00;00;00;00 - 00;00;22;15

Unknown

So I thought that my private lenders wanted paid a higher interest rate. And I thought that if I paid a higher interest rate, that would incentivize them to lend me more money. Right. Which makes sense. But what I found was that for people who invest in stocks, once that interest rate gets high or the return promised gets high, that looks risky to them.

00;00;22;17 - 00;01;01;17

Unknown

And so I remember I was meeting with a potential lender. I was offering him one loan at 10% and another loan at 8%. And I was trying to incentivize the eight. And I'll never forget. You heard both of them. And then he said, you know, 10% sounds risky. Let's go with the. And I thought, okay, so they equate a higher rate of return with higher risk, which in essence it is because if I borrow the money my payment's going to be higher, my cash flow will be smaller, and so I lower to 10% than my lower did the seven and raised more money and lowered it to six and raise more money because the lower

00;01;01;17 - 00;01;25;12

Unknown

the interest rate were willing to pay, the lower the risk of that investment. Welcome back to the Profit first rate podcast is David Richter. I have Chad Harris today. I have gotten to know Chad here recently, and I love what he's doing in the real estate investing community. Honestly, I love this topic. We don't talk about it enough because this is the profit first, right?

00;01;25;13 - 00;01;44;03

Unknown

Podcast. And I want to make sure you have cash and cash flow and that you're not always having to use your own cash. And Chad is an expert at raising money from private lenders. So we're going to focus on that a lot today. So Chad, thank you for being on today and I'm super excited about learning about this with you.

00;01;44;05 - 00;01;48;18

Unknown

Hey, glad to be here David. Appreciate the invite.

00;01;48;21 - 00;02;06;06

Unknown

Yeah. Well, I want to dive into this. And first, before you tell me your whole story about how you got into real estate and all that, because everyone's got a story, right? Why did you go down the road of private lenders versus either using your own money or, I don't know, bank financing or anything like that? What drove you down?

00;02;06;06 - 00;02;41;28

Unknown

The private lender path? Yeah, sure. So I got into real estate. I didn't plan to. My background was I was a high school English teacher, and then I was a missionary overseas in ministry. And so I lived in rural Kenya, very remote setting. And for that work, I had to raise a lot of money. So I got used to having those conversations about money and, just how that conversation works and got very good at it, out of necessity for ministry.

00;02;42;00 - 00;03;07;28

Unknown

And, never had any plans to get into real estate. But then in 2013, my youngest son was born and had health issues, and we couldn't return overseas. And I realized that not only did I need a way to pay my bills, but I really just felt that I wasn't providing enough for my family. I felt like they deserved more than I was providing financially, and so decided to go into real estate.

00;03;07;28 - 00;03;33;04

Unknown

I've been listening to podcasts and reading some books, and I just went out there and started telling people, hey, I'm buying properties. I'm, buying rentals. At the time, my income from the job was $2,000 a month. I had no savings. My job was ending because we couldn't return to Kenya, and I looked terrible to a bank.

00;03;33;04 - 00;03;54;22

Unknown

Right? There was no way I could go into a bank and borrow money, but I was just committed to figuring it out. One way or another. I was going to figure out how to buy rental properties, and I kept finding over and over people, and I would be telling them I was buying rentals, which I think in reality a lot of it was I was just casting a vision for myself, right?

00;03;54;22 - 00;04;13;17

Unknown

Trying to convince myself I was going to be able to do this. But over and over people would say, oh, that's amazing. I wish I could do that. I always wanted to do that. I looked at buying a rental and then got nervous and just never did it, and I realized there was an opportunity where I could help them.

00;04;13;19 - 00;04;32;09

Unknown

Right? All these people I was running into wanted to get into real estate and wanted to get involved in rentals, but for one reason or another didn't. And I could help them by helping them get into rentals. But as a lender and they could be just like the bank and get all the returns like a bank and the security that a bank gets.

00;04;32;16 - 00;04;59;20

Unknown

And at the same time, I could have access to that money and buy the rentals that I wanted. And so I really leveraged the skills I learned in ministry and fell into the private money concept. But that's how I bought my first 25 doors. And then I started to figure out some seller financing ideas. And still at 80 doors now, we never used a bank for the purchase of a property.

00;04;59;22 - 00;05;21;19

Unknown

So which is this nice. That's that's a good deal. Yeah. Yeah it is. That's awesome. I love that you've used private money seller financing and like not having to use a bank. It seems like at the beginning, out of necessity now it's more like, okay, this is just part of your system and part of what you do, you know, to the acquire the doors and get in there.

00;05;21;19 - 00;05;42;24

Unknown

So that's that's a very interesting story to that Ministry prepared you to raise the private money because it is. Right. Because it when you're in the ministry you're raising you're raising the funds to be able to be there on the field or to be able to go. And that is like it's it's funny how it's a little boot camp almost for real estate investing.

00;05;42;26 - 00;06;12;14

Unknown

Because of that. So that that is so interesting and I love that story. So then talk about sense. That's where you dove into. And now you've got the doors and you're teaching other people. What are some of the best places to find the private lenders. Yeah. So there are private lenders all over the place. And that's probably one of the biggest, misunderstandings about private money with people that I talk to.

00;06;12;14 - 00;06;34;16

Unknown

They, they think like, okay, what's this one location or how do I find these elusive? And they act like it's kind of this elusive animal out in the woods. And how are we ever going to find, like, Sasquatch or something? And reality is that there are potential private lenders everywhere, no matter what circle you are in. Right?

00;06;34;16 - 00;07;00;02

Unknown

So if we look at what we offer our lenders, we're giving them a fixed rate of return. And our lender is just for clarity. So everybody understands what we're talking about. Our lenders are going to loan the money for the purchase and rehab, and they're going to have a first mortgage just like the bank. So they're going to get their monthly payments just like the bank.

00;07;00;05 - 00;07;27;15

Unknown

And all the security that a bank gets, right. It's recorded with the county. And so we're giving them a fixed rate of return. That investment is secured by a real property. And it doesn't matter what happens to the stock market. Their investment stays the same. Right. And those benefits perfectly fit. What a whole bunch of people out there have been told to look for by their financial planner.

00;07;27;15 - 00;07;52;12

Unknown

The financial planner tells them they should diversify their investments. They should have some money in the stock market and the money that's not in the stock market. They should have in something that gives a consistent return, but they should only expect 3 to 4%. Right. And we're offering a consistent return, not risking the principal in the stock market at a higher interest rate.

00;07;52;12 - 00;08;21;14

Unknown

So we offer 6 to 8%. And for a lot of people that's an amazing return. As a real estate investor, we feel like that's kind of low. And why would somebody want to lend money at 6%? But for somebody who's financial planner has been telling them for 30 years that in retirement they should expect 4%. If we pay them 6% or 8%, we're actually drastically increasing their lifestyle.

00;08;21;17 - 00;08;49;16

Unknown

Right? We are drastically increasing the vacations they can provide in retirement, what they can provide for the grandkids, the experiences they can have. We're giving them a 50% to a 100% increased return on really how they live and retirement. So there are potential lenders all over the place, and there's a real simple process for just initiating that conversation.

00;08;49;18 - 00;09;18;14

Unknown

Right? I like a three part introduction where you just tell people what you do in a very specific way. So you want three parts. You want your why, why you do what you do, what exactly you do, and then how others can be involved. So for me, it is I love improving neighborhoods. I buy beat up properties, fix them up, rent them to great families, and I share the profits with friends, family, and people I know.

00;09;18;16 - 00;09;37;28

Unknown

And I include that introduction all the time, every time, wherever I meet anybody new. And over time, you just have all these conversations where people say, wow, I never knew that. I didn't know, how is it? How does that work? How can I profit in the deal? Or how can I share in the profits? Right? Who doesn't want to share in the profits of a real estate deal?

00;09;38;00 - 00;09;57;21

Unknown

That's an exciting opportunity. And so there are places where you can be in circles where there are more potential private lenders. But the general answer is there are lenders all over the place. They just don't know. They can be a lender in our business until we educate them on.

00;09;57;24 - 00;10;19;08

Unknown

Okay. So that makes sense. So you're looking at when you go there and you go and just out into the world of like, okay, if there's someone that I meet, there's this set of questions that I have or like what I have to offer and how I can present it to them. And I like your little framework of the why, what and how and like what you're doing and why you're doing it, and then how they can get involved.

00;10;19;08 - 00;10;38;20

Unknown

I like it's keeping it very simple, but then as well too, it's like you said, there's other places where more of my congregate. And before we were on, I usually do this at the end, but this might be a good place. Just to drop this link, tell the link that you have to find lenders. If people are like, hey, I want to go deeper into that.

00;10;38;20 - 00;11;08;25

Unknown

I want to know more like, how can they find that thing that you put together? Yeah, definitely. So I compiled a list of circles, basically groups to get into and places to go where you're just naturally hanging around people who are potential lenders. And it's 37 plus places to find potential lenders or find private lenders. You can get that list, go to True Wealth investors.com/find lenders.

00;11;08;28 - 00;11;30;16

Unknown

Happy to share that with you a great resource especially to get started. You know that first, when you're first sharing your story and looking for that private lender, it feels really elusive. And once you get the list and you try out a couple spots and start having those conversations, you can gain confidence and then really find you have access to money all over the place.

00;11;30;16 - 00;11;53;15

Unknown

You just didn't realize it. So yeah, definitely check that out. True wealth investors.com/find lenders. Awesome. So that's that website true wealth investors.com/find lenders. So if you're like okay I love this I don't want to be using my own money. I want I need some help and support. That's where you can go and get the 37. I love that it's that number.

00;11;53;15 - 00;12;17;20

Unknown

It's like just 37 places you could go and find private lenders out there in the marketplace. And so that's that link true wealth investors.com/find lenders. Now Chad I also wanted to ask why did you choose the rental path versus other paths in the real estate world. Like flipping wholesale commercial I don't know like all the different things out there.

00;12;17;22 - 00;12;43;22

Unknown

Yeah, completely. And it's interesting because really it would have from the outside, it would have made more sense to flip or wholesale or do things that gave me quick, you know, piles of cash, essentially. I was familiar with rentals because my parents had had rentals, and I saw in their life that over time, those rentals and provided good things for them.

00;12;43;24 - 00;13;19;13

Unknown

And when I got started, it was, what, 2013? It was still the recession. There were still, at least in our market in Dayton, Ohio, there's a ton of inventory, and it was hard to sell. There wasn't much financing. So for me, having access to private money or cash, I could buy all kinds of deals. Right. And so I saw that if I bought a rental, even though money would be tight, if I held on to it over time, things would just all work in my favor.

00;13;19;15 - 00;13;41;22

Unknown

And I was. As long as I could feed my family and pay for a roof over their head, I was more committed to that long term wealth and long term impact. And so I did have some creative strategies to help pay for, you know, my kids, they have this tendency they want to eat on a regular basis. I don't know if all kids are that way.

00;13;41;24 - 00;14;10;17

Unknown

Yeah. Yes. Yes they are. Yeah yeah yeah they are. So, I ended up structuring my deals because if you're making, let's say $200 a month, 250 a month from a rental, you have to, you know, you have to start to own a few rentals to be able to support yourself. And I wanted to be able to support myself day one without any rentals or just buying my first rental.

00;14;10;20 - 00;14;38;29

Unknown

And so the way I did that was, I was doing essentially the BR strategy, but it was before everything had an acronym. And, you know, before that there was a book, but I was buying the properties all cash, and I was raising more money than I needed for the purchase and the rehab. So let's just say for ballpark numbers, this house, the RV is going to be 100,000.

00;14;39;01 - 00;15;05;27

Unknown

I'm buying it for 50,000 and putting 10,000 into it. So I'm raising 65,000 and keeping 5000 for myself when I purchase it, then fix it up, rent it, and then refinance it and pull out 75,000 and then keeping money from the refinance. And so I made a little bit each month off the rent, but I made money every time I bought a house.

00;15;05;27 - 00;15;28;02

Unknown

And I made money every time I refinanced the house. I was buying with private money and then refinancing with private money. It's just short term private money and then long term private money. And so, yeah, to support my family, I just knew I had to do more deals. Right. As long as I was buying properties and refinancing properties, everything was good.

00;15;28;02 - 00;15;55;05

Unknown

But if I stopped suddenly, I'd be short cash. So that totally incentivized me to build a portfolio of rentals and by as many as I could. And for me, I was right. You know, it was lean in those early years, but man, it sure works out well in the long run. As property values rise, rents rise. You start to pay down the debt.

00;15;55;08 - 00;16;16;14

Unknown

I've just found that with rentals, everything works in your favor over time, right? And so as long as I can accept the lean days on the front end, the back end really works. Well, that makes sense. So you found that rentals, especially with the BR model, you were able to generate cash when you bought, which is very cool.

00;16;16;14 - 00;16;39;05

Unknown

But then also when you refinance, but then you also were building slowly over time, the passive side, the cash flow from the rentals as well. So then you had monthly income coming in, which was very useful. And then you, like you said, the long game turned out to be worth it. So maybe you were a little bootstrapped at the beginning and like, okay, we got to get through this period.

00;16;39;08 - 00;17;03;05

Unknown

But I do wonder because you said you bought your first 25 houses. Like, how long did it get you to where you didn't feel like the pressure every month? Was it 25 deals for you? Was it 50 or 80, the $80? Or like, where did you finally feel like, okay, it's not oh my gosh, I'm just panicking every single month at this point.

00;17;03;07 - 00;17;26;14

Unknown

Yeah. That's it. That's a good question. I don't I'm not sure what that exact point was. It was probably around $30. If I had to go back and look at it. And the reason for that in reality is that I didn't have somebody to kind of explain to me how to structure the deals and how to set everything up correctly.

00;17;26;17 - 00;17;53;00

Unknown

I was trying to survive, right? And trying to survive. You don't make the best decisions and you kind of learning as you go. And I structured a lot of deals early on where I had really high monthly payments to my lenders, thinking that they wanted their money paid back. And, you know, that that was my preconceived notion is that my lenders wanted paid back.

00;17;53;03 - 00;18;21;28

Unknown

That gave me really low cash flow in the early years. So it took me about 30 later, I discovered that lenders don't want pay back. They just want a return on their money, and they want their money kept invested. And that drastically changed everything, right? That was one of those things I really wish I had somebody tell me that upfront, because that would have saved me so much time and energy and cash flow in the early years.

00;18;22;00 - 00;18;45;16

Unknown

And so if I were to start over again, it'd be much less doors. Yeah, yeah. Because most stuck in dusters. They want to put the put their money into an investment and leave it and just get a good return. And so the payment typically a private lender doesn't want an amortized payment. They just want an interest only payment so that it's looks more like a dividend.

00;18;45;17 - 00;19;14;02

Unknown

Right. Which is what they expect to get off of their investment. It I really like that because you're like you're meeting the lender where they are and you're really understanding what they want and being able to ask that question, you know, and eventually figuring that out. But that's where if someone doesn't have maybe a parent who is in rentals or someone that's never been in the real estate world, that's where you would come into play to be able to say, here's what not to do, here's what to do.

00;19;14;05 - 00;19;42;08

Unknown

Like, this is where they're able to get that help as well, too, on down the road. I did want to ask before, like how people connect with you. Besides obviously the one where they can do the finding the lenders. I did want to ask before that was how did you know that in this space, like with the rentals and everything that you were acquiring and over the time, you know, I want to know, to man, I lost the question.

00;19;42;08 - 00;20;00;17

Unknown

I was leading myself and then I completely lost it. I think this is the first time on the podcast that I've done that where I had the question, and it is completely out of my brain, and now I'm completely stalling on the podcast while I'm doing this. So I'm either going to edit this out or this will be a very funny little segment here.

00;20;00;17 - 00;20;28;21

Unknown

And yeah, I'm sorry, Chad. All right. I completely apologize for this, but I will. I share a quick tip, a, while you're thinking of the question, another really quick, tip is another thing that I really messed up from day one was I thought that my private lenders wanted paid a higher interest rate, and I thought that if I paid a higher interest rate, that would incentivize them to lend me more money.

00;20;28;21 - 00;20;54;27

Unknown

Right. Which makes sense. But what I found was that for people who invest in stocks, once that interest rate gets high or the return promised gets high, that looks risky to them. And so I remember I was meeting with a potential lender. I was offering him one loan at 10% and another loan at 8%. And I was trying to incentivize the A, and I'll never forget he heard both of them.

00;20;54;27 - 00;21;26;09

Unknown

And then he said, you know, 10% sounds risky. Let's go with a and I thought, okay, so they equate a higher rate of return with higher risk, which in essence it is because if I borrow the money my payment's going to be higher, my cash flow will be smaller, and so I lower to 10%. And then I lowered it seven and raised more money and lowered it to six and raised more money, because the lower the interest rate were willing to pay, the lower the risk of that investment.

00;21;26;11 - 00;21;52;12

Unknown

So that's a good tip for everybody. Don't think you have a really down to 10%. So yeah, no, I like that a lot. And that's where honestly you it kind of answered the question that I had because I thought of it. It was like, what else would you do different at the beginning? And it sounds like you would not offer as high of a rate of return to people or an interest rate because of the perceived risk at the higher levels.

00;21;52;12 - 00;22;10;00

Unknown

And the actual risk, obviously, to you as well too. But is there I guess that's it. Is there anything else besides those two things? Because those are two pretty big things, obviously, like knowing if the lender wants to get paid and the higher rate of return. Is there anything else that you would have done differently at the beginning?

00;22;10;02 - 00;22;39;06

Unknown

Yeah, I'd say the only other major thing was in the beginning, I structure it, even if it was interest only. I structured it as four year loans and I thought they want some form of liquidity, and we'll review it every four years and they can extend it, which seemed great. Right. And they were happy with it. The problem is once you have quite a few of those and they're all randomly, you know, coming to a balloon at different times, it gets a lot to manage.

00;22;39;06 - 00;23;02;19

Unknown

So now we do ten year loans, interest only, fixed interest rate and the lenders still love it because they want to invest long term. There's no penalty if they want the the money back early. But we know that we're in it for ten years together and we can extend it from there. So that's what we do now 6% interest.

00;23;02;19 - 00;23;23;29

Unknown

Interest only ten year loans that can be extended. And for anybody just starting, that's what I would recommend because it's going to fit. It's not going to look like a traditional real estate loan, but it's going to fit what your private lender is looking for, a just a fixed rate of return where they can invest their money and leave it.

00;23;24;01 - 00;23;45;28

Unknown

And it continues. And they're not getting principal back, just interest. It's, awesome. Yeah, that's really good advice because a lot of people out there, you know, they go into it and they don't have any idea what to do and where. It's like, you've have this proven process. You've been you've cut your teeth on lots of deals. And what to do, what not to do.

00;23;46;05 - 00;24;16;24

Unknown

So I like how you all wrapped it, that it was very cohesive with number one, make sure you're paying them as they want to be paid and usually that's more. And you like you can push the system to what is more favorable towards you because then that's less risk to them if it is less risk for you, which also includes the interest payments and you know, the interest rate and also the term of the loan too, and that also helps your internal systems have a little bit more time to be able to say, okay, I need to set a ten year reminder versus four years, and all these are just popping off every four years

00;24;16;24 - 00;24;34;20

Unknown

without, you know, like, oh, shoot, I've got a lot of things coming to a head at this time. That way that gives you the time to build out those processes, to know what's coming up, and then to be able to extend at that time or, you know, ten years is a long time. So being able to say, hey, did I keep this for ten years, that I pay them out within those ten years?

00;24;34;20 - 00;25;05;17

Unknown

And, you know, it's just so many different things that can happen in real estate. So you're giving yourself more time and more buffer, it sounds like as well too. And you'll learn this from this rule of hard knocks. So I wanted to ask for people's sake. Obviously you have true wealth investors.com/find the lenders. But if they want to find you or like what you're teaching or being able to follow you, do you have like if they just went to true wealth investors.com with that send them down the path to like potentially working with you or your content.

00;25;05;17 - 00;25;32;01

Unknown

All that out there. Yeah true of investors.com perfect place for them to find more about me and what content I have there. A lot of free training and all kinds of information on what I do and how to structure the business, and how I help other investors build their businesses. Definitely. Awesome. Well, from this conversation, I will say one of the things I'm picking up is that you're very calm and that you're very, like, even tempered.

00;25;32;07 - 00;25;51;15

Unknown

And this space can be full of people that are not. So it's like, this is very refreshing to me as well to to have this conversation where if you're out there in the marketplace and you see all these people posting crazy things, honestly, I can get very like, oh, just hyped up as well too, on some of these videos and whatnot.

00;25;51;22 - 00;26;15;04

Unknown

And it's like, if you need someone in your life like Chad who's been there, who's going to keep an even head, he's going to keep that even keel, and who's going to help you build a good rental portfolio, be able to find the private lenders and be able to also a different, exit strategies, but also internally acquiring strategies to of like, hey, you could go sell or finance in the rental in like what he was doing even at the beginning and the BR model.

00;26;15;11 - 00;26;36;03

Unknown

So he's got different the different expertise there. Go to true wealth investors.com. That's where you can find him and the information. And if you're out there saying you know what, I'm already in this space. I'm going down this road. But I need help with my cash in the cash flow. I maybe you're you are using all your money and you need some of the private money, or you need to know where the money's coming from.

00;26;36;09 - 00;26;52;20

Unknown

We can help you on the financial side with simple CFO, and with making sure you have your numbers in order so you can run your business like a business owner. So if you could go to simple cfo.com to book a call there with our team, we'd love to see if we could help you on that side. Take that headache off your plate.

00;26;52;22 - 00;27;11;06

Unknown

But this is where Chad, this has been awesome. Thank you so much for sharing the ups and downs that you've been through in real estate and being real. And then those really good tips of what a lender really wants and how to mitigate that risk for yourself. So thank you so much for sharing that today. Hey Glenn, to David.

00;27;11;06 - 00;27;45;02

Unknown

Always enjoy the conversation. Thanks for having me on. This episode of the Profit First for RBI 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 simple cfo.com right now. We'll see you next time on the Profit First for RBI podcast with David Richter.