Raising Private Money and Building a Real Estate Business While Putting Family First

0:00You know, not every retirement account's the same, right? So, the retirement account that somebody listing may have personally, let's say you got a job, right? Or somebody you know has a job in your network, whatever, and you've got a retirement account with that job. That retirement account is called a 401k. That's one that you know your employer may do a match or whatever it may be. All well and good. After you leave that job and it's you you may be asked to leave if you know what I'm saying or you might leave on your own voluntary you you could get fired or quit.

0:31I'll just say it straight up. Right? It doesn't matter how you leave the job. It just matters you're not working at that company anymore. The 401k that you used to have at that company now automatically becomes an IRA. So once once this thing is an IRA, it doesn't have to get invested anymore through that company custodian that they've lined up. Be that Vanguard, Janice, you know, Fidelity, one of those big fish, right? It's it can be held at another custodian. It could be held at another place.

1:02And the first move is for that money to get moved over to a selfdirected IRA, right? A self-directed IRA firm. There's a million out there. Google it. I'm not going to recommend any one company because to be straight, Kirby, they're all kind of the same, you know? I just personally, I just shop them on fees and customer service, you I mean, don't overpay. Make sure that make sure they've got really good modern technology. Leave you there. So that then once that money is a self-directed IRA, it can get invested anywhere. You can buy, you as a self-directed IRA, holder can invest in all kinds of stuff.

1:38You can invest in stocks still. You can invest in private loans, private notes, private partnerships, all kinds of cool stuff. The only thing you can't do is you can't give the money to yourself, right? And so that's like the one little asterct is you can't take the money and put it in your own pocket or or put it into your own deal. So bottom line for listener, whether you got your own if you got your own retirement account, great. Get it to work. Get it for God's sakes, get it off Wall Street, right? Out of get it off something you you have no control over. Get it as something that you at least have some control, some leverage, some upside into, right?

2:13And get it off of something that's had a like what 17-year run, you know? And everything like that. So, maybe get it off the stock market and into something that that's different. — Anyway, now to a listener for you, look in your network. My my book, Raising Private Capital, talks about this very in in in very plain English and gives a lot more actionable steps, but I'll I'll summarize it here. Look in your network. Pull out a piece of paper. Write down people in your network that used to work at one job and now work at another job.

2:46That's all you got to do. Like, oh yeah, Uncle Charlie used to work at 3M and now he works over here at, you know, at at Dupont or whatever it is, you write all and it could be like Starbucks or wall, you know, Walmart or whatever. A lot of those firms that you think don't do have retirement accounts, you know. And if somebody's worked there for more than a couple of years, the retirement account might have gone for a reasonable run. And it could be up a good bit and now that money could get put into something else. So, we all know probably two, three, four million dollars, all of us in our cell phones.

3:20The question is, do you have a business that is strong enough to handle that money that's got enough, you know, guard rails and knowhow in place, whether that's through a mentor or through of your own knowhow. And do you have the the hood spot to call up those people that you know, your uncle Charlie, your next door neighbor, your best friend from high school, and tell them, "Hey, I know you used to work at ABC Company and now work at XYZ company. Did you know that you could take your retirement account from ABC Company and invest it right down the street in that fix and flip that I'm working on right around the corner from here?

3:54Did you know your money could be in that deal?" You know, just as as simple as that. And the bottom line, Kirby, is most people don't know that that they people that didn't read Rich Dad Poor Dad that are not lucky enough to listen to your podcast, a lot of the world don't know these things. We as real estate investor assume the world knows what we do. They assume everybody read Rich Dad Poor Dad. They assume everybody knows about private investing. They don't. The big thing, the biggest thing that a capital raiser needs to be or anybody raising capital is an educator, you know, teach your base that that what I'm talking about is possible.

4:28You can do this. You can invest in my fix and flip or my rental deal, whatever it may be, with your retirement account that I happen to know you have. — Yeah. Yeah. And and how do you educate like what's the best way to educate someone? Because I've noticed a lot of times people start learning this stuff and then they go to someone and they start speaking this foreign language to somebody who's like you said has never read Rich Dad Poor Dad. They have no context for real estate investing — and they start talking about these terminology that just confuses people. So do you have like a one-pager what's your process that you recommend if — it's so funny just to comment on what you talked about.

5:01They roll in the door like, "Hey, let me tell you about irr and how and what the irr is on my deal." Yeah. And and what and what collateral I'm going to give you and everything like that. And it's like, I want to play bingo with all kinds of real estate jargon words, right? You know, right? So anyway, I what you do is you've got to teach people the basics like, hey, your retirement account can be not in Wall Street. Did you know that, Mr. Mrs. Investor? Do you start there? I typ we do have one pagers for our deals. And we used to do quite a you know when we were doing smaller deals we would do quite a few of them and all that just like hey here's a one pager for this deal that deal this deal.

5:38And that now that we're doing larger now our company's lucky enough to be buying larger assets. We're buying two hotels right now. We're buying a we bought multif family over the years. We've built multif family over the years. So those deals it's just it's tough to squeeze it all into a one pager. They're they're they we do have them. But what I recommend that people do when they've got smaller deals is paint it from a perspective of what's in it for the investor. Don't be getting in there and showing lots of big words and lots of, you know, percentages and dollars and cents and all that kind of stuff.

6:09Show like a hypothetical. You put in 50k into this deal. This is what it's going to yield in cash flow. This is what it's going to yield when it sells. This is what it it's I'm going to turn 50 grand into 65 grand in a year or in two years or whatever it may be. Just put it to the where the investor can super relate to what it is you're putting out there and and I think that you'll get a lot more traction. — Yeah. Yeah. It's such a I mean kind of a no-brainer for people like a lot of people like you said they think they feel like they're asking for so much money and it's like they're really nervous about it and they don't look through the lens of you're giving someone like a fixed you know 10 12% interest rate on an asset that's backed by a mortgage that they can see feel and touch.

6:52They know it's over long-term going up in value. It's cash flowing. Like that's an awesome position that a lot of people as investors would love to be in. You know, instead of taking the roller coaster ride of the stock market — and having an average of 8% in their mutual funds, — you know, getting it 12% fixed is incredible. — Yeah. You can say, why don't you just be the bank? Like, why don't you take that? Why why like take the roller coaster ride of Wall Street? You could, you know, why not take your retirement account and just be the bank with it? You know, there's a bank on your home. You you got to pay them monthly payments.

7:23What if you turn your retirement account into a bank as well? Those are very simple, relatable conversations that you can have with people that they can get their head around like, okay, my bank gives me money and then the and then I have to give the, you know, the bank back a monthly payment that's certainly way more than what than what I than what they gave me. Adds up to be quite a bit more. So, it's actually a good arrangement. And God forbid if I can't pay my mortgage, the bank can come take my house. Same thing wi with a private loan, you know, it's collateral.

7:55So, — yeah. — And do you like if someone is starting with with smaller deals, do you recommend they borrow private money for the whole deal or combine it with, you know, a bank loan or a 30-year loan? — I mean, okay, I made this mistake of of blending private money with bank money. And you can, but just the the mistake that I made was doing a deal assuming that the market would continue to appreciate. So like, okay, let me go borrow 50K from a private lender and put it on this house and I just use that as the down money, right?

8:31And I'm like, oh, I'll just I'll inflate my way out of it, you know, like the market will keep going up and up and up. And I buy the house for 300 grand and in a year it's be it's worth 400 grand and I could just sell it or I could refinance or whatever. As you know, man, that equation worked in 20067 before the crash. Post crash and for a while after it didn't work anymore. And so if anybody is looking to use private money and blend it in, just make sure you're doing enough value ad to where at your own control, the property you're buying for 300 grand is going to value at 500 grand in a year because you're, you know, upgrading units or putting in new kitchens and bathrooms and charging more rent because of these things that you're doing or whatever.

9:14Just make sure that you're adding real material value to the property value as as with those dollars so that you can exit because I I couldn't exit for years on properties that I did that work that I put those what was supposed to be short-term mortgages on early in my career. — That's yeah, really really great advice. — and and so obviously your deals have evolved over time. What does a deal need to look like for you today? Like what are the metrics that you look at and what what are you targeting for a deal today?

9:46— Cash on cash day one. We look for cash flow day one and a lot of multif family big multif family is guys like shied away from that and it kind doesn't do that as much anymore. But but a lot of deals still do. That's why we love hotels branded. Not the none of these boutique hotels like you know 20 units on the side of a highway. Not that. Okay. — We're buying branded hotel — with with you know flags you've heard of that have loyalty clubs and members and you know membership programs and everything like that.

10:20Those kind of deals we're really excited about because they th those kinds of deals tend to make like 8 n 10% first day. So that gets me excited. I'm Kirby not in as much of a world of predicting appreciation is going to happen over the next 10 years. We've had crazy appreciation in real estate over the over the last 10. If anything, real estate may continue to to depreciate a little bit over the next 10 years, but if you do a cash flow deal that's making cash flow today and you're amortizing your debt, meaning paying it off every you know, paying a bit of it off every year, you're going to be just fine.

10:59And I think that those kind of deals get me excited. Like a a deal that can cash flow a little bit and then amortize debt, I'm all over. — Yeah. Yeah. I'm totally with you on that. And and people ask me that all the time, you know, like what do you think the market's going to do? Is it is a good time to buy or should I just sit on the sidelines for a while, wait for things to drop off? And I'm like, well, if you can buy, like for me, I'm I'm buying small short, you know, lower cost short-term rentals that cash flow really well. And so I'm like, if you can collect a few thousand dollars a month cash flow while you sit on this property, even if it went to zero tomorrow in value, as long as 20 years from now, it's worth double, which, you know, historically it should be.

11:38Yeah, you're you're making, you know, in the meantime, you're financially free if you got a a handful of these. And and as a worst case scenario, use it as a long-term rental and it still cash flows. So, it's like nobody knows the market, but you know, the the best investors seem like they do because they just buy sound fundamentals over the long term. — So, that's such a great such a great point there. — I wanted to ask you too, — I I believe you work with your your wife in in the business and — I do.

12:09— yeah, and I work with mine as well. We kind of complement each other's skill sets. But I'm curious because there's a lot of people I work with who also are are spouses working together and a lot of spouses listen to this show. So, what do you recommend for people who work with their spouses in their real estate investing business based on experience in order to make it work as effectively as possible? — Oh boy. No spouse, Here's a few things that I've learned mostly the hard way, Kirby. Maybe you too. No spouse is the boss, right?

12:41Nobody nobody reports to the other person. Your spouse is not your employee. Your spouse is your business partner. Don't ever forget that, you know, and don't ever treat your spouse like an employee because I can tell you it does not go well in either way. And that not just, you know, your wife, you know, a husband treating a wife like a like an employee or vice versa, right? Nobody wants that from their spouse, right? That's number one. Number two, really do a lot of deep dive analysis on what you are great at, spouse number one, and then what spouse number two is great at.

13:15And find a way to build a business around both your greatnesses. And there's got to be, you know, some polarity in there, meaning like spouse one has to do something different than what spouse two does. Even if they're both great at the same things, okay, well, let's find a way to manifest those greatnesses in different facets of the business because the business needs different things, right? So make sure that you play into the needs of each spouse. Like don't have your wife that has a master's in social work. Keep the books for your company, right?

13:45Not math, not algebra, not accounting, not any of those kinds of things. Social work, very very great people person, my wife. But not a good bookkeeper. And so that was a bad idea. So that leads me to my third point which is to find what you two do great and then find the things that you two don't do great at all and immediately like tomorrow outsource those things. So that you and your spouse can lean into your greatnesses as best as possible. Those are some of the things that I learned as well.

14:18And I think that it's good to kind of have that work align. Liz and I do work together but we don't work together all the time. We're both alphas and so we both want to be in our little circles and you know kind of driving pushing our own rocks up a hill and so we do have things that we work on together very closely but we also allow ourselves to have that level of independence. I've seen some spouses that just like put their desks right next to each other and they're just cute little Aussie and Harriet hanging out every day and all that.

14:50Not that might not speak to everyone. Maybe you need a thing where you and your sp and your spouse both have different corners of operations and you both get together and have things that you do together also. So those are just some tips that I found over 20 years of marriage and this is mostly from doing it the wrong way. All these thing all those lessons that I've learned that I've learned how to do it the right way. — Do you find that it's hard to separate work from personal then? — Oh yeah. You guys have kids? — Yeah, we have three with one on the way. So — Oh goodness.

15:21There you go. So, good for you guys. At the end of the day, when before we had kids, that's all like the business is what we had. And so, we had we had these awful rules, Kirby. It was like, okay, you can't talk business in certain rooms of the house, you know, like you're not allowed to talk business in the bedroom and you can't talk business in the kitchen and everything like that. And, you know, if like something would come up, he'd be like, "All right, let's go in the other room so we can talk, you know, and all that." like it was so stupid.

15:52It was also it was really about like just respecting boundaries. Now that we have kids, we have two kids and so now that we have, you know, a couple of kids running around, it becomes easier because like the conversations cannot be about the business all the time. It's like the kids are little need machines and they're just I you know just just cranking out asks and requirements and everything like that. So we're constantly dealing with the kids as well. The what we have found work here's what So those all I'm making all the things that didn't work, right? Here's what did work with regards to you know communications and stuff like that.

16:25We have regular meetings. We go over our goals go over like check-ins on how each of our initiatives are going and you know you know just more like working on the business together, right? We have those regular check-ins and we also we have a date on a regular basis probably date night. That's you know once a month once every couple weeks kind of thing. So have regular dates and we're allowed to talk a little bit of business shop on the date, but we also allow oursel, we've forced ourselves like, okay, we can't just talk business the whole time. We have to just enjoy each other's company.

16:56And so because it's tempting with everything going on, it's tempting not to just talk shop the whole time. And I see that becoming becoming toxic in a marriage because you don't want your marriage to become just business partnership. You want your marriage to become really enjoying life with each other, too. And so you have to kind of allow for that and sometimes mandate for both of those things to have room in in the in you know in the conversations. — Yeah.