Passive Income, Active Wealth - Hard Money for Real Estate Investing

Bill Fairman (00:01):

Hi, folks. This is the time of the year that you hate. It's called Setting Your Goals for 2023. We're gonna have more about that right after this.

 

(00:33):

Thank you for joining us on the Real Estate Investor channel, hard Money for Real Estate Investors. We are Carolina Capital Management private lenders in the Southeast for real estate professionals. If you have a project you'd like us to take a look at, go to carolina hard money.com and click on the Apply Now tab. If you're a passive investor looking for passive returns, go to the accredited Investor tab. Oh, and you must click it as well. Don't forget the like, share. So subscribe. Hit the bell, sit there and look at it. , don't forget, Wednesdays with Wendy. Wendy sets aside 30 minutes per person to talk about anything real estate related. On Wednesdays, there's a link to get on her calendar. She's typically booked up pretty far in advance, so get in while the giddings. Good.

 

Wendy Sweet (01:36):

excuse me. So Wendy, you had the Quest Con thing, and I'm pausing, I feel like the president when I'm reading a speech pause here,

 

(01:59):

.

 

Bill Fairman (02:01):

So tell us about it. How'd it go?

 

Wendy Sweet (02:04):

It was a great, it, the whole event was incredible, but the panel was terrific. I was just so honored to be with the two panelists that I was on there with, that their, their brains are incredible. What was really cool is that were all three lenders and we all three underwrite a little bit differently. And, and that's really what we talked about were the, the different things that we look at. So you can still buy a recording from that event, so it's worth it. If, if you do that, it's well worth it.

 

Bill Fairman (02:40):

Is there a URL that you know of where people can

 

Wendy Sweet (02:43):

I'm sure there is one, but No, I don't know of it. But if you get on Quest Con Live 2022 on the, of course the internet Googles it, as we say. Well,

 

Bill Fairman (02:56):

I'm, I'm pretty sure it'll materialize

 

Jonathan Davis (02:58):

In our comment section.

 

Wendy Sweet (03:00):

That's exactly right. . But that'll, and, and then you can buy it at a discount too with Carolina 15, I believe is what we had that I'm sorry,

 

Bill Fairman (03:11):

I said sweet. Yeah,

 

Wendy Sweet (03:12):

That's

 

Bill Fairman (03:13):

Me,

 

Wendy Sweet (03:13):

Not you. Sweet . Well, I, you know, it, it pains me to see you guys with that background of, you know, the beautiful

 

Bill Fairman (03:23):

Tropical, tropical

 

Wendy Sweet (03:24):

Plant. Sure. Yeah. It's cold here.

 

Jonathan Davis (03:27):

It was, it was really tough to set out there this morning.

 

Wendy Sweet (03:32):

I feel bad for you

 

Jonathan Davis (03:32):

Guys barefoot while, you know, the sun, you know, was just beaming over the water.

 

Wendy Sweet (03:38):

Just amazing how you guys constantly just take it for the team.

 

Bill Fairman (03:41):

,

 

Wendy Sweet (03:42):

,

 

Bill Fairman (03:42):

Those who don't know, we're in Fort Lauderdale at the family office event. Yeah. It's called the Family Office Club. There's ultra high net worth individuals office here. Yeah. there's institutional investors as well as people that are trying to raise capital and people who are trying to deploy it.

 

Jonathan Davis (04:01):

One of the great things, if, if you are interested in learning how to talk to or approach family offices, this is a great event because there's many panels with the, the managing partners of those family offices, setting there, telling you what they're looking for and how they look at things. So it can give you an insight into how to approach a family office, which is, which is is a great resource for a lot of people when you're looking f to, you know, a little bit more than buying or selling one or two loans, you know, kind of scaling.

 

Bill Fairman (04:35):

Yeah. Quick tip. One pager and a one liner on what you do. They don't wanna see a whole blown out email your slide deck and all that. They're not gonna look at it to get inundated with stuff.

 

Wendy Sweet (04:46):

Awesome. To explain just for a quick second, what a family office is, because many people may not know.

 

Jonathan Davis (04:53):

Yeah. Family office is just it's a aggregation of family a family or multiple families. and they typically have a minimum of 10 million net worth.

 

Wendy Sweet (05:07):

 well jump change.

 

Jonathan Davis (05:08):

Most of them are probably closer to the a hundred million plus smart, but minimum of 10 million to kind of make the metrics work to start a family office. And it basically just helps you propel your wealth forward through multiple generations so that you can create a legacy. I mean, that's really it.

 

Bill Fairman (05:29):

Well, most, most people that are in a family office or at start one, they want the money to last at least five generations. Mm-hmm. and unfortunately ultra net, high net worth families tend to run outta money in three . So it takes planning,

 

Jonathan Davis (05:52):

A lot of planning, a lot of money, but yeah, no, it's, it's great to, to be here. we've enjoyed a lot of the connections and conversations and, and really the insights, I mean, on how to capital raise and how these, you know, we, we sat in on a panel with six different family office members, and they were judging and rating the one liners and the one pagers that were submitted. And it's so, you know, it's so interesting because you would get ranged from, oh, a scale of one to 10. Someone would give it a three, another person would give it a nine. Huh. And it's, and it's, and it's because it's just knowing who you're talking to because like, a family office isn't a family office isn't a family office, they're all different and they're all looking for different things. So it's just knowing who you are, knowing your voice and setting it for that. and, you know, that's, that's really it. And just being clear and concise. Yeah. Like Yeah. Oh, a one-liner should be a one-liner, not a one paragraph or .

 

Bill Fairman (06:50):

It was funny, they were judging this one that took up the whole freaking slide and it was supposed to be a one line. Yeah. And it just went on and on and on. And the, the guy's holding up a three, he goes, yeah, you could have stopped after the first four words.

 

Jonathan Davis (07:06):

. Yeah. So it's, it's, it's been insightful. So really good, you know, and the weather makes it a little more enjoyable. Yeah.

 

Wendy Sweet (07:14):

four guys.

 

Bill Fairman (07:15):

Yeah. Here's how I suffered. I had to come here and get into a t-shirt because I had already soaked through my dress shirt. Had to take off my sport coat because it was so hot walking over here. . Wow. Yeah. Isn't that awful? Yeah.

 

Wendy Sweet (07:28):

That really is.

 

Jonathan Davis (07:30):

Well, and to, to segue this, you know, a little bit into what we're talking about goals. So one of our goals is to, you know, partner up or source more capital from mult or from family offices. So that's why we're here to learn how, you know, how they think, what they're looking for. Right. Because that's part of our long-term goal.

 

Bill Fairman (07:50):

Right. Right. Good, good segue. Yeah. All right. Before we get started with goal setting, however, we do have a little bit breaking news talk about, and when I say a little bit, I mean a little bit haven't been keeping up with the news much this week, but I did see that the consumer price index, CPI and the ppi, that's the producer price index, all came in this week. And I'm not giving you exact numbers, but I can tell you that they were less, a little less than expected mm-hmm. , which is better

 

Wendy Sweet (08:37):

Than expected.

 

Bill Fairman (08:38):

Yeah. Less inflation than inspect than expected. Right. And it, it's kind of given us an indication that maybe we've kind of hit the, the peak and hopefully it's going down from there.

 

Wendy Sweet (08:54):

Can only pray fairly,

 

Bill Fairman (08:56):

Excuse me, fairly certain that the Fed raised the rate another 50 basis points today mm-hmm.

 

Jonathan Davis (09:05):

, and you know, it's not, you know, I, I got a nice little headline. what is it? The, the, the buying sentiment. So people who believe like now is a bad time to buy has reduced, it's reduced from 80% of people think it's a bad time to buy down to 79

 

Bill Fairman (09:27):

to buy what?

 

Jonathan Davis (09:29):

To buy real estate single family, like they're primary residents. Yeah. Yeah.

 

Bill Fairman (09:34):

Well, also it has to depend on people, you know, what are they doing with their next house?

 

Jonathan Davis (09:40):

 well, yeah. The people who wants to sell, and

 

Bill Fairman (09:42):

If they're, if they're moving up or they're having to change jobs and or they don't have any choice if they're changing jobs and they have to move. Yeah.

 

Jonathan Davis (09:50):

Well, the, the, the sentiment of selling, the percentage of respondents who said it was a good time to sell increased from 51 to 54%. So 1% people think it's or, you know, there's, you know, better time to buy and 3% think it's a better time to sell. So maybe it's starting to move in that in a good direction.

 

Bill Fairman (10:12):

I think it's, prices come down a little bit, that'll change, but it, it's really all gonna be reflected in how much can I forward per month. So it really has a lot to do with interest rates. Interest rates come down

 

Jonathan Davis (10:25):

$900 more per month is what it costs

 

Bill Fairman (10:28):

You. Yeah. So we, we've already proven it doesn't matter how much the house cost, it's how much can I forward a month? Mm-hmm. .

 

Jonathan Davis (10:34):

Yeah.

 

Wendy Sweet (10:34):

What's, what's the cash flow too?

 

Jonathan Davis (10:36):

Well, on the assessment side. Yeah. What's, you know, what's, you know, what's the house produce. Yeah. So, I mean, and that's, you know, we, we, we beat it into the ground all the time, but it's, you know, it's not what you sell the house for. It's what you buy it for. So yeah, there's still good deals out there. You just have to find the right motivated buyers and or Right. Motivated sellers rather. And, you know, apparently there's being a few more of those popping up.

 

Wendy Sweet (11:01):

Well, as a matter of fact, I, I've had deals literally dropping in my lap just this past week. and it's just a amazing how it really just flipped and flipped so quickly. That's amazing and exciting. And I mean, and they're deals, they're,

 

Jonathan Davis (11:20):

You're getting these from wholesalers who have had, you know, someone fail to close or, or how are, how are you sourcing these, or how are they dropping in your lap?

 

Wendy Sweet (11:27):

Well, you know, when you're in the lending business, you kind of hear about deals first. And when people are backing off of them and don't want to buy them, you know, they're wholesalers are just reaching out to anybody else just so they don't lose the contract. Yeah. so, so, you know, a lot of that tends to, tends to occur pretty quickly. but just people, I know, people I've been talking to saying, Hey, if you wanna sell it, I'm interested. And it, it's amazing how that's, how, how it's really changed. Like, I have three of 'em sitting here for, for this week that that I'm pretty excited about. And Don Harris says he's a hundred percent ready either way. I love that. .

 

Bill Fairman (12:13):

So we, Don's always that way.

 

Wendy Sweet (12:15):

Yes, he is. And he is al he's always ready to go and ready to perform. We love Don Harris.

 

Jonathan Davis (12:22):

Oh, well.

 

Bill Fairman (12:23):

So let's move on into our segment for this week. it's best time of the year when you wanna start setting up your goals. you know, we'll have our annual meeting in January mm-hmm. , but, and each year we, you know, we're setting up goals for the, for the upcoming year and, and you need to do that. Mm-hmm. , I know. It's, it really is a pain. People hate it. Well, most people hate it. There are people that love setting goals. I'm not one of 'em .

 

Wendy Sweet (12:55):

I like it.

 

Jonathan Davis (12:57):

I like it too.

 

Wendy Sweet (12:58):

I like having a target.

 

Jonathan Davis (12:59):

I mean, so, I mean, I'll, like last, last year when we set the goal of, we wanted to fund 50 million in, in loans, and we set that in, when did we set that? Jan? It was right around January. Mm-hmm.

 

Wendy Sweet (13:13):

the beginning.

 

Jonathan Davis (13:14):

And we're like, and yeah. Remember, do you remember that meeting? I

 

Wendy Sweet (13:17):

Thought you were

 

Jonathan Davis (13:18):

Nuts. You, you were like, you, you and everyone else were like, oh, this is crazy. We're not gonna hit,

 

Wendy Sweet (13:22):

There's no way. Why are we setting it up so high?

 

Jonathan Davis (13:24):

Because the, the, that year prior, we had just closed out at 33 million I think it was. That's right. 3 million. That's right. And they're like, we're, we're not, like, you're not gonna increase by 50%. Come on now. so, you know, it was like, you know, we'll, we'll set it. and then we're closing out this year right. At 80 million.

 

Wendy Sweet (13:42):

Yeah. That doesn't suck.

 

Jonathan Davis (13:44):

Yeah.

 

Bill Fairman (13:45):

So we were sandbagging

 

Wendy Sweet (13:47):

. Yeah. Jonathan, what were you doing, ? Well, the thing is, is, you know, and, and we should, you know, we're talking about this, but we should let people know we had an additional stream of income through a long-term product mm-hmm. that we didn't have the previous year. We were actually had just started a previous year, and that's really what we were thinking or what you were thinking when you came up with that 50, 50 million to be funded. So that did occur mm-hmm. and did make a big difference. But the over and above didn't come from that. It came from really a different portion or a different segment of an asset that we really got much more into. And that's the small commercial type loans that we were doing.

 

Jonathan Davis (14:34):

So, you know, to, to break it down, we've, you know, we did 30, 33 million last year in total originations. And if we break it out for this year, of that 80 million, 45 million is our short term construction fix and flip, small balance commercial. It's not the, the long term loans that we added. So we almost hit 50 million with just what we do on the short term side. Right.

 

Wendy Sweet (15:05):

Right.

 

Jonathan Davis (15:05):

Phenomenal.

 

Bill Fairman (15:07):

And if rates hadn't gone up in the middle of the year, we had really blown it out of the water.

 

Wendy Sweet (15:11):

Yeah. That's,

 

Bill Fairman (15:12):

That's it really slowed down that that revenue stream because everybody kind of paused on, you know, longer term stuff Yeah. Thinking it was gonna go down, or I don't know what they're thinking.

 

Jonathan Davis (15:24):

. Yeah. Well

 

Wendy Sweet (15:25):

That's, that's one of the things that a lot of, some of the other companies, other, other hard money lenders or private money lenders are running into that we're depending on those long-term D S C R products to grow. You know, they did really well this past year too. A good majority of them are now out of business because those programs have been pulled. So I mean, that's a great example of, you know, be careful what you're concentrating on. You have to have the multiple streams mm-hmm. of income to be able to, to, to turn that ship when it, when it needs to be turned. And, you know, I'm, I'm very interested in seeing what's gonna happen, especially in the first quarter coming up because it, it, from how it looks to me is we're just actually getting back onto the normal track of what it was two years prior, which is, you know, it's gonna slow down in the winter, the middle of February, light turns back on and things start to sell again. So I'm interested to see if that's the path that we're back on. It appears to be, but you know, our, our site is so short in front of us at this point that it's really a week to week. We don't know what's really gonna go on, but that's kind of what we're planning on. That's what we're hoping on and planning on.

 

Jonathan Davis (16:46):

Yeah.

 

Bill Fairman (16:47):

And just to make sure that we keep with some additional revenue streams. I run down to the stoplight in front of our office at lunch, and I clean people's windshields.

 

Wendy Sweet (16:57):

got that big cup that says raising funds, , we'll work for Food .

 

Bill Fairman (17:05):

We're, we're trying to grow that part of the business. .

 

Jonathan Davis (17:09):

Yeah. I mean, but you know, part of, you know, our goal setting and part of our, just our overall goal is that we want to be as much as we can be in control of our destiny and in control of the returns to our investors. now, you know, Wendy alluded, you know, these people who are going out of business on these DSCR R loans and other, other brokering, they're dependent on somebody else to say yes or to, you know, here's the funding, here's your line of credit, what have you, you know, warehouse facility, whatever it is. when you, like, for us, when we run it through a a fund model, we are in control of those funds and how they're allocated out, which also allows us to control the returns back to our investors. So, you know, while these people are dropping on the D S C R programs and either other, other short term programs, we're still able to keep moving forward lending and while also getting outsized double digit returns to our investors.

 

Wendy Sweet (18:17):

Right.

 

Jonathan Davis (18:18):

So it, like, that's one of our goals and always has been. And that goal has, and I think a lot of people's eyes made us s kept us smaller than other people. Mm-hmm. . Mm-hmm.

 

Wendy Sweet (18:32):

.

 

Jonathan Davis (18:33):

But right now, I'd rather be smaller. I

 

Wendy Sweet (18:35):

Smaller and solid . That's, that's the key. You know, the other thing too that I think will pertain to a lot of people that are listening is, you know, not only only are we pretty vanilla in our lending category, but but solid in that. But personally, our, our personal investments with the self-storage mm-hmm. and single family long-term rentals are, you know, we've been building that as well. you know, all of us individually, whether it's 30, 60, 90 days or long term or, or you know, Airbnb, whatever, whatever those models are, and we do all of those. it's, it's important too that we stay diverse in that market as well because you have to jump from what's hot to what's not

 

Jonathan Davis (19:33):

Mm-hmm. . Well, and you have to, you have to be able to move, but all within the scope of what you're, of, of your expertise and your lending, you don't want to just be jumping from place to place. you know what, what Wendy's saying is, you know, you wanna move, you have, you have a couple different buckets that you have, and sometimes you fill one bucket, you know, halfway, and sometimes you fill the other one up all the way, and you just move between those, depending on what the market's doing, they're both your inside your wheelhouse. You're not just trying to go find a different bucket that you've never done before.

 

Wendy Sweet (20:05):

That's right. Right. You know, I, I'd like Scott's question over here, you setting weekly, monthly, annual multi-year goals? And the answer to that is yes. Absolutely. we, we meet quarterly to change to, to evaluate and change any goals or adjust goals that we may have. We also meet monthly, you know, for, for our financial and our dashboard to see what's going on there. And absolutely, we go multi-year. We have a three year target. We have a one year target, we have a three year target, we have a five-year target. And, but that target's always moving because we have to adjust with what's going on in the market.

 

Jonathan Davis (20:47):

Yeah. And, oh, bill,

 

Bill Fairman (20:49):

I was was gonna say,

 

Jonathan Davis (20:50):

I can fill him, just,

 

Wendy Sweet (20:52):

It's amazing. He hasn't talked ,

 

Bill Fairman (20:54):

, I'm learning. So you have to get, you can get very granular with this too. So, you know, take that year end goal and then break it down into 12 months, what you have to do to achieve that, that goal. And it's easy to go backwards once, once you set the goal, then figure out in smaller segments what you have to do to achieve that number. Mm-hmm. , I, I want to talk about the, the book the Gap and the gain. And I'm sorry, I didn't have the author pulled up right in front, but while I'm doing this the, the basics of the book, the gap in the gain is that not enough people celebrate the smaller achievements. They'll set a goal, and I'll give you an example. Let's say your goal is to walk to the horizon. Well, we know you can continue to walk to the horizon and you're never gonna get there, but when you turn around and look behind you, you've seen the progress you've made so far, and you need to celebrate those wins. thank you Scott . So Dan Sullivan and Benjamin Hardy,

 

Jonathan Davis (22:09):

I would, you know,

 

Bill Fairman (22:10):

I, funny enough, Benjamin Hardy was the, the keynote speaker at CG this past couple of weeks ago.

 

Jonathan Davis (22:18):

I was just gonna say my commentary on, you know, setting the goal for the horizon and looking back to, to appreciate all, you know, that's actually, you know, setting an unattainable goal and looking back and seeing how you can never get there. Like you just saw all your failures when you look back,

 

Bill Fairman (22:32):

, , no, because you have progressed quite a bit. It, it just hadn't gotten to you that particular goal that you have. But this is a, a great short read, and I recommend it highly if you are into audible, like I am. It's a couple of trips to working back .

 

Wendy Sweet (22:52):

Yeah. Well, you know what I like too, Jonathan, that you brought up failures. I hate to use that word failure. because really it should be something that's a learning lesson. And so many people think that failures are, are bad.

 

Jonathan Davis (23:12):

No, they're

 

Wendy Sweet (23:12):

Great. They're a great opportunity to learn and to move forward and to be more cautious. you know, we had, we had issues from December s 2017 through the entire year of 2018, having to take back a bunch of houses and all the disposition. And Don Harris was a big help in, in making that happen for us in on the good side when we were recovered . But it, it's it's been the best lesson that I walk with every day, you know? Really, really I, I refer to it every day in my brain, you know, how, what, what did I do then that we need to change now? Mm-hmm. and, and so, so when you have these meetings, going back and looking at, at your, at your wins is important, but looking at your losses and scars are really important because that's what will make you so much better. It's like shooting for the stars and coming up short, but you hit the moon. I love that.

 

Bill Fairman (24:17):

Good job, Ron. that's why we call it failing forward. Yeah.

 

Wendy Sweet (24:21):

Yeah.

 

Jonathan Davis (24:22):

I mean, every, everything is what you make of it. I mean, you know, every experience that happens, you get to choose how that shapes you. It can be your destruction or it can be a per, like propulsion forward. Just what do you want to, what do you want? How hungry are you? how, how important is that goal? you know, and one of the things that, that we do and I think a lot, I hope a lot of people do, if you don't start, is when you set those, like, know what you're like, we'll talk about lending or, or real estate investing. Know what you want to invest in and don't deviate from that. Right. Right. You know, like, like put it, you know, put it on your whiteboard, whatever you need to do to help it stay in front of you. Like keep it there because you don't want to deviate from that. Because as you start to deviate, not only do you, you lose your goal inside of your goal and achieving it, you also find yourself in riskier unknown waters. So stay, write your goal down. Write what the asset you're after or, or the mechanics of that asset and how you want to achieve it, and then keep it in front of you every day.

 

Bill Fairman (25:30):

, there was a, a panelist today that was asked the question in, in real estate investing, there's so many things you can get into and clogs your brain. And you guys stay on track. And the one guy said two letters, N and o learn how to use 'em together. Yep. .

 

Wendy Sweet (25:52):

That's exactly right.

 

Bill Fairman (25:54):

So said. it's important to set goals. If you don't set goals, guess what? You'll never achieve any of them. The map

 

Jonathan Davis (26:04):

. That's right.

 

Bill Fairman (26:05):

You do need a rudder. we highly recommend the EOS system for those who are in business, even if you're just one person or a three person shop. Mm-hmm. , it helps you set up matrix that you can follow KPIs. So you know, when you've you know what data to look at and see how you're achieving your goals.

 

Jonathan Davis (26:29):

What's KPI mean?

 

Bill Fairman (26:32):

 I forget

 

Jonathan Davis (26:33):

Key performance. Thank you. Indicator.

 

Bill Fairman (26:35):

I

 

Wendy Sweet (26:36):

Knew it was, and then, and then that book to learn about EOS is by Geno Wickman, and it's called Traction. Yep.

 

Jonathan Davis (26:43):

Yeah. Traction. Very good stuff. Yeah. I mean we would love to know kind of your all's goals if you wanna set 'em in the comments or, or, or shoot 'em to us directly. We would love to know that because we would love to be a part if there's a way, you know, your goals helping us achieve our goals.

 

Bill Fairman (27:01):

Mm-hmm. . And by the way, with that yep, there

 

(27:05):

It is. We can help hold you accountable if you, if you send them out to us and we put 'em out here in the ether then you have to keep up with them, right.

 

Wendy Sweet (27:14):

Or you sign up with the Wednesdays with Wendy. We can talk about your goals and Yep. And you

 

Jonathan Davis (27:21):

Get together all the time, don't

 

Wendy Sweet (27:23):

You? All the time. Yeah.

 

Bill Fairman (27:24):

Yeah. So we talk about be Hags, which is your big, hairy, audacious goal.

 

Wendy Sweet (27:30):

That's right.

 

Bill Fairman (27:31):

Let's hear what your be ha is and we'll, we'll make sure to help hold you accountable to 'em. All right.

 

Wendy Sweet (27:38):

Awesome.

 

Bill Fairman (27:39):

You good?

 

Wendy Sweet (27:40):

I'm good. Are you good?

 

Bill Fairman (27:42):

I'm, I'm, I'm really good.

 

Wendy Sweet (27:44):

. You're better than me. You're in 80 degree weather. .

 

Bill Fairman (27:49):

Yeah. I'm not coughing as much, so that helps.

 

Wendy Sweet (27:51):

That's good.

 

Bill Fairman (27:52):

All right, now I said

 

Jonathan Davis (27:55):

That, that Uhhuh.

 

Bill Fairman (27:58):

All right. folks, thank you so much. hope this was helpful. we are what are we,

 

Jonathan Davis (28:07):

Carolina

 

Bill Fairman (28:07):

Capital Manager. Yeah, I know. I'm trying to do the, damn, what do you call it? No, I'm not doing that one. Thank you so much for joining us on the Real Estate Investor, show Hard Money for real estate Investors, . Now we are Carolina Capital Management private lenders in the Southeast for real estate professionals. If you would like us to take a look at one of your projects, go to carolina hard money.com. Sorry, I didn't mean to mess you up, Scott Carolina hard money.com. Click on the Apply now tab. If you're a passive investor looking for passive returns, click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell. See you guys next week.

 

Wendy Sweet (28:47):

Thanks.

 

Bill Fairman (00:01):

Greetings, everyone. We are live. Thank you for joining us. Wendy will not be with us today. She is currently at, I don't know, 30,000 feet on, on an airplane. So we're gonna talk about the year end review, even though the year isn't over with yet, but I don't know what much more will transpire between now and the first. So we're gonna, I'm do a, I'm, we're in a review today and we'll get to that right after. It's funny, that graphic we're showing the, the passive income gang. Yeah. With all the money flying. I'm going, that looks kinda active to me. ,

 

Jonathan Davis (00:59):

He makes so much money passively, he just actively throws it away. Is that what Yeah, I guess that's

 

Bill Fairman (01:03):

The, so by the way, welcome to the show. We are what is the name of the show? I keep forgetting? It's real estate. Real Estate Investor Show Hard Money for real estate investors. We are Carolina Capital Management private lenders in the Southeast for real estate professionals. If you have a project that you would like us to take a look at, please go to carolina hard money.com. Click on the apply now tab. If you're a passive investor looking for passive returns, we have a place for you as well. Click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell. And don't forget about Wednesdays with Wendy, since this is Thursday. She's not here. . So Wendy Dev devotes 30 minutes per person on Wednesdays to talk about anything real estate. Yep. She's usually booked up in advance quite a bit. So there's a link to get on her calendar.

 

Jonathan Davis (02:07):

Yeah. She's usually a month or two out. Yeah.

 

Bill Fairman (02:09):

Yeah. Take advantage of it.

 

Jonathan Davis (02:11):

Mm-Hmm. . Absolutely. Well, a month in review, or a month in review, A year in review, that's even worse. But

 

Bill Fairman (02:18):

First

 

Jonathan Davis (02:18):

Yeah.

 

Bill Fairman (02:29):

I always like freaking out our production group.

 

Jonathan Davis (02:31):

I love that. Yeah. I mean, we'll, we'll get to the, we'll get to the breaking news in a second. But yeah, I mean, just kind of a, an over overarching cap. Like we

 

Bill Fairman (02:39):

Had a lot

 

Jonathan Davis (02:39):

Going on this year has been Wow. It's just, you know,

 

Bill Fairman (02:44):

Yes.

 

Jonathan Davis (02:45):

Not to, you know, the same, the same investor loan that would've captured over 4.1% in January is capturing an 8.7% rate in December. I mean, it's, that's a big swing.

 

Bill Fairman (02:58):

Yeah. And if you're, you know, if you bought a piece of property and before you get it finished and then the numbers don't work out for you mm-hmm. you're gonna have to readjust. Yeah. Obviously.

 

Jonathan Davis (03:10):

Yeah. I mean, I think the, you know, if you, you know, $400,000 investment in house, you know, typically, you know, you need about $1,800 of rental income at a three and a half percent rate to cover it. And with the rates jumping where they are, and now you need $2,700 in rents to cover the, the payment Yeah. Rents while increasing didn't increase that much. Right.

 

Bill Fairman (03:34):

And they will eventually. But, but do, do you wanna lose money until then? No, you always have to have cash. It has to cash. Even if it's only $200 a month.

 

Jonathan Davis (03:48):

Even if it's only $50. I mean something, you know, 200 is better than 50, but Yeah. Don't have a negative cash flow. Yeah.

 

Bill Fairman (03:55):

But like I said, in the long run the rents will eventually outpace. Mm-Hmm. And then, you know, at some point rates should come down and then you can refinance and improve that.

 

Jonathan Davis (04:09):

I love the certainty of the wood. Should makes me not think of that. Never know. What's that phrase? Don't should all over me.

 

Bill Fairman (04:16):

Don't shit all over me. It's nice. All right. But before we get to this year end review we have a little bit of breaking news. I a little, oh, the corner. You guys can't see it from here, but we got an emoji of Oh my gosh. What are you talking about,

 

Jonathan Davis (04:46):

? Well, so, you know, not necessarily breaking, but you know, it's news nonetheless. What is interesting is the days on market or the inventory market in, in a single family is 1.6 months for October for the prior month, which is almost,

 

Bill Fairman (05:07):

That's not even close to normal,

 

Jonathan Davis (05:08):

Not even, but for the last five years, that is the lowest days on market for the last five years.

 

Bill Fairman (05:18):

Is that nationally?

 

Jonathan Davis (05:19):

Yes. Nationally for the last five years. So that even, even with what we're going through, higher interest rates, low, you know, low supply, we still, you know, loans are, houses are still closing and they're closing fast.

 

Bill Fairman (05:34):

So as we always say here, a stable market is six months worth of inventory. Mm-Hmm. . And so now we're talking about still less than two months. Yeah.

 

Jonathan Davis (05:42):

Yeah. Absolutely. also, you know, you know, just wanna throw out North Carolina, Charlotte, and Raleigh they made it into the top 10 best markets for growth for multifamily and single family. So looks like Raleigh Raleigh came in at nine and Charlotte came in at seven. Wow.

 

Bill Fairman (06:06):

Yeah. Well that just goes to show you all the people that are migrating to these parts.

 

Jonathan Davis (06:11):

Yeah. And notables, you know, Tampa came in in the top 25. So did Atlanta. And those are also places that we lend in. Yeah. so, you know, we love that. And then, you know, the top five multifamily markets to invest in, just released by, who is it? Yardi, Yardi Matrix. Number one is Atlanta. You know, we get that. But number four, Charlotte. Wow. Yeah. So, you know, even, even with everything going on, you know, it still rounds out the top five for markets to invest in a multi-family.

 

Bill Fairman (06:44):

Yeah. I, I lived in Atlanta in the very late seventies and early eighties while I was going to school down there. And I was always told if you can't get a small business off the ground in Atlanta, you'll not be able to get a small business off the ground

 

Jonathan Davis (07:01):

Anywhere. That's true. There's a lot of small businesses in

 

Bill Fairman (07:03):

Atlanta. Cause it was just a market that even in those high I mean that at that time they were high interest rate. We were in the middle of recession as well.

 

Jonathan Davis (07:14):

Yeah.

 

Bill Fairman (07:15):

And people were still very optimistic about you know, business growth in the Atlanta market. Mm-Hmm. . And that has really kind of translated into most of the, the southeast, because Yeah. A lot of people are migrating here. You got anything else?

 

Jonathan Davis (07:30):

Just, you know, I thought it was interesting. Maybe you all will as well. I did not know exactly how many hours the average renter had to work to pay for their rent. Mm-Hmm. it's 62 hours. Yeah. 62 and a half hours.

 

Bill Fairman (07:44):

For the month's rent.

 

Jonathan Davis (07:45):

For the month's rent, they have to work 62 and a half hours to, you know, to pay their month's rent, which is now, which that is up six hours more than it was Yeah. Before the pandemic. So, you know, you have to work six more hours to live in the same place. I, I like, you know, equating those things together, it's like what, you know, we, we can say it costs $200 more, but, you know, or it's, you know, you know, we like, you know, we like the expression of time returning time return on effort. You have to work six more hours to stay in the same place.

 

Bill Fairman (08:15):

Well, you think about that if you're trying to qualify for a mortgage, your housing expense can't be more than what, 28%?

 

Jonathan Davis (08:26):

Yeah. Yeah. 28. Yeah. I think that's right.

 

Bill Fairman (08:29):

Brian, if Brian's listening, he'll

 

Jonathan Davis (08:31):

Go correct it. Yeah.

 

Bill Fairman (08:32):

He'll chime in. But I, I think it's in the 28% range, so mm-hmm. that's much higher. 62 hours is much higher than what it's gonna be to qualify for a mortgage. Yeah. So rents are going up higher than your affordability for Oh yeah. Buying a home.

 

Jonathan Davis (08:52):

Yeah. You know, and they'll say like, rents have, you know, have slowed down. They have the rate of appreciation or arising has, has slowed down, but they still rose seven over 7% year over year for October. Yeah. Which is, you know, yeah. You know, more than average, but, but slowing down.

 

Bill Fairman (09:12):

Okay. So let's talk about the, and I'm gonna talk about single family prices first or home appreciation for the year in review.

 

Jonathan Davis (09:23):

This is the year in review. ,

 

Bill Fairman (09:34):

It looks like a heavy metal here in

 

Jonathan Davis (09:36):

Review. I love it. I only did that cuz I like to throw bill off.

 

Bill Fairman (09:39):

That's okay. It's easy to do. So peak home appreciation hit in June of 2022 at an annualized rate of 20%.

 

Jonathan Davis (09:56):

Did you round I think it was 19.8.

 

Bill Fairman (09:58):

Yeah, I rounded it. Yeah. 20%. That's incredibly high. And as we always talk about here, unsustainable

 

Jonathan Davis (10:07):

, 20% growth. Yeah. Was is unsustainable.

 

Bill Fairman (10:11):

So what what's funny, I, I hear a lot of the, the pundits talk about this and how all the markets are overvalued, which they are for the most part. And as the things shake out, they believe that appreciation will drop all the way down to between two and a half and three and a half percent.

 

Jonathan Davis (10:31):

You mean to normal,

 

Bill Fairman (10:32):

Which is been the normal rate of appreciations. It's the fifties.

 

Jonathan Davis (10:36):

It's terrible. It's going to, it's gonna just crash. The market's gonna crash, it's gonna get down back to normal appreciation.

 

Bill Fairman (10:43):

2022, I also saw record energy prices.

 

Jonathan Davis (10:48):

That is true. Yeah.

 

Bill Fairman (10:50):

Our fuel has gone through the roof, which means that's gonna add pain to everything that we do. Yep. Everything.

 

Jonathan Davis (10:59):

Everything.

 

Bill Fairman (10:59):

Yep. That's one. I mean, we had inflation because of supply chain, which was, you know, kind of a short term thing.

 

Jonathan Davis (11:07):

Yeah. I I didn't, it was supply chain. It had nothing to do with four, you know, what was it trillions of dollars? Was it 4.2 trillion being printed? Well, that didn't help.

 

Bill Fairman (11:16):

Yeah. But I mean, we did have inflation because we, we had a lot of people demanding stuff. We couldn't get it. Yeah. So if you could get it, you were gonna pay more for it.

 

Jonathan Davis (11:25):

Sure. But you had 4 trillion more dollars.

 

Bill Fairman (11:27):

No, I, I get all that. I'm not saying that's not the only thing, but that would've been temporary. But the, the cost of energy going up keeps it going even longer. Yeah. And then the Fed, in my opinion, it's not the rates that were so low that caused a lot of this and then the free money that the government was giving out, but the balance sheet of the Fed mm-hmm. . I just wanna, they weren't reigning that

 

Jonathan Davis (11:55):

In. Just wanna point out, bill said, you know, the free money that the government was handing out, as you all know now, there is no such thing as free money. You're feeling, everyone's been feeling for how long? Yeah.

 

Bill Fairman (12:07):

It's free to some people.

 

Jonathan Davis (12:10):

Not to us. Yeah.

 

Bill Fairman (12:12):

And here's another thing that's been kind of an issue. We have the lowest employment participation rate since the oh eight crash.

 

Jonathan Davis (12:22):

Yeah.

 

Bill Fairman (12:23):

And that's also causing inflation, but it's, it's more of a employment inflation because you're, you have a shortage of of workers. Yep. And so you have to pay more to get 'em there. And then a lot of them are, you know, playing that off and just going from one place to another.

 

Jonathan Davis (12:41):

mm-hmm.

 

Bill Fairman (12:42):

.

 

Jonathan Davis (12:42):

And, you know, you, you know, record energy prices you brought up. And it's not just here, it's in Europe and everywhere abroad. But I thought it was notable. I remember mentioning this way back after, you know, right after the pandemic. Do you, do you all remember what the first business or first thing that Warren Buffet bought coming outta the pandemic?

 

Bill Fairman (13:07):

Oh,

 

Jonathan Davis (13:08):

An energy company. Oh, no. Smart guy.

 

Bill Fairman (13:11):

Yeah. That's why he was the, what do they call him? The something of Omaha, the,

 

Jonathan Davis (13:18):

Oh, I don't know.

 

Bill Fairman (13:19):

No. Anyway, something important of Omaha. The Oracle.

Jonathan Davis (13:25):

The

 

Bill Fairman (13:26):

Oracle. The Oracle of

 

Jonathan Davis (13:27):

Omaha. I had no sir Dam in my head. I couldn't, couldn't get

 

Bill Fairman (13:30):

It out. Yeah. No, he, he's a smart guy. , let's go to how things have changed. So 2020 OB or 2021, we obviously had inventory issues with single family housing. Yeah. So in, in order to keep up with that change a lot of investors started moving into smaller and multifamily and self storage. Yep. Those are two property types that are still recession resistant. Sure. the multifamily, you still have to have a place to live mm-hmm. . And while the, you know, the zero, there's a few more zeros on 'em, there's still great investment opportunities. Yeah. so what do you think about that? From an investor's perspective? People get a little concerned about the extra zeros that makes them a little afraid. It makes, it's easier to do the single family homes because it makes you feel better. You can get rid of one. If you run into trouble, if you have an apartment complex or a self storage facility you're dealing in a lot higher dollar amounts and people get a little nervous about that.

 

Jonathan Davis (14:43):

Oh, that's true. You know, there's a whole lot of different ways to look at it. So we, we know that in like sales and cap rates, multifamily was the big winner in 2021. Mm-Hmm. . And it looked like in 2022 for the first half of the year, they were going to be as well. And then, you know, then the interest rates and inflation and everything happened. But with single family, you are tied solely to the conditions of the market to that ebb and flow, to demand supply interest rates. You are tied solely to those things. And there's not much you can do to increase your value beyond market. You know, unless there's just, you know, no supply. And, and then we've seen that what's, you know, 20% appreciation in multifamily. While there are more zeros, you have more control. And you can, you know, with the rising or rising rents, you know, rents are, are, are rising.

 

(15:48):

So you can increase your net operating income. And that is based off of the capitalization rate of whatever the market is in that area. We know how much demand is. But you know, you're kind of stuck with that. And so now what do you do? Well, you can create a shared laundry room where you create additional, you know, income or you can create other avenues of income for this property or, or take away expenses from the property and you can, and you can inflate or deflate that price or that value accordingly. So it just gives you a little more control. So we're still seeing multi-family selling. Not like it was, you know, six months ago and definitely not like it was a year ago. You know, October, November and December of last year. I mean, we saw record sales and multi-family. The interest rates are, you know, are hurting a bit of that cuz you know, you have to buy in at a much lower operating capitalization rate, which just means how much you're gonna make off of it.

 

(16:55):

 So that's really compressing the market for a lot of people. Those additional zeros. Most people kind of get around that additional risk factor by bringing other people in, whether it's equity investors or partners in the llc, what have you to kind of share that risk across the board. Which you don't really, you see it in single family, but the, the, you know, to buy a hundred thousand dollars house or a million dollar multi-family, I mean, you know, you can, you can make the risk more palatable on a hundred thousand. You can a million for one person. Yeah.

 

Bill Fairman (17:30):

There. And there's differences in commercial financing. It finances differently in a lot of cases. You can't get 30 year fixed rate. You have to go to more of a a on multifamily 20. I mean there are some available, it's not,

 

Jonathan Davis (17:47):

We do 30 year fixed on multifamily.

 

Bill Fairman (17:50):

The way to value of property is based on the income that it receives. Mm-Hmm. , you can add value to the property, raise rents and then, or lower expenses or a combination of the two. Mm-Hmm. and you will add value to the property, which is not gonna happen on a single family home. No. It's just gonna go based on what home down the street sold for.

 

Jonathan Davis (18:15):

Exactly. Exactly.

 

Bill Fairman (18:16):

So there's a lot more you can do with those that you can with a single family home. That said, if you need to move it quick, single family homes are the most liquid

 

Jonathan Davis (18:27):

. That's true. There are more buyers in that. And it's, it's a faster move. It's a, yeah.

 

Bill Fairman (18:32):

It's

 

Jonathan Davis (18:32):

Easier financing, lower due diligence period. You know, all those things. Yeah. Wendell asked, will appreciation go below inflation? Well, I like that you didn't put a time period on that, so I'm gonna say yes.

 

Bill Fairman (18:46):

Well, the numbers for appreciation will go be below the current inflation rate, but I don't know if they go below the inflation rate at the time they, they drop down to the lower single digits.

 

Jonathan Davis (19:04):

Say that again to me. I'm not sure. I

 

Bill Fairman (19:06):

Don't know that we'll have high, that high of inflation when I'm expecting appreciation at some point to be in the five to six range. Yeah. We may not have inflation at five or 6% when that occurs. Well, we could, but that's okay. It, it's

 

Jonathan Davis (19:24):

Are you saying it be above or

 

Bill Fairman (19:26):

Below? But what I'm saying is inflation may be in the fours when we have appreciation in the sixes, but it could be that it goes into the threes and we still have inflation in the sixes.

 

Jonathan Davis (19:38):

Mm-Hmm. ,

 

Bill Fairman (19:39):

It's not gonna stay that way for long.

 

Jonathan Davis (19:41):

Yeah.

 

Bill Fairman (19:42):

It will eventually bottom out. And again, if, if the homes appreciation rate, if you're buying single family homes for rental, it doesn't matter because it's about the cash

 

Jonathan Davis (19:54):

Flow. It's about the cash flow and what you bought in at.

 

Bill Fairman (19:56):

Yeah. And you know, and Wendell, you already know this, the house does not care what it's worth. Mm-Hmm. , it depends on the income that's coming in. It's all about the money coming

 

Jonathan Davis (20:05):

In. But yeah, I mean, in short, yes. Appreciation will go below inflation. I mean, you know, they ebb and flow as Wendell knows. That was a great question.

 

Bill Fairman (20:15):

Yeah, that was awesome

 

Jonathan Davis (20:16):

Question. But, you know, win win is always, it's, it's not, you know, it's not really if it's, you know, it's win and no one really knows that.

 

Bill Fairman (20:24):

I'm also seeing, and this is just from me noticing this is not scientific data , I've noticed a few self storage facilities, the a class property types, I'm noticing a lot more available tags on the doors versus locks.

 

Jonathan Davis (20:44):

Mm. Okay.

 

Bill Fairman (20:45):

So vacancy rates are getting a little, little bit higher.

 

Jonathan Davis (20:48):

I always wondered where you win in the afternoons. I guess you're just, you know,

 

Bill Fairman (20:51):

I'm just perusing self storage facilities. I'm gaping through the fence.

 

Jonathan Davis (20:56):

Ooh. Available .

 

Bill Fairman (20:58):

But I am seeing occupancy rates starting to drop a little bit in the cell storage. But that's,

 

Jonathan Davis (21:07):

And that's, and that's okay because they've been, you know, if doing, they're, they're class A and if they're doing what they're supposed to do, they're, they've been pushing those rents Yeah. Month after month pushing them up and now they have to bring 'em back down a little

 

Bill Fairman (21:19):

Bit. Right? Yeah. People will not change facilities if you move it up 10 or 20 bucks a year. Mm-Hmm. . But when you move it up 10 or 20 bucks every quarter

 

Jonathan Davis (21:32):

Or every month, some of them have gone, I've seen some dollar, like five, $10 a

 

Bill Fairman (21:35):

Month. Yeah. They'll, people say my $500 worth of stuff needs to go somewhere else. Mm-Hmm.

 

Jonathan Davis (21:41):

. Yep. Absolutely.

 

Bill Fairman (21:43):

But those are great markets to be in. I am, well we are going, it's all about me. We are we're gonna discuss Carolina Capital now for the end of the year.

 

Jonathan Davis (21:57):

Everything that happened to Carolina Capital was all because of Bill

 

Bill Fairman (22:01):

. Yeah. we had record dollars funded for the years since we've been in business thanks to this man.

 

Jonathan Davis (22:09):

Right. All it was a team effort, but all of us, yeah. So we, you know, as we set right now we're at 71 and a half million dollars out the door this year, year to date. So

 

Bill Fairman (22:22):

What was our, what was our biggest year?

 

Jonathan Davis (22:24):

The biggest year before that Yeah. Was like 36 million. Yeah.

 

Bill Fairman (22:29):

Yeah. So that was a big jump in a year. Yeah. So 2022 was really good to us. We also had the highest fund returns since 2017. And, and Ysa since 2017. Or why is it different? Why the returns higher? Well, in 2017 we were charging a lot more for loans.

 

Jonathan Davis (22:51):

, you were charging a lot more and you had less assets under management. That's true. So the, the fewer assets you have under management, the easier it is to organically produce higher returns. Right. The more money and more assets you have under management, the more difficult it becomes to produce those higher returns.

 

Bill Fairman (23:14):

And and back then we didn't have a lot of competition. And during the end of 17 and the 18 and the 19 you had a lot more Wall Street firms coming into the hard money space. Yeah. And, you know, we obviously had to get competitive cuz they were charging a lot lower rates because money cost them nothing.

 

Jonathan Davis (23:34):

I remember seeing someone advertising hard money at five and a half or 5.75. It's like, wow,

 

Bill Fairman (23:42):

That right there is not very good management of your client's money.

 

Jonathan Davis (23:48):

Well, and the thing is,

 

Bill Fairman (23:49):

The risk, the risk is so much higher than a 5%

 

Jonathan Davis (23:53):

Interest. Well, and, and here's the thing. They were probably returning through investors a high single low double digit return, but they had that money levered four or five times. So when things, you know, when things change, like we just saw change their investors are last in line to get their money and all the creditors that they levered their money with are first. So

 

Bill Fairman (24:14):

Now that said, with the proper leverage, you can have, and I'll give you a quick example. You have a fund that is loaning money on an apartment complex, right? Mm-Hmm. . And they can be giving the apartment complex market rates and still return their investors well above

 

Jonathan Davis (24:34):

Market. And if you wanna find out about that, schedule a call with Bill. Cause this is the year in review.

 

Bill Fairman (24:39):

That's right. I won't get into it. . All right. And then we lastly we have the highest amount of money under management now that we've had since we've been in business,

 

Jonathan Davis (24:49):

Correct?

 

Bill Fairman (24:50):

Yes. And this is not a sales pitch, but we could always use more.

 

Jonathan Davis (24:54):

Yeah. Always more So, you know, give the disclaimer real quick before I start throwing out some numbers.

 

Bill Fairman (25:01):

Yes. your mileage may vary. This is consult your attorney, read the PPM before you invest and invest wisely.

 

Jonathan Davis (25:10):

Invest wisely. Yes. so last year our fund averaged 10 and a half percent return to the investors. This year through three quarters. It's done the same and it's done the same with more money under management or more assets under management. So we have as a team been able to absorb that money, additional capital, place it, and manage it, and still meet or exceed the returns we were doing with less money. And, you know, if you know anything about managing a fund, that is, that, that's the difficult part. That is the very hard part of this. And you know, Wendy, you, me and then our team here, like everyone has done such a great job helping us, you know, manage and place money. It's it's,

 

Bill Fairman (26:04):

And, and we and we do it without leverage.

 

Jonathan Davis (26:08):

Correct. So we do not lever our fund at all. If something happens and investors in our fund need their money, they are the first in line to get it. There's no one in front of them. Right.

 

Bill Fairman (26:20):

And that, that's key. There's two reasons you don't wanna lever your money. And one is that, that your investors are in second position essentially. Yeah. And number two, if you're investing with an ira, the IRS doesn't like your IRA being levered and they could charge you a EBIT tax on that as well.

 

Jonathan Davis (26:42):

But if you're making high enough returns, you don't really care. It's just the filing that really gets you Yeah. It's a pain. It's a pain, you know.

 

Bill Fairman (26:48):

Well,

 

Jonathan Davis (26:49):

But, but no, it's, it's been a great year. Yeah. We started out, like I said at the very beginning of this, you know, we could do loans at 4.1% on a 30 year fixed. And now, you know, we're, we're looking at, you know, mid to high eights. There's some people even doing nines and tens on, on investor loans bridge loans and, and like fix and flip and new construction, you're still seeing, there's a few guys out there doing it. Probably, what, eight to 10%? Probably not many. Most people are going to be in that 10 to 14% range right now. Just, just because, you know, like we have cost of funds and then every, every risk profile above zero gets assigned an interest rate above that. And, you know Sure. So as you move down the line, you know, you, you, you know, you get new construction right now, new construction is, you know, unpredictable at best, , and definitely especially on the timeframe.

 

Bill Fairman (27:47):

All right. So as an investor, I'm not worried at all in this market. We needed things to slow down because they were unsustainable. Mm-Hmm. . There's still plenty of opportunities out there. And another thing this type of market does is it shakes out the trees. It takes the people that were doing it part-time, the folks that were just looking at hgtv. Yeah. it takes the real estate agents and brokers that were essentially part-time and it allows the real professionals to handle the customers because

 

Jonathan Davis (28:19):

Like Don Harris. Yeah.

 

Bill Fairman (28:22):

It, it's a shame that the people that are just doing it part-time, a lot of times they don't, they don't have the number of transactions that they have gone through to get the experience, not to make mistakes. Mm-Hmm. and what it does, it reflects badly on the industry. Same thing would happen to, you know, a new fix and flip person who gets into the industry and hasn't had the bumps and bruises, or worked with a mentor to understand some of the mistakes that can happen. Mm-Hmm. . And it can give that industry, you know, a bad name as well. Yeah, very true. So what's gonna happen now, because things are a little bit tighter, it's the professionals that are gonna be maintaining and they're still, like I said, there's always gonna be deals in any market. Mm-Hmm.

 

Jonathan Davis (29:07):

And the professionals know that whether the interest rate is 8% or 15%, it doesn't matter. It's how much, you know, how much risk can I tolerate and how much money will I make? And that's all that matters.

 

Bill Fairman (29:19):

And you make your money on the buy.

 

Jonathan Davis (29:21):

Yep. Absolutely

 

Bill Fairman (29:22):

Not the

 

Jonathan Davis (29:23):

Sale. And if you can't make it on the buy, well, you try to make up for it on the rehab and then that doesn't really work. And

 

Bill Fairman (29:29):

. All right. So before we go Wendy is gonna be speaking at a few places. I don't wanna run through that real quick. And the first one is Quest Expo.

 

(29:44):

Oh, I'm sorry. Quest Con . It is online version, and it starts on December 9th. There is a discount code. Carolina 15 gets you $15 off, unlike the Fairman 30 that got you. $30 off, but it's not as expensive. So take the break. What else we got coming up for Wendy. Okay. Invest her. Wendy is actually doing a, she's hosting a, a webinar on December 14th. We don't have a link for that yet, but we'll make sure we get it in the notes. Yeah. What else we have? Oh, and then the Raleigh tria, that's the greater triangle area of High Point. Winston-Salem, Greensboro Raleigh, or no, maybe that's Carrie Durham, chapel Hill, I don't know, but she'll be speaking at

 

Jonathan Davis (30:42):

Somewhere in North Carolina,

 

Bill Fairman (30:44):

January the 12th. We'll get you some information on that too. They have a great R group up there. They really do. Mm-Hmm. . Anything else inside cell storage? Wendy is actually, yeah. Gonna be a featured speaker in Las Vegas. Do you see how she elbows her way into speaking positions? We've owned a self storage facility for like six months and she's already a featured speaker at Self Storage do it nationally. So we'll make sure that if you can't attend, we'll do our best to get some video of it. Yeah. All right. Are we good? All right. Excellent. Folks, thank you so much for joining us. I hope your year was as good as ours and as blessed as ours has been,

 

Jonathan Davis (31:41):

Those are my favorite moments.

 

Bill Fairman (31:42):

He, he has got to get that thing

 

Jonathan Davis (31:44):

In there, didn't he? I think he's just messing with you right now. .

 

Bill Fairman (31:48):

So, thank you so much for joining us on The Real Estate Investor, show Hard Money for Real Estate and Investors. We are Carolina Capital Management. We are private lenders for real estate professionals. If you'd like us to take a look at one of your projects, go to carolina hard money.com and click on the Apply Now tab. If you are a passive investor looking for passive returns

 

Jonathan Davis (32:07):

And, and you wanna, you know, join the other investors that we have, that outpaced inflation.

 

Bill Fairman (32:12):

Yep. Go to the accredited investor tab. Don't forget the like, share, subscribe, hit the bell, all that good stuff. Next week.

Your 2022 In Review! Visit our website: https://www.CarolinaHardMoney.com

Join Bill Fairman, Wendy Sweet, and Jonathan Davis, LIVE! every Thursday at 12 pm ET for the Real Estate Investor Show - Hard Money For Real Estate Investors!

As 2022 is nearing its end, the Carolina Capital Management team takes a look back at the relevant real estate events that occurred this year.

What have you learned and accomplished this year? What are the preparations you need to look out for in order to survive the ever-unpredictable real estate market? Be up to date, be informed. Be educated.

Learn the numbers and data. Discover the best niches of the real estate business where you should invest.

Today's Market and the Non-QM Loan

Join the Carolina Capital Management team LIVE every Thursday at 12 pm ET for the Real Estate Investor Show - Hard Money For Real Estate Investors!

This week, Bill Fairman, Wendy Sweet, and Jonathan Davis are joined by Bryan Maddex of AmeriFirst Home Mortgage to discuss Non-Qualified Mortgage Loans!

With over 20 years in the financial industry, Bryan used his experience and insight to help get financing and loan products for his clients, many of whom are first-time homebuyers and real estate investors.

One of his top priorities is providing consistent and frequent communication. His team ensures that the buyer knows exactly where they are in the mortgage process, as well as their agent and listing agent.

Amerifirst works with many clients who have not been successful in getting loan approvals from other lenders. They take the time to educate their clients on overcoming prior obstacles to achieve success as they navigate the steps to homeownership, including the pre-approval process.

It is not unusual for Bryan to work with his customers for a year or more to help them get their credit mortgage ready, and for him, it is especially gratifying to share in his client's joy on closing day.

Amerifirst offers a full line of flexible loan products including FHA, VA, USDA Rural Development, renovation, and conventional mortgages.

They also offer a range of non-traditional products such as Investor Cash Flow Loans and Bank Statement Loans.

Bryan is proud that his Amerifirst team includes his wife, father, and brother, and they feel truly blessed to be able to serve their clients as a family.

Join Bill Fairman, Wendy Sweet, and Jonathan Davis LIVE! every Thursday at 12:00 PM ET for the Real Estate Investor Show - Hard Money For Real Estate Investors!

Brett Sims, the Head of Growth of Renovo Financial, joins the Carolina Capital Management team to talk about the current market updates, especially the DSCR loans.

Renovo Financial:

Their story begins in 2011, at the Starbucks on Sheffield and Armitage in Chicago’s Lincoln Park neighborhood. It’s here where Co-Founders Kevin Werner and Daniel Rosen met to discuss founding a new real estate investment company.

But this company would be different. They wouldn’t simply throw money at clients and expect them to figure out the rest. No, they would take the time to assist their clients through the entire process, never sacrificing service to make a quick buck.

With the help of Granite Creek Capital Partners, the initial equity firm that back Kevin and Daniel, they were ready to start growing their new company, Renovo Financial.

With support from Granite Creek and caffeine in their system, Kevin and Daniel began slowly and carefully lending in Chicago and building their team of rockstar real estate lenders.

For the first five or six years, they focused solely on the city of Chicago. Today, however, Renovo is rapidly expanding across the country with local lenders in more than 10 markets stretching from San Diego to Boston.

00:00:01

Greetings, everyone. Welcome to the show. We are going to talk about capital raising and why it's important to your deals right after this.

 

Wendy Sweet

00:00:34

That's funny. That's like a so funny when you see people on the news doing a news set and they say something and they just wait for stuff to happen and they wait for stuff to happen, it's,

 

Bill Fairman

00:00:45

Well, just so you guys know, half of our, our crew is in another country, so it's occasionally there.

 

Wendy Sweet

00:00:52

Two different countries.

 

Bill Fairman

00:00:53

Yeah. There, there's occasionally a little bit of lag time when we talk. So that's, that's really it.

 

Wendy Sweet

00:01:00

So the whole show's coming from three different countries. That's true. Actually. That's pretty

 

Bill Fairman

00:01:03

Cool. And technology amazing. It anyway is, thank you so much for joining us on the Real Estate Investor Show Hard Money for Real Estate Investors. We are Carolina Capital Management and we are private lenders for real estate investors in the Southeast. If you'd like us to take a look at one of your projects, go to carolina hard money.com and click on the apply now tab. If you're a passive investor looking for passive returns, then click on the accredited investor tab. Don't forget the like, share, subscribe, Hit the bell. And don't forget about Wednesdays with her.

 

Wendy Sweet

00:01:38

Woohoo. Awesome.

 

Bill Fairman

00:01:46

Wendy devotes like 30 minutes per person, right?

 

Wendy Sweet

00:01:50

Yep.

 

Bill Fairman

00:01:51

Every Wednesday, but she's booked out a couple of months in advance, so get on her calendar

 

Wendy Sweet

00:01:57

That, And I actually got this idea from our guest that's coming on.

 

Bill Fairman

00:02:01

That's right. It was Tuesdays with Jeff,

 

Wendy Sweet

00:02:05

Whatever, whatever day anybody could get in with Jeff that, that's the big thing.

 

Bill Fairman

00:02:09

So, So anyway, the link is right there and also in our comment section, which is on the right side of your screen or underneath, depending on the platform you're viewing us from. Anything else to add?

 

Wendy Sweet

00:02:21

Well, I just want to say this, you know, we always talk about, you know, if you're interested in passive investing to go in and, and click on our pass our investor tab. But I, we've got some bragging rights. We've, we've had, we've had a phenomenal year. Our trailing 36 month is really good, but I, I mean our, our last quarter we were at 10.76

 

Bill Fairman

00:02:46

And this is not a solicitation for selling of any type of security. Do your due diligence, your mileage may vary, blah, blah, blah

 

Wendy Sweet

00:02:56

Ppm. Yes, it's very important to do that. But we need to, I mean we need to talk that, cuz it's been, it's been really great. It's been over, well over 10 for the

 

Bill Fairman

00:03:04

Year. The, the real estate business. While it sounds like it's really going downhill, if you listen to the news, it's still way outperforming the

 

Wendy Sweet

00:03:13

Stock market and it's adjusting to normal. Yeah. Which is really nice. We, we all need a little normal.

 

Bill Fairman

00:03:19

All right, real quick, some breaking news. Good Lord.

 

Wendy Sweet

00:03:42

It, So now the news isn't breaking anymore. It's, it's old already.

 

Bill Fairman

00:03:46

It's, it's old news now. So the Fed raised the rate another 75 basis points.

 

Wendy Sweet

00:03:55

That's right.

 

Bill Fairman

00:03:56

It's like there's, it's like 3% height now since they started, or at least close to it.

 

Wendy Sweet

00:04:02

I can't wait to hear Brian Maddox talk about it tomorrow on our sunrises meeting that we have every Friday morning at 7:30 AM

 

Bill Fairman

00:04:10

Yeah. And I'm sure we'll have a link to that over here in the comment section

 

Wendy Sweet

00:04:13

As well. Yeah, yeah. It's, we, we'll talk in depth about that. That's, that's good stuff.

 

Bill Fairman

00:04:17

Yeah. There it is right here.

 

Wendy Sweet

00:04:18

Yeah. Awesome.

 

Bill Fairman

00:04:19

Sweet. Thank you. Sha

 

Wendy Sweet

00:04:21

We, we also know that when the Feds hike the rates like that, that it really isn't your mortgage rates that are going up 0.75. A lot of people assume that it's completely correlated and it is attached a little bit, but really

 

Bill Fairman

00:04:40

Historically, the Fed is always chasing the market, right?

 

Wendy Sweet

00:04:43

That's right.

 

Bill Fairman

00:04:44

If you, if you, well, you have to know people that have the graphs, but they're always behind the curve. Yeah,

 

Wendy Sweet

00:04:51

Always. Yeah, for sure.

 

Bill Fairman

00:04:53

They're trying to destroy the housing market and they're working on it pretty well. Yeah,

 

Wendy Sweet

00:05:01

We're not gonna let 'em do that

 

Bill Fairman

00:05:02

Though. What

 

Wendy Sweet

00:05:04

Else? So I was reading this morning on a newsletter that I follow called Essa, S T E S S A. They always have some good information, but they were really talking about the rent and apartment complexes versus single family residential, which I thought was really, really interesting. You know, apartment apartments have been going up and up. The rents for apartments have been going up and up. The vacancies have been going lower and lower, which it's been very, very strong and it will continue to remain strong. However, what we're seeing is that one and two bedroom apartments are for the first time in a very long time going down in price, which I thought was really interesting. And you brought up, because people are getting roommates to, to

 

Bill Fairman

00:05:59

Probably having higher vacancy rates. So they're bringing their rates down a little bit. Yeah. Try and fill 'em, but it's because people can't afford to live on their own

 

Wendy Sweet

00:06:07

Anymore. Yeah, yeah. But the whole point of that article is really to talk about single family rentals and how strong the rent is for a single family home. And, you know, it's a great day to be in the buy and hold business. It's always a great day to be in the buy and hold or the build and hold business. It's, it's,

 

Bill Fairman

00:06:32

But it happens. If you can't afford mortgage payments, you have to rent. You

 

Wendy Sweet

00:06:36

Get cold.

 

Bill Fairman

00:06:37

Yeah. You have to rent. Yeah. So there you go. For sure. Or if you can't buy a house, you can rent one until the rates come down. That's right.

 

Wendy Sweet

00:06:44

Right. That's exactly right.

 

Bill Fairman

00:06:46

Or you can find one with a lease to own kinda deal as well.

 

Wendy Sweet

00:06:49

That's exactly right.

 

Bill Fairman

00:06:50

All right. So enough Gibber, Joe.

 

Wendy Sweet

00:06:52

Well, I wanna talk about, just a quick point too, for the sunrises for our meeting on sunrises. Tomorrow at seven 30 is on Zoom and that link is right there in in the chat box. We are going to be talking about subject to real in, in real estate, in the real estate business, which is basically taking over a property subject to the financing in place. So I'm really excited about us talking about that

 

Bill Fairman

00:07:20

One thing, that

 

Wendy Sweet

00:07:21

Particular type.

 

Bill Fairman

00:07:22

I have a quick question before we move on. I'm always concerned about how you get the person that has the mortgage to agree to take over that mortgage when they're ultimately responsible for it.

 

Wendy Sweet

00:07:35

Well, you need to turn tune in tomorrow and because that's the topic we're gonna talk about

 

Bill Fairman

00:07:41

For that would be my biggest fear is letting somebody else take over my mortgage, even though I'm the one that's on

 

Wendy Sweet

00:07:47

The Yeah. And there are ways around that. We're definitely gonna gonna talk about that tomorrow.

 

Bill Fairman

00:07:51

It's a great way to do it because you know, obviously you're not gonna take over a, a loan with a high rate.

 

Wendy Sweet

00:07:56

That's right. Not these days.

 

Bill Fairman

00:07:58

That's right. That's

 

Wendy Sweet

00:07:59

Right.

 

Bill Fairman

00:07:59

And they don't have any more non qualifying FHA loan assumptions out there anymore.

 

Wendy Sweet

00:08:04

Nope. Long gone. So folks, we are really, really excited about our guests today. You'll, you may have noticed if you've been watching for the past, what, four weeks? Three weeks? Four weeks. We have been talking about raising capital and raising capital from your financial friends, which could be your family and friends, people that you know, like, and trust. And we really wanted to end this theme with a dear, dear friend of ours, Jeff Johnson, who is the bomb. And he's really, really good at raising capital. That's how he runs his business. So folks,

 

Bill Fairman

00:08:48

And, and by the way, he's also known for packing more than one belt with him when he travels. So thank you for that.

 

Wendy Sweet

00:08:54

Evidently he pulled you out.

 

Bill Fairman

00:08:56

I forgot to pack my belt.

 

Wendy Sweet

00:08:59

So here's our friend Jeff Johnson. Jeff, welcome, welcome to the show my friend.

 

Jeff Johson

00:09:05

Hey guys, how are we doing?

 

Bill Fairman

00:09:07

Great. Wow. You look like you're like doing a reality show.

 

Jeff Johson

00:09:12

Well, this is a house that I just finished and is going on the market tomorrow. Is that right? Tomorrow.

 

Wendy Sweet

00:09:17

Wow.

 

Jeff Johson

00:09:18

Look tonight at that

 

Wendy Sweet

00:09:19

Beautiful, beautiful kitchen.

 

Bill Fairman

00:09:21

That's gorgeous.

 

Jeff Johson

00:09:22

Yep. So there you can get a little, a little vision, a little view of what's going down.

 

Wendy Sweet

00:09:27

That is gorgeous. Okay. Tell us a little bit about, Oh, look at that fireplace. Oh my goodness. Tell us about this house. Where is it? What's the price? What, what's the deal?

 

Jeff Johson

00:09:39

Okay, so this is one of four houses that I built up in Oakhurst, which is 28, 2 5 in Charlotte

 

Bill Fairman

00:09:46

Live there. My first house was in

 

Jeff Johson

00:09:48

Oakhurst. Yeah, yeah, yeah. So I bought a, I bought a lot and you guys saw Shannon, my realtor, actually Shannon helped me get this lot, but bought this lot from the guy. There was a single house on it. We ended up splitting it into four lots. So I built four houses down the, down the road here. And so this is the first one that's going on the market. So let's see, I paid 4 65 for the lot. So what is that? A little over a hundred thousand dollars per building lot. Yeah. Not too bad.

 

Wendy Sweet

01:10:21

Not in that area.

 

Jeff Johson

01:10:23

Yeah. So my build cost in these is right around three 50 I think. So this is a 2,700 square foot house, this one. And this one's going on to market tomorrow or tonight for 7 99 9. So not too bad.

 

Wendy Sweet

01:10:37

Wow. Wow. That is awesome. Okay, I'm so glad you're throwing those numbers out. So Jeff, how did you finance this? What, where'd you get the money? What'd you do to raise it? Tell, tell me about what that looks like.

 

Jeff Johson

01:10:51

Well this, this actually was a combination. So I actually did an partial owner finance. So the lot was 4 65 and the owner actually gave me a $300,000 owner carryback. So I only had to come to the table with 165 grand.

 

Wendy Sweet

01:11:09

Wow. Nice.

 

Jeff Johson

01:11:11

And then he, he subordinated his loan to a bank loan. So I actually was able to do all this construction with a bank loan. But that, you know, that's taken me years to get to that point and build my business to a point where I can go in and get a, you know, $1.5 million loan to build four houses. So.

 

Wendy Sweet

01:11:26

That's awesome. And what kind of a bank is it? Is it a local bank? A a credit union, a regional bank?

 

Jeff Johson

01:11:32

It's a, it's a local bank. Yeah, it's a local bank that I've had a relationship with for probably seven years now. They've financed several homes for me over the years. So we've got a, you know, ongoing relationship.

 

Wendy Sweet

01:11:45

That's awesome. That's awesome.

 

Bill Fairman

01:11:47

You know, you're, you're throwing those numbers out there and I told you my first home was in Oakhurst. I paid 23 5 for a 14 year square foot two story house on Commonwealth Avenue.

 

Jeff Johson

01:12:00

Don't, don't you wish you, I built one on Commonwealth too. Don't you wish you would've kept that?

 

Bill Fairman

01:12:04

Yeah. Oh my gosh, no doubt. Absolutely.

 

Wendy Sweet

01:12:07

He even had his motorcycle in the living room. I remember that. It

 

Bill Fairman

01:12:11

Was never in the living room. It was in the foyer.

 

Jeff Johson

01:12:13

Nice, nice.

 

Wendy Sweet

01:12:16

So are you nervous at all about being in that price range in these dark times that we're living in?

 

Jeff Johson

01:12:26

Well, sure. I mean, everybody's a little bit nervous. I mean, you know, I think part of the problem was, is we all got used to things selling in 35 minutes and now it's kind of back to normal the way it was before Covid. So, yeah, I mean this is, I started my business in oh nine, so I was used to, you know, two months, three months to get something under contract. So this is not something I haven't experienced before, but I think a lot of people who just got started are probably a little bit freaked out because it, you know, they didn't figure in holding onto their properties for three months or six months. They didn't figure that into their costs. Plus, you know, everything got so expensive there for a little while that, that everybody just assumed that they were gonna make their money on the back end. You know, I always say you make your money when you buy the property, just like I did with this property. I made my money when I bought this property. If I'd have paid a million dollars for this, I'd be super nervous.

 

Wendy Sweet

01:13:19

Yeah. Yeah. I actually had a call this morning from someone that we did a loan for. She's still in it eight months into it, you know, the contractor didn't really do a right. She had to let him go. So she's working with a new contractor, but unfortunately her, you know, our appraisal subject to appraisal when she bought it came in at 2 65, 8 months ago. Right. And her agent told her she could easily get a little over 300 for it. So I, you know, I, and, and, and so she's been moving forward in her head, putting her own money out instead. Yeah. Because we're only gonna fund from the numbers we run. And now she's sitting at a place where, you know, she'll be probably getting what the appraisal originally said it would be worth. And she's, she's not gonna make any money on this deal. I mean, that's the difference between somebody new and somebody that's experienced.

 

Jeff Johson

01:14:20

Right. Well I think, I think a lot of what you're seeing is people who, you know, way overpaid because they wanted, they just wanted to keep growing or they wanted to get more property. I actually really, I kind of stopped buying rehab property the last few years because I saw what was happening with the prices and I knew it couldn't last.

 

Wendy Sweet

01:14:39

Right.

 

Jeff Johson

01:14:40

So I sort of tapped out, kept doing new construction and cuz I can add the most value doing new construction. Sure. And there's less unknowns, you know, once I, once I get the foundation outta the ground, there's really not a whole lot of unknowns when it comes to cost.

 

Wendy Sweet

01:14:53

Right.

 

Jeff Johson

01:14:54

So, so

 

Wendy Sweet

01:14:55

Jeff, talk a little bit about really how you started raising funds and what kind of people you were approaching to lend you money. How, how did you get started and all that? Cause I, I think you are just so superb at having a good tool bag full of financing opportunities.

 

Jeff Johson

01:15:23

Well, it's a, I mean it's a, it's a long story but a short story. I mean, I I, I started, you know, rehabbing in oh nine and I was in a, I was actually in a men's group with our church and I used to drag my trailer to the men's group cuz I'd be, you know, that was my Fridays as the days I'd go do my real estate. And I was doing it all with, you know, hard money loans or whatever. And, and one of the guys in my small group said, Hey, what's with the trailer? What are you doing? And I started to explain to 'em and I had just taken a class on borrowing money from people's self-directed IRAs. And so this was a friend from, from my men's group. And so I used all the tools. I just had, I had just learned and said, Hey, you know, if you want to invest with me, you can lend me money from your 401K and I can pay you a return.

 

Jeff Johson

01:16:16

And I think that the stock market had tanked at that point. So he was very unhappy with his stock returns. So I ended up borrowing I think $50,000. We ended up changing his IRA over to his self-directed ira and I ended up borrowing, I think $50,000 from him to help with one of my projects. And then I returned his money and then he said, Well now I have a hundred. So I, I'm, I'll lend you a hundred pretty soon. He, he had basically liquidated his entire regular 401k with his jobs. He worked for Bank of America and, and had put it all in a self-directed RA and, and, and lent me every penny that he had in his retirement account. And he still does. So that was in 2009. So what is it now? 2022. So he is been lending to me for 13 years and I think we've tripled, I've tripled his money since he started as he started lending to me.

 

Wendy Sweet

01:17:08

That's awesome. Now is, is he, are you doing the same kind of deal with him that you did in the beginning or has your, have your ch terms changed

 

Jeff Johson

01:17:19

Any Nope, same exact same exact terms. We haven't changed anything. It's been the same interest rate since day one. I have not changed it one bit. It's, you know, it, in my mind I wanted to give my lenders a return that was good enough that they wouldn't go anywhere else. And that, you know, once we build that trust relationship that they know that, that they're gonna get a great return and they're gonna get their money back to me because what, I don't buy any crappy deals. And then, but I didn't want it to make it too much to where I couldn't actually deploy the capital. Right. You know, I think that's part of the problem is you get a lot of private lenders, they want these crazy interest rates and it's, right now it's almost impossible to deploy the capital, which is as, as expensive as it is to rehab properties and build. I mean, gosh, my build costs went from, for these houses I used to probably maybe $120 a square foot. I'm $175 a square foot.

 

Wendy Sweet

01:18:18

Wow. Wow.

 

Jeff Johson

01:18:20

And that's in two years. Wow. So, so that only took two years for that change to happen. So it's gonna get harder to deploy expensive capital in this market. So

 

Wendy Sweet

01:18:30

Now is, is he lending Yeah. You know, in a secured position or are you, is he just lending to your llc?

 

Jeff Johson

01:18:39

Okay, so he's, right now he's lending us about a million dollars total and he's probably got about half of that inec secured loans. And then the other half is in unsecured, you know, loans to the llc. But one of the things we don't do is just have that money floating around in the Ethereum. We actually have it assigned two properties. So it does have an as it does have assigned property that it is loaned on. Right. But we just don't have a deed to trust on it.

 

Wendy Sweet

01:19:10

Gotcha. So, Gotcha. So, so how has he helped you if, if at all, raise more capital?

 

Jeff Johson

01:19:20

Well, he was very stingy at first cuz he didn't want me to go borrow money from anybody else cuz he, you know, he wanted to keep his capital working. But I, I told him, I said, I won't go borrow any more money until I'm sure that I can keep your capital work in. That happened like year two. So I met another guy, bought a, another crazy story. I bought a inversion table for my back off of Craigslist and it was a trailer both times that got me, this got me this money, which is funny. So I had my trailer to go pick up the, the inversion table and the guy said, Hey, you know what's, so what do you do? You get a trailer? And I told him, you know, I i I flip houses. And he's like, Oh, I'm really interested in that. So I ended up sitting down with him and having lunch.

 

Jeff Johson

02:20:01

So what, what I did between my first and second lender is I actually put together what's called a credibility package where I took all of the deals that I had done and I listed them out what I paid for 'em, how much my rehab was, how much I sold them for, and then how much my investor got paid. My, my lender got paid and I think at that point I had maybe 12 or 13 properties that I had done. And so I was able to give them this, you know, 10 page credibility package and show 'em like, here's the listings, here's the price I paid, here's how much I made, here's how much my lender made. And that was, that made it so much easier once I had that credibility package to start having those conversations. So once I got that done and I had that second lender, I just started meeting with other people and I started, actually, I didn't really solicit, but you know, you, you can make posts on Facebook and you get people who are interested in what you're doing and then you're ha starting to have these conversations. And I started beating people for lunch and for breakfast and taking 'em to my properties and showing 'em what I was doing. And you know, it just unlocked all sorts of doors with money cuz you, I mean, it would blow your mind how many people have money sitting in an IRA or a 401K that's not doing anything.

 

Wendy Sweet

02:21:15

Right.

 

Jeff Johson

02:21:17

Lots of people, it's just sitting there, they don't know what to do with it. They're afraid to put it in the stock market, but they don't know how to invest it in real estate and they don't want to, they don't wanna actually own any real estate or flip real estate cuz they know that that is a, you know, not passive investing. So I just started having those conversations and then, and then of course, you know, I wrote that book a few years ago and now if somebody's interested I just send 'em a copy of the book and say, Here, read this and then let's talk when you're done reading it. So I don't even have to explain the process anymore. It's all in

 

Wendy Sweet

02:21:48

The book. That's awesome. What's the name of that book, Jeff?

 

Jeff Johson

02:21:51

It's called Retirement Returns With Real Estate. And I actually wrote it for other investors to be able to use. So I have people all the time that will send that copy of that book to a potential lender and say, Here, read this book and then let's have a conversation and it just saves you, you know, three or four lunches or breakfasts of Yeah. Explaining how it all works. And then the questions are just like, okay, what's, what's the project and how much do you need? That's what I want to get to before I even have a conversation with somebody. I want them to feel comfortable enough that I know what I'm doing. That they're just asking me, Okay, what's the project? Right. What are we talking about here?

 

Wendy Sweet

02:22:28

So, so here's what I think is so super cool of what you've been able to do. Number one you put together, and I love the name of it, your credibility package. Yep. You're, you're showing people what you do because you're, you're going after two different personalities. You've got the engineer person that wants details and numbers and that kind of thing. And then you've also got pictures and graphs and things for the other type personality that wants to see the summary and hear the stories. That's, that's perfect. Yep. The other thing that I love that you did is you put together a book. You're teaching them how they can become wealthy.

 

Jeff Johson

02:23:09

It's Exactly education I think is so important. I mean, and, and I think the other thing too is, you know, I ran a, I ran a, a subgroup for the local R for a long time for about six years. And I used to do education in that group for potential lenders. There was no no pitch. I wasn't trying to actually raise money, I just wanted to teach people about how to use private money. And so I ended up getting, you know, a lot of people that had private money come to that meeting and then ended up creating a relationship with them and borrowing their money. So it's really been sort of of organic the way it's all happened. But the funny thing is, once you push, start pushing that 600 pound boulder, once it starts rolling, it's hard to stop it because, you know, then you have people throwing money at you and you're like, Hey, I need to hold on. I need to get some more projects and some more things. That's right. So I can, you know, that's a good problem to have cuz you in, in real estate, you almost al you always have either a money problem or you have a house problem.

 

Wendy Sweet

02:24:06

Right.

 

Jeff Johson

02:24:07

So you either have too much money, not enough houses, or too many houses, not enough money. Yeah. I'd rather have the too much money, not enough houses problem. Yeah,

 

Wendy Sweet

02:24:15

Yeah. You and me both. You and me both.

 

Bill Fairman

02:24:17

So you go back to your original lender

 

Jeff Johson

02:24:20

Yeah.

 

Bill Fairman

02:24:21

Bank of America. And you

 

Jeff Johson

02:24:23

Well he worked, he worked for Bank of America. Yes. Right.

 

Bill Fairman

02:24:26

Yes. But you know, he has the opportunity to get with b of a wealth management so he could put all of his money. I mean, they're very well known for all their wealth management stuff. I wonder how much he would've made if he would've stuck with the traditional way of earning in his

 

Jeff Johson

02:24:43

Farm. Definitely not. The returns that he got from us. Not even close. Right?

 

Wendy Sweet

02:24:47

That's right.

 

Bill Fairman

02:24:48

Isn't it? Isn't it weird how that works? The people that actually are in the financial industry finally get that light going off, What, what am I doing here?

 

Wendy Sweet

02:24:59

Yeah. Yeah.

 

Jeff Johson

02:25:00

Well the other cool thing too is, you know, he's been a, he's been part of my growth. So every year when we, when we, you know, look at our profit numbers, I always send him, I send him an email or we go have lunch or breakfast or whatever and I say, you know, I could not have, I literally could not have done this without you trusting me with your money.

 

Bill Fairman

02:25:18

Sure. That that's awesome. No, he appreciates it.

 

Wendy Sweet

02:25:21

What a gift.

 

Jeff Johson

02:25:22

Yeah, no, absolutely. So he's been part of my journey. Every lender's been part of my journey. And then when we started Better Path Homes and really started to grow, I think we're, I think we have 70 some odd houses being built right now. We have, you know, dozens of lender partners that have come alongside of us and we've been able to help them build their wealth and they've watched us build our business. It's been a really wonderful partnership.

 

Wendy Sweet

02:25:43

That's awesome. And you lend your money too. You're, you're self

 

Jeff Johson

02:25:47

An IRA money? I, yes. I led to you

 

Wendy Sweet

02:25:51

Fact.

 

Jeff Johson

02:25:51

I put my money where my mouth is.

 

Wendy Sweet

02:25:53

I'm gonna get some more here shortly too. So,

 

Bill Fairman

02:25:57

So you know Chris Miles? Yeah. We had him on the show a little while back and he was telling us a story about his dad because, you know, Chris' is used to be a financial advisor, he's now the anti financianal advisor. And his dad wanted to retire. He'd had a 401k, all of his, you know, working adult life. And he asked Chris to take a look at it and asking kind of where he was. And Chris said to him, you know, you've done all the right things, you've done everything that is expected of you in a 401k. Your only problem is you have to die in five years.

 

Jeff Johson

02:26:36

Right. Cuz you can't afford to live any longer than that.

 

Wendy Sweet

02:26:38

Right. Yeah, that's for sure. I, I, I'm just, I'm telling you, Jeff, I've known you for such a long time. You're a dear friend, an awesome human being, and I'm, I'm just blessed to have you in my life, but, and I'm so excited to have, have watched you turn into this incredible successful real estate investor and builder in, in the, the time that I've known you. Just watching you grow has just been incredible and learning from you. And you know, I, I steal all these great ideas that you have and I appreciate that you allow me to do that. It's, it's just, it's been a pleasure and, and I can't wait to see what you have in the future. And, and we're so grateful that you came and Yeah, absolutely. And shared this information with us that I think it's important that people know that everybody can do this.

 

Jeff Johson

02:27:32

Yes.

 

Bill Fairman

02:27:33

How can people get ahold of your book anyway?

 

Jeff Johson

02:27:36

It's on Amazon. You can just look it up. It's Retirement Returns with Real Estate. Jeff Johnson's the author and I, I have it, I have it priced, you know, so cheap that you can just send 'em to your friends and family, whoever you want to talk to about Awesome, awesome. Investing with you. So that was the whole point was to be, you know, give others a tool, a very specific tool so it's very specific to our industry so that they could have start having those conversations with people.

 

Wendy Sweet

02:28:02

Right, right. Awesome.

 

Bill Fairman

02:28:04

Well, Valerie just made a comment saying that she can't wait to read your book. Thank

 

Wendy Sweet

02:28:08

You. So yeah. Oh look, there, there it is.

 

Bill Fairman

02:28:11

See, see how quick our staff is. Yeah.

 

Jeff Johson

02:28:13

Bam. Look at that. There you go.

 

Wendy Sweet

02:28:15

There you go.

 

Bill Fairman

02:28:17

That's

 

Wendy Sweet

02:28:18

Awesome.

 

Bill Fairman

02:28:18

So the first time I met Jeff, he was working on the house right next to me, which was kind of funny. I won't get into that story, but it was a good one. It has been, it's been quite the journey since then, hadn't it?

 

Jeff Johson

02:28:30

Yes, it has. It has. That was a, that was a funny story.

 

Bill Fairman

02:28:33

When we have an, when we have an additional hour, I'll,

 

Wendy Sweet

02:28:36

I'll tell.

 

Jeff Johson

02:28:37

Yeah. Okay. Deal.

 

Wendy Sweet

02:28:39

Jeff, thank you so much for coming on. We really, really appreciate your, your, your story and, and your, your desire to share with, with everybody. Thank you so much. Yeah,

 

Bill Fairman

02:28:50

We're

 

Jeff Johson

02:28:50

Gonna thank you guys.

 

Bill Fairman

02:28:50

Green room for just a second while we close this thing out so we can thank you properly, if you don't mind.

 

Jeff Johson

02:28:58

Okay. Thanks guys. Thanks

 

Bill Fairman

02:29:00

Jeff. Folks, thank you so much for joining us on the Real Estate Investor, Show Hard Money for real Estate Investors. We are Carolina Capital Management. We are private lenders in Southeast for real estate professionals. If you'd like us to take a look at one of your projects, go to carolina heart money.com, click on the apply now tab. And if you are a passive investor that doesn't wanna give money to Jeff, click on the accredited investor tab. Don't forget to like, share, subscribe, and hit the bell. Don't forget about Wednesdays with Wendy. See you guys next week. Bye.

Bill Fairman

00:00:02

Greetings. It's another week,

 

Wendy Sweet

00:00:05

Ola.

 

Bill Fairman

00:00:06

Lovely time in the, in the city. The big, big city of Rock Hill. South's, right? Carolina, Excuse me.

 

Wendy Sweet

00:00:12

Poor guy.

 

Bill Fairman

00:00:14

Today we're going to talk about investing with family and friends, and we will get to it right after this. Hello win. Thank you for joining us for another episode of Real Estate Investors Show.

 

Wendy Sweet

00:00:45

We forgot the name again. That's what happens when you're over

 

Bill Fairman

00:00:48

Hard money for real estate investors, we are Carolina Capital Management. We are private lenders in the southeast for real estate professionals. If you have a project you would like us to look at, please go to carolina hard money.com and click on the Apply Now tab. If you are a passive investor looking for passive returns, go to the accredited investor tab. Don't forget the like, share, subscribe, Hit the bell. And don't forget about Wednesdays with Wendy. So every Wednesday, Wendy gives up 30 minutes of her time to folks that would like to have a real estate conversation. The link to her calendar is over in the chat, which is to the right or underneath your screen, depending on the platform you're viewing us from. She's usually booked up a couple of months in advance, so get on now.

 

Wendy Sweet

00:01:50

Sometimes I just come into the office. Yeah, well that's what happened yesterday. It was awesome.

 

Bill Fairman

00:01:56

So apparently since I don't allow people to talk here much, Wendy has to go out of town to do most of her talking. So we have a few events coming up right after this.

 

Wendy Sweet

00:02:15

Boy, that was quick. Yeah, it's short, Short and sweet.

 

Bill Fairman

00:02:17

So where, where is it? Where are you going? What are

 

Wendy Sweet

00:02:20

You doing? Where's Waldo or where's Wendy? That should be it. Right? So the, I think the first one is actually this Saturday Best Her love that name. It's a great, it really, really is her, how you spell her. That's right. And it's in no confidence in spelling that one on, on the tv. It's, it's gonna be this, they're, they're actually having the event this Friday and Saturday, which is what's, what's the weekend this 29th and 30th? Yeah.

 

Bill Fairman

00:02:51

Yeah. It'd be this weekend

 

Wendy Sweet

00:02:52

Or maybe it's the following weekend. 29th and 30th is this

 

Bill Fairman

00:02:56

Weekend. Halloween is on Monday, correct.

 

Wendy Sweet

00:02:57

Oh gosh. You know what? I forget the days. I, it is the following weekend.

 

Jonathan Davis

00:03:00

We've really prepared for these shows.

 

Wendy Sweet

00:03:02

I have to look at my calendar. I'm sorry. But anyway, it's, it's gonna be really good. It's, it's, it's, it's for invest her, it's for the chicks, but the guys can show up too, cuz you'll be able to learn great stuff. And that's gonna be in Winston Salem.

 

Bill Fairman

00:03:16

You pointing at me personally?

 

Wendy Sweet

00:03:18

Yeah. And then the next one is

 

Bill Fairman

00:03:26

Quest Con.

 

Wendy Sweet

00:03:27

Yeah, Quest Con. So we love Quest Iron

 

Bill Fairman

00:03:30

And this is about the future. So you have to have your crystal ball.

 

Wendy Sweet

00:03:33

That's right. And here's an opportunity for you to save $15 on the event. It is online. They call it a live event because it's gonna be on Zoom Live, but you will be able to get a discounted ticket to get on there. It's, it's gonna be great if you attended the Quest event that just occurred, you know, what was it? A couple, maybe a month ago? Yeah, it was fantastic. Great group of people. Almost a thousand people were there. Yeah, the speaking was incredible and it's gonna be similar to that but online. So I'm really looking forward to it. I don't think they've done one similar to this one. I

 

Bill Fairman

00:04:13

Still want it to be all about me.

 

Wendy Sweet

00:04:14

Yeah. But I'll be speaking on a panel called Be the Bank. Ah, thanks. So that'll be really good.

 

Bill Fairman

00:04:21

And,

 

Wendy Sweet

00:04:23

And

 

Bill Fairman

00:04:23

Do we have any other,

 

Wendy Sweet

00:04:29

Oh yeah, I forgot about that one too. Yeah,

 

Jonathan Davis

00:04:31

No, State Korea Millionaire.

 

Wendy Sweet

00:04:33

The Upstate Korea is, that's upstate, that's the Greenville Spartanburg Real Estate Investor Association meeting. And they do this millionaire panel, but they invited me to be on it anyway. And it's really just talking about how you got started, you know, what's the worst thing that ever happened and, you know, how'd you get out of it. So it's, it's good stories about scars, which I always think is really excellent. Yeah. And then there might be another one. Yeah. Is there another?

 

Jonathan Davis

00:05:06

Nope, don't think so.

 

Wendy Sweet

00:05:08

Nothing that we have online. It's back to your show. I do have a couple more, but we, we'll talk about those later. I, I don't remember the exact,

 

Bill Fairman

00:05:16

You didn't remember the ones we had listed. I

 

Wendy Sweet

00:05:18

Know, I know. Oh, I'm speaking at the Raleigh Real Estate Investor Association tria in January. And I'm, I'm really excited about that too. I think that's the 23rd of January. All

 

Bill Fairman

00:05:28

Right, sweet. So there's a lot going on in the fall and almost early winter.

 

Wendy Sweet

00:05:34

Well, now's the time to learn, get networking, make sure you understand what's going on. Cuz it changes week to week.

 

Jonathan Davis

00:05:41

I wanna, yeah, I wanna rescue a word that I think fell off a little bit after a couple years ago in these unprecedented times. It's really good to plug yourself into local areas and, and masterminds and, and people who are in real estate. Yeah,

 

Bill Fairman

00:05:56

I was kind of, of hoping we had gotten rid of that for a while, but it is coming back. Okay. Little bit of breaking. Okay. This was a nice little headline on, on Fox Business and the headline was that prices, home prices were gonna drop 20% the next year. And this was Alan Shepherdson, which is a Ian. Oh, she, Oh, Alan, yeah, Ian. She, I was confused with the last name.

 

Jonathan Davis

00:06:41

No worries. You want me to read it

 

Bill Fairman

00:06:43

For you? No, Chief economist of Pantheon Microeconomics said in an analyst note published last week that really for the first time since 2001, because interest rates have gone up to 7%, he anticipates that home prices will plunge 15 to 20% next year. So, and I thought about that and first I was a little ill because I thought that was kind of dramatic, but

 

Jonathan Davis

00:07:12

Yeah, well, I mean, get quite clicks, doesn't it?

 

Bill Fairman

00:07:15

No, that's true. And this was actually on the Fox Business channel too, so it was just taken from one of their segments. But I did a little research, and I'm sure Don can attest to this as well, our upcoming guest, by the way, who we haven't mentioned yet. So I've spoiled the surprise You just did. I went and I looked at my home at the peak of 2018. Yeah, 2018, the highest point at 2018. And then I went all the way to what it's valued now, and I reduced that value by 20%.

 

Jonathan Davis

00:07:55

It's still higher than

 

Bill Fairman

00:07:56

20 and it was still 40% higher than it was in 2018.

 

Jonathan Davis

00:08:00

Yeah, that's, that's, that's, yeah, that's not a

 

Bill Fairman

00:08:03

Bad fault. And if I take the five years now, let's say we lose 20%, and I take the five years where it's still up 40%, that's an 8% year appreciation for the last five years, which is

 

Jonathan Davis

00:08:16

Still average, The average

 

Bill Fairman

00:08:16

Appreciation since the fifties has been three and a half.

 

Jonathan Davis

00:08:19

It's almost three

 

Bill Fairman

00:08:20

Times ago. So it's okay to look, listen, there are some people that are gonna feel pain from a 20% reduction, like the person who just bought the house last week

 

Jonathan Davis

00:08:29

And needs to sell. Yeah,

 

Bill Fairman

00:08:30

Right. That said,

 

Jonathan Davis

00:08:33

I'm not sure I subscribed to that, but

 

Bill Fairman

00:08:35

We need to, we need to have a correction because what we had was unsustainable. And even if it does drop 20%, we're still 40% ahead in most, And

 

Jonathan Davis

00:08:44

Of course it has to do with the market. There's yeah, there's too many variables. I mean,

 

Bill Fairman

00:08:47

Like, I'm just saying it's not as bad. Like

 

Jonathan Davis

00:08:50

What we're seeing right now is like the, the lack of inventory is increasing prices, but the rates are, he like, it's, it's like a tug of war right now and they're still appreciating. Yeah, I mean, I think we're between eight and 9% on appreciation still. It, I mean, unless inventory increases or rates, you know, jump to 14%, I mean, yeah, I think you're gonna have to have something a little more extreme than what we're experiencing right now.

 

Wendy Sweet

00:09:18

And that's year over year through the end of September, October. Once we get those numbers out, I think we're gonna see a little difference. But not much. Not a

 

Jonathan Davis

00:09:26

Whole lot. And Brian Max, even if the market does drop, you don't lose money unless you settle. There

 

Wendy Sweet

00:09:30

You go, buddy.

 

Bill Fairman

00:09:33

Excuse me. Or unless you're trying to get a big cash out refi and now you're not getting as much money as you thought. That's right. Anyway,

 

Wendy Sweet

00:09:40

It's getting gone in here. I don't wanna miss out on him. Yeah, I only got

 

Bill Fairman

00:09:43

15 minutes. Okay. So introduce him.

 

Wendy Sweet

00:09:46

I I would love that. So folks, not only is this guy just incredible in his industry, he's a real estate agent. A real estate investor. He

 

Jonathan Davis

00:09:57

Got me out of a problem,

 

Wendy Sweet

00:09:58

A lender. He's a lender as well. He is just a stellar standup human being. And a dear, dear friend, and I just wanna welcome Don Harris to the show.

 

Bill Fairman

01:10:10

Welcome, Don.

 

Don Harris

01:10:17

Hi guys. Good to join you.

 

Bill Fairman

01:10:20

Yeah, you had, you had your own intro video.

 

Jonathan Davis

01:10:24

Hey, you're, you're lucky most people don't get on the show until at least 20 minutes in, so

 

Wendy Sweet

01:10:28

That's right. I had to get Billy to pause.

 

Don Harris

01:10:31

Yeah. Yeah. Well the good thing about that, it doesn't leave much time for me to stumble on myself, so,

 

Jonathan Davis

01:10:37

Oh, don't worry. You know, it's, it's a change of pace you stumble on yourself as opposed to Bill doing it.

 

Don Harris

01:10:44

So,

 

Bill Fairman

01:10:45

So Don, I our, our theme has been this month a couple of things, but we're kind of focusing in on investing with family and friends. I I understand that you're doing investing with your kids, your wife, other, other friends and, and you're, you're you basically helping them with their ira investing through real estate. Can you give us an idea of what it is you're doing with that?

 

Don Harris

01:11:12

Yeah, I'll try to give the Readers Digest version of that. But, but that, that is what we're doing. I'm a real estate agent by day and then I'm an investor by night is typically how I say that. And an investor, I strictly loan money as a private lender. Now sometimes we do that in conjunction with like your company and we partner on a note with you, but most of the time it's family and friends. We have a b a lending opportunity. And so my wife and I, we have six different self-directed IRA accounts and we cobble those accounts together. And in the last two years, my, I've introduced my daughter to this lending as investment in a self-directed ira. And many times she will be involved in our lending as well.

 

Wendy Sweet

01:12:23

Awesome. Now, I've been blessed to be one of your borrowers for my personal investments as well involving your, your wife and your daughter. And what I really, and, and I've been bragging on you to so many other people is what I really love about you is that you don't let your money sit idle in between deals. You have the next one queued up when you know you're about to get paid off on, on on the one you're already in. And h how, how are you keeping up with that? What does that look like for you?

 

Don Harris

01:13:03

That's a great question. It's the same story that Sue was saying last week, that idle money is not working money. And the good thing about investing is lending is that your money's working for you 24 hours a day while I'm sleeping. It's still earning interest. And so I don't like for, I don't like lazy money that's not working. So we are, you know, I network a lot of the same events that you all do and talking to investors who are building new homes or flipping homes or a buy and sell opportunity that you're helping another family with. And so I've always got my feet on the street listening to opportunities and then qualifying the people that I may potentially invest with. And then when they have a transaction, typically I'm being pitched transactions on a pretty regular basis. So if, if the same that I've heard you say, you need to have a kind, a handful of lenders that you work with, especially if you're dealing with private lenders.

 

Don Harris

01:14:19

And then you can use capital, Carolina Capital Management as well to where you've, you're always have access to capital if you're the borrower. If you're the investor. Because if you come to me with a transaction opportunity, I may be a hundred percent loaned out at the, at this particular time you said I try to be, but I also anticipate when a note's going to be paid off. And that's when I start having more conversations with people who are about to close on a deal. And so we just try to time it close to when money's in the self-directed IRA and when money needs meets opportunity.

 

Wendy Sweet

01:15:03

So, you know, there are so many people that wanna do what you're doing, but they have a great fear of how do I really qualify not only the deal, but the person that I'm lending to. What are some of the things that make you say no,

 

Don Harris

01:15:22

No skin in the game. And I would say no experience, but you can overcome ex lack of experience with skin in the game. So if someone's willing to risk a whole lot more than what they're asking me to do than, and the numbers, the metrics of the transaction work, then we can consider that transaction. But it's mostly the character of the folks that you're doing business with.

 

Wendy Sweet

01:15:58

Awesome. You know, that's something that's still important to us with the size of the fund that we're dealing with, the number of borrowers that we're dealing with. Character is still number one for us as well.

 

Don Harris

01:16:12

It's always character number one. And then, then you look at the transaction and you know, it turns out to be repetitive people, right? The good people borrow money, do a transaction, make a lot of money, pay a little bit of interest, and then do it again. And so that, that, that's the majority of our transactions. It's, it's on rents and repeat. And then so have you go ahead here. Here's something else though. When if I don't personally generate a transaction or an opportunity, then I've gone to Carolina Capital Management and asked if you guys have any notes that you would sell, you know, the whole note or part of a note any times I've invested in notes with you guys and that takes capital that is sitting on the shelf and puts it to work, you know, instantly. And that's, that's where somebody who wants to start, that's a great place for somebody without any experience who wants to lend, is to take a piece of a note that you guys may have.

 

Wendy Sweet

01:17:28

Awesome. Thank you for mentioning that. We we love doing that. That's, Jonathan works on that hard.

 

Jonathan Davis

01:17:34

Yeah. And you know, just pointing out one thing, it's, you, you, you mentioned it idle money and like when you combine notes or have deals like you can hold out and try to get that perfect situation where you think you're gonna get 12, 14% or you can put your money to work. Now if you wait three months to find that, that situation, you might find it that's three months of idle money that you weren't making anything. So your 14% isn't 14. That's right. You know, so it, it's getting it working and, and you know, sometimes work, I mean, not sometimes all the time working money is better than not working money. So we completely agree with you on that.

 

Don Harris

01:18:15

And if I can, and what a new investor who wants to, who's just opened a, a self-directed ira, they don't have the experience in lending. They don't know how to qualify a deal yet. They don't know how to qualify a buyer yet. They don't know how to do the paperwork yet. They don't know how to collect the money. They don't know how to even fund the transaction. And so you guys are a good entry ramp into someone who wants to get into that space.

 

Wendy Sweet

01:18:46

Awesome. I have one more question for you and then I'll let other people talk. I am really curious about how you handle any loans that you've done on your own. Like that people are afraid. What happens if I have to take it back? What happens if I lose money? Has that happened to you and how did you handle it?

 

Don Harris

01:19:06

You're, you're starting to sound like my wife now

 

Wendy Sweet

01:19:12

Donna and I are tied.

 

Don Harris

01:19:14

Yeah, yeah. You, you know Donna real, real well actually we don't do a transaction loan unless we do talk about it. And you know, that's always the question. Well what if they don't pay a properly underwritten loan if it doesn't pay and you end up getting the property back either through, through them de it back to you or through a foreclosure action, you should come out whole or okay. And yes, I've had, I've had multiple transactions that have gone backwards over the years and some of those we've made money on, some we've broke even and some we've lost on. And with all types of investing, you cannot be willing to make the gain if you're not willing to take some of the loss. And you just have to be right. Most of the time you're not gonna be right all the time and you mitigate your risk by not putting all of your eggs in one basket. You spread the risk along as many transactions as you can and you know, your underwriting is probably along the same lines as mine. We're looking to be into a, an investment at no more than 65 or 70% of its after repair value. So if you do get a property back then you still should be in, in the property back of what its actual value is.

 

Wendy Sweet

02:20:49

Hmm. Now when you say you've lost money in some deals, can you give us kind of a round percentage of what that investment might have been that you lost? I mean, you, you lose it in the stock market. It's bye bye forever. You lose it on real estate. What, what is a common percentage on something that you may have lost funds on?

 

Don Harris

02:21:14

The most we lost on one was probably 40% and it was a, we just got duped by a repeat person, however. Wow. But we got duped by this person and yet, you know, you learn from it and you moved on from there. Another one early in my lending experience very early on, one of the very first people that we loaned money to, we, we ended up getting the property back. But the, the real problem with the transaction was our paperwork was bad. We got, we got a bad note from our attorney that un closed the, the transaction Wow. And actually collected on their insurance malpractice insurance for part of the shortage. And so we, that's the one we broke even on. So from then I hired John Hier to write a note for me for what we were attempting to accomplish. And at that point in time I was doing equity participation loans. And I remember asking John about that at a conference 10 or 12 years ago and he said, That is an intriguing idea. Send me what you're trying to do. He investigated it, did the research, wrote the note, and then sent me the bill for writing that note. And then since then, you know, on his trails around the country, sold that idea and sold that note hundreds of times.

 

Jonathan Davis

02:22:58

You didn't make any money off that, those transactions though, did you? I did no

 

Don Harris

02:23:02

Commissions the residual check, but I did well enough on the notes that we participated in over the years we've built houses with builders around Charlotte, you know, with equity participation notes. That's and just shared in the equity win lose or draw. Right. So if you are willing to make it, you've gotta be willing to lose it. That's right. And so when you do equity participation, it's win lose or draw.

 

Wendy Sweet

02:23:28

Well said. Well

 

Jonathan Davis

02:23:29

Said. Well it seems a shame to have him on here, not ask him what he's seeing in the local market. Yeah.

 

Wendy Sweet

02:23:36

Cause you are now in tune.

 

Jonathan Davis

02:23:38

So kind kind of give us a, you know, give us your crystal ball, your current Yeah. What are you seeing out there, and then your crystal

 

Don Harris

02:23:44

Ball. Yeah. Yeah. As a real estate agent, I was kind of cringing when Bill was going through that 20% drop in the market that he was explaining there. I don't, I don't see that happening in the Charlotte market. There may be some markets that are extremely overpriced and have bad politics and have bad economies as a result of that, that people are fleeing from and their prices could very well drop in the Charlotte area. Our job growth is still so strong and is projected to be so strong to where the rate of increase has drastically reduced. But I still think we will get that three to 6% year over year increase in value. We're just used to, you know, we got really spoiled with the 10 to 20 in the last couple years. That was a unique period of time. Sure. And so that's probably ne never going to happen again in our lifetime. But if we just get, you know, 3% year over year as the standard, what is historically done in real estate, then that's a great return. You know, we're approaching the $400,000 range for an average price. Now that 3% is on the $400,000. So even if you've only put, you know, 10% down on the property, 40,000 and it goes up 3% next year, what's a $12,000 return on a $40,000 investment?

 

Jonathan Davis

02:25:32

Pretty good.

 

Don Harris

02:25:34

I might have to take my shoes off to do the math, but those are pretty good numbers. And people forget that the, the rate of return is on the whole pie. You know, un unless you're just a cash investor and you're doing a cash on cash calculation,

 

Jonathan Davis

02:25:50

Isn't it? Right.

 

Don Harris

02:25:51

And see, let me figure that out. I'm optimistic, I'm, the business has slowed down, but I'm optimistic with the current interest rates has slowed the market down. But next year, you know, people still have to do real estate transactions due to life, diapers, diamonds, death, divorce, default, all still happen.

 

Jonathan Davis

02:26:15

And

 

Don Harris

02:26:15

So that's still, those alone will be four plus million in transactions next year. Yeah. And then you add on people who just want to move.

 

Jonathan Davis

02:26:28

I and I, and I have to say, I had to explain this to someone the other day when these people are talking about 10 or 20% plunges, I, there's a lot of people that are like, if I list it for X and I get 10% less than what I listed it for, the market's falling 10%. No, no. That's, that is not, that is not the definition of a plunging market. That is the definition of, you know, buyers having more power in the market in a market, you know, you know neutralizing. Like, just because you list it for something and you get 10 or 15% less than what you listed for it as an offer, that's not a plunge. That's right. So just wanna make sure people understand that.

 

Bill Fairman

02:27:04

It's nice that people are able to actually negotiate now. Yeah.

 

Jonathan Davis

02:27:08

It's a good thing.

 

Don Harris

02:27:08

Right, Right. It's it, the, the market is balanced back to the buyers and the buyers favor more favorable. The buyers have been abused the last two years

 

Wendy Sweet

02:27:20

To say the least. And

 

Don Harris

02:27:21

Most real estate agents are glad to see the, the market balancing out. Yeah.

 

Wendy Sweet

02:27:26

Yeah.

 

Don Harris

02:27:26

And so that's my day job. And then lending money and, and investing is my night job.

 

Wendy Sweet

02:27:32

Well, not only are you an incredible lender, but you are a kicking real estate agent as well. Real estate broker. We, you've sold several houses for us over the past few years. That

 

Jonathan Davis

02:27:46

One in Concord, I mean, he saved me on

 

Wendy Sweet

02:27:48

That one. You you really are, you know, there's people that are, are real estate agents and there's people that, that take it seriously and really understand their market and really care for whoever their buyer or whoever their seller may be. And you take it to the extreme and I just, I cannot promote you enough on that. So folks, if you wa you do South Carolina now too, or just the north? Of

 

Don Harris

02:28:15

Course. Yeah. No, I do not. You

 

Wendy Sweet

02:28:17

Do both states. So, you know, there's the, there's his email address, Don Harrison, [email protected]. It's, he's,

 

Jonathan Davis

02:28:28

We can't, we can't recommend anymore cause we use him. Yeah.

 

Don Harris

02:28:30

Thank you very much. That's,

 

Bill Fairman

02:28:33

Well see, this is another benefit of market slowdown. There's been a lot of part-time realtors getting into the market when it was really big. Yeah. And it has, unfortunately, they're not as experienced and they've made some mistakes and it gives realtors a bad name and when the market slows down, that's when the professionals are are still there. That's

 

Wendy Sweet

02:29:00

Right.

 

Don Harris

02:29:01

It's still a complicated transaction. Yes. And I never appreciated what a realtor could do for someone until I became one.

 

Wendy Sweet

02:29:10

Right.

 

Don Harris

02:29:11

And I had bought hundreds of properties prior to that point and yet I was clueless. And so I, I do know it's a valuable service and yeah, I have a good time doing it, enjoying doing it with family and friends like you guys. So thank you very

 

Wendy Sweet

02:29:25

Much. Well, there, there's a lot that can go wrong and you are so great at nipping things in the bud to keep things like that from happening and, and you know, we're grateful to you for, for what you've done for us not only as a real estate agent, but also as a lender. So keep that coming.

 

Don Harris

02:29:45

You can picture me on a show anytime if you're gonna brag and talk.

 

Wendy Sweet

02:29:48

That's right. Well the truth is the truth.

 

Bill Fairman

02:29:52

I did, I have to mention this, I did see a post on Facebook that you put up about if that customers that work with you are, have more money or better looking and are much smarter than the average person based on a survey by yourself. Yeah.

 

Don Harris

03:30:10

That is my survey. And those are the facts.

 

Bill Fairman

03:30:15

Thank you so much for joining us on our show today, Don. We really appreciate it.

 

Wendy Sweet

03:30:19

Yeah, enjoy it. Good stuff

 

Bill Fairman

03:30:21

Folks. Thank you so much for joining us on The Real Estate Investor Show. Damn, I forgot

 

Wendy Sweet

03:30:28

It again.

 

Bill Fairman

03:30:31

Hard money for real estate investors. We're gonna show the side of Wendy here as I'm

 

Wendy Sweet

03:30:35

Doing this, my profile.

 

Bill Fairman

03:30:37

We are Carolina Capital Management. We are lenders in the southeast for real estate professionals. If you would like us to take a look at a project that you may have going on, go to carolina hard money.com and click on the apply now tab. If you're an accredited investor, click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell and Wednesdays with Wendy. Have a great week.

Bill Fairman

00:00:01

Hi everyone. We're right on time as usual. Sorry about that. Mike. Thanks for hanging around for an extra minute. Our theme this month has been Small dollar lending, raising capital, and investing with family and friends. Yep. And we are going to get in depth with our special guest who's going to give us some insights into her. What is it? What are we talking about today?

 

Jonathan Davis

00:00:32

Small dollar lending. Lending with smaller amounts.

 

Bill Fairman

00:00:35

And we'll do that right after this. Hi everyone. Thank you so much for joining us on The Real Estate Investor Show Hard Money for Real Estate Investors. We are Carolina Capital Management and we are private lenders in the Southeast for real estate professionals. So if you'd like us to take a look at one of your projects, go to carolina hard money.com and click on the apply now tab. If you're a passive investor looking for passive returns, go to the accredited investor tab. Don't forget share, like, subscribe, hit the bell and all that good stuff. And don't forget about Wednesdays with Wendy. Wow, that was four seconds. Was that four seconds? Yeah,

 

Jonathan Davis

00:01:43

I think it

 

Bill Fairman

00:01:44

Was, It seemed like two and a half.

 

Jonathan Davis

00:01:46

Oh,

 

Bill Fairman

00:01:46

Okay. So Wendy devotes 30 minutes per person on Wednesday afternoons to talk about anything real estate related. If you go to our comments section on the right side of your screen or underneath, depending on the platform you're reviewing us from, then you can click on get right onto her schedule. Yep. She's usually booked a couple of months out in advance. It's well worth it. So let's get into some breaking news,

 

Jonathan Davis

00:02:17

Some breaking news. I like it.

 

Bill Fairman

00:02:32

So England's newest Prime Minister resigned this morning. So this is now six prime ministers, no, four prime ministers in the last six years.

 

Jonathan Davis

00:02:46

So

 

Bill Fairman

00:02:47

That's what I call stable government.

 

Jonathan Davis

00:02:50

Yeah, yeah, absolutely. To, to bring a more, more home are what we're sitting right now at the average 30 year mortgage. It's 6.92 for a full 30 year. I think if you get a five one arm, you're right around 5.9. So we're almost, we're creeping up on 7% inflation staying around that eight to eight and a half percent mark when you take out, you know, fuel and food, cuz apparently those are too volatile. You don't want to include those in the, in the core numbers, you know, but, you know, not like people need food and fuel. So it's sticking around there, which is probably going to lead to at least two more interest rate hikes. This year of anticipation is 75 basis points. Each one.

 

Bill Fairman

00:03:50

It, it's not the rate that really is gonna hurt, it's the how quickly they're, they're going up on these things.

 

Jonathan Davis

00:04:00

Well it's the, it's the, this is the well, and, and so we can have a little, you know, history with this 6.92 is the highest 30 year fixed mortgage rate since 2002. Right? So 20 highest one in 20 years. Our interest or our inflation is, you know, obviously the, you know, the highest in 40 years. So we are, we're, we're navigating some interesting waters. One of the interesting things that I thought, or that I found was through all of this, now we know that, you know, single family homes, the appreciation is were still right around what, eight 9%?

 

Bill Fairman

00:04:40

Yeah.

 

Jonathan Davis

00:04:42

Mobile home appreciation. 35%. Yeah. Nationally.

 

Bill Fairman

00:04:49

Well it is the, one of the most affordable housing alternatives. And so people are turning the mobile homes cuz they can't afford to get into some stick built

 

Jonathan Davis

00:05:00

Homes. Yeah, I think I think the, the average cost of a mobile home now nationally bringing it it's around 1 50, 1 60 is kind of the, which is a lot higher than it used to be.

 

Bill Fairman

00:05:11

The the average five years ago was 65.

 

Jonathan Davis

00:05:15

Yeah. So,

 

Bill Fairman

00:05:16

So it's, it's jumped up quite a bit.

 

Jonathan Davis

00:05:17

It's jumped up a lot.

 

Bill Fairman

00:05:19

And then the most recent builder sentiment survey, and and I I love this, they're not using actual numbers, they're just, how do you feel? They, they survey how they feel about the market. Not necessarily And how's the market doing?

 

Jonathan Davis

00:05:33

Well it's how we feel that determines what the market does because it determines what we

 

Bill Fairman

00:05:37

Do. It's how the, it's how the general public should be feeling, not the, not the builders.

 

Jonathan Davis

00:05:43

Mm. You think so?

 

Bill Fairman

00:05:44

Yeah. Well in, in my opinion. Yeah. And this is my opinion, if you're behind 6 million homes, you know, based on population growth, even though there's gonna be a slowdown, wouldn't you want to continue to at least kind of get ahead of the game so when it does turn around quickly, you'll have plenty of inventory.

 

Jonathan Davis

00:06:07

Yeah. The the, the sentiment is when will it happen? Yeah. And how can they time it and do you get,

 

Bill Fairman

00:06:11

So you build 'em to rent and then when it's time to you, you put 'em on six month leases or anyway you have 'em available to sell when the, when the time comes, Bill

 

Jonathan Davis

00:06:21

Will be putting a mastermind together for all the developers. If you would like to join [email protected].

 

Bill Fairman

00:06:29

See, last thing, what was the last one? Oh, housing sales for the month of September, 4.2 million, which is usually in the close to 6 million a month, which is down considerably, but the price of homes still went up 9% for the months. So the, the sellers and the new buyers haven't reached that equilibrium yet. The people selling still think the homes are worth a lot of money. And apparently the people that are buying, I agree with 'em cause it still went up

 

Jonathan Davis

00:07:10

9% the people that are buying. But also, you know, it's this weird place that we're in between high inflation, but jobs are still good. Yeah. Like, so it's like until, until jobs get hurt, I mean you're gonna have this weird relationship between buyers and sellers and, and the home prices. The homes won't start coming down until jobs get hurt

 

Bill Fairman

00:07:31

And, and, and again, there's still a lack of inventory. There's plenty of families being informed and there's not enough single family homes to go around. So anyway, that's our news for this week. I'm sure there'll be some next week whether we want it or not. Right.

 

Jonathan Davis

00:07:50

News or noise. We're trying to determine which one it's gonna be.

 

Bill Fairman

00:07:54

So let's, let's get this train wreck moving. Huh? What did that mean?

 

Jonathan Davis

00:08:06

Like it was just to cut you off, it was just to like get Bill to stop talking.

 

Bill Fairman

00:08:09

All right. I don't wanna keep Sue in the green room too long. Sue Jensen is one of our favorite people. She's invested with us. She's an experienced lender as well. She has self-directed IRAs that she has been taking control of for years and she's got great experience that I wanted her to share with our audience on getting your money invested. Sue, welcome. Come on out of the green room. Hey guys, how are you?

 

Susan Jensen

00:08:45

Good, good seeing you guys.

 

Bill Fairman

00:08:48

You too. You as well. I, I love that brick wall behind you. That's awesome.

 

Jonathan Davis

00:08:53

It almost looks real.

 

Susan Jensen

00:08:54

Yeah. I'm on my back porch in the breeze

 

Bill Fairman

00:08:58

And the only way I can get real brick is if I have a fake background that the software system helps us with.

 

Susan Jensen

00:09:06

Yeah.

 

Bill Fairman

00:09:08

So one of the questions that I had for you is, because I know for a fact that you have several accounts you work with and then when you have Roth accounts and then when you have traditional accounts and, and then you know, you, you have entities that you invest with as well that have nothing to do with self-directed retirement accounts. They all typically have, you know, different dollar amounts and there's a lot of people that have IRAs that may only have $20,000 in it and they're like, well, you know, I'm very limited on what I can do to get this money invested. Give me an idea of what you've done to, to get those smaller dollars invested alongside of the, the larger dollars that you have invested.

 

Susan Jensen

00:09:57

Yeah, so, so my husband and I deal, we have four IRAs, self-directed IRAs. We also have a, an LLC outside our IRAs that we invest with. And then I manage my son's ira, my son-in-law's ira and another pastor's ira. So, so I, what I try to do is leverage all of our IRAs so that we keep that money working in all of them. And especially with the, the young guys, they're just starting out building up their self-directed IRAs. My son-in-law, he's, he's up to 20,000 now in his, but he just started a couple years ago and he's slowly building that. So yeah, so we just leverage with each other and, and just try to build our wealth and with for one another.

 

Bill Fairman

01:10:56

So what are the some, some of the things that you have to do cuz you can't just depend on each other to invest the money. You have to get other, at, at least network with other like-minded people to get involved in deals. Cuz it's easy to find people that want to invest their money, but it's little bit more difficult to find the deals to put 'em in.

 

Susan Jensen

01:11:20

Right.

 

Bill Fairman

01:11:22

And and I, I know being, I'm sorry, I didn't mean to cut you off, but being a part of an IRA group that has education and events and put those things together, is that part of what you do as well?

 

Susan Jensen

01:11:36

Yeah, I meet a lot of people just watching a lot of webinars. I walk, I, I get a lot of Quest education. I'm usually watching a Quest webinar at least once a week. And so I, I try to get a feel for who these people are, whether they have a fund or whether they are looking for capital. And, and then I go to events and I'm in a mastermind. I, I lend to a lot of people in, or a handful in the mastermind. And, and then I tend to, once I find someone that I really like, like you guys for years and years I started with you guys and I've been working with you for 10 years now. You guys got me started, Wendy did. So once you have a good person to work with you, you keep going back to that same, that same lender, the same borrower, and you, you just keep working together and then, you know, we, people know people and you, you just build your circle that way.

 

Bill Fairman

01:12:42

Well, I know one of the unique things that most people aren't gonna do this, but one of the things that you did that was extremely smart was you volunteered to be the president of our local R group for a year or two. And you certainly meet a lot of people that way. It's a lot of work. Don't get me wrong. You were doing it not because you were just trying to meet people to do deals with, you were doing it to volunteer your time and, and also learn. But I mean, volunteering anything in a, in a local r or a mastermind is gonna be beneficial, right?

 

Susan Jensen

01:13:18

Yeah, yeah. There was, that was about three years that I did that and I'm put a lot of subgroups into the r and met a lot of people that way. So yeah, it is, it's, it's great to be able to volunteer and join arms with other people. You really get to know them that way. And, and in my, in my business, my number one priority is the person. So with lending they say it's, you know, you've, you've gotta do your due diligence on the person, the paper and the property and that's all right. But the, the person to me is the most important. I just wanna make sure that I'm working with good people that I can trust and that I like.

 

Bill Fairman

01:14:04

Yep. Well the, the key to making money is making sure it's making money consistently. And any time there's a break in between, you're not making any money. So whether you get a property back or not is not the issue is, is my money working for me while I'm waiting to do this stuff? And you know, if you're lending, you don't want the property back, If you wanna buy the property, then that's fine. Yeah. You can do that too. Yeah. Did you have something you wanted to add or you want me to just run off at the mouth the

 

Susan Jensen

01:14:39

Whole time off?

 

Jonathan Davis

01:14:40

You're doing, you're doing great.

 

Bill Fairman

01:14:41

I'm, I'm just, I feel, I feel guilty because I keep cutting you off.

 

Jonathan Davis

01:14:45

Oh, that's all right. Keep going, Bill, you're doing

 

Susan Jensen

01:14:47

Great. No, I would say about, about that point, I usually, I, one of the things I really don't like is when any of our accounts that I'm managing are not working. If there's any money in there that's if, if if I've got an account that's up to $8,000, $10,000, that's just, just doesn't sit well with me. So I'm looking for a place to put it. But I've gone as low as one of our accounts going as low as $7,000 and linking that up, partnering with three or other accounts to get that money working. So as long as your borrower doesn't mind cutting four checks per month, it's a great way to build up your small dollar ira.

 

Jonathan Davis

01:15:34

So you're, you're talking about linking up with other people's IRAs and, and you know, someone's needing a hundred thousand, but maybe you have, you know, 8,001 30 in another and just kind of pairing them all together. Yeah, go

 

Bill Fairman

01:15:48

Ahead Bill. I was gonna say real quick to, to kind of get around that, if the borrower doesn't wanna write four checks, you can always hire a third party manage That's right. Servicing company, send all the money to them and they'll cut the checks for you.

 

Susan Jensen

01:16:01

Yeah. Like you guys did.

 

Jonathan Davis

01:16:03

Yeah.

 

Bill Fairman

01:16:03

Yeah. Well to, to be fair, we're not really a third party servicer. We can only service loans that we have a piece in. We, we have to own a piece of the loan before we can services. However, there are plenty of companies out there that hire out, they have to be licensed. Some states require certain licenses, others not so much. But there are companies out there that are, are specifically there for IRA folks. Right.

 

Susan Jensen

01:16:32

It's good for when you're new at this to have a third party servicer or, or someone like Carolina hard money to take care of your loans. And then if something goes south, you're not just left hanging trying to figure out how, what to do with this property. You've got someone that's experienced that can help you with that.

 

Jonathan Davis

01:16:53

Yeah. I mean, yeah. Cause when, when things, you know, and things do go wrong in real estate and, and notes all the time. So, you know, it's, you know, do they have that loss mitigation experience to help you through a default, through a foreclosure, through a bankruptcy? Yep. You know what, what have you until you learn those things yourself. Yeah, I know. Let's see, someone says, so as little as 20 K would be okay to partner with someone as little as $1,000, as little as 500 would be okay to partner with somebody you, you know, as long as the need is there. Yep. And you can partner with somebody. It doesn't matter what amount you have.

 

Susan Jensen

01:17:31

Just, I've finished Quincy's book, Quincy Long wrote a book on self-directed IRAs. It's really, really good. It's self-directed. Self-directed. IRA Secrets revealed. He's got a, a chapter in here on small investing, small dollar amounts. Nice. Are you guys still there?

 

Jonathan Davis

01:17:54

Yeah, yeah, we were, we were just, it was just focused on

 

Susan Jensen

01:17:56

You. Oh, okay.

 

Bill Fairman

01:17:57

Cause it cause this show is all about you, so,

 

Susan Jensen

01:17:59

Okay. I thought I was wondering if I was all alone. So, but he had a, a piece in here that was so good. He, there was an investor that was looking to get a $5,500 loan from someone he connected with this lender who had $550 in his Roth ira. So what he did was he connected six other people, I think it was six five, let's see, there were eight different accounts and five people, IRA owners, and they came up with the 50 555,000. But he, he got, he, they gave him, he gave him 12%, he gave him two points. The guy who found the deal kept the two points and everybody split the, the undivided interest of their, of their, they

 

Bill Fairman

01:19:03

All got the 12%.

 

Susan Jensen

01:19:04

Yep. And in the end, and after 10 months, this guy with $550 in his Roth made $1,100 on that. Yeah. So, I mean it's a, it's it's work and he really leveraged his time and his knowledge and Sure. You know, his effort and everything and his network, I mean he found all those people and he made it happen.

 

Bill Fairman

01:19:28

Yeah. Yeah. And to Mark's question, if you have, if you know someone who needs a loan and you know some other people that have larger IRAs that are willing to go in with you, and because you're the deal maker, you're the deal architect, Right. You put the deal together. Let's say for example, you charge two points. Yep. And let, let's say you split the one point with the, the other people in the deal and you keep one point because you're the deal maker, right. And you take your 20,000, you could charge a little bit. For example, you could do a, and I'm just throwing out easy numbers, you could do 12% and everyone else is charging 10 and they each get a piece of that one point. And then you get to keep the difference between the 10 and the 12 on your $20,000 and that, that way you can right. Jack up your $20,000 fairly quickly because you're the one that put the deal together. Right. It's, it's a great way to do it. How else are you getting into deals? Are you just a lender in some of these, in most of these deals or are you doing other things? Are you purchasing anything? Are you doing any kinda options or, or wrap loans or anything like that?

 

Susan Jensen

02:20:43

The only other thing I'm doing besides lending is from our self-directed IRAs, I've been converting a lot of our money into investing in syndications.

 

Bill Fairman

02:20:53

Okay.

 

Susan Jensen

02:20:54

So self storage and multi-family, The multi-family only in the south and the red states. And I've got money in one self storage syndication in Pennsylvania. And another one that I'm looking at with that has like five self storage facilities in the south and in Texas. So that's what

 

Bill Fairman

02:21:20

I'm see that's a, you, you were saying that you were always concerned that your money is working constantly and when you invest in a fund, any, any kind of fund including the syndications, you know that money's always working,

 

Susan Jensen

02:21:33

Right? Yep. Yeah. And we do have some money in one fund. It's a real estate fund, but that's in our self-directed IRAs because our llc, we live off that money. So I've gotta keep that cat that mailbox money coming in. Right.

 

Jonathan Davis

02:21:49

I want to answer Al Cook's question here. You may have covered this, but what security do you use for these loans? You can use whatever you want. However, I know Sue, no matter what she's doing, she's taking a lean position and probably a first lean position when, when you have these, like when you're working with other people, there's, there's different ways to do it. But I'm gonna tell you probably the, the way that most people with IRAs are gonna do it, it's just gonna be a fractionalized para pursue interest. So everyone has a shared first lean position based off of your investment amount

 

Bill Fairman

02:22:23

And para pursue, meaning everyone is equal in the transaction based on their percentage of the investment.

 

Jonathan Davis

02:22:30

Para Sue is French for equal footing. Yes.

 

Susan Jensen

02:22:32

Yep. It's all undivided interest and it all, it's a percentage and everybody gets what's what's fair.

 

Bill Fairman

02:22:39

Yeah. And it has to be among people. Either you need to have a third party putting these together who are, is gonna make the decisions for you or somebody in the group has to make the decisions with the, you know, on the front end of this before you ever get into it saying that, you know, if this happens, this is what we're gonna do and if this happens, this is what we're gonna do. Because you can't have, you know, four or five captains and no lieutenants.

 

Jonathan Davis

02:23:06

Well and that brings up the, the prime

 

Bill Fairman

02:23:08

When, when something

 

Jonathan Davis

02:23:09

Does go bad, that's the prime example of, you know, and, and Sue's been with through this with us as well, where we have like, you know, her money and other people's money into a, a fractionalized position on a loan. I'm thinking of the, the movie theater and, and what was it, Monroe, right?

 

Susan Jensen

02:23:25

Monroe. Yeah.

 

Jonathan Davis

02:23:27

And you know, we, you know, we had to play quarterback on that because we went through, you know, we had a, we had a movie theater in a restaurant and we went through Covid and you know, it was shut down. And so how do we, you know, work through this and well sue, you know, did it work out okay?

 

Susan Jensen

02:23:45

Yeah, it worked out great in the end because our agreement, our note it was, we made sure that we were covered with extension fees and late fees. So even though it was months and months, we all made out. Well we just had to be patient.

 

Jonathan Davis

02:24:02

Yeah. I mean that's, that's the thing. Yeah. You, you, you, you, you'll make mo you know, tip, you know, when you have someone that can handle these things and you know, and favorable outcomes, you know, happen all the time. But you, you will make more than you ever thought you were gonna make when you initially got into the loan. It's just gonna take a little bit longer. That's, that's the trade off.

 

Susan Jensen

02:24:22

And we're work and you guys are working on one right now with Dewey out in Oregon. Same thing. Yep. Just months of no payments. But you've just gotta be patient and because you guys are competent, you know what you're doing and you've got good attorneys in the end it'll be great. It's just, we all wanna get our principal back.

 

Bill Fairman

02:24:42

Would you mind telling my wife that I'm competent? Yeah. My my my point to all this Al, is that someone has to be in charge. If it's not a third party, it needs to be one of the people that's invested in the loan. Right. Because you can't have everybody making different decisions. If you can't get a consensus, then that person that wants to go a different direction needs to buy the others out. Right. And then they can take it over. So those are the only things you need to look out for. Everybody needs to be like-minded and understanding that everybody just wants to get the, the return on their investment.

 

Jonathan Davis

02:25:20

Yeah. And if you wanna avoid any issues like that, if you, if you wanna be a little more savvy, you can do inner creditor agreements when you do loans like this where it outlines all of that for you.

 

Bill Fairman

02:25:31

Yeah. Who, who makes the final decisions, that kind of stuff. Yeah. Awesome. So thank you so much for being a part of the show. If we have anyone that would like to get in touch with you and pick your brain a little bit more or maybe you want to get in on a deal with you, how can they get ahold of you?

 

Susan Jensen

02:25:51

Yeah, they could email me at Susan Jensen 97 gmail.com.

 

Bill Fairman

02:25:56

Excellent. We got it right here in the screen and we will have it over there on the comments section as well.

 

Jonathan Davis

02:26:02

Yeah, like I said, she's been doing this for over 10 years. There's a lot of experience there, a lot of lessons learned. So a lot of good

 

Bill Fairman

02:26:09

Stuff. You know, I remember when you had a few accounts with Equity trust and you met a guy in equity trust who you know, right after 2008 all the banks dried up with their lines of credit for buy here, pay here, car dealerships, remember. And that guy was using his IRA to do little lines of credit for those car dealerships so they could buy cars, you know, wholesale and then as they're selling 'em off the lots, they, he would charge a release fee of the title and then he was getting 18% interest on his, on his small little lines of credit. Yeah, I remember that. I thought that was

 

Susan Jensen

02:26:50

An awesome way. Yeah, glad about that. I remember that now.

 

Bill Fairman

02:26:53

Yeah, it's funny, it was your group and I'm the one that remembered it. It just stuck out with me that I thought it was a really innovative way to put Yeah, put his IRA to work. But, but you have to understand how all that works and it is, you know, almost a full-time gig doing it anyway,

 

Susan Jensen

02:27:12

So yeah, I love being around smart people and just learning from smart people cuz there's just so much you can learn in this business.

 

Bill Fairman

02:27:22

So I, I don't know if you saw that or not, but Tracy Z is on the comment section saying hello and that you're doing a great job. Yep.

 

Susan Jensen

02:27:30

Hey Tracy.

 

Bill Fairman

02:27:31

Hey Tracy. All right, now we're gonna have to wrap this up, Sue. Thanks again folks. Thank you so much for joining us on the Real Estate Investor Show Hard Money for Real Estate Investors. We are Carolina Capital Management. Did I say something wrong?

 

Jonathan Davis

02:27:48

No, I was just, Oh, I don't know, it just tickled me. We,

 

Bill Fairman

02:27:52

We are private lenders in the Southeast for real estate professionals. If you want us to take a look at one of your projects, go to carolina hard money.com, click on the apply now tab. If you are a passive investor looking for passive returns, go to the accredited investor tab. Don't forget the like share, subscribe, hit the bell and Wednesdays with Wendy. She's gonna, she's gonna hate that picture.

 

Jonathan Davis

02:28:22

That's an old one.

 

Bill Fairman

02:28:23

Yeah, don't, don't put that picture back up. Anyway, Wendy is going to be speaking at some events coming up. I think we got some names and we'll put links in the comment section after the show closes out. Let's look at the first one perhaps. Okay.

 

Jonathan Davis

02:28:51

The

 

Bill Fairman

02:28:52

Fear message that that one is actually today. So you're gonna be late.

 

Jonathan Davis

02:28:56

Yeah, that's in or Yeah, that Orlando, she flew down there.

 

Bill Fairman

02:28:58

Yeah. And here might be another one and Real estate invest her. I don't know exactly when that's coming up, but we'll have all that in. Do we have two more? Okay.

 

Jonathan Davis

02:29:21

I hope,

 

Bill Fairman

02:29:22

I hope you wrote all that down.

 

Jonathan Davis

02:29:24

Quest gone. But yeah, we will put all the links.

 

Bill Fairman

02:29:26

I'll have it all into

 

Jonathan Davis

02:29:27

Yeah,

 

Bill Fairman

02:29:33

I didn't know we had a millionaires panel in the upstate

 

Jonathan Davis

02:29:35

Man. We have a lot going on. That's right.

 

Bill Fairman

02:29:37

Sure. Good about all that. Okay, I think we're done. You guys have a great week. We'll see you next week

https://youtu.be/peAAjhtlKxA

 

Bill Fairman

00:00:02

Greetings. Hope everyone is doing well. We are actually live with this show. Maybe you didn't know this, but last week's was not live. It was prerecorded because we were all out of town. So we're going to talk about several things today, being a small dollar lender, investing with family and friends, and raising capital. And we'll get to some examples right after this. Hi everyone. Welcome to the Real Estate Investors, Show Hard Money for real estate investors. We are Carolina Capital Management. We are lenders in the southeast for real estate professionals. If you have a project you'd like us to take a look at, go to carolina hard money.com and click on the apply now tab. If you are a passive investor looking for passive returns, then click on the accredited investor tab. Don't forget to like, share, subscribe. Hit the bell. And don't forget about Wednesdays with Wendy.

 

Bill Fairman

00:01:35

I think this one is so short now that we should just play that twice Next time. Not now. Next time. Yeah. That's funny. So Wendy devotes 30 minutes per person each Wednesday. Talk about anything real estate, there's the link, it will be over in the chat, which on the right side of the page or underneath, depending on the platform that you're viewing us from. And in case you were wondering, yeah, somewhere in the same shirt that's been on this show three times in a row. I don't think anyone was wondering that, however, but way of telling yourself it's very, I'm being very self-conscious about it. Yes, it's been watched. It's a nice shirt. Yeah, you can see the crease. Thank you. Yeah. Anyhow, let's do some breaking news. You man. No.

 

Bill Fairman

00:02:41

So today, very important. CPI numbers came out and that stands for consumer price index. This is the third quarter reading and this determines people that are on fixed income social security on how much they will get raised for next year. Yeah. And it came in at eight point, excuse me, 8.2%. So we have inflation of 8.2% year over a year. The core number for month to month was 0.4%. So it is higher this month than it was last month. You pull out energy and food, which as we all know, that is really the most expensive and the most important.

 

Jonathan Davis

00:03:28

So that is the core.

 

Bill Fairman

00:03:29

It's still 6.2%. I mean that's, that's pretty high. Yeah. So that means everything is going up. So guess what? The stock market didn't really appreciate that this morning and I haven't looked at it before we came on the air today, but we were below 2,900 on the Dow, you know, before I came to work. Yeah. On the, on the future's market. So those folks that were hoping for the Fed to maybe postpone or maybe do a 50 basis points raise in the interest rate, Nope. Be prepared for another 75 basis points. Oh

 

Jonathan Davis

00:04:10

Yeah.

 

Bill Fairman

00:04:10

That's all I can say.

 

Jonathan Davis

00:04:11

It's coming. And yeah, I mean they have stood by, you know, bringing inflation down and as you know, these numbers continue to, to set where they are. If they do what they say they're gonna do, it's, it's gonna be 75 or even, you know, one full, you know, percentage.

 

Bill Fairman

00:04:29

Well, they were too slow to act because they said it was transitory. The rest of us knew it wasn't.

 

Jonathan Davis

00:04:34

Oh gosh. Yeah.

 

Bill Fairman

00:04:36

And then on top of that, you've got our, not just our government, but governments around the world are counteracting what the fed's trying to do. Every time they try to slow stuff down, the government gives out more money and more money. They give out more. It's stimulates activity. And you can't lower inflation if you have an activity being, I mean the whole point of raising rates is to have what we call demand destruction.

 

Jonathan Davis

00:05:09

Yeah. You want, I mean, right now they want to, you know, lower the demand for houses and also, you know, and raise the, you know, unemployment. Yeah. I mean that's, that's the goal.

 

Bill Fairman

00:05:22

Well the, the target is housing and why do they target housing? Number one, it's one of the largest expenses, but all the other products that are connected to housing, furniture, H V A C, all that stuff. Yeah. Building materials. There's a lot of things that are attached to housing that if, if you slow down housing, you're gonna slow down a large chunk of the overall economy. Correct. Yep. That said, I don't want anybody to freak out people. Were still fixing and flipping homes and making a profit when home. We, we still hadn't figured out if we were at a bottom yet after 2008 crash.

 

Jonathan Davis

00:06:11

Yeah. I mean like, like we were talking about with a, a room full of real estate investors last week. I mean, or real estate lenders rather. We're really excited. We're excited for our partners and ourselves and our clients because opportunities will now be more readily available.

 

Bill Fairman

00:06:33

Yeah. And as a selfish note, businesses like ours and we're, we're talking to other private lenders, hard, hard money and private lenders that are balance sheet lenders like us, we are all going to capitalize on this because the short-term lenders that got in bed with the institutional financing people who are pulling back because interest rates are going up and getting nervous. Yeah. That's not affecting us. Cuz we hold our own loans. Yeah. It's really affecting them. We, we had some information that there are some people in our area that are gonna have to start laying off a bunch of their, their folks because they can't get the capital anymore.

 

Jonathan Davis

00:07:19

Yeah. I mean it's what we've been talking about for a long time. Scaling responsibly and you know, not building a machine that you have to feed and when market shift there's nothing left to feed it. Right.

 

Bill Fairman

00:07:31

And I got one more breaking news before you get to some Okay. Multifamily stuff today.

 

Jonathan Davis

00:07:38

Oh, look at that

 

Bill Fairman

00:07:39

Is our man, Scott's birthday. Happy birthday Scott Fatten

 

Jonathan Davis

00:07:45

Since, since he

 

Bill Fairman

00:07:46

Wonderful smile

 

Jonathan Davis

00:07:47

Since he runs the, the video we had to print something off to stay incognito. It's funny. Happy birthday. So yeah, well wanna talk a little bit about multifamily. So real page has been keeping track of absorption or you know, you know, how much, how many units are being rented by the quarter. And they've been doing this for about 30 years and this third quarter of marks the first quarter ever in that 30 years where there was a negative absorption rate. What does that mean? It means that there's just less people in the third quarter renting apartments and getting those apartments. And so typically why is that? Why is that anomaly typically third quarter is very strong. Everyone that's, that's a strong lease up period. Fourth quarter is usually the, the, the, the, the ti you know, where it trails down. So this is quite an anomaly. We'll, we'll keep track of it. That being said, you know, vacancy is still 4.4% nationally. So it's, you know, vacancy's really low. It's just, we've had such a run up to this point that,

 

Bill Fairman

00:09:07

And that's what I was gonna ask are, are we getting to a point where there's over saturation in we're

 

Jonathan Davis

00:09:13

We're building, we're a building towards that. Yes. That will con I think that's a trend that we will continue to see for the next few quarters.

 

Bill Fairman

00:09:21

And if you think about it too, we have an oversaturation of a class Yeah. Properties too. So, so these are the brand new luxury type apartments. That's what's been being built over and over again. And as the economy slows down and people start spending less money Yeah. They're going to start going towards those B and and C class properties. Yeah. Cause they can't afford that rent.

 

Jonathan Davis

00:09:50

Now the other side of that is we're seeing, you know, rents kind of where they're, they're around 20% year over year of last year. Now we're running in the nines, which is still an increase. It's just, it, you know, it seems to have plateaued and, and coming down now everywhere except Florida. And that is due to, you know, most recently the, the hurricane there. Sure. There are several instances I was, you know, of people renting two bedroom, one bath houses for $5,000 a month. Wow. I think it's, it's, it's crazy. During one, they

 

Bill Fairman

01:10:27

Weren't damaged by

 

Jonathan Davis

01:10:28

The hurricane. Yeah. Because it's because people are scrambling to find shelter and Yeah. So everywhere, unfortunately

 

Bill Fairman

01:10:35

A lot of parts of the Florida that got hit are second home. We call 'em snowbird homes. So I, about half the population that's in those areas that were hit are only there in the winter.

 

Jonathan Davis

01:10:50

Yeah.

 

Bill Fairman

01:10:51

So it's not like it's their primary residence. I don't think it's gonna be as bad as it could have been in other areas because you know, the housing that was there was in most cases wouldn't occupy it anyway. Yeah. And as much as we like to get into the warm weather in the winter, you, you may have to stay home this winter until you Sure. Get your place fixed up. But if your place was not damaged, then you can still rent it out to others who need a place. Not to mention all the contractors and stuff that are coming in the area. Sure. They're gonna need the place to live Always. Yeah. While they're working down there. I know when, that's where Wendy is right now, she carried a, I think they have like a 32 foot travel trailer and she had to park it at a campground that's an hour away from Englewood. Oh wow. Because you, there was no places available any closer.

 

Jonathan Davis

01:11:46

Well let's jump into, I know we wanted to talk about, so Oh

 

Bill Fairman

01:11:50

Yeah. So our theme this month is how to do small dollar lending, investing with family and friends and then raising capital and we're gonna go over some of these items and then later on in the month we're gonna have some guests that are gonna be coming on that have experience in this and they'll give us some case studies on how they did it. Cuz the one thing I love about the real estate business is that there's a problem that is solved, whether it's on the lending side or the acquisition side or raising a capital side. And there's,

 

Jonathan Davis

01:12:33

That's the, you know, with everything that, that anyone does in, I think in any arena you don't look at how much can I make or how much will I pay? It's what problem or what pain is being solved or what pain or problem is being caused and how do I solve that. So if you can look at it that way, that's usually the, you know, better way to go about it.

 

Bill Fairman

01:12:54

Oh, I'm sorry, one last thing before we get onto this. I did see a piece yesterday, I believe it was about this second quarter for 2022 was the smallest percentage of fix and flips since 2009. I think it was.

 

Jonathan Davis

01:13:15

I believe it, It have to be. Yeah. However,

 

Bill Fairman

01:13:18

It was the highest profit of any time since then.

 

Jonathan Davis

01:13:22

The, the the net game per property. Yes. Yeah.

 

Bill Fairman

01:13:25

So two things to, to consider with those numbers is that there are fewer, we'll call 'em non-professionals doing it now. Yeah. So because it's harder to find inventory and things are questionable on how the future's gonna look. I, I think you're professionals that have good marketing, those are the ones that we're able to find the properties and, and get 'em fixed up and sold. Yeah. Secondly, excuse me, the reason they're making the most money is because, you know, the market in the second quarter was still pretty good. Yeah. Right. Oh yeah. I mean it was still about seller's market that said, I hate when they always come up with these fix and flip numbers because they only go by what they paid for it and what they sold it for. They have no idea how much anybody has put into it cuz they don't have those numbers. So how do we know they really profited more? We don't,

 

Jonathan Davis

01:14:30

It was the potential of profit is that

 

Bill Fairman

01:14:33

They just sold it more than what they paid for it originally.

 

Jonathan Davis

01:14:35

Yeah.

 

Bill Fairman

01:14:36

So, Alright.

 

Jonathan Davis

01:14:37

I mean there was more demand. Yeah. The, the highest, you know, appreciation. Yeah. So they had the, Hey Scott, happy birthday.

 

Bill Fairman

01:14:51

Have a birthday.

 

speaker 4

01:14:52

Happy a birthday. Thank you. Sure will. Get me out of here.

 

Bill Fairman

01:14:58

So that's funny. Gotta love live streaming, don't you? Yeah. Okay. So let's talk about the, the first one that we discussed, the small dollar lending. There's a lot of people that have small, say a Roth account that they're just getting started with their self-directed retirement fund and they have no idea how to get that money and put it to work.

 

Jonathan Davis

01:15:21

Yeah.

 

Bill Fairman

01:15:22

So one example is networking. If, you know, if you have a good network, you know people that need money, you know, other people that lend money Yeah. You can put that to work fairly, fairly easily. So I I'll give you an example. Let's say, you know, someone who needs a hundred thousand dollars loan,

 

Jonathan Davis

01:15:43

That's a small dollar amount.

 

Bill Fairman

01:15:45

No. Oh, you need somebody, you're no, you know, someone that needs a hundred thousand dollars loan.

 

Jonathan Davis

01:15:49

Okay.

 

Bill Fairman

01:15:50

You know, another person that probably has $99,000 they could lend if they wanted to and they wanna put that money to work. But you have a, you know, a Roth IRA that maybe has a thousand dollars in it or it might have six or $7,000 in it, but you don't have to use all that money. So how, how can you put that money to work or at least jack that up quickly?

 

Jonathan Davis

01:16:15

I feel like you're gonna make a VUL on reference. No. Oh, okay. Go.

 

Bill Fairman

01:16:20

So because you be, because you become the deal architect.

 

Jonathan Davis

01:16:23

Okay.

 

Bill Fairman

01:16:24

You have the borrower that needs the money, you know the person that has most of the money. Let's assume an interest rate of 10%. Okay, well the person that has money that's not doing any of the work,

 

Jonathan Davis

01:16:37

Can we do 12%? And that's really easy math for everybody.

 

Bill Fairman

01:16:40

Okay. Whatever.

 

Jonathan Davis

01:16:41

All right. 12%.

 

Bill Fairman

01:16:42

All right. So it's 12% interest rate,

 

Jonathan Davis

01:16:44

1% per month. Crazy.

 

Bill Fairman

01:16:48

You as the deal architect, you put the deal together, you get the, the friend who has, we'll just say 99,000. Okay. And then you have a thousand that you're putting in from your account. Now how is that a good deal for you? Well, you charge the actual interest rate is 12%, but the person that has the 99,000, they're happy getting 10, right? Yep. You also charge a couple of points origination on this thing. Yep. And maybe you get two or there's two charged total. You get one and the person that has the $99,000 loan gets one. Okay. Right. It's still 2% of a hundred thousand. That's $2,000. Okay. So the thousand dollars that you just

 

Jonathan Davis

01:17:40

Correct.

 

Bill Fairman

01:17:41

So now none of your money is at risk.

 

Jonathan Davis

01:17:44

You've, you've already, you've already made a hundred percent return and you haven't got the first right. Monthly check yet.

 

Bill Fairman

01:17:51

So as this loan goes on, you're the one collecting the payments, you're sending the 10% part to the person that has the 99,000. Actually you're not sending it to them, you're sending it to their custodian ira, assuming that they also have an ira. Yeah. And then you're keeping the additional 2% of that payment and it's going into your Roth throughout this transaction. So not, not only did you make a thousand dollars because at the end when it pays off, you get that thousand dollars back, plus you made a thousand dollars plus you're making 2% of the payment the whole time and you've only put that little small amount to work. So that's how you put small dollars to

 

Jonathan Davis

01:18:34

Work. And I know everyone's out there saying, But if I do that, aren't I subject to third party servicing laws? No, you're not because you're in it at a thousand dollars or 1%, you are an owner or a lender in that deal. Right. So you own a lean position and you can service your own debt, which allows you to service the entire loan. Right. So anyone that had that question pop up, which I know several of you did, just wanted to put that

 

Bill Fairman

01:19:01

In reality, nobody asked that question, but they should, In some states, you're not allowed to service a mortgage loan unless you were a licensed servicer.

 

Jonathan Davis

01:19:11

Third party just means someone else's loan. Yeah.

 

Bill Fairman

01:19:13

Unless it's your loan.

 

Jonathan Davis

01:19:15

Yeah. You are in every state of the United States, you are allowed to service your own loans. Right.

 

Bill Fairman

01:19:21

And because you have a piece of it, you're not a third party. Yeah,

 

Jonathan Davis

01:19:24

Exactly. You are a party to the transaction. Right? Yeah.

 

Bill Fairman

01:19:27

And then, and the other way of doing it is you could just be in second position in, in, in another small deal. But what it, what it boils down to is you still need to have a network. You can do these smaller deals, you just need to have friends that have deals. Yeah. You just need to be the deal architect. You don't have to have a whole lot

 

Jonathan Davis

01:19:49

Of money. And that's, you know, like that, that's just how it is in, in real estate. And, and most, I think in most things, you know, if you have a thousand, 2000, $5,000, you're gonna have to do a little bit more work to get that level of return. However, that work is going to allow you to get up to, you know, 150 and 200% return on your money and that can grow your small balance IRA or, or whatever investment vehicle it is. It can grow it rapidly. So that was a, you know, a really good, good point, Bill.

 

Bill Fairman

02:20:22

You wanna talk about investing with family and friends?

 

Jonathan Davis

02:20:25

Don't do it.

 

Bill Fairman

02:20:28

Okay. From a banker or from a lender side of things. Yeah. Never, never lend family money because if you, you have to assume you're not gonna get it back.

 

Jonathan Davis

02:20:39

Always go back to that, you know, setting at the Thanksgiving table. Yeah. It's like, you still owe me $30,000. That's right.

 

Bill Fairman

02:20:46

But there's nothing wrong with investing with somebody getting equity to a piece of property. At least you know that if something happens, you know, on a piece of property that's worthless.

 

Jonathan Davis

02:20:57

Yeah. Yeah. I mean, and you, you can jump

 

Bill Fairman

02:20:59

In. I'm just kidding. Family and friends are the first people you go to when you start.

 

Jonathan Davis

02:21:05

Especially when you're looking for more like mezzanine prep and common equity. Do

 

Bill Fairman

02:21:13

You want to explain that, what mezzanine is and common

 

Jonathan Davis

02:21:16

Prep? Sure. Yeah. So, so you know, we talk about capital stack all the time. So you have, you know, your first lean debt, which is typically like your banks or someone like us that's gonna take a firstly position. It is your, your first lean debt and then beyond that you're gonna have mezzanine debt, which can be a second lean position behind that. Or it can be unsecured or secured by, you know, some other vehicle through the llc. And then beyond that you have preferred equity, which is typically granted to, well you're limited partners in an llc. So you have limited partners and general partners. General partners are typically the operators of the property. Limited partners are the people who are bringing the equity and you, they get preferred equity, which means after the debt, they are the first people to get paid out. And then the general partner has the common equity, which means after the debt's paid, the pre equity's paid, then they make their money. So it's, it's just a waterfall effect.

 

Bill Fairman

02:22:21

And if you're wondering why it's called mezzanine. Yes. You're still in the building hearing the same concert, you're just doing it a little bit higher up than the Yeah,

 

Jonathan Davis

02:22:30

Yeah. Good, good reference bill. Yeah.

 

Bill Fairman

02:22:33

Takes you longer to get your popcorn.

 

Jonathan Davis

02:22:35

Yeah. So yeah, with friends and family, that's the best way is to do kind of, in my opinion, you know, that that pre and common equity route, just because it's people that you typically know, like, and trust. Right. And you feel comfortable maybe not having a, a fixed lean to a real property. Right? Yeah.

 

Bill Fairman

02:22:59

And let's cover capital raising very quickly. Well,

 

Jonathan Davis

02:23:03

That's the best one.

 

Bill Fairman

02:23:04

Some, some people are really good at it. Yeah. Some people are not. But if you're in the capital raising for any project or fund that you may have, it's all about relationships. People are not going to invest with you unless they like you and they trust that your decision making is competent. Right. Yeah. And it has to be, whatever project you're doing has to be easily explainable and at the same time it's got all the numbers have to work. It's, it can't be kind of one of these projects where if everything doesn't fall into place, you're not gonna profit. It has to have many contingencies that if this happens, we still make money here. If this happens, we still make money here. Yeah. If this happens, we can sell it. If this happens, we hold onto it. Yeah. It's all about

 

Jonathan Davis

02:24:06

Relationship. It really breaks down to, to each side, you know, to raise the capital, to be the salesman, to tell the story, to know, to know the project. And then the other side is the person who has the capital to be able to look at the story and look at the project and look at the numbers and say, Hmm, that works, or No, I don't think that works. So there's, there's really two sides to it. So if you're, if you're on the raising capital side, you want to know that inside and out. Like the, one of the, you know, I think pitfalls that a lot of people when, when they talk to me about raising capital, when I, you know, when I ask questions, they don't know the answer to them. And not that those are tricky questions. It's like, you should know, right? What are you purchasing at?

 

Jonathan Davis

02:24:51

What is your run? What run rate? What's the cap rate? You know, if this is commercial or multifamily, what's the cap rate you're buying into? What's the cap rate you're operating at? What's your profor cap rate that you're exiting at? If it's single family, you know, what am I buying this for? What are the comps in the area? What are, you know, what are the rents if something goes bad, you know, the what the project that we're taking on, do the rents, the market rents that area cover this. If they don't, what's that rate of return going to be based on those rents? To know all of those things and to be very transparent and, and open and forthright with them. Like that's the, that's the easiest way because when someone talks to me or when I talk to someone else, like when you know these things, it doesn't matter. Like I'm not saying like, let's make 24%, we're gonna just crush it. Right? Like people aren't looking for that because it's their, it's their money that's you hard earned or you know, whatever the case may be. They want to know that it's safe. They wanna know that you know, that you're gonna take care of it and you know what you're doing. There might be people out there who just want 24%, but my experience has not been that case. Yeah.

 

Bill Fairman

02:26:05

And look, you have to know number one, who your avatar is and who, who it is you're speaking to. First and foremost, when you set up the deal, it has got to be beneficial for each party. And from my perspective, it needs to be more beneficial to the investor than it is the sponsor. In our case. And we deal with a lot of private professionals, dentists, orthodontists, when you look at their business, and this may surprise folks that aren't in that industry, their overhead is in the 70% range. So they're operating on only about a 30% margin or less.

 

Jonathan Davis

02:26:52

Yeah.

 

Bill Fairman

02:26:54

Okay. Our fund last year had a 67, no, was it seven 67% profit margin,

 

Jonathan Davis

02:27:05

Different models. Yeah.

 

Bill Fairman

02:27:07

Now again, there's not nearly as much overhead, but what we do, what we try to do is make sure that the investor is benefiting the most we, you know, listen, we're still making a living or we wouldn't be doing it. Sure. But in, in order to keep your investors coming back and continuing to put money with you as your projects change, make sure that they are the, the biggest beneficiary of your investment investment. Right. And that you will never have trouble continuing to get capital raised because you're always number one, you're provi providing them with a good risk return and at the same time you're giving them the largest benefit Yeah. Of the project. Yeah.

 

Jonathan Davis

02:27:54

And, and again, like you said, you have to know who is your audience. Right. Are you talking to a lot of people who have self-directed IRAs? Well, equity doesn't mean a whole lot to the, Well, it doesn't mean anything to them, honestly. Right. Just don't get the, they don't get the tax benefit. So they're looking for growth and cash flow. So they're either gonna say, Hey, I don't mind to not take payments for a while if I can get X amount. You know, so just know who you're talking to and if you're talking to someone who has their, their cash and it's like they're, that's their savings that they've been working on. They don't have a retirement account. What's important to them? Probably cashflow. Cause they want to live off of that. Right. So maybe a higher payment is, is better for them. So just know who you're talking to

 

Bill Fairman

02:28:36

And, and at the same time, depending on where you are in life and what your needs are, some people already have what they have and they're just trying to protect it and outpace inflation. Yeah. And then you have other people who are young and have plenty of time to catch up. Should something go backwards on 'em or someone who got started saving late and they need high returns in order to, you know, catch up where they need to be and they're more willing to take risk. Yeah. So if you have a project that is low risk and we'll say a moderate return, you're not really gonna benefit the folks that need it right away. Yeah. So it's just not a good fit. So don't get discouraged cuz your deal is not, not good. It's just not right for them at this time.

 

Jonathan Davis

02:29:28

Exactly. Exactly.

 

Bill Fairman

02:29:30

So keep keep that in mind too when you're doing your little questions with your potential investors, what they're looking for, what their needs are, that type of thing. And then in this industry, there's, there's a lot of us that know each other and we're, while we may be competitors or we also work together, you could recommend that person to another fund manager who has some of those opportunities. Yeah. And they will in turn recommend people to you that are, you know, more in line with what it is that you're trying to accomplish. Absolutely. All right, so sorry we were long-winded. We had a lot of breaking news and Scott's birthday.

 

Bill Fairman

03:30:13

So thanks guys for joining us. Hope to see you again next week. We are Carolina Capital Management and thank you again. Sorry, I'm messing up with the stuff at the bottom. It's all right. No one notices until pointed out. Thanks for joining us on the Real Estate Investor Show Hard Money for real estate investors. And once again, we are Carolina Capital Management. We are private lenders for real estate professionals in the southeast. If you have a project you'd like us to look at, go to carolina hard money.com. Click on the apply now tab. If you are a passive investor looking for passive returns, click on the accredited investor tab. Don't forget that. Oh, I forgot about this. Yes. Wendy is going to be speaking at the Wise Women Expo and here is the link. It is October 14th and 15th. It is a Zoom only kind of event, but all the women are really smart women investors. Would you say they're wise? They are wise. Okay. If I was truly wise, I would've figured out that we had a graphic for that too. And I would've just shut up. Anyway, the link of not completely finished. I love it. Where was I? Don't forget to like Sheriff subscribe, Hit the bell Wednesdays with Wendy. Have a great week. Take care.

Bill Fairman

00:00:00

Oh, see that. Hey, welcome back. We are going to talk about scaling responsibly. One of the things that we run into is, should you scale in a coming downturn? Absolutely. You have to scale responsibly. We're gonna talk about that right after this.

 

Bill Fairman

00:00:37

Welcome. We're back here with our take two or question 2.0 with Hunter Big to elevate capital. We're gonna talk about scaling responsible respons. Sorry guys, I'm actually out of town right now, so I'm a little sluggish. Let's get started off with a little bit of housekeeping. Thank you so much for joining us on the Real Estate Investor channel, Hard Money for Real Estate Investors. We are Carolina Capital private lenders in the southeast for real estate professionals. If you have a a project you want us to take a look at, go to carolina hard money.com and click on the Apply Now tab. If you are a accredited investor and you're looking for passive returns, click on the accredited investor tab. Don't forget to like, share, subscribe, Hit the bell and don't forget about Wednesdays with Wendy. Wait. Oh wow. That was quick. That was a nice one. Yeah. Yeah. Wendy, excuse me, gives 30 minutes of her time per person on Wednesday afternoons to talk about real estate. There's the link. It will be in the chat side to the right side of the page or underneath, depending on the pro, excuse me, platform you're viewing us from.

 

Jonathan Davis

00:02:03

You good there? Yeah, you got all about It's

 

Bill Fairman

00:02:06

Alright. It's a lot of loans.

 

Jonathan Davis

00:02:07

It's alright. But yeah, no, Wednesdays Wendy's a great thing. If you want to join on the calendar link, you can do that. You will get something from it. I guarantee you. She has a lot of experience and she will tell you she's made a lot of mistakes. So learn from her mistakes.

 

Bill Fairman

00:02:24

And before we get started, I wanted to mention the Quest Expo was awesome. If you, you guys didn't get a chance to go, I think you can still purchase the videos from all the speakers that were there. It was excellent event. I think there were over almost 900 people, I

 

Jonathan Davis

00:02:44

Think 857?

 

Bill Fairman

00:02:45

Yeah. Yeah. Okay. Well that's close enough to nine. Yeah. Thanks for being so exact.

 

Jonathan Davis

00:02:49

It's my job. It's his job. Yeah.

 

Bill Fairman

00:02:52

But there was great information. Excuse me, If you have a self-directed ira or if you don't know what a self-directed IRA is, then there's plenty of implication for that. If you want to go to quest trust.com, all the information is free, so check it out.

 

Jonathan Davis

00:03:11

Excellent. So we wanna talk about scaling or responsibly. Yes. And what the heck does that even mean?

 

Bill Fairman

00:03:19

Well, it means getting either bigger or we're Okay. I promise I wouldn't say this, but it's about cleaning your fish.

 

Jonathan Davis

00:03:28

No bad joke. Yeah, yeah, yeah. But no. So we have Hunter on here with Elevate Capital and since February of 2018, him and his partners have been investing into multifamily in primarily North Carolina.

 

Hunter Bick

00:03:44

Oh, actually all North Carolina. All

 

Jonathan Davis

00:03:46

North Carolina. Okay.

 

Hunter Bick

00:03:46

We looked elsewhere, but

 

Jonathan Davis

00:03:47

Yeah, you like North Carolina. So they have went from zero doors to several hundred in that time, you know, timeframe.

 

Hunter Bick

00:03:57

500 ish.

 

Jonathan Davis

00:03:58

500 ish. It was more, But you just sold 120, didn't you? We did, yeah. Yeah. So they were over 600. So they have scaled in that time period from Jan, from February of 2018 to now on several hundred doors. And to kind of wanna just pick your brain on, what was your thought process like? You know, when you were looking at this, what, like, did, did it feel too much, too little or kind of how, how did you look at adding to your portfolio?

 

Hunter Bick

00:04:30

Yeah, that's a good question. You know, we kind of, we, we, we've always kind of taken the approach where if this deal makes a lot of sense and we think the upside is large, it's our job to figure out how to get it done. Sometimes that meant buying four things at once. Like there was a day we actually closed 200 doors in one day. Wow. There are other times where maybe we go several months without putting anything under contract. But the va, we knew the value was the value and we were always really confident when we thought we had a really great deal under contract, we had to figure it out. Our approach has typically been, you know, we found so many great deals off market that our approach has typically been how do we keep as much equity as possible? And that often meant hard money, hard money, maybe a debt stack, maybe some investor capital, whatever it was that we needed, we were going to do it.

 

Hunter Bick

00:05:27

But the first choice was always keep all the equity with a, with high leverage because we knew we were gonna add the value so quickly that we could refinance into permanent debt in six to 18 months, depending on the deal. And, and so the higher leverage was not for us was, was not risky or not scary because we knew it was gonna be very short term and we knew the value was gonna be there. Yeah. And so that's how we've done a lot of our deals. You know, you get to a certain size and, you know, you see more opportunities. And so we are, we are looking, we are kind of getting to the point where we're gonna be taking more passive investor capital to do some of those, some more deals. You know, we do think we're gonna see some really good opportunities here in the next 12, 18 months. I agree. We're getting positioned for that and create a little more, you know, a predictable type of, you know, capital process. Yeah. You know, and with higher interest rates, it's a little trickier these days to count on low interest on a per, on a per loan 12 months from now, which

 

Jonathan Davis

00:06:31

Is more reason why Yeah. You win when you purchase it. Right?

 

Hunter Bick

00:06:34

Absolutely. Yeah, absolutely. You know, and so obviously the, the lower the basis, the, the more money you're gonna make and it really is that simple.

 

Jonathan Davis

00:06:44

Yeah. I wanted to go back, you mentioned debt stack. So for everyone that doesn't know what debt stack is, you have your primary, like first lean position loan, which would be, you know, just your, your, what you would normally get. And then on top of that, you can get mezzanine debt, which can be secured by a second lean or it could be unsecured. And then on top of that you can give up. You, you have equity and then there's multiple levels of equity that you can give up and that just gets, you know, higher and higher. So that's, that's what a debt debt stack is.

 

Bill Fairman

00:07:17

I I call that a wallet full of credit cards. That's my

 

Jonathan Davis

00:07:21

Well, and that's how a lot of people

 

Hunter Bick

00:07:22

Use a lot of those on the way too.

 

Jonathan Davis

00:07:23

Yeah. That's how a lot of people do this. I mean, like, when you're buying five, 10, 20 million properties, like no one's really using their own money to do that typically. Now they might use some of their money, but typically people don't have $5 million to just say, Hey, let me put it here. And because that, you know, even if they have $5 million, you wouldn't do that. So you want to stack your debt with, you know, mezzanine or, you know, whatever the case may be. A as Hunter said, like their, their whole goal has been to try to avoid giving up equity and you know, why? Well, that's allowed them to capitalize on the back end, on the exit at a higher return, which then, like he said in the previous show, he took the earnings from Applewood and 10 31 them into another project. So it allowed them to buy more assets. It allowed them to scale.

 

Bill Fairman

00:08:22

And, and as markets change, we, we are in a higher rate environment as well as an environment where credit's gonna be a little tighter for the institutional type blenders. So you have to take on a few more equity partners in order to get these same deals done, because the fact that they're going to be a little tighter on the credit means that they're gonna lend less money on it. Yep. If you do go the mezzanine route with a larger gap or a larger percentage of that, those rates are typically a lot higher. Correct. You're almost better off having an equity partner to fill in that gap than the, than the mezzanine financing am I

 

Hunter Bick

00:09:04

Agree. Well, it, well, well, depends on a couple. I, I would agree or disagree depending. Right. Every deal is different. Absolutely.

 

Bill Fairman

00:09:12

Every situation

 

Hunter Bick

00:09:13

Is different. Absolutely. How long, how long do you need the Mezz debt? Right? Yeah. And or you know, if it's a longer term for construction project on a bigger asset and you're gonna, and you wanna, and your options are take some equity partners versus loaded up with 10% debt, but it's an 18 month project that 10% debt's gonna be expensive for 18 months. Right? Yeah.

 

Jonathan Davis

00:09:32

And so how long can you negative carry?

 

Hunter Bick

00:09:33

Exactly. And so you gotta, you gotta factor the negative carry in and all of that. And so equity partnerships become, they become less risk if something goes wrong, you can bring others in to profit along with you, you know, it's important to align incentives at all points, by the way. Yep. That's a huge thing for us. But yeah, so the, and the other thing too, in to your point Bill, and today, today's debt markets, even a year ago, nine months ago, you could get bridge debt for, in the fives five and a quarter, five and a half for 80% of the purchase and a hundred percent of the construction today, that quote is 75% of the purchase, 75% of the construction, and it starts with a nine, right? Like it might be nine and a half. So different types of debt are appropriate depending on the market. Hard money at what, 11, 12? Where are you guys right now? Yeah, something like that. Between

 

Jonathan Davis

01:10:23

10 and 12.

 

Hunter Bick

01:10:24

Yeah. Okay. Hard money is now all of a sudden really, really cheap because there's no alter. Well if you're gonna go 75% on bridge at nine and a half, why would you not go a hundred at 11? Like that's a no-brainer. Right. And so, not to mention you don't have the breach debt org structure and all the crap that comes with it. Yeah. So that's, you know, that's a tool that has become more attractive right now For sure.

 

Jonathan Davis

01:10:50

Well, yeah. When, when you break it down, I mean, someone's gonna do 75 and 75, so 75 of the purchase, 75 with a re that means you have to bring 25% of the costs of the total cost. So typically you're not gonna have that. You're gonna have to either get mezzanine debt or equity, and typically you're gonna give up equity and what is that equity gonna cost you? So when you're factoring this, you're factoring, okay, I'm paying nine for 75% of the cost and then this equity's gonna cost me X amount. And if you can get 95 or 90% loan to cost on, on hard money or private lending at 12 or 10 or whatever the case may be, when you run those side by side, a lot of times the private lending is the cheaper option in the long run. But again, it comes down to the carry. Can you, you know, is there a negative carry? Is there a lease that period? Do you have to get out all the units, you know, flushed out and then rent them all? Can you rent em them as you go? So each one is different, but I will say it debt is always cheaper than equity.

 

Bill Fairman

01:11:58

Well, yes, I, I totally agree with that. That's what we talk, we talk to people about that all the time. Why do you get a, a money partner who's gonna take half of your equity when you can get a hard money loan and spend, you know, five, 10 grand worst case scenario on your financing on a, on a home Yeah. Scaling. You have to have good systems and processes in place. Do you wanna absolutely. Talk about any, how you guys are doing it?

 

Hunter Bick

01:12:28

Sure. You know, so I mean, for us, everything starts with, you know, a goodbye. Right. And so, you know, we probably model a hundred deals for every one or two that we buy. I mean, we're super, and, and everything's off market too, so it's not like we're, you know, modeling deals that are on LoopNet or Right. Publicly listed. Like we don't bother

 

Jonathan Davis

01:12:47

Except that first one.

 

Hunter Bick

01:12:49

Well, yes, except that first one. But, you know, so, you know, so, so has to start there and like, you ha you just have to be, you have to stick your guns and you have to be super selective because it's very easy to like go through your spreadsheet model and say, Okay, well I think I can whittle the, I think I can get this rental done for 10% less and oh yeah, I think I can get 10% better on my takeout loan or a little bit better leverage. And before you know it, you've just, you know, inch your way, you talked yourself into doing a deal that maybe you shouldn't be doing. Right.

 

Jonathan Davis

01:13:19

You've modeled a unicorn situation that probably won't

 

Hunter Bick

01:13:22

Happen. Exactly. Yeah. So we try to, we always, I always try to say, I mean, everything be is a probability again, you know, so what's a range of probabilities for each piece of the process? What's the average, what's the worst case? What's the best case? And if you know, kind of that between average and worst case, if something like that still works, then it, it's, it's gonna be a great deal. If things can go wrong and you still make money, it's gonna be a really good deal.

 

Jonathan Davis

01:13:47

Do you, when, when you're modeling this, do you stress test them at higher cap rates on the exit? Do you, you know, like let's say like, you know, Charlotte's trading on a B level asset, I don't know, a six cap, do you stress test them at a, at a different cap rate? Or kind of what do you do to to stress test those, those models?

 

Hunter Bick

01:14:07

Yeah. So the way we kind of look at it, we're less worried about the cap rate because the, the, the, the end result, because we're not doing, we're not doing a new construction, right? We're, we're doing B and C value add and so on, on the takeout. If it's, if, if it's a sell, the NOI is really what's gonna matter, right? That's gonna drive it. And you know sure. If, if, if we have to have a five cap on the finished NOI in order to make any money, like no. Right? Like, I mean, come on. But, so if we're gonna make money at selling it at a seven, it's probably a great deal, right? Yeah. For us, we always wanna see what can we refinance at that? Can we do a cash out or would a refi require cash in? That's what we never want to do. Always. You always wanna cash out or cash neutral worst, you know, worst case for us. And, but the cap rate's not the constraining factor there. The, the cash flow is especially in a low cap rate market like Charlotte, right? So, you know, so yeah, we definitely look at different exit scenarios, like what happens if there's some, if the expenses are actually higher than we're projecting, what does that do to each scenario? But we always wanna have multiple exits. We don't wanna be locked into a one path.

 

Jonathan Davis

01:15:20

Yeah. And we, you know, for the people out there, if you're working with syndicators or other people who are doing this, you know, that's what you want to be savvy about is understanding the net operating income, understanding that there's a difference between the acquisition capital capitalization rate and the operating capitalization rate and the exit capitalization rate.

 

Hunter Bick

01:15:40

Yeah. Lemme talk about that real quick. Yeah, go for it. So the acquisition cap rate is I think, a huge misnomer, right? That matters a lot if you're buying a stabilized asset. Like if you're buying an A and you're buying this thing for the cash flow and you're buying it for, you know, market appreciation, call it the going in cap rate does matter. Anything else, like value add, the cap rate means nothing because the whole point is you're buying something that's already distressed. Yeah. So we've bought zero caps, like a, an empty property is a zero cap, right? Yeah. We've bought one caps because the financials were so bad, right? Yeah. That, that means nothing because all we care about is what's the cap rate after we renovate, stabilize, you know, improve the operations, What's that cap rate? Exactly. Because that's what, that's what matters. Yeah. All, all in on, all in on cost. So those

 

Bill Fairman

01:16:29

Of you in the single family fix and flip business, it's basically what's the place gonna be worth after the repairs your thing? Same, You're not buying a, a property because it's, it's valued at what, what it's the sales price is. That's not why you're doing

 

Jonathan Davis

01:16:44

Yeah. Yeah. And, you know, just to, to beat the dead horse here, I mean, we've, we've, you know, Hunter and I've had, I don't know how many hours of conversations about cap rates, but

 

Bill Fairman

01:16:54

I got feeling there were adult beverages involved

 

Jonathan Davis

01:16:57

Maybe on some of them. Yeah. Yeah. But yeah, it's like people don't understand like what's the most important, is the most important or two things, and Yeah. Excluding if you're buying like an A level asset, which, you know, like that's not what we're talking about here. It is your operational cap, right? What, what is your yield, what is your cash flow? And then what can you, what multiple can you sell that asset for? Those are the only things that matter. Not, it's like, well, I can't buy it, it's a four cap. It's like, that doesn't matter. I mean, if, if you're gonna be putting in $600,000 and raising the rents 200 per unit four cap doesn't matter.

 

Hunter Bick

01:17:38

Exactly. No, exactly. And that's the key thing a lot of people get tripped up on.

 

Bill Fairman

01:17:41

Now, as Jonathan was saying, if you're involved in a syndication, you're a passive investor in this syndication, what is it you would like more the sale of the property and get a big chunk of change at the end, or a refinance at the end of the out, and you get a big chunk of change. What's more beneficial

 

Jonathan Davis

01:17:59

Depends on where you are

 

Bill Fairman

01:18:00

To the investor.

 

Jonathan Davis

01:18:01

Well, it depends on what you are. So if you,

 

Hunter Bick

01:18:03

How good was the buy? Yeah.

 

Jonathan Davis

01:18:04

How good was the buy? Like, am I willing to pay the, the capital gains on the, on the sale if the buy was good, or would I rather take the no capital gains on a refinance cash out? So it depends

 

Bill Fairman

01:18:18

That, that was my point. If you get the same amount of money on either end, and if it's a refinance, it's tax free.

 

Jonathan Davis

01:18:24

Yeah. So yeah, that is true. So if you were an equity member on this property, that's, that, that refinances that is a cash or a tax free transaction that you get. But again, as Hunter, you know, pointed out as someone who does this, what am I selling it for? What did I buy it for? Right. You know, I, I might not mind to pay the taxes if it's

 

Bill Fairman

01:18:44

At, at the same time, if you're getting a capital gain during the process, you're probably also have some passive losses that you can also add Dang. To them.

 

Jonathan Davis

01:18:53

Exactly.

 

Hunter Bick

01:18:53

And the cash out refi for us, I mean that's, that's how we, that's along with, you know, high leverage on great deals. The cash out refi is how we got here. I mean, the cash out refi is the best thing ever. It's non-taxable. You get all this cash back as long as the property can support the new debt. And if it can't, then you haven't done your job. Right. But it's tax free dollars to go do, do go do more deals. And that's, it's, I don't know how many great cashout we're gonna see for the next 18 months, but thankfully we got most them done. But Yeah, prior to now,

 

Jonathan Davis

01:19:27

Not on the ones that bought Yeah. You know, Yeah. Two years and less ago. I mean, that's, that's gonna be tough.

 

Bill Fairman

01:19:32

I don't think the cash out's gonna be the issue. Is it, will it support the loan? New loan?

 

Hunter Bick

01:19:37

Yeah. Well it's, yeah. I mean, the ca you can, the cash out still exists. It's just not gonna be as good.

 

Jonathan Davis

01:19:41

Yeah. The, the debt service coverage ratio is gonna be a big issue for, you know, and that's just how much does gross does the property make? And then how much does it spend on interest principle taxes, insurance, and any HOA fees.

 

Bill Fairman

01:19:55

But it's not the end of the world either cycles or just that they're cycles. Would

 

Jonathan Davis

02:20:00

You say that cycles are cyclical? Yeah. Yes. Okay.

 

Bill Fairman

02:20:04

The lower rates will come back around at some point.

 

Jonathan Davis

02:20:07

Yeah. Yeah. I mean, yeah. I mean, like I said, you know, talking with different people, I mean there, there's some people who think that, you know, it's all over. It's, yeah, it's all over. And for the next 20 years it's just gonna be, you know, a blood bath. And then there's some people who think, Oh, you know, January of next year fresh start, we're gonna be great. And you know, I think neither one of those are right. I think we're between those two where exactly. You know, that's the question. But, but yeah. I mean, when we talk about scaling, like right now, in the next 18 months, are you excited about scaling or are you nervous? What's your thought process for the next 18 months? We're

 

Hunter Bick

02:20:47

Always excited. Yeah. You know, I think for, for different reasons, depending on, you know, what the market gives you. I mean, you have to be able to adapt to what the market gives you. Right. No one's smarter than the market, and I don't try to pretend that I am, but I do try to be prepared for different eventualities. And so, you know, right now it's harder, debt is more expensive, it's harder to get that huge cash out after the value add period. Yep. Okay. No problem. So the, the move there is probably more equity, a little less debt on, on, on the buy simply because you don't know when you're gonna be able to get to, you know, 4% per debt again. Yep. That could, that could be a while. So bringing in equity investors to participate is, is, is, is, is, it's a good way to handle that.

 

Hunter Bick

02:21:35

Staying, staying sticking to our guns on good buys is more important than ever. Yep. And maximizing the value of the properties. You do have, I mean, we're still an 11% rentre renting Charlotte's environment and Charlotte, even Fayetteville, seeing huge fayville, seeing huge ones. So as owners of multifamily real estate, you know, that for properties are already in low interest debt that is going to benefit us if more cash flow from those, it allows you more, you know, buffer, you can deploy that toward new deals. You just have to, you can't assume that what you did before is gonna work forever in any business. Yep. Especially this one. But you

 

Jonathan Davis

02:22:12

Just, you just adapt the dumbest sentence in the English language is that's how we always have done it. Isn't,

 

Hunter Bick

02:22:18

I think that's Oh, it's terrible. Yeah. Yeah. Like, you know, you have to, you just have to be realistic about, well,

 

Jonathan Davis

02:22:23

We talk about pivot, and you have to be able to be nimble and pivot. I mean, so to back up on the equity piece that Hunter was talking about, why is that so beneficial and how can that help you scale? Well, equity, true equity, if, if you're giving up equity as like a, an lp, which is a limited partnership, so you have a general, general partner, and then you have a limited partner. When people invest into multi-family as an equity member, they've become a limited partner. And the general partner is the operator would be, you know, Hunter in this case. How does that help you scale? Well, the debt is a fixed monthly or quarterly or however it's, you know, amortized, it's a fixed payment and that payment is the payment, and it is every month or every quarter with the equity, you can set a lower preferred rate of return with your equity members.

 

Jonathan Davis

02:23:13

Like maybe they're okay getting 4% cash flow over the life of the, the project because they're going to get depreciation and maybe that depreciation equates to an 8% return on top of the four, and that gets 'em to 12. And then there's a, you know, a backend equity piece that they get and it jumps into 20, like a 20% irr. So, you know, like there's, that's the way to do it. It, it helps you on the cash flow, it helps you manage that asset while you're working on it and while you have it in your portfolio. And it gives them a benefit, you know, they get some money, they also get a tax benefit, and then they get a back end benefit.

 

Hunter Bick

02:23:52

And it also allows you too, to, you know, one thing we always do, incentives are super important. You know, you want s to be a hundred percent aligned. What we typically do is, you know, we waterfall the equity, in other words, so like outta the gate, our investor would have, like, we did one where our investor had 99% of the equity until we performed. We have no problem with that because we knew we were gonna perform and then they're protected in case something goes wrong. And I think that makes a lot of sense, and we're more than happy to do that. Of course, once a threshold is met, well then the equity changes. But everyone's made their money at that point.

 

Jonathan Davis

02:24:23

And so, and anyone out there syndicating deals right now where you're an lp, is your GP willing to give you 99% of the, the equity until they perform? If they don't, maybe you should visit elevate capital group.com. Appreciate,

 

Bill Fairman

02:24:40

And keep in mind too, multifamily is vet as recession resistant as you can find. It's residential in any economy. Again, you need two things, food and shelter and

 

Hunter Bick

02:24:51

The foreclosure rate for B and c multifamily in peak financial prices, 2009 was less than 1%. I mean, yeah, that's, yeah, that's about as good as it

 

Bill Fairman

02:24:59

Peak need a place to live.

 

Hunter Bick

02:25:00

Nothing is bull, nothing is perfect. But yeah, multifamily, real estate's pretty

 

Jonathan Davis

02:25:04

Resilient. 1%. And you'll, you'll play those all the time,

 

Hunter Bick

02:25:06

All

 

Bill Fairman

02:25:07

Day long, just like the base.

 

Hunter Bick

02:25:08

Exactly.

 

Jonathan Davis

02:25:09

Yeah.

 

Bill Fairman

02:25:10

All right folks, thank you for joining us on the Real Estate Investor Show. We are Carolina Capital Management lenders in the Southeast for professional real estate people's. If you have a pr, if you have a project you'd like us to take a look at, go to carolina hard mini.com, click on the plan out tab. If you are a passive investor looking for passive returns, go to the Accredited Investor tab. This is a great show. Thanks again, Hunter, for being our guest today. And we guys, we, we will see you next week. Thanks.