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Brandon Cobb, co-founder and CEO of HBG Capital, discusses how he expanded his business operations to include real estate developments.

Episode 153: Brandon Cobb, co-founder and CEO of HBG Capital, discusses how he expanded his business operations to include real estate developments.

The Profit First REI Podcast

February 6, 2023

David Richter 

Summary:

 

Joining us today is Brandon Cobb, CEO and co-founder of HBG Capital, an investment firm dedicated to providing risk-adjusted returns that are transparent and insulated against market volatility. He is also the host of Recession-Resistant Real Estate Radio, which I’ve had the pleasure of guesting on before.

 

Brandon started his journey in the real estate industry in fix-and-fliping and wholesaling but has also expanded his ventures into developments. He is also the CEO of HBG Construction which focuses on land developments, new buildings, and rehabilitation.

 

In this episode, Brandon shares his story, from his transition from fix-and-flipping and wholesaling to development to the difficulties he experienced before applying the Profit First approach in his business. Jump in!

 

Key Takeaways:
[00:47] Introducing Brandon Cobb

[02:35] Brandon’s Quick Start in the Real Estate Industry

[11:29] The Adjustment from Fix-and-Flipping and Wholesale to Building and Development

[13:08] On Knowing His KPIs

[15:56] On Applying the Profit First Method

[25:20] Having a CFO and the Benefit of Collaboration

[30:33] On Why Having a Team is Key to Success

[33:40] Advice for Investors: Double-Down on KPIs

[35:40] Connect with Brandon

 

Quotes:

[14:35] “That’s one of the reasons that actually helped me transition into the Profit First mode…You spoke to a very specific demographic, and you were very specific on the types of problems that this industry faces that are quite frankly very, very endemic.”

[30:48] “You’re not going to be able to scale without a team, so having really good hiring systems and processes is really key.”
[33:53] “I think now more than ever, with the uncertainty of the market and the changing economy and interest rates…it’s important to run a tight ship. Now you have to have a really well-oiled machine that’s going to make it through whatever times [we are in]…Be ready to make quick and decisive decisions.” 

 

Connect with Brandon and get their free resources on this website: HBGcapital.net

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 



Transcription:

 

Brandon Cobb:

And that’s one of the reasons that actually helped me transition into the Profit First Model, you know, specifically with your company, is because you spoke to a very specific demographic and you were very specific on the types of problems that this industry faces that are quite frankly very endemic.

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:

If you listened to this episode today, I promise you’ll have a better grasp on a direction you could head in real estate investing. Brandon Cobb is our guest today and he talks about his journey. He’s was a fixed and flipper and a wholesaler and he’s graduated into building houses and development and he talk and it hasn’t been that long. And he also talks about the key points that have helped him along the way. He talks about how Profit First revolutionized his business and his world, but he also talks about the key points of even knowing when it was time to pivot from wholesaling and fix and flipping into different areas of real estate investing. You can learn something from this episode. He goes into it, he goes into some very emotional type things as well too, with on his journey and how it, you know, is the ups and the downs. So I want this episode to help you and to either avoid some of the pitfalls that he talks about or some of the success that he’s seen as well too. So I know that you’re gonna get something from this and thank you so much again for listening to the Profit First REI podcast. Here we are on the Profit first REI podcast. Thank you for joining us. We have Brandon Cobb in the studio. He owns HBG capital. He does some pretty cool things. I was just on his podcast as well. You need to listen to that one. Recession resistant real estate radio cell. That one’s a great one as well too. Thank you for having me on that. But Brandon, thank you for being here today. Really excited to hear about your story and your journey.

Brandon Cobb:

Yeah, it’s an honor man. I appreciate you having me. It’s good to see you.

David Richter:

Yeah, it’s good to see you as well too. But Brandon, and we’re just the disclaimer too, he is also a client as well. So he’s experienced Profit first firsthand and that implementation. And he’s also working with one of our CFOs. So we’ll go into that. But I wanna just give a little bit of background about who you are, what’s your claim to fame, and just give us a high level overview so people can get a context of where you’re coming from.

Brandon Cobb:

Yeah, sure. So, uh, my name’s Brandon Cobb, co-founder of H B G Capital. Our firm primarily focuses on unique real estate investments that are designed to be insulated against market volatility built to be transparent. And our whole goal is to help investors build their legacy, achieve their dreams, and impact those close to them through unique real estate investments. But once upon a time, that wasn’t the case. Um, I actually don’t, a terrible, awful story about my background and how I really wanted to get outta corporate America. I actually loved what I did when I was doing medical device cells. I thought I worked for a great company.

David Richter:

mmm-hmm <affirmative>

Brandon Cobb:

I was in my mid twenties, loved what I did. I was in the surgery room every single day hanging out with surgeons and hospital staff. My products were being used to benefit patients. So there’s a lot of intrinsic satisfaction in my job and my career and what I did. And I remember I had a meeting set up at Starbucks with my boss and I was finishing up a surgery with a new surgeon that we were about to hopefully onboard. It went great, right? He loved the product and he actually was interested in a bunch of other stuff I wasn’t expecting him to be interested in. And so I was so excited to sit down with my boss and I roll up to Starbucks with a smile on my face and I’m so excited to tell him how the surgery went. And you know, I sit down with him and he fires me.

David Richter:

Ah,

Brandon Cobb:

And the first three, four hours I was in absolute shock. Cuz here I am running around, you know, working crazy hours. I was single at the time. All I did was work and I thought I was loyal. You know, I had this rookie of the year award that I had gotten and I just wasn’t prepared for it. And, uh, you know, eventually the shock did, did subside and

David Richter:

yes

Brandon Cobb:

Honestly, you know, it was a blessing. Um, I’m so happy that he did do that cause it helped pave the future to where I am today. But that’s when I learned that nobody was gonna look out for my financial well being but me.

David Richter:

Mm.

Brandon Cobb:

Um, you can be as low as you want to accompany, you can put in the hours, you can put in the blood, sweat and tears, but at the end of the day, they have to do what’s best for them. And it’s nothing personal. So that started my real estate journey, got into house flipping and wholesaling, joined masterminds, invested in coaching first three, four years, took all the profits, invested it back into the company. We started growing and scaling. Eventually we graduated into doing a lot of spec new builds that, and ended up pushing us towards doing new development in order for us to scale. And so we’ve got a lot of development going on, mostly centered on affordable entry level housing cuz there’s, they’re just, there’s just not affordable housing right now. And we’ve got a focus on doing bill to rent developments currently.

David Richter:

Awesome. Very cool. So, can I ask a question? Did he give you a reason why he fired you?

Brandon Cobb:

You know, he basically said that he didn’t think that I was a fit for the organization anymore.

David Richter:

Huh.

Brandon Cobb:

Um, and you know, he and I, it was kinda weird whenever him and I sat down, it was like, there’s always, uh, I always felt like there was a lot of pressure there. Like I was always sort of walking on eggshells around,

David Richter:

Okay,

Brandon Cobb:

I didn’t wanna do anything wrong. So I think there could have been a little bit of a culture fit right there. Um, you know, if I’m being completely honest, the past few months the business wasn’t great, but I don’t really measure performance by the past few months. I measure it, I’m like, did I hit quota that year or did I not?

David Richter:

Right

Brandon Cobb:

And I’d just gotten this rookie, the year award, the year before that, um, just finished training a new associate that he hired. And so again, you know, I was confused. Do I know the real reason? maybe he thought I was under per underperforming. I don’t know. But his reasoning was he didn’t think that I was a good fit for the organization anyway.

David Richter:

Ah,

Brandon Cobb:

And he probably was right.

David Richter:

Yeah. Sounds like it. Now that you’ve done so much other stuff, it sounds like you have no regrets for him firing you and like, it sounds like you like the job a lot, but then at the same time where you are today with

Brandon Cobb:

I’m just blessed for the opportunity. Right.

David Richter:

yeah

Brandon Cobb:

I’m a big proponent of don’t ever burn that bridge. You know, I’ve, I still occasionally talk to him. Uh,

David Richter:

Okay.

Brandon Cobb:

Time to time. I think he’s,

David Richter:

you should ask him again. I’m just kidding. <laugh>.

Brandon Cobb:

Yeah, I know, right?

David Richter:

Hey love, like why did you find back real neck?

Brandon Cobb:

But, uh, no complete blessing. You know, him and I are still, you know, friends to this day. There’s no hard feelings, you know, like I said, it’s, he had to do what’s best for him, right?

David Richter:

yeah

Brandon Cobb:

It’s his business, not mine. And uh, you know, at the end of the day, all the skills that I learned was what catapulted me into my success in real estate. I was able to take a lot of that sales acumen and apply it to the real estate world. And that’s what really got me started on a pretty high growth trajectory compared to what I had just not been in the sales industry beforehand.

David Richter:

How long ago was that?

Brandon Cobb:

How long ago? 2016 or 2017. One of those two years

David Richter:

wow

Brandon Cobb:

Was 26 or 27.

David Richter:

So you’ve come up through the real estate ranks pretty quickly then. Like, you know, there’s some people that were wholesaling, flipping, you know, 2009, 10, 11 that are still doing that and haven’t graduated spec in new builds and development and build to rent. So how did you go that quick, you know, like through those processes? Was it the masterminds or like that you mentioned or like how did you progress in your journey?

Brandon Cobb:

Uh, you know, it was really recognizing opportunity. You know, if you’re a really great wholesaler or house flipper and you’re business is working for you and it’s building the life you wanna live, don’t change anything.

David Richter:

Okay.

Brandon Cobb:

For us, we just pivoted with the market. So when we first started wholesaling and, you know, flipping houses, I thought the market was great. We were flipping homes at $250,000 making 45, 50 $5,000 a lick. You know, those are,

David Richter:

yeah

Brandon Cobb:

Those are 20, 25% profit margins.

David Richter:

Yeah.

Brandon Cobb:

Those are really good, especially at that home price. And at the time we had all of our KPIs measured. We knew exactly how many calls it took to get an appointment, how many appointments it took to get a close. Everything was dialed in. We knew what our cost per contract was. It was like $3,300. And then we noticed that, you know, two, three years later it wasn’t as easy.

David Richter:

Hmm.

Brandon Cobb:

It didn’t feel like it was as blue of an ocean anymore.

David Richter:

Okay.

Brandon Cobb:

Prosper contract shot up to like $6,600. It doubled the number of calls to an appointment went from like 25 to 50. The number of appointments on a contract went from one out of every six to like one out of every 14. So we just, we saw the writing on the wall and the margins slimed down.

David Richter:

Yeah.

Brandon Cobb:

There was more risk. We weren’t flipping $250,000 homes anymore and making $50,000 a lit. We were flipping, you know, 380 400,000 homes and only making like 25, 30 $5,000. You know,

David Richter:

okay

Brandon Cobb:

And if the more turns

David Richter:

yeah

Brandon Cobb:

That hits that really quickly. And we had everything pretty dialed in because at that time we had the acquisition company up and running. We had the construction company up and running. We were controlling and mitigating a lot of risk.But the light bulb moment went off when we had this home that was a fire damaged home and we could buy it for less than what the land was worth. And we’re like, why don’t we just cut out all the black stuff, hire a structural engineer, reframe on top of the foundation and you know, just give this a shot because we were just approaching

David Richter:

Yeah.

Brandon Cobb:

Like a really big rehab. And we ended up building that home faster. I think we built it in like six and a half months faster than one of our full gut rehabs we’re doing.

David Richter:

Wow.

Brandon Cobb:

And we made three times the amount

David Richter:

<laugh>

Brandon Cobb:

Of profit on that new build. And then we, because I think our costs at the time were like a hundred, $105 a foot to do new building.

David Richter:

okay

Brandon Cobb:

We just looked at what we did and recognized that we had an advantage. We had the construction company, we didn’t have to pay a builder fee. We could control a lot of those costs in house. And we said, holy crap, there’s an opportunity here. And so literally we just completely got rid of all of the house flipping and the wholesaling and we just strictly focused on building in certain neighborhoods. So rather than building a big huge giant like net 40, $50,000 mailers a month, we knew which neighborhoods we wanted to build in and we were able to laser focus. And so our project managers were only having to show up to the same,

David Richter:

Yeah.

Brandon Cobb:

Same place every single day. Materials were going to the same place every single day. There was economy of scale. And so we saw that there was a lot of advantage to that. And then after we really got that set up, we said, well why are we talking to sellers who only have a property or two and we can build, you know,

David Richter:

Yeah

Brandon Cobb:

Two or three houses on it? Why not talk to sellers? We can build 40 or 50 houses.

David Richter:

Yeah.

Brandon Cobb:

What’s holding us back? And that’s what got us into development and networking with the local communities and the mayors and the planning commission and really trying to figure out what the vision for their community was so that we could give them that.

David Richter:

Yeah. Well I know this is the profit first our REI podcast. We’ll get there. But I have two questions from, and an observation from what you just said. I wanted first know when you went from fixing and, you know, to in the wholesale to the new builds, was it hard to make that adjustment even after you saw the numbers to say, we’re gonna stop what’s been making us money over here and now we’re gonna start building? Or was it like you still had some flips and you wet those peel out and then you started ramping up your, you know, the new build side to make sure it was good? Cuz a lot of people, I feel like they hang on forever, you know, like to the old thing and then it’s just they keep adding things and then that’s where our company failed years ago. We added too many verticals and they all had to support themselves. So how was that transition period?

Brandon Cobb:

Yeah, I mean it was a transition, right? We still had quite a few flips and wholesales that were going on. We’re in the process of it. But we did shut down the marketing for it. So there was no new leads incoming.

David Richter:

Okay.

Brandon Cobb:

We got rid of, uh, you know, at the time our acquisition rep or the acquisition rep left, it was perfect ,

David Richter:

<laugh> perfect timing.

Brandon Cobb:

We left the exact time, you know, we got rid of our lead intake. She quit too. So that was, it was like

David Richter:

yeah

Brandon Cobb:

Literally perfect timing. I couldn’t have timed it better.

David Richter:

Yeah

Brandon Cobb:

I didn’t have to do the fiery cuz I was

David Richter:

right

Brandon Cobb:

Regretting it cause I absolutely hate firing. It’s just

David Richter:

yeah

Brandon Cobb:

Something that I really struggle with. But we shut all that down so we, you know, we saved the marketing dollars. We didn’t have any coming leads. We had a small pipeline of projects that were finishing and at the same time we were starting these new builds.

David Richter:

Okay.

Brandon Cobb:

And so it really worked out perfect on the timing.

David Richter:

Yeah, that’s awesome. Cuz you hear people, you know, they think, oh, this thing’s gonna save my butt. And then they’ve still got the other things and they’re just trying to do too many things at once. So that’s very fascinating. Another thing that really struck me from what you said, you knew a lot of KPIs, you knew how many leads were coming in, how many we were converting, what is our margin on these flips? When did that, did you have that from day one in this company? Or was that you that came up with that? Was that someone in the company? Like how did you do that from in, you know, when you first started?

Brandon Cobb:

Yeah, so it came from networking and masterminding.

David Richter:

Okay.

Brandon Cobb:

Most notably net masterminding. So I’m not, I don’t consider myself a very innovative person. I love copying and pasting what’s already worth

David Richter:

<laugh>.

Brandon Cobb:

I’m a big who not how guy. So all I did was I took akp sheet from somebody else that was in the mastermind that I was a part of at the time and took his KPI sheet and literally just had my lead intake start plugging in the numbers as she got ’em.

David Richter:

Yeah.

Brandon Cobb:

Having my acquisition reps start plugging in the numbers as we got ’em. And then of course I did weekly sales calls

David Richter:

Yeah

Brandon Cobb:

And we would go over the numbers, we’d review it and kinda see where we’re at with our sales funnel. So it took probably two years to get that up and running.

David Richter:

yeah

Brandon Cobb:

I knew how important it was to have certain business styles in place because I was hearing about what other people in the business were having success with. And I saw this as something that was crucial. I compare business dials to dials on an airplane

David Richter:

yeah

Brandon Cobb:

That pilot at night or in the daytime. I mean, if he doesn’t look at his dials, he’s flying blind.

David Richter:

Right.

Brandon Cobb:

And if the dials aren’t accurate, you have no clue where you stand as business.

David Richter:

Right.

Brandon Cobb:

And that’s one of the reasons that actually helped me transition into the profit first model, you know, specifically with your company

David Richter:

yeah

Brandon Cobb:

Is because you spoke to a very specific demographic and you were very specific on the types of problems that this industry faces that are quite frankly very endemic. Right. Everybody’s got cash flow issues in real estate and I knew that I needed to have my dials really plugged in, especially when we started scaling doing, you know, 30, 40 plus houses a year in the new build sector.

David Richter:

Yeah. Well that’s awesome. And that’s where we’ll get into that portion too working with us in the prophet first. But I think it’s very telling that, you know, going to those mastermind events, like if you’re listening now, he just gave you a big secret that two things, one, how important the KPIs are to your business. And number two, getting around people that even if you’re not like, oh I’m the KPI king or queen, that there’s other people out there that have built this before too. It’s like, get around those people. Man, that was really good because I also was, when you were telling the story or your story, you said you were making the decisions based on these numbers too. Like our margins went down, we were doing higher end flips, but making less profit and like that didn’t make any sense. So, you know, then it was a natural progression but you don’t know that if you’re not tracking it. So I thought that was pretty cool. Okay, so let’s go into it now with the prophet first side. So what got you interested or excited about the prophet first message?

Brandon Cobb:

Well I had read Mike Macallan with his book Prophet First, so it wasn’t new to me.

David Richter:

Yeah.

Brandon Cobb:

And I can’t remember where it was. I wish I could pinpoint, I know you were recommended to me in another pow uh, in another mastermind that I was a part of.

David Richter:

Yeah.

Brandon Cobb:

But I read your book and at the time I was interviewing fractional CFOs. I knew that we didn’t need a full-time CFO, but we needed somebody who had worked in the construction space, specifically in the new build sector who knew exactly how to properly cash flow forecast. Cuz at the time my CFO sucked

David Richter:

<laugh>

Brandon Cobb:

And I really needed to hire him. You know who that person was?

David Richter:

Yeah.

Brandon Cobb:

It was me.

David Richter:

Okay

Brandon Cobb:

I could never get the cash flow forecast. Right. It seemed like when it came down to the closing table, there was always more money on that sheet that enter or I guess more money in the bank account than I had expected from the sell of that, and I’m like,

David Richter:

Okay,

Brandon Cobb:

Why are my profit margins so off? And it, you know, it was funny, you do a really good job in your book of really speaking to the problems that real estate investors have.

David Richter:

Yeah.

Brandon Cobb:

I mean it’s like you’re talking to their soul and I remember taking that example and you were talking about how, hey, do you ever wonder why the money you project at the end is usually like a little bit more that you get in your bank account than the profits. It’s like, because you have your own money sunk into it. And I was like, holy crap, that’s exactly what’s happening. And when you’re going over budget, you know, 10, 20, $30,000 among a 30 40 unit portfolio, that’s a lot of money

David Richter:

right

Brandon Cobb:

And they can give you the false premise that your business is not doing so hot. Where’s all the money? Realistically you need to figure out how to get it outta your projects. So that was what sparked me to have a conversation with, uh, simplecfosolutions.

David Richter:

Okay. Well that’s, I love that you said that because <laugh> I remember writing specifically that portion of the book because I when I first got into real estate, I was like, why is my HUD different than like what we just projected on this spreadsheet?

Brandon Cobb:

Yeah.

David Richter:

And it just drove me nuts all the time. Then I’m like, okay, now I finally figured it out. It’s either we’ve got two the private lender and we have still some of the error leftover money or it’s our own money sunk into it. It’s like, it’s either one of those two scenarios more than likely than not. So I totally get where you’re coming from there <laugh>. Cause like I said, I ran into that all the time. So then how has that journey been like before Profit first and before that mindset and the cashflow? How did the business look like? Were you running out of cash or like just beating yourself? It sounded like you beat yourself up a lot because you were the cfo at that point. Like what did it look like beforehand?

Brandon Cobb:

Well we had pivoted on our entire structure and I’m not gonna go into the structure a whole night.

David Richter:

Yeah.

Brandon Cobb:

Cause I don’t know if it’d be beneficial for your audience and it might just confuse ’em, but we had somewhat of the profit first model set up. I’m gonna say that it was very infant say in other words.

David Richter:

Yeah.

Brandon Cobb:

We had specific bank accounts for different syndications and we had a bank account for the private lender’s money and we had a bank account for operational expenses and we had a bank account for any kind of construction expenses. Cause I think the biggest mistake I see people make is running their business outta one bank account. And that’s what we did the first two years

David Richter:

yeah

Brandon Cobb:

And we were starting that. We recognize that that was a no-go. Cause if you’re putting your private money into the same account as your operational expenses and your construction budget, that operational machine’s gonna keep eaten and before you know it, you’ve eaten some of your capital away that was designed to go to a project. And then

David Richter:

yeah

Brandon Cobb:

You get in this Peter Rob Paul moment. Right. We see it every single day in the real estate industry. And I knew that I needed to really set up each syndication as its own business. In other words.

David Richter:

Yeah,

Brandon Cobb:

It can’t have just one account. It needs to have an income account, it needs to have a profit account, it needs to have a construction budget account. We set it up where all these different syndications will invoice the, basically the syndication llc. So like our construction company will invoice each different L L C and then as money flows into the construction account, it immediately is sent to all the contractors through

David Richter:

nice

Brandon Cobb:

Stroller, and that way you don’t get this Peter Rob Paul stuff that happens with the construction company. That, and I knew that it was going to take somebody that could build this and implement it like for my team to do that. It’s very difficult and it’s very time consuming for me to try to execute the profit model. We were just at the point where we really needed a fractional C F O.

David Richter:

Yeah. Okay. So then let me ask this too before we go into the fractional C F O portion. Up to that point, how were you paying yourself? Like were you able to pay yourself what you needed? Because that’s a big portion of like the profit first message. And I’m just wondering for you personally, like was that another thing that it helped you with or were you like No, I was getting what I was, what I needed from, you know, before that message

Brandon Cobb:

I had salary set up for myself and my partner.

David Richter:

Awesome.

Brandon Cobb:

So we were getting a salary from it, but we had no clue when and if there would be distributions. Right.

David Richter:

okay, yeah

Brandon Cobb:

Cause real estate’s this I’m rich, you know

David Richter:

<laugh>

Brandon Cobb:

I’m poor, I’m rich, I’m poor. As all the closings come. And we didn’t have a method for really boiling things down when all the money came in and wondering, well how much do we need to set aside for operations? How much do we need to set aside, you know, uh, we need to pay investors out this so much, how much do we set aside for um, you know, the interest payments. We didn’t know how to like what to do and how to divide the money up afterwards. So we would just keep all the money in the business. And when you just keep all the money in the business, what does the business do?

David Richter:

Right.

Brandon Cobb:

Business gonna eat all the money.

David Richter:

Yep. Exactly. Awesome. So now do you have a better viewpoint of like distributions and being able to take the money out and you know, put it where you need it to go?

Brandon Cobb:

Uh, yeah, 100%. What I’ve been most impressed with is the cash flow forecast sheet because it shows exactly how much cash is going to be realized. That closing, because Lori, our fractional CFO is able to track exactly what we have in each project and can tell me, Hey Brandon, you need to go raise a little extra money for this project. You’re going over budget budget and you’re gonna have to use company funds.

David Richter:

Mm-hmm <affirmative>,

Brandon Cobb:

That’s huge. Especially when you’re doing the amount of projects that we’re doing. So being able to see exactly where we stand and have accurate cash flow forecasts that allows us to see, okay, we’ve got this amount of money coming in at this month, we’re gonna have to pay investors out this much. We’re gonna have to pay taxes on this much.

David Richter:

Right.

Brandon Cobb:

We’re gonna have to set aside this much in case we go over budget on whatever projects and we’ve got a leftover amount that we can now make a decision. Do we wanna reinvest that back into the company or do we wanna take distributions, which is exactly how a company should be run.

David Richter:

Yeah, no that’s awesome. I love that the clarity sounds like you’ve got a lot more clarity now of where the money really needs to go and where it has been and where it is going. Because if you’re doing 40 projects ahead of time, you know, even a few thousand dollars starts to add up really quickly to the six figure mark <laugh>. You know, like you’re on your way there very fast. So that’s another Yeah, I a hundred percent agree with where you are of like, you gotta make sure we know where that cash is going. So that’s what it sounds like it’s helped you a lot with uh, with the cash flow and being able to know <laugh> where every dollar’s going in the business.

Brandon Cobb:

Oh yeah. I mean we can get as granular as we want. I mean we use cost codes so every single subcontractor light ’em, we have a budget for it.

David Richter:

Yeah.

Brandon Cobb:

And we track it. So if we go over budget, we’re able to see exactly which line items we’re going over budget. And that allows us to hyper-focus efforts on trying to reduce, cause uh, reduce overages in like that specific, I mean having the cost code knowledge is why we set up a warehouse and started importing building materials from Turkey. One to reduce our costs and two, to mitigate the supply chain issues. And

David Richter:

Yeah.

Brandon Cobb:

You know, we wouldn’t have been able to do that without our fractional C F O.

David Richter:

That’s awesome because a lot of people have these grand visions, but then the real work happens behind the scenes. And I feel like with you, I mean this is, I love this podcast episode because it sounds like you’ve gone from where a lot of people start wholesaling and flipping. You had the right numbers which pivot you into a more profitable area and especially in like, it could be market specific or whatever and like for your business you pivoted at the right time than you went to a different, you know, channel and now you have more clarity of like, okay, now as it’s getting more complicated, more systems to put in place to be able to say, do we need our own warehouse? You know, supply chain issues and all that as well too. Uh, so if you’re listening to this podcast and you’re just getting started, like it’s your first deal, this is how important the numbers are from the very beginning, knowing where you stand because then it’s like, okay, how are we doing it? I’m not saying you have to follow Brandon’s path either, you know, it’s just knowing, knowing if it’s time to do something different or to pivot or to go into a more profitable area of real estate that you can get into. This has been awesome. I like the journey that you’ve taken. I think a lot of people can take a lot from this cuz we, it’s not just the journey. I love what you said too, like you didn’t come up with the k p sheet, it was a network, you know, so, and anyone, anyone can get a part of a network. So there’s, that’s been a lot of good stuff there. So then I guess, so you’ve talked about working with your CFO and all of that. What, uh, is there anything else having a CFO provide you or whatever that you working with the CFO that you thought maybe I didn’t know this was gonna happen or I didn’t know it would be this helpful or like anything else that you would say like working with someone on that side of the business?

Brandon Cobb:

Well, I’ll tell you. I’ll answer that questions, but just going back to what you said real quick, I’ll tell you a painful story

David Richter:

Yeah.

Brandon Cobb:

Of what it’s going to cost you if you don’t get your

David Richter:

<laugh>

Brandon Cobb:

Bookkeeping and your numbers cleaned up from the beginning.

David Richter:

Yeah.

Brandon Cobb:

You know, back my first, you know, year and a half in business, I wore all the hats. I was the guy managing the projects. I was the guy taking all the phone calls. I was the guy going all the sales appointments. I was the guy doing all the bookkeeping, which was a mess at the time. And I remember finishing one of the you know, the new builds. Funny that the third project we ever did was like a new build. Like we wholesale ‘

David Richter:

hmm-mm

Brandon Cobb:

On, we flipped one and then we did a new build and we’re like, oh my god, new build was at nightmare. We’re never doing that again. We, I think we lost like $40,000 on that new build. But it was a

David Richter:

okay

Brandon Cobb:

Great burning experience. But I remember

David Richter:

yeah

Brandon Cobb:

Finishing that new build project and I’ll never forget this project, cause that’s when I realized it was a terrible project manager. And I did not want to ever do construction ever again myself. I wanted to build a team around that. But I had to do the bookkeeping and I had all of these, uh, like receipts in a folder, right? That’s how I was keeping up with everything. It was like a sh like a Google album folder in um, uh, or an Apple folder in my phone. And I needed to be able to clean everything up. In other words, like itemize it to the credit cards. Well I was using like seven different credit cards to buy all this stuff

David Richter:

hmm-mm

Brandon Cobb:

And just taking pictures.

David Richter:

yeah

Brandon Cobb:

So when it came time to actually get good accounting on that project, my accountant at the time explained what I had to do, which was to print 80 pages worth of statements. You gotta think it was 10 months worth of stuff. That’s

David Richter:

yeah.

Brandon Cobb:

Seven, eight credit cards, that’s 10 pages

David Richter:

yup

Brandon Cobb:

That’s 80 pages. And I had to go through the 200. I think it was like like 224 receipts. I mean that’s how ingrained this is in my brain,

David Richter:

Wow

Brandon Cobb:

How painful it was. And I had to find every single one of those 224 expenses somewhere on that 80 pages worth of stuff. It took me like nine weeks

David Richter:

Wow.

Brandon Cobb:

To figure that out and actually do it. And I was, and I swore, I was like, I’ll never again do this. I’ve gotta get the books in proper order and I’ve gotta get the accounting in proper order.

David Richter:

<laugh>, that’s really good. It, that’ll save you a lot of hurt and heartache if you listen to him right now. And you’re just starting out making sure everything’s in order so you don’t have to go through nine weeks of cleanup or just headaches of trying to get the transactions in place. That’s very good advice on this podcast.

Brandon Cobb:

Yeah. As far as some other unexpected expectations, when I was hiring the CFO role, it was different than any other role that I ever hired before because it was new. So I didn’t have a list of expectations.

David Richter:

Mm-hmm. <affirmative>,

Brandon Cobb:

I honestly had an idea of what some of my needs were, but I want, again, who, not how I wanna bring somebody into the organization that cannot just solve the current problems

David Richter:

Yeah.

Brandon Cobb:

But foresee issues and advise me on what we need to be doing. And to this day, that’s a hiring best practice that I use. If I don’t see them as a strategic partner, if they’re not coming into the organization and able to build that department out better or execute that job better or punch holes in our systems and processes during their ride along during the interview, we don’t hire that person. So as I was going through this, this process and, and getting to know Lori, I was asking her, Hey, you need to advise me. I want you to see what holes and gaps and efficiencies you see in the business. So she was the one that actually came in and said, Hey, for your bookkeeper, here’s, you know, here’s a KPI sheet that we need to start using. Here’s the list of expectations that this bookkeeper needs to do. Here’s how to measure the bookkeepers performance. That was really big. Um, again, utilization around cost code, future, cash flow forecasting, uh, being able to actually tell me how much money we’re in and out on each project. There was a lot of stuff that was unforeseen that she was advising on. That’s the number one thing I look for when hiring. So she was able to, uh, bring a lot of that unknown information on board.

David Richter:

Yeah. And I, she even has experience in the building and uh, that part of real estate. So we were talking about that beforehand and she was like, she raised her hand. She’s like, I’d love to really work with Brandon because you know, I’ve got that experience. So that’s where I love being able to pair up people that have those same mindsets and just being able to help and, you know, get people exactly where they need to be. But, uh, now I really appreciate that we’re gonna transition to just a few final questions here. But I’d like to know, you’ve talked a lot about your journey, which has been amazing journey and I love all the different stories and how they’re relating then uh, your profit first journey as well too. And then working with the CFO you’ve had, I would say looking at from, you know, my viewpoint or from the listener’s viewpoint, you’ve had a lot of success over the last, you know, few years and especially in the real estate world here. What would you say is one key habit that you’ve had that has helped you on this path of real estate investing?

Brandon Cobb:

You know, I’ve probably beaten a dead horse at this point, but you know, really it’s the who not how mindset. You know,

David Richter:

Okay

Brandon Cobb:

You’re not gonna be able to scale without a team. So having really good hiring systems and processes is really key. And again, I can give you a few dominoes that if you do these things, you can screw up pretty much the whole other hiring process part and still experience some level of success. You know, number one is hire a strategic partner. Don’t hire somebody who’s you felt like you’re gonna have to train and kind of get up and running. You know, in the beginning stages when I was hiring people, I think I was scared to hire people that I thought were smarter than me

David Richter:

Okay

Brandon Cobb:

Because of what they would think about me in my business.

David Richter:

Sure.

Brandon Cobb:

And that is just not true anymore. I’m like, if you can’t outthink me and you, you know, bring a strategic partnership to the organization and I really hop on like strategic partner cuz that really what they are, right.

David Richter:

yeah

Brandon Cobb:

Because they’re coming on, they’re advising, they’re building this out better than you can. That’s absolutely huge. Um, we could do a whole freaking episode on hiring, so I won’t go down the rabbit, so I’ll leave it. That’s my answer. Hire strategic partners, don’t hire employees.

David Richter:

Okay. I really like that. I feel like they’ll have more vested in the company as well too. And they’ll be more, uh, more apt to, you know, like we even began the <laugh>, it’s coming full circle. We began the call with you saying, you know, no one’s gonna be as loyal to you as you are in like, making sure or looking out for your financial situation. And I think what you’re talking about here is one way how you can engender loyalty in the group is giving them ownership of different areas and having them be strategic thinkers and not just worker bees all the time. So I think that was, I think that’s really key too.

Brandon Cobb:

Yeah, and I’ll give you a nuance just so people aren’t confused. We don’t give away ownership, you know, I’m thinking from a psychological standpoint, think of them as a strategic partner. You know, one of the things that we’re working on right now is how do we give ownership more like shadow ownership?

David Richter:

Yeah.

Brandon Cobb:

So like a profit share.

David Richter:

yeah

Brandon Cobb:

That’s how I would set up, I would set up profit share, but

David Richter:

Awesome.

Brandon Cobb:

I wouldn’t like give away equity. So just, I don’t want people going away and just giving

David Richter:

<laugh>

Brandon Cobb:

Away equity and signing people that they hire on the LSC operating agreement. You know,

I’ve got 20 employees and they all have Massive amounts of value in that.

David Richter:

Right.

Brandon Cobb:

But just how you think about hiring people.

David Richter:

Yeah. Oh that’s awesome. That’s really good. So make sure you hire people that are strategic partners. His habit that he said is the who, not how look for those people that are good at what you aren’t. I think it was very, uh, revealing as well too that was very, being open of like when you first started hiring people and like, oh, they’re smarter than me. I don’t wanna work with them. That’s something I think a lot of people run into. They are embarrassed at that point. And I love how you said now nope, <laugh>, that doesn’t matter to me. I want them to be smarter than me and especially in this area I’m hiring them for because they’re gonna be the ones leading the charge in that area. So now that’s really good. That’s couple last questions here. Um, last minute advice for the real estate investing community that could be on the market, could be anything. We definitely know the who, not how, but is there anything else? Just general real estate investing advice.

Brandon Cobb:

I think now more than ever would the uncertainty of the market and the changing economy and interest rates now more than ever, it’s important to run a tight ship. If you’ve been lenient about things in the past, if you’ve been on the verge of firing that person, if you’ve been on the verge of getting your stuff cleaned up, getting more strict on people, creating those key performance indicators for your team, now’s not the time to sit on anymore. Now you have to have a really well oiled machine that’s going to make it through, you know, whatever times it are. We try to keep as much operational cash on hand to be able to weather whatever storm, but be ready to make quick and decisive decisions that you need to, you can’t sit on the people that are bleeding your company anymore. You can’t sit on the big operationally efficient decisions that you need to make. Now is action time.

David Richter:

Yeah, that’s really good. Um, especially in a market that might tighten the ship for you if you don’t

Brandon Cobb:

Yeah.

David Richter:

<laugh>. So make sure you’re doing that. So that’s really good. This has been awesome. I loved hearing your journey and just telling and I think giving them people a lot of hope here of wherever they are. And I love that your mission as well too of your company, like helping investor fulfill their dreams, you know, and like just having that overall vision. So this has been a really good episode. Make sure you know your KPIs. I mean he beat on that several times in this episode. Like make sure you know that hire the right people, higher strategic partners, the who not how, making sure you have someone that’s there that helps you with the financial side as well too. So you don’t go into a nine week cleanup and you wanna come outta, you wanna go into rehab after you come outta that cleanup, you know, or whatever. So that’s where I wanna make sure that you have that and that’s where, uh, Brandon, that was awesome. So now you’ve dropped a lot of knowledge here. How can people get in touch with you or what are you looking for or how can people connect? I want them to be able to give the value back.

Brandon Cobb:

Yeah. So you know, if you’re interested in passive income investments, if your goal is to build a legacy for your family and impact those close to you, uh, I would invite you to visit hbgcapital.net. That’s harrybobgarycapital.com. I joked that the.com sorry was already bought up and we’ve got a ton of free resources. Um, you know, if you’re in the real estate business and you’re looking to diversify or you wanna keep your day job and have additional streams of income set up to go direct your bank account, we’ve got a ton of free resources on our website. You can grab our free e-book, uh, recession resistant real estate. You can grab our free e-book. 100 questions. Passive Investors should Be Asking Before Investing actually wrote that book because I had investor call me and he lost all of his money on investment,

David Richter:

hmm-mm

Brandon Cobb:

Giving it to a real estate investor and he was wondering what his options were. And after sitting on the phone with him for 30 minutes, I was like, holy crap, what can I do to prevent this from

David Richter:

Right

Brandon Cobb:

Happening right here? And he just wasn’t asking the right questions before investing questions are powerful and if you’re new, you don’t know what questions to ask. So, um, again, you can go to our website, hbgcapital.net, you can grab that book and you can schedule a call with us directly. Everybody gets FaceTime with me so I don’t outsource that. We really do take the time to get to know each individual investor and build a relationship. So, uh, we look forward to getting to know you.

David Richter:

There you go. So we’ll make sure, we’ll put that in the show notes as well. But hbgcapital.net and sounds like he’s got some awesome eBooks there as well too. I would take advantage of that. I’m sure they’re just right there on the website for the you to take there and to be able to read those. I trust Brandon with, uh, whatever he puts out. So go there, get his information, download those eBooks and I think it’s gonna help you a lot. Uh, on the other end if you’re listening to this and if you are a real estate investor like Brandon and you say, I know the numbers are important, but I am running around like a chicken with my head cut off and I have a bunch of receipts that are going different places or, or you just say, I need what he was talking about. I need that clarity. You can head over to simplecfo.com, click the schedule call button, we’ll get to know you, see if we’re the right fit. If we’re not, we’ll pin you to someone in our space. I wanna make sure you get help if you want that help at this point, if you are running around like that. Thank you so much for listening to this episode. Brandon, thank you so much for being a part of this episode and for dropping all the knowledge that you did today. I know it’s gonna help a lot of people, so thanks so much for being on.

Brandon Cobb:

Hey, thanks for having me. It was an honor.

David Richter:

Thank you so much. And I really appreciate all the knowledge you dropped here. And if you are listening to this, remember to make profit a habit in your business.

Outro:

This episode of The Prophet 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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implementing Profit First...

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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.