The Real Deal Real Estate Show with Larry Harbolt

Alan Cowgill is one of the leading experts in the private money space and he teaches people how and when to use private money to finance their real estate deals. Not everyone has access to a bank’s money, so it’s important to know how private individuals can help you fund your real estate deals.

In many ways, private money can be a real win/win/win situation for everyone involved. You can get your deal funded, the seller gets their property sold, and the lender can get a much better return on their money than they would with their existing portfolio.

The process can be very simple, and you don’t need to be a licensed mortgage professional in order to borrow private money. Basically, the private lender becomes your bank and imagine how that can change your life and the way they do business.

Private lenders aren’t in the business to loan money like money lenders, and they don’t ask for your credit report. They loan you the money and wait for a bigger check, trusting you to take care of things. When you raise money in this way there are also other ways to use the money as long as you make sure the lender is protected.

Every once in a while you will need money, and it’s always better to use someone else’s money. Private money can help you get deals that would otherwise be impossible but it’s key that the lender trusts you. When money is a phone call away, you can close real estate deals faster and that can give you a major edge over your competition.

There is one big difference between hard money and private money, hard money is where the lender sets the terms and private money is where you set the terms. Alan has a simple process that he uses to find new private money lenders where the big focus is in the follow up. 60% of your money will come from follow up. Alan shares his proven scripts that will put you miles ahead and can put millions of dollars into your bottom line.

Give Alan a call at 937-390-0816 or by email at [email protected].

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Not very many people take the time to think about the positives and negatives about financing. The generation that grew up in the shadow of the depression learned that living on credit can have terrible consequences, but people today are more in debt than ever. Which one is right?

The answer is somewhere in the middle. Using credit can be a good thing, but it can also be a bad thing if it’s used improperly.

When I first heard of hard money loans, I thought they were highway robbery but after speaking to another investor I realized that hard money loans have their place, you just have to know where and when they make sense. Hard money loans are meant for the short term and when used right, can generate more profit than the cost of the loan. When used right they can be a wonderful tool, but only if they are applied properly.

Lots of very successful entrepreneurs have built their empires on credit, that is to say debt. Debt allows them to buy skyscrapers and factories, things that they never would have been able to buy if they were just saving up their money. Robert Kiyosaki, the author of Rich Dad, Poor Dad, said that wealth is built on good debt and I have to agree. But you have to be careful when it comes to debt, bad decisions in businesses that are leveraged with debt can lead to losing everything that you worked to build.

There are a lot of different options for financing, but understanding the pros and cons of each is critical. Traditional financing has its place, but come with a lot of conditions. Hard money loans and private money are good in certain situations but not in others. One of the most important types of financing you can understand is owner financing. The best piece of real estate in the world can become the worst piece of real estate in the world if you have bad financing.

Understanding the financing you can use makes a massive difference in the profit you can make in your business. If you don’t have to use credit cards for lifestyle money, don’t. Wait until you have the cash flowing properties to pay for the lifestyle you want. If you can master owner financing, you’ll find that the profit margins are so much greater because you can come up with a deal where both parties get what they want.

The biggest take away is you have to know what you’re doing with financing if you want to get the best deals and create the lifestyle you want for yourself and your family. So master seller financing and start building a business that does just that.

One thing will always improve your success rate when buying real estate. Every time you sit down to have a face to face conversation with a seller, you must ask yourself the following questions:

“Did I take adequate time to build an adequate rapport with the seller?” You’re not going to have a very successful negotiation if the person on the other side of the table doesn’t believe in you.

“Did I find out why they are selling?” Without that reason, you’re going to have a difficult time negotiating. How can you know what to provide if you don’t know what they need?

“Did I determine what the highest and best use of the property really is?” Are you going to flip the property wholesale or retail, or alternatively, are you going to rent it out long term? It’s going to be one of those three and you must figure out what the best option is.

“Did you find out what the sellers really want?” Maybe you can give them what they want, but you will never know if you don’t ask.

“Did I find out what they need the money they are asking for?” If you find that out, maybe you can solve their problem a lot easier.

“Did you find out where they want to go?” If you know that, maybe you can help them buy a property or move into the area they are looking at.

“Did I do a thorough inspection of the property for repairs?” If you don’t do that, you are going to be sorry later if you end up buying that property. Even if you have to bring in a contractor to give you that quote, you need that info in order to make a good buying decision.

“Did I thoroughly explain why I need terms that will allow that property to work for me?” If you’re going to rent out the property, it has to pay for itself from the rent it brings in after expenses. To get that you have to get a payment that will cover you costs and allow for cash flow.

“Did I give the seller several options to buy their property?” Cash is not the only thing that people want. Once you know what they want, you can present several options that will help the seller get exactly that.

“Did I thoroughly explain each of your offers and how it will be good for them?” There are a lot of advantages that seller financing comes with but you may have to lay them out for people to see them.

“What offers did I make?” If you have access to funding, did you offer all cash? Are there other things other than cash that you can also come up with? There are hundreds of ways to structure an offer that can make it better for you and the seller, but you have to know what they want.

Never leave until you’ve exhausted all your options and you will have considerably more success in your real estate investing career.

A lot people say they need to have a partner in order to run their business. While there are people out there that can make a good partner, you have to be very careful about who you trust with your business. There are a lot things that can make a partnership go south and when that happens, that usually means big trouble.

I’ve had three partners over the course of my 40 year career in real estate investing and in all three, the partnerships eventually went bad. So bad in fact, that with my first partnership I basically lost everything I had worked for and built. The biggest lesson I learned was that you have to get back in the game, even after a major failure. You’ve only truly failed when you give up.

And a partnership failure can happen to anyone, even the experts. You can structure great deals and build a great business, and all of that can still fall apart if the partnership doesn’t work out.

It’s important to remember that just because you don’t know what you’re doing, that doesn’t mean you need to take on a partner. If you start with smaller deals and gain the experience you need one property at a time, you become more resilient. You will build a business slowly that’s more robust and less likely to fall to pieces just because one of your partners back out.

If you are going into a partnership, there are a few things you need make sure are in place. The first thing is a written contract, you must have everything in writing. It protects you as well as your partner and lays out what everyone involved is responsible for. Make sure everyone is compensated for what they bring to the table and keep the conversation going. Don’t hide if something goes wrong and stay in contact.

The bottom line is if you say you are going to do something, then do it. The same goes for any partners you work with too.

There are a lot of things you need to know about before you can do a subject to deal. The first of which is you have to know what the term actually means. Subject to is by definition simply a disclosure to any exceptions to a free and clear title. You also have to understand that the terms that you create with the seller in your deal, has nothing to do with the lender.

There are a number of court cases that have established that subject to deals can’t be considered fraud. Another important aspect of subject to deals is that many investors use a unique structure called a Land Trust to get them done. A Land Trust is a special version of the trust that only holds the title of a property and is a simple way to keep the title out of view of the public.

The biggest risk of a subject to deal is for the lender to call the loan on the property, but in all the years that I’ve known of investors doing these kinds of deals I’ve only seen a couple get called. It’s rare but it is a risk that you have to be ready for. Keeping that in mind, one of the most difficult parts of your subject to deal may be just finding an attorney that understands the Land Trust and will help you close the deal correctly.

For most subject to deals there is a loan balance on the property and attorneys will usually tell you that you need to pay off the loan first, but that’s just not true. There are ways to structure the deal without paying off the existing mortgage, which is the main focus of the Land Trust class, an event I hold a few times each year.

If you’re going to be a good investor, why would you want to come up with the money to pay off the first mortgage if you don’t have to? As long as you understand the risks, doing a subject to deal is an established way of getting a deal closed. So find an attorney that understands a Land Trust and what you’re trying to do if you’re going to do subject to deals.

Too many people skip doing the math before they jump on the short term AirBNB rental properties and the numbers are critical. If you don’t do the math before you buy you could end up with a property that only costs you money. Do not base your buying decision on what you can supposedly rent it out at with AirBNB.

If you’re going to buy an AirBNB property, don’t use the AirBNB rent to make your calculations. Instead, think of it as a regular rental property, because there are a lot of factors that could cause you problems if you rely on AirBNB to make that property profitable. You especially have to know the area, not all cities make sense for the short term rental market.

The trouble is AirBNB’s are hot right now and people have stars in their eyes about how much money they are going to make. Never listen to the dreams, do the math and find out for yourself what the realistic numbers are going to be. Each rental property is a business unto itself, so make sure you run it like a business. If it can’t pay for itself, don’t buy it.

You also have to consider that no property is rented 100% of the time. The tenant will always move on eventually, and with short term rentals you have even more turnover and less guarantee that it will be rented at any given time. Combined with possible noise complaints, property damage, and cleanup issues, short term rentals are more involved than most people think. Just like a regular rental property, you should screen your tenants and make sure that you always follow the laws in your area.

Sometimes you also have to manage your property manager. Just like your tenants, you have to do your homework on potential managers to make sure that you find someone that will take care of your property right and not take advantage of you.

Getting started in real estate investing can be hard, especially if you don’t know what you’re doing or have someone to show you the ropes. When I got started, I made a lot of people angry by making low ball, all-cash offers. I quickly realized that if you don’t know the numbers on a deal and you make an offer on it, you’re a fool. Throwing dollars at deals doesn’t guarantee you’ll make money.

People want to buy based on price but that’s a surefire way to a bad deal. You have to get face time with every seller and ask them the important questions about their property. You can do much better making creative offers to sellers that help them get what they want instead of just offering cash.

Not everybody has someone behind them that is willing to lend as much money as they need to make a deal happen, and it can actually make your deals worse. Solving the seller’s problems is a much better approach. You can make a lot more money by leveraging what you have and figuring out terms that work for both parties.

I see things totally different today. When you talk to a seller, learn what the seller wants and try to come up with several solutions to those problems. Always make an offer and don’t let the broker get in your way. Even for sellers that want all cash, there are strategies you can use where you don’t have to put the cash up front like writing a note for the property. There are creative ways to get a deal done that make everybody happy, you just have to think outside the traditional box.

Don’t make the mistakes I made, make your own mistakes. Even better, learn from the mistakes of others so you don’t have to learn things the hard way.

People are always asking “why don’t you talk about selling properties?” The reason is you have to acquire properties before you can sell anything. Let’s not get ahead of ourselves. If you don’t own anything, how are you going to make a profit?

Once you become good at buying, that’s when selling strategies become important. Being a profitable seller is also a collection of strategies and techniques and that’s the topic today. Your plans for a property are the most important because the numbers calculate differently depending on your goal.

When you buy a property, you have to think about what the highest and best use is going to be. If you don’t know that, how are you going to know how much to pay for it? You’re not in business to lose money, you’re in the business to make money. The repair costs matter, the appraisal matters, holding costs matter, they all impact your calculations and ultimately your profit margin.

Your selling strategy is very important. Are you going to sell for cash? Financing terms? Are you going to hold the property and rent it instead? Each selling strategy has to be assessed differently because they change the numbers involved in the deal. You should also know your exit strategy before you’re going to buy.

When you know your selling strategy and make those calculations, you won’t be buying as many properties but the ones you do will actually make you money. Be realistic with your sale price and make sure your buyer doesn’t go out and buy a new car before closing the deal. If you’re going to sell your properties, you must get to know your buyers and make an offer that gets them as much of what they want as you can.

People are always asking “what are the steps to be a successful investor?” Well, the good news is there are 9 steps that you can take to accomplish exactly that. One of the biggest lessons you can learn is that procedures are critical to your success. If you follow the procedure, you will find success.

You have to find deals that others aren’t seeing. Everyone looks in the Multiple Listing Service, but the deals you can find there are all the leftover properties that really successful investors have passed up. Rental property opportunities in the price range where the majority of the people living in the area could afford is what you should be looking for and you have to do your research beforehand.

Find out everything you can about the owner and the property before approaching them and before you sign anything, make sure you can bring in a contractor that can assess how much the repair costs will be. You will need that information to negotiate with the seller.

You have to figure out the highest and best use of that property. Talk to different property managers in that area what that property should rent for. Those numbers will determine what you will be able to pay for that property. Once you’ve done that, you can look on MLS for similar properties to understand what the price range for the property is.

Next step is to run your formulas, there are 8 formulas that you must use to figure out what you can offer for a property. Then look at other houses in the area and take pictures of the features of those houses. You can make your prospective property more enticing to renters by adding some nice features that make the home stand out.

Once you’ve done your research, you should ask the seller what they really want. There are a number of ways to make an offer that allows everyone in the deal to feel like they’ve won. When you get the purchase agreement signed, it’s time to close the deal. However you are going to finance the deal have it lined up before you even make the offer. Make a copy of your purchase agreement and take it to your title company, then make sure that the closing is progressing. Contact them every few days and stay on top of them.

Finally, never stop building your cash buyers list and never stop marketing. If you are buying property to wholesale, you need cash buyers. Never stop looking for opportunities and always make an offer on every property you look at.

When Larry first got started investing in real estate he had nothing and had to learn everything in the school of hard knocks. Hear the tale of one of Larry’s first deals and how he purchased a property without having any money. It was Larry’s first exposure to creative financing, he figured out what they wanted and found a way to give it to them.

When putting together the terms, Larry only knew that he had a deal on his hands, not whether or not he had a good deal. That’s why it’s extremely important to know what numbers matter to the deal before you sign anything. Just because you can buy a property at a “good” price, that doesn’t mean you’ve got a good deal on your hands.

One of Larry’s biggest mistakes has made and sees other people making is doing their own rehabs. Instead of doing all the repairs yourself, you should negotiate the price so that you can afford to hire a contractor. Remember, your time is worth something. Don’t just throw it away. You don’t make money swinging a hammer to save $12 an hour. Take a licensed contractor with you through the property before you make an offer.

Too many people throw dollars at deals and fail to factor in holding costs to their deals. Things like the mortgage payment every month, the property taxes each month, property insurance each month, and other monthly fees. If you don’t factor those into your buying decision, they are going to come out of your profit check at the end. It’s going to take at least 4 to 6 months to rehab a property, don’t fool yourself.