How I don’t pay for my deals...

The day you realize you can buy any real estate deal you want, without worrying about where the money is coming from, is a pivotal moment in your business.  This ‘freedom’ and realization allows you to focus fully on making sure you are purchasing and executing on great deals, making it all about numbers and operations, and not having to spend energy on sourcing money or worrying whether or not you have enough money to make the deal work.  Today's newsletter is about how to achieve that moment for you.

Once again, I personally write these.

Inside the Trenches:

When I was 20 years old, I bought a course on wholesaling real estate with an American Express charge card.  I had 30 days to pay it off, got an extension to 60 days…then failed to make any money and went into collections.  Six months later (ish) I finally did some deals and made enough money to pay off all my credit card collections and get back on track financially.  Needless to say…money…at that time…was a MASSIVE barrier for me to do real estate.

Fast forward to today (20 years later, wtf…) and I am completely convinced that money is only a barrier for doing real estate (specifically with single family) if:

• You are still highly inexperienced, and it’s very noticeable (we were all here at one point)

• You don’t have a rich aunt or rich family member who loves you to death…

• You have not spent any time (or very little time) and focus on the many many ways to fund a deal

• You run your business like a hobby…and not a business…and its noticeable even if its not intentional

• Too busy working IN the business and not ON the business, so there is no time to focus on funding and capital 

• You just don’t know how to get more funding and capital for deals

• You really really don’t like people, so your network is very thin (which makes real estate very challenging to do, sorry extreme introverts)

• And lastly…which I hope this is not you…you have a bad reputation

I have personally experienced each thing on this list, except for the networking part and bad reputation part, and I can say that pretty much anyone can overcome each of these situations (except for the bad reputation…).

(Quick disclosure: For the purpose of this newsletter and to reduce confusion, I am only going to be writing about how to source capital for single family property investments, specifically for you addicted house flippers and deal junkies out there.)

My ability to fund my deals without worrying about the money did not happen overnight, but this is mainly because I didn't really know what I was doing at the time.  I have a tendency to learn through pain, and I have a hard time giving up on things.  I learned though that in real estate there are many ways to ‘structure’ the funding on a deal, here are some of the most common ways I did it early on:

• Hard Money Lenders - most of us know about these guys

• Joint Ventures (JV) - this is where I would typically trade equity for money.  Essentially I would find someone with cash and ‘partner’ with them on the deal if they paid for it.  This can be structured in many ways, but typically you are just splitting equity (50/50 or some sort of split like that).  JV’s was a key part of my business early on in my career between 2011 and 2015.  

• JV + Hard Money Lender - Sometimes the person with the money, doesn’t always have enough to cover the entire deal.  In this scenario I would JV with a person, borrow money from the hard money lender, and have the JV partner pay the down payment and make payments on the loan.  This can be structured many different ways and it gave me a TON of flexibility early on in my career.  Once again, this was a strong part of my funding strategy earlier in my career and is still viable today (except I am now usually the one with the money on the JV).

• Traditional Funding - you are getting money from a normal bank.  Believe it or not, I pretty much never did this until I started keeping rentals (which wasn’t until 2016…! Big regret there…should have started sooner)

• Private Money Lenders - this is a private person who instead of ‘partnering’ on a deal with you for equity (like the JV), they instead lend their personal money to you for an interest rate and sometimes points (like a hard money lender).  My entire business and investment future changed the moment I figured out how to find and work with private money lenders…

(On May 20th, I am doing a online workshop on how to source and work with Private Money Lenders, check out more details HERE)

In the summer of 2015, my career changed forever.  I had over 20 projects going on at the time (insane, I know), and I was not stopping.  I had developed a strong (positive) reputation in the Seattle/Tacoma area.  

During a closing that summer, I had the real estate attorney on the deal ask me if I ever was looking for more capital to borrow.  I of course said as cool as I could “yeah, sure.”  To which they said “alright, do you want me to introduce you to this client of mine who likes to lend his money to experienced investors like you?  He does it with one other person and he wants to lend more.”  I of course calmly said as cool as I could “yeah, sure.”

Not long after, I met a 83 year old gentleman, at a Starbucks to discuss borrowing money.  This guy sold a furniture business back in his 50’s and since then played golf everyday, was spry and super sharp, and liked to invest his money into real estate developments and lend as a private lender to small investors that could turn his money regularly to give him a decent return.

At this meeting, I proceeded to show him on my tablet all my current projects in rehab, what I bought them for, what I planned on spending (or have spent already), our weekly pictures and QC process, how we track our rehabs, showed him past projects and the numbers on them, and pretty much broke down my business simply (all from my Dropbox and project management software I used at the time).

Despite wanting to show him more about how I run my business, he stopped me and said “Ok, I get it, you run a real business, I am good to lend to you, just email me when you need money on your next deal.”  Within a few months after that Starbucks meeting, I owed this guy personally just over $4 Million in loans…the rate?  10%.  Which at that time in 2015, was an AMAZING interest rate since most hard money at that time was 12-14%. The terms…100% of purchase AND rehab with accrued interest (means interest payment is due at payoff, not monthly)..O.M.G. Game changer.

Ten years later, I still talk to this guy regularly and still do some loans with him, yes he is still alive at 93 and still just as spry.  Today, some of his kids are even investing with me.

A single private money lender changed how I structured all future deals, even to this day. Since that meeting, I learned to focus on finding private money lenders, gain their trust, give a solid return on their money and keep a strong reputation along the way.  

Did I get lucky with this guy?  Maybe…but I was ready for that luck to hit.  I was ready to present my BUSINESS (not my hobby).  I was ready to show exactly how their money would be used, and how I have handled my money and projects so far.  I was ready to be professional, legal, and transparent.  I was ready to show them exactly HOW I would pay them back.  I was ready to build their confidence that I WOULD PAY THEM BACK.  Most importantly, I could prove to them exactly how I would do what I said I would do with their money (via my dropbox, past projects, management software, systems, etc)

You see…there are only a few objections that private money lenders have, when you meet them and the NUMBER 1 OBJECTION/QUESTION is always the same, even if its not spoken:

• “Do I trust you enough to be able to pay me back no matter what?”

That’s it. Will you be able to confidently pay them back their money, even if things go wrong.  If you can prove that, then 99% chance, you will have a private lender in your corner (so long as they like you…which that’s on you to overcome).

So how do you find all these amazing people with excess money to lend?  How do you gain their confidence?  How do you structure your business to be able to show them what you do effectively?  What terms are best when negotiating with them?  How do you handle it all legally?  

Good news.  I will be putting on a workshop, online virtually, May 20th where I will be breaking down step by step how to:

• Source Private Lenders and Build Rapport

• Present the Opportunity to invest/lend

• Address and overcome objections and concerns

• Negotiate terms

• Set up your team

• Legal set up and process for executing the terms

• And much more

Additionally, for those of you that join me on my online workshop May 20th, you will also receive the full recording for future reference, live interaction with me during the workshop (this isn’t just a webinar), and a Private Money Credibility Toolkit where we give you templates to help present your deals, set up terms and gain confidence with private lenders.

Take the time to work on your business, I hope to see you May 20th online with me.

-Tarl Yarber