EP NNA 4 – Building Relationships Equals Raising Private Capital In 2018

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NCS NNA 4 | Raising Private Capital

NCS NNA 4 | Raising Private Capital

Raising private capital doesn’t happen overnight. It is a process that begins with building relationships with people around you. This networking move also creates value for the product or service that you are offering to the client. Integrity and authority comes in when you start sending hello letters to your database, sharing case studies that show you know what you’re doing. Marketing yourself online is also another way of raising private capital, so having a professional looking LinkedIn account can really step things up for you. Learn the importance of doing your due diligence up front and knowing what your number looks like.

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Building Relationships Equals Raising Private Capital In 2018

One of the great things about this episode is it marks a new thing that we’re doing. We’ve been doing these now almost non-stop for over two years. We’ve seen a lot of great things coming out from it. We’ll continue to do these on a monthly basis for the most part. This episode’s topic is always one of the biggest things that people ask to get more information. How do they raise capital? How do they do things more efficiently? How do they do things legally? It’s one of the things that surely comes when raising money or raising private capital in the New Year. How do we do things right to begin with and make sure we don’t mess up when doing some things?

I’m really excited that Quest IRA not only has a special going on, but they’re actually official sponsors of our Note Closers Show Podcast and of Note Night in America. They’ve got a special thing they’re running for our students. If you don’t have an IRA, shame on you. One of the biggest things that a lot of people look at is a retirement contribution. If you look at specifically what has happened with the market dropping, basically all the growth in the year, if you look at what Bitcoin has done in the last 90 days as well, the ups and downs. You owe it to yourself to start putting things into a self-directed IRA account so you can start doing things and stocking money away like I do. A lot of successful people do it. Quest is doing this amazing special. You can go out and open a new IRA, whether it’s a traditional or Roth, an ESA, an HSA account. If you open a new account, it’s going to cost you $100 in fees. If you open up any subsequent accounts for your wife, your husband, your kids, your grandkids, if it’s in the household there for you, they’re not going to charge you at the time. You can open all at once, but they’re going to waive their account opening fees if you open up more than one account. Open one account for yourself and anything else you open up, they’re not going to charge you. You have to do a couple of things. One, if you’re calling them to open an account, make sure you mention We Close Notes and WCN is the special code. If you’re going to go to QuestIRA.com and download this form, make sure you write at the top the referral source WCN because that’s the only way you’re going to get that extra free fee.

If you have not opened an account, I can tell you, that’s a great way to put $100 back into your account for your kids and for things like that. It would have been a fee, you drop that in, put a Benjamin in there, and start getting that money working for you. Big kudos to them for being willing to do that for February. I am pretty stoked that they’re sponsoring these. We are one of their biggest referral of new accounts each year and we plan on trying to make it number one for the most part. We want to be number one this year. It’s a true win-win-win, win for us, win for them, but also win for you. We’ll be helping out with more of their online strategies and help them with their education as well. You can always reach out to them at 1-888-FUN-IRAS. You can ask for Anne Marie, Rebecca, Ingrid, Beatriz, mostly accounts specialists, Haley, Alice. Reach out to them. They’re going to do a great job for you and you will not be disappointed. We’re at the point almost of them being the only self-directed account that we fund with because they’re so much easier to work with than others. If you’ve got any IRA with somebody else, you can reach out, open up a new account, and do a rollover. It will save you some fees.

We are over 50,000 downloads of the podcast. Thank you so much. We are actually at over 58,000 downloads. You can always listen to that on iTunes, Stitcher, Tune In, and Google Play Music, or iHeart Radio as well as some other things. There are lots of places for you to listen. As always, we’re looking to educate. We’re looking to help grow the note-investing community. Our five-year goal is to educate and create 10,000 note investors. One of the big ways that we do that is through these webinars, the podcast, and also through our workshops.

We do our Fast Track training. It’s filling up fast, I just want to let you know this. Steph informed me we’re down to one spot left for February 23rd, 24th, and 25th. Fast Track is three days of one-on-one coaching with us. We’re down to two spots left for the March one. The March one is the last one before our April Mastermind takes place in Cape Coral. We do have dates for the May one. Don’t hold me yet on that one, but I believe it’s on the 11th through the 13th. We do have three spots available. It’s filling up fast. RSVP now. It’s three days of one-on-one coaching; you plus a partner or a spouse. We’ll help put your note business into overdrive. Those that go through our Fast Track Training then they are able to attend our Note Mastermind meetings that we have. Our next Mastermind is going to be from Cape Coral, Florida at the beautiful Westin Resort, April 13, 14, and 15. As I found out, it’s the weekend before taxes are due on the 17th. We love being here at the Westin Resort. They do such a great job with everybody. It’s a beautiful resort, a great way to get away but still be confined in a beautiful place with 60, 70, 80 other note investors to really make things happen. If you’d like to talk about RSVP-ing your spot at the Fast Track or at the Note Mastermind, you can reach out to Stephanie Goodman, our VP of Operations at 512-507-5663.

NCS NNA 4 | Raising Private Capital

Raising Private Capital: If you’re not a financial institution, you can’t guarantee a rate of return.

Our topic is all about raising private capital in the New Year. What do you need to be doing, what should you do, what should you not do. Let’s start off with what not to do. Some news came out that would shock you a little bit. You should never be stating guaranteed rate. First and foremost, never guarantee your rates. If you’re not a financial institution, you can’t guarantee a rate of return. Do not say guaranteed rate. Never do that in your marketing. I’m also not a big fan of soliciting unsophisticated investors. That’s different than accredited investors. Sophisticated investors are people that have been through real estate, they’ve been through workshops, they maybe got an IRA. They’re people who’ve done some deals. They may not be accredited yet based on their income, but they’re definitely sophisticated. I’m not a fan of just going out and marketing people I don’t know, never met, or have nothing in common with them. Self-directed IRA investors that you pull from the county court, I roll into as being sophisticated enough to talk with them and have a conversation. Unsophisticated investors are people on your database that you don’t know and don’t have anything in common with them. I’m not a big fan of that. “I got a deal. Fund my deal.”

I definitely do not ever want to use somebody’s last $5,000 to $10,000. I see people raising capital from people out there and they’re taking on people that have given their last $5,000 to $10,000. These people are looking to the investors as a way to get out of the hole. That’s not a good sign. If you take somebody’s last $5,000 to $10,000, they’re going to bother you mercilessly. They’re also the ones that are going to get super suit-happy if anything goes right because they’re just not sophisticated. They just don’t understand the real estate side of things and that’s why I don’t want to deal with those people. This is why I’ve pissed a couple of people off who go, “I got all these investors. How about if I just help you raise capital and you pay me a fee?” “No. I don’t like to deal with somebody I’ve never dealt with before.” I’m not a big fan of that. Advertising to complete strangers, I’m not a fan of that. Some people would say, “Scott, you do these videos, and these videos go on Facebook, and they go on your YouTube and Vimeo.” It’s designed for my students. It’s designed for people out there. I use it to educate people on some things as well. I got one in the mail from somebody I had never known who said, “I was your investor.” I was like, “This is such bad crap.”

You don’t want to end up being like JW Warr. If you don’t know who JW Warr is, he’s this guy who’s been sentenced to fifteen years in the penitentiary for basically doing that. He was offering a guaranteed rate. He spoke at the Distressed Mortgage Expo. I can’t believe they had him speak there. He had already been indicted on 2010 for taking people’s money and not doing things with it like he’s supposed to be. That’s a big no-no. He’s taking people’s $10,000, $15,000. He didn’t want to deal with anybody who had more than $25,000. He came up to me actually and said, “Scott, can I refer you some investors?” “I’m good. Thank you.” He’s gone to jail because he was doing shady things. You can check it out by going to Austin American-Statesman and doing a search for JW Warr or American Note Warehouse. Bill Mencarow just posted an article about that from Paper Source as well. Don’t be like JW Warr. Don’t be shady. Don’t come across with shitty things. What got him is the fact that they indicted him, told him to stop doing business but he kept doing business for another couple of years doing the same thing. Don’t do that. Be smart. Talk with your attorneys. Talk with people. Don’t have a sign that says “Guaranteed 12% Return.” You should not guarantee anything. The minute I saw that, I was like, “I want to get as far away from this person as possible.” You’ll see stuff popup on BiggerPockets about American Note Warehouse. You may have done business with him. Just be very careful. A lot of people lost money with JW Warr. He’ll come, “I’m cool in the business” thing that he says. It’s just not a good thing.

Let’s talk about what you should do. Build relationships. That’s the number one thing. I was trying to play the Alabama song, “I’m in a hurry to get things done. I’m in a hurry and I don’t know why,” because I see this happen all the time. I see so many people would go to workshops, they’d come to the virtual or they go to an expo and they come home and they’re trying to get everything done at once. It’s not going to happen overnight. If you’re going to be raising capital, you want to build relationships with the people around you. It’s a different story if you already have pre-existing relationships with people. I still am a big believer that the three-touch approach is still good to do. What’s the three-touch approach? The SEC used to require to have a pre-existing relationship, that you knew the person beforehand. Everybody’s required to have a three-touch approach. Have you met somebody at a real estate club was the first touch. The second, you went to have coffee with them. The third touch, you started talking about some deals before you asked for money or you met them several times and networked. That was the three-touch approach that the SEC used to have. They did away with that recently with the JOBS Act and everything they’re doing with the crowdfunding laws. I still believe it’s one of the best ways to do it. It’s building a rapport, it’s building relationships with people that are going to be much longer than just “Fund my deal.”

You have to avoid the “I don’t know you but fund my deal now” marketing that I see. I’m a big advocate of marketing. I’m a big advocate on you emailing out to your database on what you’re working on. What I’m not a fan of is people sending email out to me like, “Fund my deal.” That’s not what I teach. That’s not what I tell people to do. You have a database, send out, “Here’s what I am. Hi, this is me,” your hello letter. “Hello, is it deals you’re looking for?” Your hello letter is your first thing. Your second deal is maybe some case studies you’ve done, some relationship-building. “Here’s what you’re looking.” “Here’s what we’re looking for.” “We’re looking for deals.” Those are the things that you want to do. What is frustrating is when people that really have been through a workshop, “I need funding right now.” That doesn’t work. I’ve booted people off when I see things that don’t make sense like that. You have to network. You also have to look at marketing. You’ve got to have a website these days when you probably used not to. You’ve got to have an updated LinkedIn profile. If you don’t have those things, it really doesn’t work in your favor. You’ve got to be in this world of full disclosure, you’ve got to be online, you’ve got to have a website, you’ve got to have a LinkedIn profile that looks like it makes sense for you. You can’t be shady. It’s all about telling your story, especially when it gets around to where you’ve talked with people for a while. Discuss previous deals. Discuss case studies. This is why one of the biggest things that we do with our virtual workshop is give some case studies for you to take a look at, so you can talk about these with potential investors. “Here are the types of deals that we do, and here’s the deal that falls in that category.” Tell the story. Be a storyteller, not just “Fund my shit” story. Tell them what attracts you to the deal, what’s so great about it, what can go wrong.

NCS NNA 4 | Raising Private Capital

Raising Private Capital: You’ve got to be in this world of full disclosure. You’ve got to be online. You’ve got to have a website.

At the same time, you also want to interview your investors. You have to realize it’s a two-way street. Don’t be afraid of “what if” or “if the shit hits the fan” questions. “What if this happens? What if a flood comes?” “That’s why we have property insurance.” “What if a fire breaks out?” “That’s why we have insurance.” “What if the borrower stops paying?” “We have attorneys to foreclose.” The best thing you could do is literally have a prepared list of “what if” questions and be prepared when you’re talking to people. At some point, you’re going to have to answer those questions. It’s better to answer and tackle the elephant in the room if somebody’s got fears or is new to note investing than it is to try to avoid it. You never want to say a lie. This is where a lot of investors struggle with, it’s okay to say, “I don’t know but I’ll find out for you.” I see a lot of investors that make up lies and it ends up biting them in the butt because they just didn’t have the confidence to say, “I don’t know but I’ll find out for you.” Those six words, “I will find out for you,” will come in handy. “I’ll find out. Let me check into that. Let me talk to my attorney. Let me talk to my insurance company. Let me to talk to Scott. Let me talk to Eric. Whoever I need to talk to, I will find an answer for you.”

The most important thing you can also do is stay on top of your vendors. Talk about your vendors when talking with your investors. “It’s just not me that’s doing this. It’s my vendors. It’s Daniel Singer of the Singer Law Group. It’s Madison Management and Shante Duffy. It’s Harris Howard or the Harris Howard Law Group. It’s Franco Borelli out of Michigan, Ohio doing our contract for deed evictions.” Stay on top of your vendors but also share the fact that, “We have vendors that are doing a lot of this.” There’s a process to it. Oftentimes, investors, especially if they’ve funded a deal, are like, “Where are we at this week?” “It’s not week in, week out thing. It takes 30 days or 60 days sometimes. That can happen.” Communication is key and that’s why you’ve got to share that. You want to give regular emails, either use Basecamp.com or Dropbox. We have gone from using both of those to a Yardi system. It’s an online system that we’re using now and we’ve been very happy with. It’s taking some growing pains and we’ll be sharing that over probably the next 60 days with you once I get a few kinks worked out. It’s really a great system for sharing communication with our investors to see what’s going on.

You always want to alert your investors if something is wrong – fire, foreclosure taking longer, borrower stops paying. It’s best to alert your investors and it’s important because that builds a good track record. It also tells your investors, “He’s honest,” or, “She’s honest.” “That’s good. Awesome. Thank you for letting me know. I’m glad to hear that you’re on it.” Problems are going to happen. You can’t avoid problems. I will tell you that right now. Problems happen all the time with deals. It is what it is. You’re paid to be a problem solver. When you’re buying a problem note from a bank. It’s going to have some issues. The idea is that you have a solution, a backup plan one, two or three, depending on which way that loan goes. Set realistic expectations. I see a lot of people get in trouble when they set unrealistic expectations. They over-promise and then under-deliver. They’re only going to remember the best-case scenario. “You said I was going to make 50%. I only made 40%.” “You’re not happy with 40%?” “No, you said I’ll make 50%.” They only remember the best-case scenario.

NCS NNA 4 | Raising Private Capital

Raising Private Capital: Problems happen all the time with deals. It is what it is. You’re paid to be a problem solver.

I can’t harp on you enough as you’re doing your due diligence, add extra to your due diligence clause. Add a little bit extra in case something does go wrong. When you look at the case scenario and you talk about when you deal with an investor, “Here’s what could happen. The ROI is less than what it actually turns out.” There’s nothing better, especially if you’re on an equity split with a partner, than giving them a bigger check than what they expected. Hopefully they don’t expect it every time. Work to develop those relationships. Know your numbers. Also, don’t get over-analysis paralysis. Realize that sometimes not everything is going to go to foreclosure. Realize also that not everything is going to need a new roof. Know your due diligence. Know what your numbers look like. Know where everything is going to be and just know what’s going on. I can’t tell you that enough.

Something you want to keep in mind as well is trust your gut. Trust your gut. If you got a bad feeling about an investor, just say, “I don’t think we’re a good fit.” Avoid the PITA investors. PITA stands for pain in the ass investors. I’ll give you an example. If somebody has come to your office or you’ve gone to someone three or four times and you wanted to re-tweak everything, and then when you need funding and they know about the funding and they pull or walk away, don’t waste your time with them ever again. We’ve got a few investors who do that. “I need you to tweak these things specifically.” “Fine. What else do you need done?” “All right. Great. I need you to do this.” “Here we go. We’re ready to fund.” “I went with a better deal.” “What do you mean a better deal?” “Chance of a lifetime.” “Chance of a lifetime is that you’re never going to work with me again.” Avoid the pain in the ass investors. That’s one example.

Don’t budge on your numbers. What do I mean by don’t budge on your numbers? If you have an investor that agrees to a flat return on investment, that’s great. If it’s a flat equity split, great. If somebody is like, “I know we agreed to 50-50 of equity but I need to get 75-25,” don’t do it. If they say, “I want 12% but I really need 15%. Now I need also half of the money.” I had some guy come to my office and said, “I’m all good for it.”“We’ll split the thing.” He was like, “What return am I going to get on top of my equity?” I’m like, “What do you mean?” He goes, “I want 15% return on my money.” “That’s great. You’re not working with me then.” “What do you mean?” “I don’t have to pay that.” “That’s what I want.” “Great. I guess you’re not working with me.” Sometimes the biggest power trip that you’re going to have is to say no to somebody. I know when you’re starting off and you’re struggling, you want somebody to say yes and you can often be desperate. The thing to keep in mind is people can smell your desperate nature. They can feel it, they can sense it, they can see that you need to close on the deal. The best thing that you can do coming from a strong point is realize that you know your numbers, the deal makes sense, you’re giving them a potentially phenomenal return on their money later on if the deal works out well, which it should. There are other people out there.

What happens when people worry about this is they start budging the numbers because they don’t do as much marketing as they should. They settle for what they’ve got. They don’t do an email. They don’t do marketing. They haven’t built a database. Your wealth is going to be determined by your network more than anything else. Building networks is what builds value no matter what kind of real estate you’re in. Rentals, fix and flips, note deals, whatever it is, you building a network and learning how to market can help you out more than anything else. Keep this in mind. Don’t wait until the last minute. I’ve seen investors try getting the skinny deals because they really needed to do a deal, and then they’re in trouble in six months. “Why did you pay this?” “I needed the deal.” “Why did you do it for this?” “That’s all that they would budge.” Walk away. Be a little flexible with your numbers. Don’t promise something. If the deal is only going to turn in an 18% return base on it and you offer an investor 13%, you have at least 5% free. That’s not much. You’re not going to make any money. You’re going to be working for free. Do you know what’s going to happen? It’s probably going to go south with one uh-oh because you overpaid. There are a lot of people overpaying for assets right now. One of the best things you can do as a note investor is follow up with those that bought the asset or find out who won that bid. “Do you mind forwarding me their contact information or forwarding my contact information to them?” In three to six months, you may be buying that note back really cheap.

NCS NNA 4 | Raising Private Capital

Raising Private Capital: You are not an employee of your investor.

Interview your investors. This is an important factor. I don’t think a lot of people do this. Jeff Wilson said something, “You are not an employee of your investor.” Interview your investors. What I mean by this is you want to require your investor to fill out an investor profile sheet and fill that out completely with their name, their address, what they did before, what classes they’ve taken in real estate before, what they’ve invested in before, their returns on that stuff. You want to have those conversations. Where is the money coming from? That’s the first step. I call it the three-step approach. When somebody reaches out to me and says, “Scott, I’ve heard you at Quest IRA or I’ve been on your webinars. I want to fund some with you,” I’m like, “That’s awesome.” I talk to them, “What have you done in the past? What are you looking for? Where is the money coming from? I’m going to forward you over an investor profile sheet.” For any of the guys who are here for the first time, we provide a copy of our own investor profile sheet in the virtual workshop so that people can fill that out and then you’ve got to send it back in to me. I’m going to also ask for a thing. “I need you to send me a pledge letter.” “What’s a pledge letter?” “A pledge letter is just an email that says, ‘Scott, it’s great talking to you. I’m looking to put $25,000 or $50,000 or $100,000 with you out of my IRA.'”I do ask them to attach proof of funds.

The Quest IRA Camp, usually I’m not going to ask anybody to provide proof of funds. I like it if they provide statements. If somebody is not with Quest, if it’s somewhere else that I can’t make a phone call and say, “Is this person real?” I’m going to require it. A proof of fund doesn’t have to be anything. It’s just a bank statement or a retirement statement, those are pretty easy things. The things I don’t accept are letters from mortgage bankers. Those aren’t worth anything that they’ve written on anybody. Also a hard money lender that gave approval. You’re not going to have a hard money lender who’s going to fund your note deal. Make sure you understand that. If somebody needs a proof of funds from me, I can write a proof of funds letter relatively quickly. It’s not a big deal, but not everybody has that. Keep in mind, just trust your gut if somebody is giving you shady feelings and they’re not returning your calls in a timely fashion or email and they drag stuff out. I have stopped dealing with several people who were supposed to fund something and they dragged their feet, they got around to it when they knew I said, “I’m trying to get this thing funded by Friday,” then come Friday I’m still like, “Where’s this information at?” That happened to me recently. One guy is all gung-ho. I got him on a deal. “Perfect. The JV deal is great.” “I’ve got to fund this on Friday before I leave.” “I was hoping we could talk this next week.” I’m like, “What the hell? We’ve talked.” That just tells me they’re not going to fund the deal. It is what it is. Luckily, I trusted my gut and reached out to backup funders and had them make it rocking and rolling.

One thing you may be asking, “Scott, I’m brand new at this. I don’t have backup funders.” I started with making phone calls to people that I knew, people I had met out networking at events and expos. I said, “Can I visit with you? I’ve got a deal I’m working on. I would love to visit with you. Here’s what’s going on.” I just knew my numbers and I just talked to people. One good thing, too, which you may want to do is if you’re dealing with somebody who’s brand new and they said they funded other deals, I ask, “Who have you funded? What other deals have you funded? Who have you dealt with?” If it’s somebody I don’t know, “Do you have their contact information?” In the same way, they may ask you for references. “Awesome. Here are my references. Please give me yours.” If somebody says they got money in Quest IRA and things like that, great. That’s pretty good for me for the most part. If they have never done a deal before, that’s why it’s important to have in the investor’s profile, “What have you done?” “I’ve got a couple of rental properties.” “How’s that going for you?” “We haven’t done a deal yet.” “You’re brand new, that’s fine. Let’s work with you to get things rocking and rolling.”

We have a question, “Is there a minimum investment?” Yes, I always want to do a minimum investment. Over time, you probably start off with somebody at $25,000 and you grow it from there. Our minimum is $50,000. We prefer $100,000 but we’ll talk with people over a deal. I meet a lot of people that are getting their first note deal in, that’s fine. If somebody tells you they’ve got $200,000 to invest, I easily go at 50% of that. “Let’s start with $100,000.” “I’ve got $100,000.” “Let’s start with $50,000.” Those are the things that we look at. I will not deal with somebody who’s got $10,000 usually, unless I know them and they’re an existing investor. I have done $15,000 for a couple of investors on a couple of situations, but usually we’re looking for at least $25,000 to $50,000. I won’t ever do that for somebody who’s brand new and I don’t know them.

We’ve got another question. “What is the rate of return to offer investors?” That’s why you have an investor profile sheet that says, “What have you invested in before?” “You have money in the stock market. How’s that doing for you?” “You got a CD. How’s that performing for you?” “You got money in mutual funds.” Those are the things that you ask them so that you can figure out if they’re getting 2% or 4%. “If I get you to double or triple that 4%, would that be something that you’re interested in?” It’s all about interviewing. I have investors that are funding something at 6%. I have some all the way up to 15%. Most of it is somewhere in the 8% to 12% range. It’s a matter of interviewing them. “How’s that performing for you? What has that done for you?” and then going from there.

Someone asked, “What did you say was good enough for proof of fund?”

Bank statements or a recent quarterly account statement printed off from their local bank, that’s good enough for proof of funds.

Another question, “Is there a type of agreement that you sign with your private money lenders once you request the funds from them?”

NCS NNA 4 | Raising Private Capital

Raising Private Capital: Don’t cross-pollinate investors on the same asset. That’s pooling money.

Yes. We always have them sign a joint venture agreement. It depends on the situation. A joint venture agreement if there’s equity involved in the deal. If it’s just a flat return on investment, it’s just the typical lending loan docs, nothing difficult to have, usually two or three things.

We have another question, “What do you do if a seller is asking you for proof of funds? Can you provide your JV proof of funds if we don’t have proof personally?”

Yes, you can. If I haven’t made an offer on anything yet is, “Why am I going to give proof? I may not make an offer on anything that you’ve got.” If you’ve made an offer on things, then you need to do a couple of things. Talk to your JV partners. This is why marketing is so important. It’s one of the great things about our Mastermind because there are often people in our Mastermind group who want to fund things. They’re willing to provide proof of funds to help you out as well. I’m not giving you their names but we have several Mastermind members who are glad to provide bigger proof of funds.

We’ve got another question, “Do we need a license for raising capital to hold the note?”

You don’t need a license in most states. In a few states like Georgia, Washington State and a few others, they want you to have a license for you to hold a note in that state. The most important thing here I can tell you, the number one rule here is don’t pool investor funds. It’s one investor per one asset. I don’t care if that one investor is funding four assets and another investor is funding three in a deal, but you don’t cross-pollinate investors on the same asset. That’s pooling money. That is a guaranteed “go to jail, spend the night in a great bar motel and do some shitty things.”

Another question, “Do you think it’s better to keep a fixed return or a lower-fix preferred return with an equity kicker?”

I have different situations for different investors. The lowest powerful return, great. I don’t like to make quarterly payments unless I have to. The thing you want to keep in mind is it’s all about conversation. It’s all about building that relationship. “What have you done in the past?”

We have another question, “What if I can get you 8% to 12%?Isn’t that a guarantee?”

No, you’re not guaranteeing anything. I didn’t say, “Guaranteed 8% to 12% return,” or, “Guaranteed 10%.” I never said that. If I could possibly get you that, 8% to 12% in a deal, then you can throw it to a case study. You don’t go off and say, “Guaranteed 12%.” That’s illegal.

Another question, “Do we still build a database or list from our business cards, LinkedIn connections, Facebook?”

Yeah, you should. That’s the great thing about social media. You’re looking to build relationships. You just can’t come out and say, “Fund my deal. Give me your money.” Share what’s going on. Say, “Here’s my business card. Here’s my business. Here’s my website. Here are some of the case studies.” That’s what it’s all about. I don’t do my own servicing. We have servicers do all of it. Never do your own servicing. That’s a guaranteed waste of time, waste of money, and somebody you don’t want to partner with if they’re doing their own servicing.

Another question, “If it’s a big deal, do you offer first or second positions?”

No. Don’t do that. Go out and market some more to find people to fund it now. I don’t agree with that.

Another question, “Would a first be a large amount and second a lower amount?”

No, that’s pool money. Don’t do that. It’s one investor for one property. I’ll make that very clear. It’s one investor, one deal. That’s all you need. Don’t be pooling people’s money and go, “I’m going to put you in the first, second and third.” It’s not a good thing.

We’ve got another question. “When you’re doing a loan from someone, don’t you have to state 8% of interest?”

NCS NNA 4 | Raising Private Capital

Raising Private Capital: Never do your own servicing. That’s a guaranteed waste of time, waste of money.

That’s correct. There are loan documents that will pay this out to 12%, but you’re not guaranteeing that. Things can go south. That’s a different thing than signing a loan document. It’s different when you’re signing on a loan document. If you’ve got a hard money lender and they lend to you at 18%, you sign all the loan documents. That’s what you do with them. It’s fine. If it’s going to be a joint venture partner, never promise a return.

We have another question, “What’s a pledge letter?”

It’s pretty much like, “I pledge allegiance to the flag of the United States of America.” “I pledge allegiance to Scott Carson that I will use my money to fund your deals.” It’s similar to that. It’s a little email, “Scott, it was great talking to you. This is Dave Kornecki. I’m pledging $50,000 of the attached bank statement towards deals.” That’s all it is. Some people will write up on the letterhead containing the word “official.” An email is all I need as long as you’re sending along the investor profile sheet. The reason I ask for a pledge letter is that way if they do flake on me, I have them on email saying they pledged this stuff, plus a bank proof of fund statement. I can use that if they flake to go to my seller and say, “My investor just flaked on me. Here you go. You can see what he’s supposed to do but he flaked on me. Give me 72 hours or 96 hours or 48 hours to get this thing funded.” Most of the time, they’ll do. They can’t be mad at you when they see that happen. It happens all the time. They may be a little upset with you, but you can say, “I’ve got my backup investors.” Pledge letter doesn’t cost anything but it still is just an extra yes. Remember you talk with somebody, “Yes, we want to do some deals.” That’s their first yes. The second yes is the investor profile sheet. The third yes is the pledge letter. The fourth yes is when they actually sign the JV agreement and fund.

Someone asked, “You said, don’t pool investors on the same note. Isn’t it common for people to be in investment clubs? They might form one LLC. Would that be considered one investor or a problematic situation?”

If you’re borrowing money from an investor club or you’re borrowing money from one LLC, that’s fine. I don’t care if there’s twelve people that have formed together into that one LLC, let them do that. If your agreement only says, “Anne Price LLC is borrowing the money from ABC Investment Club,” that’s fine. That’s not pooling money. They’re pooling it themselves and creating one LLC with partnerships and operating agreements or stuff like that. That’s fine.

We’ve got another question, “Is it okay to quote a projected return?”

That is exactly right. It’s projected estimated return, not a guaranteed return. A projected return, and everything goes out, it roughly shouldn’t be what you see. That’s why your due diligence is so important. “The rent is $1,000 a month.” It could be eventually $750. Quote the rent at $750. Make sure your numbers are there. It’s better to say, “I got you some good news. We’re actually getting $800, $900 a month versus $750,” versus when you say, “We’re going to get $900.” In the end, “We only get $750 because we had to get rent.” People don’t like that.

Where is our focus for raising capital this year? It’s been literally an eighteen-month process. We still are mining self-directed IRA investors from county records. I got a virtual assistant doing some of the big stuff of that in a couple of counties in different parts of the country. I’m not giving those numbers away. Are these people that I know? No. I don’t know them but I do know something about them. If they’ve got a self-directed IRA and they own a piece of property and they’re letting money out or they’ve taken somebody’s workshop, they’re real estate investors. There are two things that I know right off the bat. A real estate investor is a good thing. They’re a little bit more sophisticated than unsophisticated. In the letter that we send them, if we find out that all those are not for real estate investment, we just ask them to throw it away. The whole idea is there’s a process to our madness. It’s not, “You’ve got an IRA. Do you want to fund my deal?” We don’t do that. We have postcards that are going out. We’ve got letters. We’ve got 22-page books that we put together to send out as lumpy mail to help educate because that’s the whole thing. We want to help educate our investors first about notes because most people don’t know about them. They’re note investors and they’re in a niche. We want to help educate them first. We’ll direct them to videos. We’ll direct them to landing pages about what’s going on, a bunch of case studies. There’s a definite process to it but it’s totally worth the time. I would rather spend $5,000 on books, in the buying and the shipping, to get 100 or 50 investors. I would do it in some cases to get one investor because it’s a quality relationship. I’ve done my part. I do it over and over and over again.

Too many of us have no patience, “I’m in a hurry to get things done. I rush and rush until life’s no fun.” You’re Alabama-ing it. You’re not putting in the process. You’re not giving it time to work. You’re not allowing that relationship to be nurtured and to foster a great relationship. You’re just like, “Fund my stuff.” Nobody’s ever going to fund it. At some point, you’ve got to take a deep breath and you actually work a process. “It was great meeting you at the real estate club.” “It was great meeting you at the meet-up.” “It was great speaking with you.” This is why we have actually turned down three speaking events because we want to focus on this. We’ve built some really great relationships. If I’m going to send a letter out to 1,000 note investors or people that I know that are IRA investors with some of the case studies and things that we’ve done, some of the articles that we’ve written, some of the blogs that we’ve written, and our wealth of videos and our podcast, why not do that from the comfort of my own home wearing shorts and a t-shirt? It’s a process but it’s worth the time.

You have to realize, eight years ago, 2009, 2010, when the market was in the shitter and I saw everything here, I knew that I had to focus on different things. I knew it wasn’t going to happen overnight, but I knew if I focused on the right thing in the right market and invest heavily into the marketing side of things, things would pay off in the long run better than just a hit-and-miss stuff. I wouldn’t have to be just buying from hard money lenders or buying assets that hard money lenders could fund. I didn’t have to say goodbye to deals. I could say yes to deals because we built our money and we focused on that and do that on a regular basis. I spend a lot of time on this. This is my artsy side coming at how do we market effectively to note investors and potential note investors? We’re doubling on our technology. We’re doing a lot of great stuff. That’s why I’m actually going to DME, I’m going to a podcast festival to figure out some of the things that I could do to help tweak my message, to help effectively meet more people, instead of having conversations that are one-on-one, having one-to-millions or one-to-hundreds of thousands, or one-to-10,000 people. That’s what we’re focused on.

We have a question, “Are you now going to get this pre-emption? Are you using online marketing, AdWords, AdWords Nerds, etc. or PPC?”

I don’t use pay-per-click. We use a lot of Facebook marketing because we build these lists of people and things like that, and then we market to them. Our website does such a great job with the SEO, we’re setting up an AdWords accounts to actually get paid from other people using our click stuff.

We have another question, “Is it a good idea to start the process before getting your first deal?”

You’ve always heard me say that but I’ve always said you need to start marketing from day one. This is why it’s important to set this up so that when you have the deal, you can deliver it. If all you do is focus on the deal and you have not created your database, your connections online, your networking, you might as well just go do something else.

NCS NNA 4 | Raising Private Capital

Raising Private Capital: If all you do is focus on the deal and you have not created your database, connections online, networking, you might as well just go do something else.

Another question, “Where can you find foreclosure bankruptcy?”

At the local county office.

Another question, “Can you explain a bit more about how you find SF IRAs leads at the county office?”

That’s something you’ll learn by going to the Virtual Note Buying Workshop. Your marketing’s got to be first on stuff. If you don’t have that thing in place, take the time to build your LinkedIn connections. Take the time to go to the meet-up groups and network. Take the time to put your contacts into an email and start marketing, “I don’t have the deal yet but this is what I’m working on.” Tell your story. Our JV agreements outline those things. You’ve already built that relationship. You’ve got that three-touch approach. “Here’s what I’m going to offer. We’re doing it at 10% or 12%. We’ll pay you a 12% return on investment for twelve to eighteen months.” You’re just not going to go out and publish “Guaranteed 12%” on a big sign on your t-shirt as you’re walking around in the mall. That’s not what you want to do. That’s asking for the Attorney General or the State Securities Board to show up at your office.

Our book, I plan on giving a bunch of those away. I’m shipping those out to IRA investors. We didn’t spend months writing the book. I spent some time. I filmed a bunch of videos, a bunch of webinars on some educational stuff. Then I got them transcribed on Rev.com. I hired somebody off from Upwork to edit the book and put it together and then somebody to make the cover art from Fiverr. All in all, it cost less than $1,000 to write the book. It’s not difficult. It’s easy to put together. Now it’s something that we send out to 4,000 people. My goal is to get to10,000 by the end of the year. It is what it is. It’s what we want to do. There are so many different facets of raising capital that we go into and we can spend all day here. This is why we spend a large chunk of time on this on the virtual workshops. We go through that. I give you my examples. In the 200-page manual you’ve got forms, you’ve got verbiage, you’ve got questions, you have the investor profile sheet, we have case studies. We actually have an eleven-page case study on a large deal that talks about the marketing plan. It’s like a marketing plan outline for you to share with your investors to help them see what’s going on. It’s really phenomenal. We’ll walk you through step-by-step how we find IRA investors at the local county clerk’s office, the local deed office, and all of that good stuff.

We’ve got another question, “How often do you feel you can turn an investment?”

I tell people, “The investment’s going to be tied up for twelve to eighteen months.” I never promise less than twelve months. I’ve done it before and it bit me in the butt when I said six months. I’m going to give you a good above-average return on investment. It’s going to take me twelve to eighteen months to do it. I guarantee you might make a faster 25% return on this faster deal over here but how long is your money going to be tied up? Three to six months on a fix and flip, but then you’re waiting to deploy it again, so really you made a 12% return because your money was only out half the time.

Someone asked, “Do you put a time limit on investors?”

Yeah, twelve to eighteen months on a deal, and then we can reevaluate things depending on where it’s at.

We’ve got another question, “Do you set up an escrow account with your bank for investor funds that is not in your business category?”

No. I have a separate account for payments to come into. What happens when you get money from the servicers is they wire the money to your account. They tell you what’s coming. You just got to basically figure out, “That’s with that bank. It’s for this asset, I’m going to do my splits,” then you go from there. Setting up an escrow account for every note would not be smart.

Another question, “Is it most effective to find investors for properties that are in your geographic area?”

First you need to find investors around you and then in other areas. I’m a little bit different though because I don’t have that many local investors here in Austin because most of my deals are outside of Texas. I have Houston, Dallas, some in Austin, some in San Antonio. Most of our stuff is coming from outside of Texas investors. They come from me speaking and other things like that. For most people, it’s best to raise capital locally, wherever you’re at. Secondly, if you’ve got properties outside of your area, farm the area around those properties. Once they want the money sooner than the twelve to eighteen months, don’t do the deal with them. If they want it done in six months, don’t do it. Move on. Find somebody else and say, “Next.” “No. You’ve got to be with me twelve to eighteen months. You’ve got to be serious.”

NCS NNA 4 | Raising Private Capital

Raising Private Capital: If you’ve got properties outside of your area, farm the area around those properties.

We have another question, “Is it still best to offer 50-50 split of the note if it becomes a performing anyway?”

No. You may want to do a flat return. It all depends. Often the returns are all based on what your conversations are with your potential funding partners. Maybe your investor doesn’t want a 50-50 split. Maybe they just want to get a flat 68% return on their money because they need something coming in every quarter. It’s all about interviewing.

A follow-up question, “When you take investor’s money for a deal, where do you have them sent?”

I’ll have them send it into an escrow account, and then we’ll have the attorney wire that. I have a separate account that stuff gets wired into because we do it on a regular basis. If you’re working with somebody brand new, he can set up an escrow account with an attorney for $500. It’s well-worth it.

We have another question, “I’m a private lender. I lend short-term, twelve months long to rehabbers at 12%. Do you guys broke or buy notes from students as well?”

We don’t buy owner-financed notes. That’s what you would be doing. Don’t buy owner-financed notes. We only buy institutional debt.

We have a good question, “When they sign the documents and then they want their money back before the eighteen months, do you charge them a penalty?”

I sure do. It’s outlined in the JV agreement. If it’s a twelve-month agreement and they want it back before eleven months, there’s a 25% penalty. It will be the same thing if they had a CD or annuity. If they were to lend $100,000 with me and they need their money back in month nine of month ten, they’re only going to get $75,000. If you want to get signed up for our workshop, go to WeCloseNotes.com. It’s our home page. You see the Training tab there, and you see Virtual Workshop, click there. It takes you over to our Note Buying right there on that. Sign up for the next virtual workshop, it takes you into your shopping cart. Add to cart for $699. Go over and write the special code SUPERBOWL, hit Apply and it drops it down to $524.If you join the Mastermind and the Fast Track, we’ll comp you in to the virtual workshop.

We have a question, “Do you send out an email on specific deals that you have, or do you only offer deals on a one-on-one basis?”

Sometimes that depends. If you’ve been marketing for a while, if you have dealt for a while, yes, I’ll send out individual emails on deals, “Here’s what it is. Here’s something that we’re working on, deals that we’re working on.”

Another question, “Does the virtual workshop go beyond the Blueprint?”

If you are a Note Buying Blueprint member, you actually get a ticket to the virtual workshop. It’s included in some of the bonuses when you sign up for the Note Buying Blueprint. Hopefully this has been valuable to you and has helped answer some questions for you, and gave you some advice on stuff. An hour-long webinar is not going to make you a raising capital expert. It’s going to give you some great tips that you can implement, but you definitely need to make sure you’re doing the right things. Talk to your attorneys. Talk to Jillian Sidoti. Talk to your local real estate clubs. Someone recommended to have a Virtual Note Buying workshop for beginners. That’s the starting point for people to get things rocking and rolling. We used to call it Note Buying for Dummies.

Thanks for all the great questions. For those that shared this from Facebook, thank you so much. I appreciate it. Go out and make something happen. There are lots of great things. If you have a topic you’d like for us to discuss or focus on, let me know. I’ll be glad to see about getting it potential on here on Note Night in America or on the podcast. Have a great week. Go make something happen.

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