How Profit First Impacted David Dodge’s Favorite Business Model, The BRRRR Method

December 29, 2022

Episode 142: How Profit First Impacted David Dodge’s Favorite Business Model, The BRRRR Method

The Profit First REI Podcast

December 29, 2022

David Richter

Summary:

Acquiring assets with little to no money is a real challenge for first-time investors.

We’ve got David Dodge, a full-time investor for eight years, who shares with you the BRRRR method and how to use this strategy to acquire using little to no money and doing it rapidly.

Listen as David shares how Profit First impacted his business and why the BRRRR method is his favorite strategy in acquiring properties.

Key Takeaways:

[00:43] Introducing David Dodge

[02:21] David on What Excites Him the Most about Real Estate

[04:00] Introducing the BRRRR Method

[05:42] How BRRRR Method Works

[14:14] Money Struggles David Experienced in the Past

[19:58] David Shares His Addiction to Investing

[29:00] Keys to Success of David in Real Estate

[34:06] Connect with David Dodge

Quotes:

[16:04] “Anybody that is gonna do due diligence for you is selling you.”

[27:52] “The richest people I know are experts of tax because they know how to avoid it.”

[29:20] “Failing is part of the process. The equation to success is a bunch of failures and a bunch of trying, then you get the success.”

Connect with David:

Website: https://www.wholesalinginc.com/

Tired of living deal to deal?

If you are a real estate investor or business owner tired of living deal to deal and want to double your profits, head over here to book your no-obligation discovery call with me. Either I or someone from my team will hop on a short call with you to get clear on your business goals, remove any obstacles holding you back, and map out a game plan to help you finally start keeping more of the money you work so hard to make. – David

Transcription:

David Dodge:

So one of the things that your book has definitely helped me out with is put money aside Profit first, of course. So that way you have it, you don’t spend it on marketing or operations or overhead or whatever it is.

Outro:

If you’re a real estate investor who’s sick and tired of living deal to deal, then welcome home. Hear from everyday real estate investors just like you, and discover how they’ve completely transformed their business by taking a profit First approach. This is the Profit first for REI podcast, where we believe revenue is vanity. Profit is sanity. It’s time to start making profit a habit in your business. So here’s your host, David Richter.

David Richter:

We have a great episode today on the Profit First REI podcast with David Dodge. He talks about the benefits of the Burr strategy, gives a lot of the benefits, breaks it down for you and what it can actually do for you. That’s a big part of that first section. So if you’ve always wanted to know what the heck is Burr, what does it stand for, and what benefits can I receive from it, that’s a good one to elicit. He admits his addictions on this episode. And if you wanna know what those addictions are, then please Eli on you might have some of these addictions as well. Two, he hates paying taxes and he talks about some of the things that he mitigates his task tax liabilities. He also gives his success keys, which one of ’em I a hundred percent agree with and cannot agree with more than you.

Please listen to this episode. You can take some keys away from this and get more money in your business and keep more money. Have a great time listening. Here we are. It’s a private first Aria podcast. Again, have David Dodge here. You might know him. He’s on a lot of different podcasts. He’s done a lot of things in real estate investing as well too. I’ve been on a couple of the ones with him as well. So David, it’s great to have you on the show here where I’m interviewing you, so just, just a refresher. I’m interviewing you on this one.

David Dodge:

<laugh>, so that’s right, David, thank you so much for having me,

David Richter:

Man. <laugh>. Yeah, well thanks for being here. I know that you provide a lot of value to a lot of people and with not only that you teach them, but like you do it as well too. Like you’ve got passive income from your stuff. So I always love having people that do the thing that they teach about and showing other people how to do it successfully. I also like people who like the Profit First model. That’s why I wanna make sure we talk about that today and like getting and diving into that. But I wanted to ask you first, what excites you about real estate? Like why real estate and like what keeps you going now that you’re in the real estate investing world?

David Dodge:

Yeah, absolutely. So what excites me about real estate is passive income. It is being your own boss. It’s the ability to take something that’s really old and outdated and maybe even dangerous in a nuisance and make it pretty again. Um, I love to provide housing to, you know, for individuals that, you know, can’t afford to buy their own home. So we rent properties out. Um, I love helping sellers get out of tight spots. I love helping other investors find their next good deal for a rental or a fix and flip. Um, so really, I mean, just all things man. Like, I’ve been full-time at this for about eight years, David, and you know, it’s my passion. Love fixing and flip and love wholesale and love, you know, buying rentals and building the portfolio. Um, and, but you know my favorite strategy of all real estate investing used to be wholesaling. Um, and we still do that, but now my new favorite strategy is using the Burr method to acquire rental properties with little to no money using that strategy. So that’s really what I’ve been up to. You know, I’ve been investing for almost 20 years. It’s probably about 18, you know, give or take.

David Richter:

I stop you real quick. Yeah, please. What is Burr, just so people know, if they’ve never done a real estate deal before, can you explain what that stands for? Because I could see people being like, what the heck is bird? Is he live in a Place?

David Dodge:

Yeah, so Burr, the bur method, I didn’t create the Burr method, I didn’t invent it, nothing like that, but I have written a book on it. It’s called the Burr method. So you can find that online. Uh, but what the Burr method is it’s an acronym, it’s B with four R’s behind it and what it stands for, the acronym stands for, B stands for buy, and then the four R stands for rehab, rent, refinance, repeat. So what it is, it’s just a strategy that us real estate investors use. Um, and my definition of this strategy, so if I was to say what’s the definition of the Burr method, the simplest way for me to describe it would be, it is a strategy that real estate investors use to acquire assets using little to no money and doing it rapidly.

And that’s really the cool part is that this is really scalable, right? So that’s what the acronym stands for, that’s my definition of it. Uh, but essentially it allows us to go out and buy rental properties, rehab those properties, get them rented, take them to a bank and refinance them. And in the end we can do it with little to no money. In fact, I’ve done about 200 of these bur deals over the last five years. And the average amount of money that we leave in a rental, in the end, we’ve gotten down to $1,200.

David Richter:

Wow.

David Dodge:

So now these are houses that average about 150 K and we are putting anywhere from 20 to 40,000 into the rehab. So the way that this operates and the way that this works, so that, that’s kind of the what, let’s talk about the how. Right? I’m sure people are curious.

David Richter:

Sure.

David Dodge:

The how, here’s how it works. Here’s how you acquire a rental with little to no money. And again, we’re averaging about 1200. You find a deal. So we, you know, the first letter in the Burr method is to buy, but I like to elaborate on that a little David, and just say, you gotta gotta buy it at a discount. Cuz if you don’t, it’s gonna make this strategy difficult. Not impossible, but difficult. So if you can find a good deal on a property and you can buy it at a discount, boom, you’ve done that, that’s great.

Now, we don’t like to use any of our own money. And again, that’s the whole purpose of using this strategy is to acquire assets. We’re little to no money, but we gotta buy the house before we do anything else. So that’s where our private and our hard money lenders come in. So we network at RIAs and we find the hard money lenders and we build great relationships with friends, family, acquaintances, other investors to acquire private money lenders, right? So we borrow the money from these lenders to go find these deals and to buy these deals. And we typically are gonna borrow an additional 20, 30, maybe even 40,000 above the purchase from these same lenders and investors to fix the property up. So step one, find a deal, buy it, use hard money or private money. Step two is to borrow a little bit more when you bought, when you buy it to cover your rehab and then to rehab the property.

So when we rehab the property, we are doing a couple things. We’re making it look pretty fixing up the neighborhood, but we are also gonna be reducing the amount of capital expenditures that we’re gonna have on the property, hopefully for seven to 10 years. So that’s referred to as CapEx, right? So the roof, the H V A C, the windows, the kitchens, the bath, the plumbing stacks, all the main things that, you know, that we refer to as capital expenditures. We’re gonna do that in the beginning. Now this has a lot of, ancillary, I think is the right word, ancillary benefits because it’s going to increase the value of the home, which is gonna help with the appraisal. And it’s also going to allow you to rent it faster and for more money because you’ve just done updates and made repairs and made this property look really pretty, right?

Buying properties that need work to put into your rental portfolio is one way to do it. I don’t like that way. I like to buy properties and fix all the stuff that’s wrong with them and then rent them out. So that’s what we’re doing essentially with the bird method. And then the last benefit of rehabbing the property I already mentioned is this. It’s gonna force some appreciation, it’s gonna increase the value of the property, but it’s also gonna mitigate the risk of the lender on the backend. Because when you bring this to them, you’re not just bringing a property to them that you wanna buy a, you already own it. So you’re going to them asking for a refinance, not a purchase. And that changes things, but also it’s rented. So the next step after rehab would be to rent it, go ahead and get it rented out.

You’re gonna get top of market cuz you’ve done these repairs and then you’re gonna take it to the bank for the refi. Well, the bank’s gonna see that it’s gonna have a high value cuz you rehabbed it and they’re also gonna see that it’s rented, which makes it an asset and lowers their risk. And then last but not least, they’re gonna see that you just updated the hell out of the thing. You fixed it, you put a new roof on it, you put a new H V A C if it needed a stack, you fixed or replaced the stack. Typically we’ll do flooring, light fixtures, plumbing, fixtures, kitchens and baths. Right? So that’s just basically what we’re doing. So, um, you know, going through this process is great. So we borrowed the money to buy at a discount. We rehab, it increases value, increases rents, decreases risk and capital expenditures.

Then we go get it rented at the top of the market and then we take it to the bank. And the difference here, and I skipped over this in the beginning, but the difference here is we’re not asking the bank to help us purchase the property. We already own it. So what we’re doing now is we’re asking the bank to refinance. And here’s the cool part about this, David, when you go to the bank and you ask to do a refinance, they may or may not ask you about the purchase price, especially if you’ve fixed the property up. The purchase price is kind of irrelevant.

David Richter:

Mm-hmm. <affirmative>

David Dodge:

Now that you’ve, you’ve fixed it up and that you’ve brought it to them as an asset. So, you know, the original way that Dave, myself used to invest basically passively for about 10 years, um, was I would find a property, didn’t buy it at a discount, I’d get it on the market, on the MLS i’d, I would then get an agent to help me make an offer on it full retail.

And they would get appraised whenever I’d go to the bank and the bank would basically say, Hey Dave, we’ll give you 80% of what it appraisees for, but if you’re paying retail, what you pay and what it appraises for are gonna basically be the same number, maybe a little different, but for the most part it’s the same. And the bank’s gonna say, Hey Dave, you know, your purchase price is one 50, the house appraises for one 50, we’re gonna give you an 80% loans, we’re gonna give you 130 th or 120,000. I believe that’s 80% of one 50. It is,

David Richter:

Yeah.

David Dodge:

But that means that you have to bring 30 Gs to the table, man, 30 k that’s a lot of money to like have to save up to bring to the table to buy a property. Well that’s what Dave did for 10 years.

So don’t be, don’t invest like old Dave right now, invest like new Dave. So instead of bringing, saving $30,000 to bring to the table to buy a rental, now we find discounted deals. We borrow the money to buy them, we fix them up, we get them rented. Now we go into the bank and we say, Hey, Mr. Or Mrs. Banker, we we’re bringing you an asset. It’s been rehabbed and I already own it. So I don’t need a loan to buy it. I need a loan to refinance it. Well, when the bank looks at a refinance loan versus a purchase loan, there’s a lot less risk for them because they’re piggybacking off of somebody else’s due diligence. Right. They also don’t care what you paid for it. So here’s the big difference, David, when you go in for a refinance, they still say, we’re gonna give you 80% of what it appraises for.

But here’s the difference. What it appraisees for after you bought it and fixed it up and got it rented is gonna be a whole hell of a lot different than what you paid for it. Right. Whereas in the original example, what you paid for, it was what it appraised for. Yes. Well now we’re forced in appreciation, we’re buying it at a discount. So now in this case, let’s say it was a similar example, $150,000 appraised property, well the bank’s gonna say, Dave, we’re gonna lend you 120,000. You know, you can use this other 30 grand worth of equity that you have in the deal as your 20%. So if I owe my hard money or private money lender, now this is for the purchase and the rehab by the way. Let’s say I owe them $120,000 in the end, but that includes all the interest that I owe them too. Now it’s only gonna cost me about 1200 bucks for closing costs.

David Richter:

Yeah.

David Dodge:

To do it. And that’s where we get our number. So

David Richter:

Awesome.

David Dodge:

Sometimes David, we can do these deals and we can walk away with two or three or five or maybe even 10,000, right?

David Richter:

Yeah.

David Dodge:

But the goal is typically zero, right? Meaning none of our own money, if we make money, great, but what we’re really using this strategy to do is, a, to acquire assets b, to do it with little to none of our own money and to c do it rapidly. Like right now I think I have six or seven properties going through the bur process. Now, the process doesn’t happen overnight.

David Richter:

Right.

David Dodge:

It typically takes, you know, 3, 4, 5 months. You know, if it takes us more than five months, we need to speed things up, you know. But, um, it’s a, it takes a little bit of time to get through the process, but if you can acquire a rental, well, let’s say 11, 12, $1,300 out of pocket, that’s cash flowing. It’s fully rehabbed, it’s rented versus $30,000 out of pocket. That’s a home run, right?

David Richter:

Yeah.

David Dodge:

And then again, it’s very, very scalable.

David Richter:

Awesome. Well that’s a good expedition of the Burr method. I love it as well too. That’s how I did my first couple deals and got my way to financial freedom and real estate from that method as well too. So I definitely love it. Let me ask you, because not every part of the journey is sunshine and roses, so

David Dodge:

Oh, most of it’s not <laugh>, right? <laugh>.

David Richter:

So what money struggles have you faced in your business in like in the real estate investing journey? Because I’m sure cash flow hasn’t always been great, you know, like there’s been the ups and down cycles and since it’s the profit for Star I podcast, I wanna ask like what struggles have you had along the way? Oh yeah. Especially around cash.

David Dodge:

It’s a great question, man. That is a great question. So, you know, I’ve only lost money on three deals. It, it’s possible it’s four, I think it’s three out of about a thousand transactions. Hmm. And the only reason that we’ve lost on the three that we have is basically two things we did wrong and we did this wrong on all three of the ones we lost on. So what we do wrong, we overestimated our A R V and we underestimated our repairs. That’s it. Those are the two mistakes that we’ve made that has lost us money on three deals out of a thousand. So what can cause cash flow issues? Well, thinking you’re gonna sell a property for more than you do, or thinking that the rehab’s gonna cost a whole lot less than it does. And if you make that mis make both of those mistakes on the same deal, that’s typically when you start to lose money.

David Richter:

Yeah.

David Dodge:

If you make one of those mistakes, you hopefully you don’t lose anything. You just make a little or you break even. And that’s still a win in my book. Right? Right. Because we learn things as we go. Um, so, you know, basically, you know, those are the two things that I would caution any and all investor triple check your ARVs wrong.

David Richter:

How have you fixed that, for the next like deals then you said three out of a thousand. So like how have you not lost it on the, you know, 997 others? Like do you have a process in place to make sure, like you were just saying there, like double triple checking or like making sure the repairs are like what happened with those deals or how

David Dodge:

Did that happen? Yeah, that’s a great question. So basically I don’t take anybody else’s, um, advice or due diligence on a property. Okay. Unless smart, unless you know, I’m looking at that comparing it to my own.

David Richter:

Yeah.

David Dodge:

Right. Like anybody that’s gonna do due diligence for you is selling you.

David Richter:

Right.

David Dodge:

Think about it. Why would they do that for you? They’re gonna say, oh well the one down the street sold for 680,000, well that’s also a four story house, right? With 12 bedrooms, mine’s two stories with two bedrooms, right? Like, come on. So anybody that’s given you numbers is selling you. So basically do your own due diligence. And of the three properties that we lost money on, I piggybacked off of other people’s due diligence. That was the mistake. So make sure you do your own due diligence, run your own comps, make sure those comps are comparable and that they’re recent and that they’re close in proximity and that they’re similar or like as possible, right?

And then when it comes to the repairs, we always pad our repairs and inflation is not helping with the cost of supplies, materials,

David Richter:

Right, yeah

David Dodge:

And the labor, all those things are going up. So it used to cost us 30 grand to rehab a rental properties costing us 40 to 45. So when we walk into a property that we think is, you know, gonna be about 40 grand nowadays, we know that we’re not seeing every single thing that’s wrong with it. Cuz not everything is visible when you walk it. So at this point, if we think it’s 40, we’re gonna say, all right, we’re gonna borrow 45, 47, 48 and if we have to bring that seven or 8,000 back to the closing table, who cares?

David Richter:

Right? Yeah.

David Dodge:

Right. But if we need it, then we’re not digging into our own pocket or into the other 7 89 rehab budgets pockets,

David Richter:

Right.

David Dodge:

To fix this one.

David Richter:

Right? Yeah.

David Dodge:

So really, I mean at the end of the day, the only reason that people lose money is because, I mean, in my opinion, now there’s probably a couple other reasons, but they typically all stream or steam from somebody’s being overly aggressive and they’re optimistic about the A R V. So don’t do that. Just look at the middle of the range. And the way I look at it too, David, is if I have an A R V peg at 180 and I get an appraised for one 90 or I sell it for one 90, that’s icing on the cake.

David Richter:

Yeah.

David Dodge:

But if I’m hoping for one 90 and it comes in at 180, I’m like shooting myself in the foot. So try not to be overly aggressive and overly optimistic. Just come in at a good fair number that everybody would agree with.

And if you beat it, great but you gotta, you can’t be overly optimistic. Now that’s on the ARVs. So the, on the flip side with the repairs, same thing. Don’t be optimistic like I can do this for 12 grand when it’s gonna cost 20.

David Richter:

Right.

David Dodge:

So what you should do is you should borrow 25 and if you don’t use that other five grand, great. You already have it sitting aside, you bring it back to the table or maybe it appraises higher than you had hoped and you keep the five grand.

David Richter:

Right.

David Dodge:

That you over borrowed. And that’s essentially a cash out refi. It’s just done in the beginning versus in the end. See I love to do that as well. If I know that we’re buying it a big deal and I can buy a house for 80 and it needs 20 grand worth of work, but I know that it’s gonna appraise for 1 50, 1 60, I’ll borrow the 80, I’ll borrow the 20 and then I’ll borrow another 10 or 15. Because then when I go to my refi, I’m not cashing out with the bank, they’re just paying back another lender. But what they don’t know is that I didn’t spend all the money that they gave me on the purchase and the rehab. I keep some so you can get creative with this strategy two and cash out without cashing out.

David Richter:

Yeah.

David Dodge:

You know, it’s amazing.

David Richter:

Yeah. That’s awesome. So I wanna ask you another thing too. So that was a great explanation of like why your money struggles and what’s happened and how to even, you know, mitigate some of that and make sure that other people don’t do that. Which great info there since Profit first podcast. I wanna ask you, have you ever struggled to pay yourself from business?

David Dodge:

Oh business. Absolutely.

David Richter:

Or from

David Dodge:

Absolutely in the, and I’ve read your book, I love it. And we implement a lot of the things that you teach in the book, which is great. But one of the things that I have to admit, I think that’s the best way to describe it, is I’m addicted to investing, I’m addicted to it. And you know, this is a good thing that, you know, I think we should kind of talk about just for a minute here, but.

David Richter:

yeah, let’s do it.

David Dodge:

The IRS taxes you on your income.

David Richter:

Yep.

David Dodge:

They don’t tax you on your wealth, so that’s good. A k a equity that you capture in a deal. So if I could have the, the choice of making $20,000 in income that comes in and hits my bank account and then I gotta go pay 30 to 40% tax on that.

Or the other option is to acquire a piece of real estate that’s got 20 to 30 grand worth of equity in it. That equity is wealth. I can borrow against that equity, but that wealth creation event by buying the rental with the equity in it or buying that real estate with the equity in it isn’t taxed. That’s not a taxable event.

David Richter:

Yeah.

David Dodge:

So what we do is we are addicted to investing. Our goal isn’t to make more money cuz that means we have to pay more to Uncle Sam. Our goal is just to create as much equity and wealth as we possibly can to avoid as much tax as we can. So one of the things that your book has definitely helped me out with is put money aside profit first Of course. So that way you have it, you don’t spend it on marketing or operations or overhead or whatever it is.

Another thing that I like to do is not all of my loans are in escrow. So at the end of the year I get a $75,000 tax bill for real estate tax. And this last year we had about 55 60 grand set aside. So that was huge for us because then we only had to come out of pocket, let’s say 20 roughly.

David Richter:

Yeah.

David Dodge:

Versus 75. Right. So every time that we do have an income event, we put some of it in the profit first for you know, for profit for us, the owners. And we put some of it into escrows and it definitely helps with the cash flow management side of things.

David Richter:

Awesome. And it’s funny that you said that like the IRS taxes on income versus wealth because we just had a guest on and he said it, almost it’s the same thing only in a different way. He said it that, you know, a lot of entrepreneurs like to make money and focus on making money, but they don’t focus on growing the money. And like it’s like that’s the difference, which I’m also picking up the vibes of why you like Burr now more than wholesaling. Like you said at the beginning, like, I love wholesaling, that’s what I got started, but now I’m doing more of the Burr method. Is this a big reason, is that, well I’m picking up on that. Is that correct?

David Dodge:

Yeah. I can’t stand paying taxes

David Richter:

<laugh>,

David Dodge:

I dunno about you.

David Richter:

Me.

David Dodge:

I dunno about you man. I can’t stand it. And here’s the thing, David, if you ask the average person walking down the street, how much do you think you pay in tax? Not in a dollar amount but in a percentage amount. The average person’s gonna say, I don’t know, a third. And here’s the thing, they’re not wrong, but they’re not giving you the entire answer.

David Richter:

Right.

David Dodge:

So of the income, the money you make, you gotta pay a roughly about a third of the government. And that number varies of course, but it’s roughly a third.

David Richter:

Yep.

David Dodge:

But then whenever you have the money that you’ve just paid taxes on, you get tax when you go spend it. So you go to the grocery store or the gas pump, I don’t know what state you’re in, it’s gonna vary state by state, but in my state it’s 10%.

So if I go buy bananas or orange juice, I gotta pay for those plus 10% more.

David Richter:

Mm-hmm. <affirmative>

David Dodge:

In sales tax

David Richter:

mm-hmm. <affirmative>. Yeah.

David Dodge:

So that 33 percent’s now 43% cuz I had to add 10% on when I spend my money. And then you have to spend money every year annually just to own things. So you have real estate taxes, you have personal property taxes. If you die, you might have an estate tax. So what I’m getting at David is, the amount of taxes that we all pay isn’t a third. After you add up all of it, you get taxed to earn it, you get taxed to spend it, you get taxed to invest it in certain things like planes, boats, campers, trailers, homes. So then you have to pay money to own these things. So at the end of the day, it’s not 33%, it’s 51 plus percent.

David Richter:

Right.

David Dodge:

It’s more than half.

David Richter:

Yes.

David Dodge:

So once people learn this and they actually start to comprehend that all this money that they’re making, they get to keep less than half of it, you start waking up with a different goal in mind.

David Richter:

Yeah.

David Dodge:

And that goal isn’t to make more money because that just means that you gotta give more money away.

David Richter:

Right.

David Dodge:

Instead, how do you make money that you get to keep, that you can use to grow? And that’s what your point was. And to snowball and the way is, is to reduce the income. Now, let’s be honest, you can’t take it to zero. I gotta eat, I gotta pay for gas, I gotta pay for my own home, you know, food, shelter, entertainment. But what I’m getting at is, I cap my income at roughly six figures. I don’t need 300 or 400 or $500,000 in income.

I’m good with 90 to a hundred K. But what I’m doing at the same time is because I’m reducing the income, I’m increasing the wealth.

David Richter:

Hmm. Yeah.

David Dodge:

So instead of making 20 grand on a wholesale, I wanna use the burr method on a deal and hopefully have 30 or 40 grand worth of equity, which is tax free. If I need it, I can capture it by selling the property or refinancing the property or by borrowing against the equity, which by the way is an income, it’s debt. So I wanna perpetually live in a system where I’m using debt because debt is tax free and it also shelters the wealth that you have and it keeps it from being taxable.

David Richter:

Yeah. I think if more people thought of taxes almost like a real penalty, like it is like it’s not just, oh you pay taxes for the government, you know, like to build the roads and stuff. It’s like no, they also give you loopholes and they give you certain outs of like, if you do this, you don’t have to pay the taxes or as much. So if you like thought of it in like the penalty format, it’s like now that’s you, Yeah. You’re gonna be slapped sometimes on the hand, but you don’t always have to be slapped on the hand. You’re doing that now conscientiously.

David Dodge:

It’s Unbelievable man.

David Richter:

It is, it’s happen

David Dodge:

It’s unbelievable. So I just did a quick Google search, how many pages in the United States tax code and it is showing me roughly 70,000 pages. Now this is a quick Google search. This could be, this could be way wrong. Even if that’s double what it is. Let’s say it’s 35,000. Come on guys. There’s only two or three pages to tell you when you gotta pay, where you gotta pay and how you pay.

David Richter:

Right.

David Dodge:

The rest of these other pages, they’re loopholes, they’re ways to defer, deter or to not pay,

David Richter:

Eliminate

David Dodge:

In certain cases. Eliminate. Right. So knowing your tax law and the advantages that real estate gives investors because of, you know, depreciation and interest expense and all the costs, right?

David Richter:

Right.

David Dodge:

Are gonna help you get wealthy because they’re gonna mitigate taxes. They’re gonna reduce taxes, they’re gonna defer taxes. Um, and you can use leverage to buy real estate. So not only does real estate cash flow if it’s rented, but you can use leverage to buy it and then you get phantom expenses like depreciation on, you know, to offset the rest of your taxes. So yes, a lot of people hate taxes. I get it. I don’t like ’em either. But here’s one thing I’ve learned over the years. The richest people I know are experts at tax because they know how to avoid it. Yeah. Not how to pay it, how to avoid it.

David Richter:

Mm-hmm. <affirmative>. .

David Dodge:

So if you are wanting to grow, definitely start by reading David’s Profit first book for real estate investors and learn how to manage your cash flow, but also learn how to avoid taxes so you can keep more of the money you make to grow even faster.

David Richter:

That is awesome information. Especially like, since you threw that in there about the book. So I’ll, you know, it’s like on the show here of course, like I’ll always take that. But I do have a question here because, um, we’re

cutting down to the end of the show here in the last.

David Dodge:

Yes sir.

David Richter:

Couple minutes. But I wanted to say, I view you yet, you’ve done real estate for years, dad, you’ve been successful in this arena. And this might be, you might have just talked about one of your keys to success, but I’d like to ask you like over the years, what do you think has been like one or two of the keys that you would say, this is why I’ve been able to stick it out in real estate, why I’ve been able to be successful and do 200 bird deals, or do all the deals that I’m doing now and create this passive income. What would you say is some of the big things that.

David Dodge:

You know, you would say the, uh, some of the main things would be? And that’s a great question. You know, number one, you gotta embrace failure. You know, I talked about the three deals I lost money on. I’m not ashamed of that.

David Richter:

Yeah.

David Dodge:

I’ve got 997 profitable deals and three that I lost on guys. Losing, failing is a better way to word this. Actually failing is part of the process.

David Richter:

Yeah.

David Dodge:

You wanna know the equation to get to success. It’s failure plus failure plus failure plus failure, plus a bunch of trying. And then eventually you get to success. You have success, but you got, you can’t be afraid to fail. So number one is you can’t be afraid to fail. Number two, surround yourself by people that are already doing the business. So if that means, you know, find somebody, partner up with them, ask them if they’ll mentor you.

If there’s nobody in your backyard, then hire a coach.

David Richter:

Yeah.

David Dodge:

Hire a local one, hire a virtual one, it doesn’t matter. But find somebody that’s doing what you’re wanting to do and it’s gonna speed up the process. I always have at least one or two coaches at least probably spend, you know, nothing crazy, but 30 to 50 grand a year on coaching.

David Richter:

Yep.

David Dodge:

Because it’s gonna shorten the time, the curve. Right. It’s gonna shorten the timeframe for me to be where I’m at, to where I wanna be.

David Richter:

Yep. And the headaches and heartaches of

David Dodge:

Yeah,

David Richter:

what they’ve already gone through.

David Dodge:

Absolutely. And then the only other thing that I would recommend, would be to start making more offers. You know, I talk to so many people, David, so many people that, you know, here’s a perfect example. Somebody will hire me to help ’em coach or, to coach them on how to do, you know, wholesale deals or

David Richter:

Yeah.

David Dodge:

You know, start buying rentals using the bur method or whatever. Right? We do all kinds of different coaching. But whenever somebody comes to me and they say this, Dave, I’ve been doing this on my own for like three months and I’m not having a whole lot of traction, but I am doing some marketing, you know, I’m sending some mail or I’m, you know, doing an hour of, a week or an hour a day even of cold calling, but I’m just not getting anywhere. The first thing I ask them is, well how many offers have you made this week? And if the answer is zero, then I say, well how many offers have you made this month? And if the answer is zero, then I say, well how many offers have you made since you started? And the answer’s often really low, like two or five or 10.

So here’s the thing, guys and girls listen in. Let’s just, let’s go through a transaction, but let’s go through it backwards cuz this is such a great exercise. So let’s just say we’re wholesaling a deal, we’re not even doing rental burr. That’s a little bit longer of a process. We’re wholesaling, right? So at the end we get paid.

David Richter:

Yeah.

David Dodge:

That’s the result, right? But in order to get paid, we have to have something to sell. So we have to find, we have to find a buyer that wants to buy what we’re selling, right? Well, before we get to that stage, we have to have a property under contract and have legal, um, right. To market that contract equitable interest to be able to then find the buyer. Well, in order to have that legal right of, you know, equitable interest to sell that property, we have got to get it under contract.

Well, in order to get a property under contract, you gotta typically spend some time on the phone with the seller and make an offer to them or go run an appointment and make an offer to them. So making offers, leads to getting properties under contract, which essentially is inventory. And then from there, once we have inventory, we can sell it. So you can’t make money in real estate wholesaling specifically, but really in all aspects of real estate investing if you don’t have anything to sell,

David Richter:

Right?

David Dodge:

So you gotta make offers to get inventory. Literally the number of offers you make daily or weekly is gonna equal the amount of money you’re gonna be able to generate in your business. If you’re making one offer a week, you’re gonna get a deal, but it might take you four years. If you’re making one offer a day, well there’s no reason that you don’t get a deal in the next two, three months.

David Richter:

Yep.

David Dodge:

And if you’re like me and my team and you’re making five to 10 offers a day, hopefully you get a deal once a week.

David Richter:

Yep.

David Dodge:

So you gotta make offers. So that’s the last piece of advice for the listeners guys. Make offers, make more offers. That’s really the key to be able to make money. You got, you gotta make offers.

David Richter:

Yeah. And I can’t echo that enough. Back in our heyday, when we were doing 30 deals a month, we were doing 3000 offers a week because we were on like the HUD HomeStore, this was back when HUD HomeStore, like there was just deals everywhere. All the foreclosures were out there. So we were just bidding, bidding, bidding all the time. And it was a numbers game, you know, like we could fail 99% of the time, but it only took the 1% of those offers to come through and we were doing 30 deals a month.

David Dodge:

Yep.

David Richter:

And it was like, that’s all we had to do. So I a hundred percent echo that. Make offers, don’t be scared to make offers, even if they’re bad offers, when you get out there, you’ll learn as you go along, you’re learning more of the skills of trusting yourself to be able to make those offers and go out there and actually do something. That’s really good. Really love that. So David, you’ve provided a ton of value here. So let’s, how can the listeners provide value back? Like how can they get in touch with you, get ahold of you or like what are you looking for at this time?

David Dodge:

Yeah, absolutely. David, thanks again for having me, man. I’m super grateful for your time and I really appreciate this opportunity to hopefully share some, some valuable insights and some just some value with the audience man. So, uh, the best place to learn more about me as well as, you know, the program that I love to help people learn and to teach and to coach, would be to head on over to wholesalinginc.com/rentals. And at that page, again that’s wholesalinginc.com/rentals. On that page you can learn more about me, you can learn more about the Burr method and how it can help you build a portfolio and how to do with little to no money. Uh, but also you can have the option to book a call with my team and learn more about our program as well.

David Richter:

Awesome. There you go. David, it’s been awesome having you on this show. And if you’re listening right now as a real estate investor and you’re tired of living deal to deal or tired of paying too much in taxes or have no idea what your taxes are going to be and don’t have any profitability right now, head over to simplecfosolutions.com. We can at least see if we’re the right solution or if we have the right solution in our network. So you don’t have to be worried about the finances anymore. You can actually attain that financial freedom and build real wealth. So that’s what we wanna set you on that path. So just like David was saying in this episode, we wanna make sure we’re getting you that clarity so you know, <laugh>, if you’re paying 51% in taxes or not, and if we can help you get down way down on that percentage. But thank you again David, for being here. Really appreciate having you on. Uh, you’re a great guest. I know there’s a lot of value Dr. Driven on this episode today.

David Dodge:

Hey, thanks for having me Dave.

David Richter:

So remember, start making your profit a habit in your business.

Outro:

This episode of the Profit First for REI podcast is over, but there are plenty more where that came from. Are you ready to learn how David and his team can help implement the Profit First system in your business? Schedule a discovery call at simplecfo.com right now. We’ll see you next time on the Profit First for REI podcast with David Richter.

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Title: “Profit First Strategies with Jay Conner: The Power of Private Money”

Episode: 242

There are 15 reasons to love about borrowing private money over traditional money. One of them is making your own rules for your private money.

In this episode of Profit First for REI podcast, Jay Conner, a nationally renowned real estate investor and the king of private money. He talks about how private money works.

Jay helps you get your money from private lenders and will share with you the mindset that will get you money in the door without you ever having to worry about it.

Listen and enjoy the show!

Key Takeaways:

[01:01] Introducing Jay Conner

[05:00] Introduction to private money

[08:30] The Great News Phone Call

[11:23] Why don’t you use your own money?

[13:18] Maintaining relationships with private lenders

[15:40] Private money vs traditional money

[22:05] Things that make them want to recommend you

[25:18] Advice for real estate investors

[29:01] Connect with Jay Conner

Quotes:

[07:34] “If you are talking about private money and raising private money with an individual and you got a deal for them to fund, you already sounded desperate.”

[12:07] “If you want to scale your business, private money is the way to go.”

[16:05] “In this world of private money, we make the rules. We set the interest rate, we sent the length and all of that.”

Connect with Jay:

Website: https://www.jayconner.com/book-details/

Tired of living deal to deal?

If you are a real estate investor or business owner who is tired of living deal to deal and want to double your profits, head over here to book your no-obligation discovery call with me. Either myself or someone from my team will hop on a short call with you to get clear on your business goals, remove any obstacles holding you back, and map out a game plan to help you finally start keeping more of the money you work so hard to make. – David

Transcript:

Speaker 1 (00:00):

I got 15 reasons I love private money over traditional money. I won’t share all 15, but the biggest one is it puts you in the driver’s seat. The traditional way to borrow money is you go to the bank and get on your hands and knees and you’re begging and chasing. Well, they are making the rules right? Like the lender is making the rules. But in this world of private money, we make the rules, we set the interest rate, we set the length of the note and all that.

Speaker 2 (00:34):

If you’re a real estate investor who’s sick and tired of living deal to deal, then welcome home. Hear from everyday real estate investors just like you, and discover how they’ve completely transformed their business by taking a profit First approach. This is the profit first for REI podcast, where we believe revenue is vanity. Profit is sanity. It’s time to start making profit a habit in your business. So here’s your host, David Richter.

Speaker 3 (01:01):

We have Jay Connor back on the podcast. I love Jay Connor. He helps you get your money, the money from private lenders and that whole framework and process, but he does it from a passion and a place of heart. And servant Teachership. I feel like he goes out there and is a servant teacher of how private money works. Listen to this episode. He gives the magic question he tells about desperation and private lending, and I thought his perspective was so good, and then ultimately the mindset that will get you money in the door without you ever having to worry about it. So listen to this episode. Can’t wait for you to get value from it. Thank you for being a listener of the Profit First. RII podcast. Have a great episode. Hey, here’s the profit first RI podcast. Really excited to have Jay Connor back because he’s the came of private money. And this is where I love to go into this topic because I don’t care what kind of business you’re in, you probably need help with this, but especially if you’re in the real estate world, this comes up all the time at every event I’m at with every conversation I have. So we’re having the cane here talk about private money today. So Jay, thanks for being on the show.

Speaker 1 (02:07):

Hey David, thank you so much for having me come on here to talk about my most favorite topic. Of course, that being private money. And why is that? Because private money’s had a bigger impact on our real estate investing business than any other strategy that we’ve implemented in our business.

Speaker 3 (02:24):

Why did you go down that road though? I mean, you teach this all the time. You’re helping a ton of people, like anyone I’ve ever talked to that works with you is like he taught me how to do and I got money and it actually works. So I mean, how did you even go down that road where it made a difference on you and then you wanted to get it to others?

Speaker 1 (02:43):

Well, I actually backed into it. I didn’t do it on purpose. So here’s what happened. So my wife, Carol, joy and I, we’ve been investing in real estate, single family houses, other real estate full time here in eastern North Carolina since 2003. And here’s what happened. From 2003 until 2009, David, all I knew to do in my real estate investing business was rely on the local banks to fund my deals. I mean, all I knew to do was go to the bank, get on my hands and knees, put my hand underneath my chin, raise my skirt up so they could look at all my personal financial statements and stuff and actually beg to get my deals funded. That’s all I knew to do. And so I had a big wake up call in January of 2009 after being in this business here in Eastern North Carolina. I called up my banker.

(03:38):

I told him about these two deals I had under contract in Newport, these two single family houses. And David, I learned like that over the telephone that my line of credit had been shut down with no notice. My banker, his name was Steve, and the bank was bb and t at the time. I said, Steve, what in the world are you telling me? My line of credit is shut down. I got two deals under contract. You gave me no notice. Why is the bank closing my line of credit? He said, Jay, don’t. There’s a global financial crisis going on right now. I said, no, but now you just gave me a global financial crisis. Financial crisis, yeah, I ain’t got no way to fund my deals. And I got ’em under contract. So I hung up the phone and here’s what happened, David. I sat here and I asked myself a very important question.

(04:27):

And so I’m going to share this question with your audience right now. This question I’m going to share with you will help you solve any problem you’ve got. I don’t care if it’s business, financial, career, health, relationships. I don’t care what your problem is. By the way, David, these people going around and saying, any problem, you got some opportunity I want to throw up. I didn’t have no opportunity. I had a problem of not funding my deal. So here’s the question I asked myself. The question I asked myself was, Jay, who do you know that can help you with your problem? And when I asked myself that question, I immediately thought of my good friend Jeff, who lived in Greensboro, North Carolina at the time, and he was investing in real estate. And so I called him up and I told him what happened. And he said, well, Jay, welcome to the club.

(05:18):

I said, what club? He said, the club of the bank shutting you down and losing amount of credit. They shut me down last week. I said, well, how are you funding your deals, Jeff? He says, well, have you ever heard of private money? And I hadn’t. So Jeff told me about private money. He told me about self-directed IRAs and how people can use their retirement accounts and funds that they currently have and move them over to a self-directed IRA company and then loan that money out to us real estate investors, either tax deferred or tax free depending on the type of account they’ve got. Well, that just opened up my whole world. I’d never heard of that. And so what did I do? How did raise $2,150,000 in less than 90 days after being cut off from the bank? Well, here’s what I did, and here’s the secret sauce I put on my teacher hat.

(06:10):

So I put on my teacher cap, which is my private money teacher cap, and I just started teaching people in my own network what private money is, how they can earn high rates of returns safely and securely. And what’s interesting, Carol, joy and I, we got 47 private lenders right now. Not one of them had ever heard of private money and private lending. Not one of them had ever heard of self-directed IRA companies and what a third party custodian is. That’s important by the way, to establish a relationship with a self-directed IRA company because over half of my private lenders are using their retirement funds. And if I didn’t have that relationship to introduce them to move their retirement funds over, I’d be missing out on over half of my private money. So how did I go about raising all this money when I was cut off from the banks?

(07:02):

I led with a servant’s heart. I led with education. And here’s a really, really important point. I separated the activity. I separated the conversations of telling people what private money is and how they can earn high rates of return safely and securely and having a deal for them to fund. You see, desperation has got a smell to it. And when you talk about is that not true, David? Yeah, very true. So if you’re talking about private money and raising private money with an individual and you got a deal for them to fund, you’re already sounding desperate and you’re not even trying to sound desperate. So we don’t talk about deals and when we’re first exposing somebody to how they can earn high rates of return, we talk about private money. So how do we separate those conversations? Well, when someone has told me that they’ve got, let’s say they’ve got $150,000 they want to invest and get high rates of return conservatively, I’ll say, great, I’ll put your money to work for you just as soon as possible.

(08:11):

I don’t talk about a deal upfront. If they’ve got retirement funds that they want to get higher rates of return on, I’ll introduce ’em to the self-directed IRA company that I recommend. They’ll get their funds moved over. And so here’s what happens and here’s the magic sauce, David, I give ’em and I call ’em up with what I call the great news phone call. What in the world is the great news phone call? Well, the great news phone call is not a pitch. I’ve never pitched a deal in my life ever since I started raising private money in 2009. I pick up my handset with my cord attached to it here in North Carolina and I call some of your, don’t even know what that is. And let’s say, David, let’s say you’re one of my private lenders. So I’ll put my phone right up here and you’ll answer the phone and we’ll have a little chitchat and I’ll say, Dave, I got great news for you.

(09:06):

I can now put your money to work. I got a house in Newport with an after repaired value of $200,000. The funding requires 150. Closing is next Tuesday. You’ll need to have your funds wired to my real estate attorney next Monday. I’m going to have my real estate attorney email you the wiring instructions end of conversation. Notice I didn’t ask If you want to fund the deal, of course you want to fund the deal. You’ve been waiting for the phone call. I’ve told you the program. I’ve taught you the program, you know what kind of rate you get, what the maximum loan to value is, the program that I’ve taught you. And so now you’re waiting for the good news phone call, which I just gave you. And in addition to that, if you as my private lender, if you’ve moved your retirement funds over to a self-directed IRA company, you ain’t earning any money until I put your money to work.

(10:04):

You moved it at my recommendation. Now I’m ethically bound to put your money to work. You ain’t earning any money until you actually put her to work. So again, we separate conversations, we leave with a servant’s heart, we educate, and by the way, David, these people going around saying don’t just get the deal under contract. The money is show up. I want to throw up where is the money going to show up? Is it just going to rain out of clouds or something? No, get the money lined up and you can get it lined up fast. Just like me. There’s always going to be deals.

Speaker 3 (10:38):

Yeah. Oh man, that’s really good stuff. I love how you went down that road and it helped you personally. Now you’re just teaching a lot of people. I love that magic question. Who do you know that can help me with my problem? It’s that who, it’s not always the how. It’s the who did I know, and in that point it really helped you. I also run into a lot of times, I don’t know if you see this, where there’s someone who’s like, I could save a couple interest points if I just use my own money versus a private lender’s funds. What are your thoughts on that of always taking down your own deals versus going out there and putting the work into getting a private lender?

Speaker 1 (11:17):

Sure, I get that question all the time. They say, Jay, you making all that money? Why don’t you use your own money to invest in real estate? Why are you still borrowing private money? Well, here’s the answer. If you’re just going to do one deal, that’s a great use of your money. That’s a fantastic use of your money. But do you want to scale your business? I mean, right now we’ve got seven different projects going on, single family houses simultaneously. Well, I don’t want my money buried in seven houses or projects simultaneously, which here in our local market can easily be over 3 million with the prices of our homes. So if you want to scale and really, I mean most people have got a bottom of the bucket in their checkbook. So if you want to scale your business, then private money is the way to go. Another answer to that question is, do I want to pay myself 8% or do I want to use my money for something else,

Speaker 3 (12:22):

Right? Yep.

Speaker 1 (12:24):

So that’s a couple of answers to why I use private lending and why I’m still using 47 private lenders,

Speaker 3 (12:33):

Which is great. I love what you said. If you want to scale, it can run out of cash real quick. If you just keep using your own money where a lot of people have to choose between, okay, paying some percentage points or sleeping at night, and it’s like, I think I like your option a whole lot better, especially if you’re looking to grow. But I like how you said that one deal. That’s okay, but if you are looking to be a real estate investor, this is something you’re going to have to go down that road. Now, last time I asked you some questions about the private lending process. I don’t think I asked this one though, is how do you maintain a relationship with that many private lenders? You’ve got 47 people in your network that you call up with the good news call. So is it like how do you maintain a relationship with all those people?

Speaker 1 (13:22):

I mail ’em checks.

Speaker 3 (13:25):

I love that. That’s a great answer. Oh man. No better way to keep a relationship there.

Speaker 1 (13:33):

I mean, they love getting money in the mail, right? Yeah. They love mailbox money, so I mail ’em checks.

Speaker 3 (13:41):

So you mail ’em checks. So you’ve built a good enough business where you can keep 47 lenders busy and their money active.

Speaker 1 (13:50):

Well, to be totally transparent, I mean, it is a juggling act to tell you the truth. I mean, there’s more money than there is deals.

Speaker 3 (14:00):

Yep.

Speaker 1 (14:01):

There’s more money than there is deals. And so we got 47 private lenders. Some of them have got $30,000 with us, some of ’em have got a million dollars with us. I can’t buy a house for 30,000, but I can use 30,000 for rehab money. You can use private money, borrow private money in a junior position, you’ve got to disclose that. But I can put private money in a junior lien. But what comes into play there is what we call total loan to value. So I’m not going to be borrowing more than 75% of the after repaired value. I didn’t say the purchase price 75% of the after repaired value. But let’s say back to that example that we just talked about, David, where if I’ve got a after repaired value on a home of 200,000 for easy figuring, I can borrow up to 150,000. That’s 75% of the after repaired value. But if I buy it for a hundred thousand, which I do all the time, 50% of the after repaired value, I can have a private lender in first position at a hundred grand. I could have another private lender in second position at 50 grand. So add a hundred to the 50, now one 50 divided by 200,000 after repaired value, I got a total loan to value of still 75%.

Speaker 3 (15:27):

Yeah, I love that. And it seems like private money gives you flexibility and

Speaker 1 (15:32):

Options. Does that make sense?

Speaker 3 (15:34):

Yeah, that makes sense. A hundred percent.

Speaker 1 (15:37):

Oh, absolutely. Flexibility is where it’s all at. I got 15 reasons. I love private money over traditional money. I won’t share all 15, but the biggest one is it puts you in the driver’s seat. The traditional way to borrow money is you go to the bank and get on your hands and knees and you’re begging and chasing, well, they are making the rules, right? The lender is making the rules. But in this world of private money, we make the rules, we set the interest rate, we set the length of the node and all that.

Speaker 3 (16:14):

I love that. Flexibility is the ultimate play in real estate. You want to have flexibility and you want to be able to have that. So I love what you teach. Who is the person that you’re trying to teach out there? Is it the person that’s done one deal a thousand deals? Who are you trying to help the most with your business?

Speaker 1 (16:33):

Yeah, that’s interesting. At my live events, which is called the private money conference, and my live events, we have about 60% or so have already done deals. They’ve already done deals. They want to scale their business. They are real estate investors wanting to scale their business, and about 40% are looking to get their very first deal. So I’m helping everybody. I mean Stu and Harriet Baldwin from New York State, they enrolled and joined my mastermind membership community and they already had a portfolio of a hundred houses. They’d already raised over $2 million in private money, but they wanted to see how I went about it. Well, just one webinar that I recorded with them brought in 1.2 million in additional private private money. So I’ve worked with real estate investors that are brand new and those that are also seasoned to help them get more private money ready to go for their business.

Speaker 3 (17:33):

I love that. It sounds like a lot of people out there need private money, and even if you’re just getting started, if you don’t have the funds to do that first deal, like you mentioned, you do that first deal, that one deal at a time, it might be okay, but this sounds like a great spot where if you’re getting into it or if you’ve got lots of stuff going on, this could be another way to make sure your company can keep running without what you ran into with the banks back in 2007, eight or oh nine. Would you say that’s true as well?

Speaker 1 (18:04):

Absolutely. Absolutely. I mean, I’ve met very, very few people. In fact, I can’t even think of one. I haven’t met any real estate investor that says, I got enough money.

Speaker 3 (18:20):

Yeah, me either.

Speaker 1 (18:22):

I can’t use any more private money. However, David, you are looking at one right now. I got about almost $2 million right now, what I call sitting on the shelf waiting to be deployed. And I tell you what, I’ve had new private lenders come into my world that want to invest and just to prove to them that I can perform. I’ll take the new private lender’s money and pay off a current private lender, refinance the deal so I can get their money to work for ’em, right?

Speaker 3 (18:53):

Ah, yep, that makes sense. I like that. As you grow and scale, you might run into that issue and you make one lender a little bit happy. I mean, at least they’re getting paid off, but then they probably come back to you and say, I want you to put my money to work again. Do you have that come up a lot?

Speaker 1 (19:12):

Quite frankly, when I pay ’em off, they’re not happy.

Speaker 3 (19:17):

That’s why I said just a little happy, maybe a little bit.

Speaker 1 (19:20):

But when I pay ’em off, they’re not making any money on that money. In fact, with a new private lender, I’ll get ready to pay ’em off cashing out on a deal and I’ll call ’em up and say, Hey, just want you to know that you’re going to have a check coming in the mail from a real estate attorney’s trust account. We’re paying off this house. And they’ll say, Jay, can’t you just keep the money? And I’ll go, no, I can’t keep the money unless I’ve got your money secured by a property because we do not borrow unsecured funds. Now, here’s maybe a little advanced strategy for some folks, but I do substitutions of collateral or loan modifications all the time. If it’s a small amount of money that a private lender’s invested 30, 40, $50,000, and we use it for rehabbing a property. So when I’ve got another property I’m getting ready to start on, I’ll substitute the collateral and keep that 30 or $50,000 note in play. So they keep earning money on that money, but we will substitute the collateral just to a different project that we’re moving to.

Speaker 3 (20:25):

That’s awesome. So then sounds like you have a good problem. It’s like, I want that. Well, I think a lot of real estate investors would rather the problem, I have too much money versus I’ve got these deals and I can’t fund them. So I really like how you teach people that and where it could snowball into this, where it’s like, I’ve got 47 private lenders, I’ve got to go out there and get the deals for ’em. Absolutely. And I really like that. And

Speaker 1 (20:50):

For goodness sakes, you don’t start out with 47 private lenders. I started out with one, right? I started out with one and then that quickly became two and three and four and five because private lenders tell other people what’s going on. So I haven’t actively attracted private money for years because our current private lenders just keep sending us people. In fact, day before yesterday, day before yesterday, I got a phone call from the mother of a good friend of mine, his name’s Craig, lives in Newburg, North Carolina. Craig had told his mother about this investment thing that I got going on and she had never heard of it, which is really funny. I’ve been doing it now private money since 2009. So she calls me up and she says, Hey, my son’s been telling me about this investment thing you got going on. Tell me about it. So word of mouth gets around very, very quickly when you start doing business with private lenders the way I do.

Speaker 3 (21:53):

Yeah, I like that a lot. So in order to get people to talk like that, what are the biggest things that you do for your current private lenders that makes them want to recommend you?

Speaker 1 (22:07):

Well pay ’em on time.

Speaker 3 (22:08):

There you go. That’s a big one. Sounds like that would be a really great place to start.

Speaker 1 (22:12):

Pay ’em on time. But I also have three times a year I put on a party for our private lenders at the Dunes Club. So we have three times a year a VIP reception over at the Dunes Club on the beach, and it’s just an evening of private lenders getting together and we have a good old time and I feed them and give them all the soft shell crabs they want, and I tell ’em to bring their friends with them.

Speaker 3 (22:42):

Yeah, that’s awesome. So number one though, that anyone can do at any stage is pay people on time. So actually pay, would you say, what about communication? I hear that come up sometimes too. How do you do a good job on the communication with your private lenders as well?

Speaker 1 (23:03):

Well, it must be good enough. They never go away,

Speaker 3 (23:06):

Right? Yeah, that’s the big things I hear.

Speaker 1 (23:10):

Here’s one thing I have not delegated as far as communication. I personally, I mean my relationships with my private lenders are very, very important. So I personally pick up the phone, pick up the phone, and call my private lenders when I have got a deal for them to fund. I do not delegate that out. I could

(23:37):

Delegate that out, but I don’t, when I got a deal for them to fund, I’m the person on the phone keeping that relationship When I’m getting ready to pay them off. I don’t have a check just show up in the mail. Of course they got to sign a payoff instruction letter if a different closing agent is closing it for a buyer. But before any of that happens, I personally call ’em up and I tell ’em that we’ve got that property sold. We’re getting ready to pay you off. Or I’ll call ’em up and I’ll say, Hey, we’re getting ready to pay this property off, but I will keep your note open so you can keep earning money. I’m just going to substitute the collateral. We got some documents we’re going to email to you for you to sign and send back the communication. I’m personally involved in putting their money to work and letting them know when we’re cashing out and where they are on the deal.

Speaker 3 (24:31):

That’s awesome. Then since it’s the profit first I podcast here, I love this concept of the private money because you need your cash in your accounts. So to be able to run your business, do those things, and then setting up a separate account just for your private money lenders, so it makes it easier to do what Jay just told you to pay them back, to pay them back on time to be in good communication with them. So now this has been really good. Do you have any other advice before I ask you? How could they work with you? How can they get in touch with, because I know this is something that is needed desperately, that I send people your way all the time. I know I trust you to help people, but any other last minute advice here that you would give to the real estate investors listening to the podcast?

Speaker 1 (25:18):

Sure. I appreciate you asking that question. It’s going to be very hard to own a lot of real estate

(25:26):

Until you own the real estate between your ears. So what do I mean by that? People ask me, how do I start? How do I start raising money? I can tell you how you start raising private money. You get your heart right, you get your mindset right. So what do I mean by that? Well, what do you do? You lead with a servant’s heart, you lead with education, you put your private lender money hat on, you private lender, teacher hat on, and you leave with education, don’t pitch deals, and you really, really are concerned about the other person and realize, part of this mindset is realize you’ve got an opportunity to change people’s lives, right?

Speaker 3 (26:11):

That’s so good.

Speaker 1 (26:13):

We’ve got countless people that are particularly in their retirement years, that have thanked me and Carol Joy for making a difference in their retirement years to where they can, I mean, they don’t want to touch their principal. They want to live off of their principal investment. So they’ve been able to travel, go see grandkids, do all this stuff that they couldn’t do otherwise until they got involved in our program. So just know that you’ve got a way to really make an impact on other people’s lives. And lemme tell you another part of mindset. It ain’t about reaping. It’s not about reaping. It’s all about sowing. It’s all about sowing. I can’t be reaping all that private money and deals until I have sown and given and led with value first. So how you sow is how you’re going to reap.

Speaker 3 (27:08):

Yeah. Oh man, this is so good. I’m glad I asked that question because I hear the passion in your voice and I hear that you really care about the people you work with, the people that have private money lenders out there, you care about that relationship. I love what you said. Get your heart right, get your head right. I also think, like you said too, that if they don’t have that desperation has a smell. So if you’re out there, you’re desperate and you’re just going out there, then you won’t have people like you have that want to keep coming back, that want to continuously invest in you. So that was, I think, the best advice that you could give right there. Get it between your ears and get your heart right. I absolutely love that. And just to recap too, I love your magic question.

(27:55):

Who do you know that can help me with my problem? Then one day you’re going to wake up and you’re going to be like Jay, and you’re going to be helping other people with their problem. I’ve got money. I want to put it somewhere, and you’re the able to get them to where they can be. Desperation has a smell. I love that. And then honestly, I love that pivot. You are like, it’s not about the reaping, it’s not about the interest that I’m making or the profit I’m making for the deal. It’s more about sowing those seeds and ultimately you’re changing lives. That’s why you get private money, and it’s like that interest that you’re paying them is twofold. It’s like you get to sleep at night, you’re not using all your money and you’re getting to help someone else get a return that they wouldn’t be able to get anywhere else or in someone that they trust as well too, and that’s a little bit more tangible than the stock markets or all this other Bitcoin, some of that stuff that’s floating around out there. So this has been awesome. So how do people then, Jay, take that next step with you? Do you have a book? You talked about an event. What can people do?

Speaker 1 (29:01):

Absolutely. Well for your audience, David, I’ve got two gifts. First of all, I finished writing my book Where to Get the Money. Now, this is not a ebook. This is a book book that we actually send in the mail Autographic where to get the money. Now the subtitle is How and Where to Get Money for Your Real Estate Deals Without Relying on Hard Money Lenders or Traditional Lenders. It’ll walk you through step by step how to get all the private money you would want. Very, very easy to read. It’s $20 on Amazon, but you can get it for free. Being David’s audience, just cover shipping. You can go to www dot j Connor, J-A-Y-C-O-N-N-E r.com/book. So I’m an er, not an or. So that’s j Connor, J-A-Y-C-O-N-N-E r.com/book, and we’ll three day priority mail it out to you. Now, in addition to that, I’ve got an upcoming $3,000 per ticket live event right around the corner. But for your audience, Dave, I’m going to let everybody come for free with a measly $97 registration fee. This private money event. You can check it out at www.theprivatemoneyconference.com. The private money conference.com. That’s coming up right around the corner in June. Get on over there. Registrations are open, and I’d love to meet you in person at the private money conference.com.

Speaker 3 (30:31):

Awesome. I’m excited about that too. I love what you’re doing and you’re solving a big need that we hear all the time. Just like all people always needing to sharpen their acts when it comes to private money, you graciously have also invited me there to speak about Profit First. So I’m excited to get to tell people about that so they can get more private money and be more confident and not be desperate when they go and ask for people. So I’m really excited about that as well. So make sure we’re going to put those links there, but make sure either get his book or go to that event. I cannot endorse Jay Moore because I know how many people he helps, but then he also has the heart. You heard it right here. That’s how he wants to help you too. It’s very much a heart and a mission and a passion for him.

(31:13):

So Jay, thank you for coming on, for sharing your wisdom, your knowledge today. If you are listening to this episode and you feel stuck like, what the heck is going on? Where is my money? I don’t know what to do. I’m a little bit nervous to go out there and get private money. I can’t keep my own house in order. That’s where you could go to simple cfo.com where we can help you walk you through that process. We’ll link you up to Jay too. If you need private money or need to learn about private money, this is who we recommend. I recommend Jay to many people, so make sure that if you need that help you go to simple cfo.com. But Jay, again, thank you for being on the show and sharing your wisdom here today.

Speaker 1 (31:51):

David, thank you so much for having me. God bless you.

Speaker 2 (31:54):

This episode of the Profit First for REI podcast is over, but there are plenty more where that came from. Are you ready to learn how David and his team can help implement the Profit First system in your business? Schedule a discovery call@simplecfo.com right now. We’ll see you next time on The Profit First for REI podcast with David Richter.

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