotiate with that private moneylender to extend his note for another year, give him a slightly higher interest rate. And even though the monthly payment was going to be higher than what it would’ve been if we refinanced, our overall profit at the end of the year would’ve been higher because we didn’t have this big cash outlay to complete the refinance while still giving us time to hopefully see what rates do over the next 12 months. So he was happy and willing to refinance because it meant that he’s still collecting that interest, and for him, that’s better than it just sitting in a bank doing nothing.
So that was the second option. It’s like if you approach that private moneylender and if they’re not in a rush to get those funds back today, then just give them that option and say, “Hey, let’s extend for another XYZ,” whatever period you want to pitch to them, see if they’re open to it, and then you just redraw the documents to make sure that everything’s lined up with those new terms of that deal.

Ashley:
Okay, Tony, this all sounds wonderful, but how do you find these people to give you your money?

Tony:
Great, great, great question. So there’s two different ways to go about it. Actually honestly, you should be doing all these things, right? So let me kind of break it down, right? I’ll talk the kind of in-person activities and the digital activities.
So from an in-person perspective, what I think every aspiring person that wants to raise capital should be doing is they need to build their network. And not in a self-motivating way, but just understanding that the more people that you know, the more people you are able to provide value to, the higher your chances, the higher your opportunities of finding the right person to fund your deals. So say that I’m a rookie starting from zero. The very first thing I would do is look at my local city, look at my local area, and try and find some of those real estate meetups that are happening in that area.
And I would go to as many of those meetups as I can for as often as I can, and not necessarily with the intention of pitching everyone right away to say, “Hey, will you be my private moneylender?” But just talking to folks and understanding what their motivations are, understanding why they’re looking at potentially … What motivated them to come to this meetup. And what you’re looking for are people who understand the value of investing in real estate, but don’t necessarily have the time, desire, or ability to do it themselves. That is your ideal person to be a private moneylender because it means they’ve got the capital, but maybe they don’t want the headache of managing a rehab. That’s just not what they want to do. They don’t really like the idea of tenants and shopping for deals and giving 10% to a property manager doesn’t make sense, so they’re still wanting to use real estate to give them those good returns, but they don’t want to do the work themselves. I think that’s the ideal person for you to work with.
And you can kind of pick up on those things based on the language that people use. If someone mentions that they have a stereotypical high-paying job, doctor, lawyer, I don’t know, engineer, software engineer, anything that’s super high six-figure salary, but they’re like, “Man, I work 60 hours a week and I barely have time for my wife and kids, but I really want to do this real estate thing.” Those are cues without them saying, “I’ve got a ton of capital,” that you can pick up on to say that. Or people that maybe have … For example, I have folks, some of our private moneylenders that invest using their 401ks and they’ll basically take a loan out against their 401k at a relatively low interest rate and then re-lend that money out to us where we’re paying them 5X what they’re paying on their 401k loan. That’s another cue to look for.
So I think the goal is to get out to these local meetups, network with people, understand what their motivations are, and then when you meet that person where goals might align, it’s a simple question of like … Sometimes I find deals and maybe this is a good fit for you, maybe it isn’t. But sometimes I find deals that I present to some folks that they’re able to fund. “Is that something that you might be interested in? If I find a decent deal, would you mind if I send it to you just to give it a look over? And if it’s not a good deal for you, no sweat, but maybe there’s a chance we can work together?” Super unabrasive, very disarming, but just float that idea. And they might say, “Yeah, sure, send it my way,” or they might say, “Ah, I don’t really think I want to do that.” No harm, no foul. So that would be my first step, Ashley, is going to some of those local meetups and building your network out that way.

Ashley:
I want to touch on one more thing is I feel like having a private moneylender relationship, it’s almost like a testing ground for partnerships. So maybe even before jumping into creating an LLC or a joint venture agreement with someone, maybe that’s actually your first kind of baby step is to where they are just lending you money on the deal and they’re just a debt partner instead of giving them any kind of equity or ownership in the deal, to kind of test just how that relationship goes with the person before you go ahead and build out a huge real estate portfolio with the person not knowing much about them.

Tony:
Yeah, I couldn’t agree more Ashley. And honestly, two of our private moneylenders have transitioned to becoming equity partners for us, and the majority of our private moneylenders have done multiple deals with us. We’ve had a few that were one and dones like, “Hey, I lent you money, but now I went out and bought my own property.” But the majority we’ve done business with multiple times, and it is a really good way to kind of build that relationships with folks. And it’s really cool because if we’re in a private money relationship and you’re really good about letting us do what we’re supposed to be doing and you check in at the beginning of the deal, we check in with you at the end of the deal, and you’re just all thumbs up, that’s a good sign to me that you’ll probably be a good equity partner as well.
But say we do a private money relationship and you’re calling me every other week saying, “Hey, Tony, the floor, is it in yet? Hey, Tony, is the back-splash in? Hey Tony, the cabinet’s in? Hey Tony, what’s the paint color?” That’s you kind of stepping into my world of work and not necessarily the person that I want to partner with on an equity deal. So I think the private money relationship is a really good stepping stone to potential long-term equity relationships. Or it could just be, “Hey, this is going to be a good private money relationship. We’re both going to be happy. This person’s going to continue to work their high paying W2 job, and I’m going to continue to use their excess funds to give them a better return than what they get leaving it in the bank or put it in a CD or wherever. And it’s a mutually beneficial relationship for all of us.”

Ashley:
Well, Tony, thank you so much for the wealth of knowledge for everyone today. I’ve thoroughly enjoyed having you as a guest on the podcast. Thank you guys so much for listening to this week’s Rookie Reply. I’m Ashley at Wealth from Rentals, and he’s Tony at Tony J. Robinson. Don’t forget to check out our new book at biggerpockets.com/partnerships. We’ll see you guys with another guest.

Speaker 4:
(singing)

The travel industry is inherently diverse, with a myriad of niches and evolving consumer preferences. This diversity creates fertile ground for early-stage startups to thrive within specific niches within the broader TravelTech landscape.

Let’s dive into five areas where startups are identifying gaps in the market, leveraging technology to enhance travel experiences, and catering to the increasing demand for authenticity, personalization, and sustainability in travel.

1. Travel Experience Platforms

One of the most significant shifts in travel is the move from destination-focused journeys to experience-centric exploration. Startups are capitalizing on this shift by creating platforms that curate unique travel experiences. For example, Travelstride connects adventurers with a myriad of experiences, from cultural immersions to thrilling adventures.

New innovative startups that are able to tap into this demand have a promising space to innovate because of the multitude of niches within this space. Startups could focus either on locations or on types of experiences in which they are experts to add the most possible value for travelers.

Example business idea – a hyper-local adventure hub: a platform that connects travelers with hyper-local adventure guides who curate experiences based on the traveler’s interests. These guides, sourced from the community, offer personalized insights and take travelers on offbeat journeys, providing a genuine taste of the local culture and landscape.

2. Peer-to-Peer Travel Exchanges

Peer-to-peer travel exchanges are gaining momentum as the sharing economy grows. Platforms like BeMyGuest enable travelers to connect with locals for authentic experiences, fostering cultural exchange and transforming the way people perceive and engage with travel.

The success of these startups is rooted in the desire for more meaningful interactions and a departure from standardized tourist experiences. Travelers are increasingly seeking local insights, and startups facilitating these connections are well-positioned for growth as they have the opportunity to redefine the travel narrative by facilitating meaningful interactions between travelers and residents.

Example business idea – a cultural immersion marketplace: a platform where locals can offer immersive cultural experiences to travelers, from traditional cooking classes to guided tours of hidden gems.

3. Personalized Travel Planning

Personalization is a driving force in the modern digital landscape, and travel is no exception. Startups leveraging artificial intelligence to deliver personalized travel planning are disrupting traditional models. AI is the main driving force behind this trend, as it allows scalable technology to cheaply understand the context and needs of the individual traveler – be it budget, interests, or time constraints.

Despite the relatively recent shutdown of Utrip, the niche is likely to see a lot of growth in the coming months and years thanks to the increasing number of developers building apps on top of the OpenAI API. In our experience, being on the cutting edge of a new technology is one of the best ways to ensure impeccable startup timing, which is one of the most important startup success factors.

Example business idea – collaborative travel planning app: an app that allows groups of travelers to collaboratively plan their itinerary. The app considers each traveler’s preferences and constraints, facilitating a democratic and personalized travel planning process. This ensures that everyone in the group has a say in the itinerary.

4. Digital Nomad Support Platforms

With the rise of remote work, digital nomads are redefining the way people approach travel.

Startups are emerging to support this growing demographic with platforms offering resources such as co-living spaces, coworking memberships, and networking opportunities.

Nomad List is a prominent example, providing valuable information on remote work-friendly cities. The success of such platforms stems from the increasing trend of individuals choosing to work from anywhere, and startups facilitating this lifestyle are tapping into a burgeoning market.

5. Adventure and Expedition Planning

The promise in adventure and expedition planning startups lies in meeting the demand for transformative and offbeat travel experiences. Modern travelers seek more than conventional sightseeing, and startups organizing extreme adventures cater to this desire for unique and thrilling escapades.

A good example is tourradar – a travel marketplace offering extreme experiences, from treks through unconventional landscapes to challenging expeditions.

Business idea – AI-powered custom expedition builder: a platform that allows adventure seekers to build their customized expeditions. Users can choose destinations, activities, and difficulty levels, and the platform connects them with local guides and necessary resources to bring their unique adventure to life.

If you’ve spent any time researching investing in real estate (or stocks), you have probably heard people throw around the phrase: “Time in the market is better than timing the market.”

The old saying originated from Ken Fisher, a billionaire investment analyst and financial advisor, and while Ken was actually referring to the stock market with this now-famous quote, the same concept is very much applicable to real estate investing as well.

Many investors are tuned into cycles enough to where they find success with timing the market, but spending more time in the market is a simpler, more sustainable approach for the average investor.

Why Try to Time the Market?

The primary draw of attempting to time the market lies in the potential of maximizing the profits and cash flow on your deals. By purchasing a property at a low point in the market cycle and selling at a high point, investors will capitalize on significant returns compared to if they were to buy in the middle of a market cycle.

In addition to the upside in profits, a lot of investors are able to mitigate risk when they buy their real estate deals during market downturns. If you can successfully time the market and buy deals close to market lows, you will protect your portfolio from substantial losses.

Risks of Trying to Time the Market

For any investor who thinks they have the ability to time the market, it can come with great risk. None of us have a crystal ball, so this strategy is impossible to execute consistently.

The real estate market is influenced heavily by interest rates, job markets, and other conditions unique to local economies. Most of these factors are outside of an investor’s control and are very challenging to forecast.

To time the market successfully, you need an unemotional approach and a little bit of luck. Anybody who attempts to time the market should not expect consistent results.

Hypothetical Scenarios

To fully understand the impacts of buying at different points in a market cycle, let’s mock up a couple of scenarios. We’ll use the Las Vegas market for this example, as it saw some of the most drastic price swings over the last couple of decades.

Scenario 1: Timing the market perfectly (buying in 2012, selling in 2022)

This example represents an absolute best-case scenario, where you buy at the absolute bottom in one of the hardest-hit markets and sell at the most recent peak.

The median sales price of a previously owned single-family home in Las Vegas was $118,000 in January 2012. Meanwhile, the median sale price of a previously owned single-family home in Las Vegas was $405,000 in August 2022.

Had you perfectly timed the bottom and bought a home in January 2012, and then perfectly timed the top and sold the home in August 2022, you would have realized a 243% return on your investment over approximately 10.5 years. 

Scenario 2: Timing the market horribly (buying in 2006, selling in 2012)

Let’s take a look at somebody’s failed attempt at timing the market. They bought a home at peak pricing, assuming prices would continue to go up, and then sold the home at the bottom. 

The median sale price of a previously owned single-family home in Las Vegas was $315,000 in June 2006. Meanwhile, the median sale price of a previously owned single-family home in Las Vegas was $118,000 in January 2012.

Had you perfectly timed the top and bought a home in spring 2006, then perfectly timed the bottom and sold a home in January 2012, you would have experienced a loss of 62% on your investment over approximately six years.

Scenario 3: Time in the market

In our final scenario, let’s consider somebody who bought 20 years ago and who has simply held on during the waves of the market. 

The median sale price of a previously owned single-family home in Las Vegas was $184,300 in Q3 2003. The median sale price of a previously owned single-family home in Las Vegas was $410,000 in Q3 2023.

Had you bought a home 20 years ago and ignored the several drastic market cycles that followed, you would have realized a 122% return on your investment over 20 years.

Time Horizon

Time horizon is a huge factor here, as the general direction of real estate has always been up.

Looking back all the way to the year 1960, the median home price in America was only $11,900. Today’s home prices, according to the Case-Shiller Index, are about $311,000. So, buying a home in 1960 and holding on to it through 2023 would have generated a gain of over 2,500%!

For the most sophisticated investors, timing the market absolutely can supercharge your returns. But for real estate investors as a whole, each investor needs to carefully consider their financial goals, risk tolerance, and investment horizon to come up with a strategy that makes the most sense for them.

The most successful real estate investors should focus on buying real estate deals at below market value, regardless of market conditions. This way, if they mistakenly buy a property close to a market peak, they will have some equity left in the deal as they weather a downturn.

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