Building Wealth Through Private Money and BRRRR Deals

0:00After that first rental, you know, I I hired a coach and they taught me how to flip houses using other people's money. So, I just started running with that. And I did that for six years and 90% of my business was flipping houses, 10% was buying rental properties. And I I had a buddy we actually started investing at the same time. We actually went to realtor school together, which we both got licensed and then were started investing. So that's how I met him. And, you know, we stay in contact. We talk every every month or two.

0:31And one day I was talking to him. He his business was the opposite of mine. He always bought 90% rentals, 10% flips. So completely, you know, inverse to what I was doing. And early on, the first few years, you know, he was like, "Bro, you're traveling. You know, you're living life. Like you're enjoying it. Like, bro, how you making all this money?" I'm like, "I'm just flipping houses. Like, what do you mean?" And then, you know, years later, he had built his portfolio. And one of the calls that I was on with him, I was like, "Yo, what's going on? What's new? And he was like, "Man, I just did a refinance on part of my portfolio." I was like, "All right, cool.

1:03Talk talk to me about what that looks like." He's like, "Well, I took I took 30 of my houses." Keep in mind at this point he had close to 200. He said, "I took 30 of my houses and I refinanced it and I paid off 10 of them." So that alone, 10 houses in Columbus, Ohio at the time is roughly about $1,000 per month per month net. So he created 120 grand of passive residual income for the rest of his life and then releveraged the other 20 houses, which you know probably make $2 to $3,000 a month net. So on one transaction he created $150,000 of net passive residual income per year on one transaction.

1:39But the kicker was on top of that he was like he was like on top of that you know I pulled out a million dollars taxfree. I was like I was like coming in. He's like, "Yeah, I pulled a million out on top of all that." And keep in mind, like refi proceeds are non- taxable. So a million dollars on a refi is like netting $1.5 million in the in in the real world. And up to that point in my career, I've never netted $1.5 million in a year, let alone a single transaction. And it was like, all right, I'm playing the wrong game. And the next day, I went into my office and I literally changed the entire business model and started building a portfolio.

2:14So that was probably fourish years ago and you know I have 170ish rental properties valued somewhere between 30 and $35 million mostly single families but we've done small multis we've done warehouses we've done office buildings we've done a little bit of everything. — Yeah. Wow. Wow. Yeah, that is such a powerful strategy. I you know I I started similar to you probably around the same time actually 2012ish when we started our flipping company and flipped a lot of houses around Chicago and we were so focused on flips the same way that I look back I'm like of the 75 houses that we flipped had I kept 10% 20% of them man they'd be worth two or three times at

3:03Least what what I sold them for. So, and I was selling them to these hedge funds. You know, Black Rockck was a big buyer. — And I I was kind of laughing at him going, you know, sophisticated buyers. They're not even doing an inspection. They're paying top dollar. I'm like, these guys are going to lose their shirt. And now they're the ones laughing holding this property that's worth three times as much, you know, 10 years later. So, — 100%. I think I think it's one, you don't know what you don't. I was in the same boat, but you don't know what you don't know. But you know, number two, personally speaking, you know, I I got I look back and I got caught, you know, chasing, you know, social media or chasing what it looked like everybody else was doing.

3:42— Yeah. — And everybody else was like, "Oh, we're doing 100k a month. We're doing 500k a month." I was like, "I got to do that." — And the pro the problem with, you know, chasing those things is one, those numbers are never real, right? Doing 100k a month and netting 100k a month are drastically different things. You can do $100,000 a month and still lose money. So, you know, make sure you're not chasing something just because it looks cool on social media. You know, when I went in and I changed my business model, what we did is I figured out what my monthly overhead was, including paying myself a salary and then I added 10 $20,000 on top of that because a business obviously has to turn a profit.

4:16And then I was like, cool. The first 40 or $50,000 in the door, we're going to wholesale and flip. So, I can pay my team, I can pay my expenses, turn a profit for the year. Every single deal after that, we're going to add to the portfolio. So instead of continuously chasing an endless number that never stops, netting 100k a month, 200k a month, 300k a month, whatever it is, it it will literally never stop. So instead of doing that, you know, finding a number that you're comfortable with that can cover the expenses, that can show a profit and putting a line in the sand and just, you know, sticking to that and every deal past that number, you added to the portfolio.

4:49So looking back, you know, that's what I wish I would have done, you know, instead of chasing those those numbers and, you know, fli all these hedge funds thinking I was crushing it. You know, if I had kept, you know, again, 10, like you said, 10, 20, 30, 40% of those, it'd be night and day difference right now. — Yeah. Wow. That's that's such a smart way to do it because we fell in that same trap of just continuing to grow the the overhead, you know, as we were growing, you know, we got an office and we started building this like little mini call center where had all these people responding to, you know, the leads that we were putting out, which, you know, tens of thousands of dollars worth of marketing going out the door.

5:24And then, you know, we weren't super efficient about it. So, a lot of leads would would kind of slip through the cracks. But then at some point, I had this realization. I'm like, we're working 90% of the the month just to survive, just to pay our obligations for the month. And then hopefully there's some little bit left over at the end of the month so we can start back over again next month. And that's when I really got into rentals. So, that's so I I appreciate that advice. So in terms of how you evaluate what's a deal for you today like what is that what metrics do you look at to determine yes or no it's worth not worth my time?

6:06— Yeah. So we we look at we look at two numbers. We we stopped really kind of dealing in the single family space where we're dealing with with either new construction and or commercial properties. So commercial can be multif family but bigger deals right. So that's one thing that we did this year. But I guess even with those deals and all the deals I've ever done in the past, there's really kind of two numbers that we focus on. One one is a DSCR, debt service coverage ratio. So it's it's basically kind of tells you your profitability on a deal to make sure that you can cover your debt and show a profit on top of that.

6:42It also, you know, is what allows you to refinance on the back end. So that that's the first thing. You know, we look for a minimum of a 1.2. 2. Obviously, we want it higher than that. So that's number one. And then number two is our cash in a cash in a deal. So on a refinance, in a perfect world, when we refi, we pull out cash on top of all of our investments and that's, you know, tax-free profit. So that's the perfect world. You know, every obviously every deal isn't a great deal. So ideally we want to be at net zero.

7:13So, you know, we do the deal, we pull, you know, we're able to pay off our obligations and, you know, we don't have any money in the deal. So, that's the ideal scenario. What we're willing to do though, at this point in our career, because we we're we have profits that we show, we're willing to keep in the dollar amount, that gives us the equivalent tax, break. So, if we got to keep 20K in this deal, you know, if we do a cost seg on it, is that going to set off a $20,000 tax? — so th those are the two numbers that we really focus on. And if both of those numbers work, typically, you know, the the rest of the numbers in the deal, you know, ma make sense behind that.

7:48— Got it. Yeah, that makes a lot of sense. And you mentioned that you've gotten into some larger deals now. I saw the the YouTube video you did from the big commercial industrial complex that you bought and rehabbed. How did that deal come about? — Yeah. So it it came about I actually went into contract on a property like a block away from that. — so I was born and raised and live in Columbus or lived and grew up in Columbus, Ohio. I currently live in South Florida. So a broker sent it to me. Looked decent.

8:19So we put it in contract and then I flew in to do an inspection. And when I got there, it was just a really weird layout. So we passed on the deal. So when I was driving home, the literally like a block down the street, like you can throw a rock and hit it. I drove by this big 60,000t warehouse, multi-tenant industrial complex, and it was just it it was rough. You know, there's pop holes in the in the in the driveway. There was holes in the roof. There were gutters hanging off. I drove by and I looked at it. I was like, I'm going to buy that place. And you know, a year and a half later, you know, almost 200 phone calls deep calling the owners, the brothers, it's the sisters, the nieces, the nephews, direct mail, handwritten letters, you know, everything in between.

9:00You know, we finally actually got the deal to the closing table and bought it for a great price. And you know it worked out. So just driving for dollars and cold calling is how that one came about. Oh — jeez. Wow. It's incredible what is attractive to an investor when you see gutters hanging off potholes and you know building falling apart? You're like that's the one I want. — so has it has it gone, you know, as you've thought it would?

9:31You know, in terms of — the project there's a couple variables to it. I mean, we so we put it in contract for close to$2 million at first. Got it inspected. Needed a lot of structural foundation work. So got like $150,000 price discount from there. So we bought it for just over $1.8 million. We planned to put $1.4 million into the renovation. We ended up spending about $1.8 million. And then we planned for one entire year of vacancies to do all that construction and get it leased and a hold of two years.

10:07And we got the construction done in about 6 months. — Wow. — And we're now back at 100% occupancy 11 months actually 10 months from us purchasing it. So, we're actually in the refi process. So, we'll be completely done in less than a year. And you know, the the rent, which determines the value, the income does, we're 20% higher than what we projected. So, we definitely blew the budget by about 400 grand, but we're going to make it up on the back end with with the, the rent. So, — wow, — it ended up working out.

10:40Yeah. — What do you think it'll appraise for at the end? — I'm I'm hope six is a no-brainer. I think it'll be six and a half. — Wow. If you look if you look at based on cap rates, it'll be seven to eight. So I I I just want six and a half. I'd be happy with that. — Yeah. — Yeah. That's a lot of equity built in a 10-month period. So Wow. Huge huge project. So I mean it's basically the exact same process, though. It's so funny because we just talked through the Burr model — on a $150,000 property.

11:14You know, one that appraised for 200 afterwards and you get 150 back and now we're talking about one that's six million. But it's the exact same process. — Literally the same process. And I think for for those listening, you know, my my entire career up until a few years ago, you know, I would I would get, you know, there's a 10,000 foot warehouse I could have bought for 200 grand. It's probably worth a million dollars now. And I I vividly remember looking at that and I was like, how do I even analyze this deal? I actually looked at it. So, it's a huge big warehouse and my analyzation was chopping it up into small office spaces and like who does that, right?

11:50You just buy it, place a trip on that tenant and call it a day. It's really simple, but like you didn't know what you didn't know, right? So I I encourage those, you know, on listening here, you know, if you kind of are in the single family, smaller, multif family space, you know, don't be like so scared of bigger deals. Yes, be more cautious. Do your due diligence because if you mess up by 5% it's a much bigger number on a bigger deal but as long as you're doing your due diligence properly you know it's the same process it just has more zeros on it so yes you know theoretically there is more risk but there's significantly more upside more profit as well so something I wish I would have done it one kept more rentals that we were talking about earlier but number two you know I wish I'd have gone into bigger deals sooner and you know I paid a massive ignorant tax for a lot of years because

12:39I just never spent took the time, energy, and effort to to learn, you know, how to even do these bigger deals. — Yeah. And I think for people listening to this, one of the biggest roadblocks that comes up for them when they start hearing about big deals or thinking about big deals is, you know, the bank's going to give you a portion of that, but that's a lot of private money I have to borrow from someone else to cover the down payment and, you know, all the the rehab costs. So, can you share a bit more about how you raise money? I know that's your kind of expertise.

13:11You've been doing it for over a decade now. What's that process look like? And what would you recommend to somebody who's brand new to it? — For sure. I I think the the first step is when I first started raising money, I thought like I was asking somebody I was asking them to believe in me. I was asking them to invite in invest their life savings with me. You know, I'm just this 21-year-old punk kid. Like I'm I'm asking everybody for these favors. Once you realize the the actual power of private money, you realize it's not an ask at all. So it's not an ask at all.

13:42So when you're going into this, you're like, I want to go raise private money. Number one is is understand that you're giving somebody an opportunity of a lifetime. It's definitely mutually beneficial. Like we there's benefits on both sides clearly, but like you are giving somebody an opportunity of a lifetime. And I say that because I wish I had a a board behind me, but I'm going to try to do it with my hands for those watching. Most people's plan for retirement, you got to understand this, that the mass majority of the population's plan for retirement is to work and, you know, save up money, you know, till they hit 65ish and have a big enough nest egg to be able to retire on.

14:18We're just going to use a million dollars, for example, just for round numbers. People work their entire lives to maybe save a million dollars and then from that point you know they budget and plan to you know make a conservative ROI so invest their money conservatively you know make three four 5% whatever the number is and then have enough money to spend to enjoy their life until they die so people's plan is to save up enough money and then hopefully they have money before they die like that that's the typical kind of retirement plan and the problem is is that if they live longer than what they expected then they don't have any money and they got to go work again.

14:52— And if they, you know, do let's say they time it perfectly, they die at zero. Guess what? They give their kids and their family nothing. They give them zero dollars. So the opposite of that, which if that's people's plans, what you can offer them is, you know, the same person saves up, you know, has a million dollar nest egg. Instead of instead of them, you know, trying to plan this retirement thing to to spend money at the right rate, you can take that million dollars, let's call it 12%. You can pay them $120,000 per year in interest, which is much more money than they would ever be able to spend on their own through their budgeting.

15:26I've I've done the math. It's roughly like 70 to $80,000. So, you can pay them, you know, 50% more than what they're living on. And you can pay it forever, right? There's no, you know, time that runs out of you paying them interest. And when they die, they give their kids a million- dollar inheritance, which then you can keep investing and keep paying $120,000 a year instead of zero. So, like I got goosebumps every time I explain this to people because like I felt like I was asking somebody and that's the alternative. — I feel like I'm doing somebody a complete entire disservice by not telling them about the opportunity to invest with me.

15:59And duh, everyone's not going to listen to you. You know, it's just like talking to sellers. You got to talk to a hundred sellers to get one person to agree to sell you the house at the price that you need it at. Same thing with private money. Like I talk to every person I come across in life and you know there's I only have I don't know 20 30 people that have lent me money. So it's it's a numbers game. But you got to have the confidence in yourself that you are giving somebody an opportunity because that's the only way they're going to feel the same. When I talk about it, people feel me and that's why I think I'm able to raise raise money. So that's the first step is changing your mindset on money and believe you're giving people an opportunity.

16:34— Yeah. Wow. That's that's super powerful what you just shared there because if you think about it like I just want to break it down if people weren't following the math there. But so somebody saves a million dollars to retirement. You know most financial planners out there say you know plan on a 4% if you a 4% withdrawal rate to not dip in your principal. So if you want to just maintain that million till you die and ensure that that nest egg stays there then withdraw 4%. So that means you can withdraw $40,000 a year as opposed to what you just said.

17:08— You can give them a 12% interestonly payment of $120,000 per year and that million dollar stays a million dollars until they pass away and that goes to their their family. So yeah, I had a similar realization in the beginning like it was it was tough like you know laying awake at night thinking oh man I have to borrow this much money from my friends and family and you know what if I lose it and stuff but the fact is these are on tangible assets that are going up in value and kicking off a ton of cash flow over time.

17:40So, not only are you giving them this incredible return, they have this asset that is not going to zero like the stock market could, you know, like or a business could you know, people always need a place to live and they can see it, feel it, and touch it and they they're in a secured position on it. So, — I mean, like if if someone asks you like, "Hey, would you buy Tesla today at 75% of what it's worth today?" And Elon Musk signs a personal guarantee for you and he brings an insurance policy just in case anything happens.

18:14How would you buy Tesla shutters? Duh. Everybody in their mother would do that. And it again, it's the same thing. It's just a way different product which nobody ever talks about. So there's an education curve that you have to give people with it.