Trying to build credibility by doing deals with your own funds before you borrow someone else’s money is a big misconception. There’s nothing wrong with self-funding a deal, but if you’ve got a limited amount of funds invested in a deal and don’t follow up on raising private capital, you can’t make bids once a good offer comes around because you don’t have any more funds to use. Scott shares some tips and nuggets on how you can raise private capital to fund your next note deals.
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Stop Choking Your Note Business with Your Own Money and Start Raising Private Capital
Our topic is going to be a hot button topic for a lot of people and it’s going to fall on two sides of the fence for the most part. You have people that are using their own money, and there’s nothing wrong with that. It’s a great thing you’ve saved, you’ve worked hard, you put in time in a job, you’ve got a 401(k) you rolled over to a self-directed IRA or you’ve got funds from deals. That’s a great thing. On the other side of the fence, we have those that don’t have a lot of things, those that are using or needing to use other people’s money to make things happen. There’s no fault to either side of the equation. There is one thing that I see on a consistent basis and I definitely want to warn you against falling into this trap, the mind trap.
One of the things that I’ve dealt with over the years is we have people come in. I’m working with our Mastermind members around talking to other people through the workshops. People that have money, that’s a great thing. They often will say they often slough off in the marketing for raising private capital because they want to do one or two things. These are the biggest lies that people tell themselves. I always hear this situation, “I have to prove that this works. I have to prove the concept of things, ” or, “Before I borrow somebody’s money, I got to prove that I can do with my own funds before I do that.”That drives me bonkers because of a couple of things that happens. The reason it drives me bonkers is people will use their own money. There’s nothing wrong with using their own funds to buy note deals or real estate deals.
What is wrong is if they have a limited amount of funds, $100,000, $50,000, $200,000, whatever it might be, and they invest that money, but then they don’t follow-up with other people or keep doing other deals. They buy those two deals with their funds. They’re working through those deals that could take three, six, nine, twelve months to make happen, and they don’t make any other offers on other deals. They don’t make bids because they don’t have any more funds to use. They don’t market to the warm audience online. They don’t do any of that marketing because they bought into this trap of self-sabotage where, “I got to use my own funds first. I’ve got to make sure that these two deals or these three deals or these four deals or this one deal works out before I go out and raise private capital.”
It does crack me up. I always smile when I hear it. I was like, “I can appreciate where you’re coming from, but what’s going to happen if you don’t start now with raising capital or doing the marketing or putting those foundation in place so that when you do see a big tape or you do see a large asset, something that you don’t have the funds for, you can tap into for raising capital.” I see this again and again with people who use their own funds and then they want to buy another deal. They don’t even bother with it because they don’t have their own funds themselves and they haven’t put the time in raising capital. It’s a mixed bag. Quite a few of our best students fall on both sides of the fence.
Some didn’t have the money and it was a blessing in disguise because they were forced to raise private capital. They were forced to start marketing. I fell under that path. When I got enough business, I didn’t have a lot of private capital, so I had to start marketing. I had to start posting deals, stuff that we’re working on, reaching out and say, “I’ve got a deal that I’m working on.” I was hungry. I had to go find it. I didn’t want to miss out on these great deals. Then I see a lot of people that’s like, “I’ve got my own funds and I’m going to invest my own funds.” If that’s completely the way that you want to go, that’s fine. I see people that these deals drag on longer than six months and if you count on a deal taking six months, it better be in a fast foreclosure state.
Unfortunately, I’ve got some friends that they were told foreclosure started on a longer state like Illinois, Ohio, Florida, or South Carolina, and the assets weren’t. They were barely filed, so they still have a longer foreclosure timeframe than six months. They’re stuck having to work through those assets a little bit longer. They haven’t made as much offers in a long run. We are all here to make money. We all have goals of either making $60,000, to tell your boss to kiss your butt, or $100,000 or $250,000 or $500,000 or to help you retire your spouse or put your kids through college. We all have big goals. If we want to accomplish those goals, you’ve got to put the things in place to make things happen.
You’ve got to build the foundation of what you’re doing on a regular basis with the social media posts, of sharing the deals you’re working through, the deals that you’re making offers on because that’s the most important thing you can do. If you don’t share what you’re working on and you want to make big money later on, you’re going to eventually run into problems. You’re going to run into problems with deals running longer and then you may be running out of money for your own deals, and then you’re stuck like, “What did I do?” or you have something else happen. You got another deal that pops and you’re like, “I want to dive into that.” You’re now paralyzed because you’re like, “I should’ve started this and I didn’t do this.” We are here to help you overcome things. If you’re running through that hurdle, there are simple things that you can do.
Raising Private Capital: If you don’t share what you’re working on and you want to make big money later on, you’re going to eventually run into problems.
We all come from positions where we had to start somewhere before. We didn’t become a note investor straight out of the womb. People think it was either as the insurance salesmen that we worked for or a realtor or the tech guy or the engineer. It was this one thing and they don’t see us in a different light. The reason they don’t see us in a different light is you’re not sharing what you’re doing in a different way. I get it if they’re working a full-time job and their boss was not cooperative. You’ve got to do it a little bit on the down-low. You’ve got to do it as you’re working in retirement deals. I understand that. You don’t want to burn a bridge. You’ve got to put food on the table initially, or you had other benefits that you’re going to get.
The thing you’ve got to realize is you’ve got to start sharing information at what you’re doing. You’ve got to start sharing that information across your platforms. We’re not talking anything difficult. I got a new guy and he’s like, “I got these two classes I need to sell.”I’m like, “Okay.”He goes, “I got an asset in this one area in South Carolina and I got this one asset in this other area.”You have got more than that. You’ve got to put a picture of the property and talk about the deals and the information that you’ve got on the asset. What makes this a desirable offer? A lot of people don’t do that and it bogs my mind because they don’t think about it first.
I get it. I love the fact that if you’re using private money to fund your deals and you’d get in the habit as that’s your way to initially fund things and then you bring in other investors money to fund your deals, that’s a phenomenal thing. I know quite a few people that are doing that. A variety of people are using their own funds to fund the purchase and then they’re bringing other people’s money to refinance the amount of the deal in 30 to 45 days once everything’s settled. There’s nothing wrong with that. That’s a great aspect. That’s a great way to use your own funds, a smart way to use your own funds because you’re using leverage to help you exponentially grow your business.
You buy one, you refinance it, and use that money to double down, and buy another one. The way that you can play Monopoly in real life with the note business is using other people’s money to do that. If you remember the game Monopoly, you start out with your own funds or you can buy, you can leverage, you can mortgage, you could sell off assets. You don’t have to prove concept to buy a house. You don’t have to prove concept to mortgage. Mortgage debt has been bought and sold for centuries and if you use the words “you have” or “prove concept,” you’re only feeding into your hurdle. You have to realize using other people’s money is a benefit. It’s not something to be afraid of.
That’s where I see a lot of people that have their own funds, whether it’s $50,000 to $100,000 to $200,000, they’re like, “I’ll just use my own funds.” That’s fine, but at some point, you’re going to have to start diving into using other people’s funds. You might as well start from the beginning versus waiting six, twelve, 24 months to get around the market. You’re 6 to 24months behind and you’ve built this big roadblock. You’re like, “I can’t.”Whether you think you can or can’t, you’re correct. I only say this because at some point in my past, I had that same hurdle. I’d gone through some deals that were dragging along. I’m like, “I’m using my own money on this. I can’t refinance people out. I can use my own money.” I didn’t think about, “Why can’t I refinance myself out of the deal?”It’s still a good deal for the investor. I’ll make a little bit less return, but I can use that money that’s in the deal to go find something else, to go fund something else, and allow me to rinse and repeat a couple more times.
It’s all about the velocity of capital. If you come in and use$25,000 to fund a deal, you could end up getting refinancing at $30,000. You just put $5,000 in your pocket, and maybe for some expenses, you say you’re saving a thousand of that extra $5,000 doesn’t get spent. That’s a little of extra return. That ability to take the $25,000 and go buy another one just doubled your velocity capital. If you do the same thing after a month, refinance somebody in, buy another one, you completely tripled your thing. Let’s say you buy four notes in a year with that $25,000 and you use your money initially. If you were just to use your money initially, you’ve got one deal that may take a year. If you come in and use other people’s money, you quadrupled your potential returns.
You quadrupled your money and the strength of it because any money you make without having to use your own money, even if you can refinance that, it’s an infinite rate of return. That’s what you have to think about. That was one of the hardest things that I’ve ever had to look at too.”I got money. I’m going to use my own funds. I want to be free.” I was being really stupid, not greedy. There’s one number that unites all of us. I don’t care what you are, whether you’re a fix and flipper or a wholesaler, it’s ROI, Return On Investment. Also, you have to think of another number called ROT, Return On Time. Return on time is important. You could have a great ROI, but if your ROT is horrible, that’s where the velocity capital comes.
There is so much private money sitting out there. They don’t mind financing REOs and fix and flips because that’s what their business model has been for. When the REOs dry up, when money is cheap, you’ve got to change your business model. A lot of times, hard money lenders don’t understand the note game, the note concept. They don’t understand buying a note or buying a defaulted note when they’ve been creating it all along. It’s a mind block they have. There is a huge opportunity if they do that. The thing about hard money lenders and non-performing notes, you don’t know the way it’s going to go. In six months, you could still be working through a foreclosure.
A lot of hard money lenders are making their points on the velocity capital, how fast they can turn it. If their money’s sitting idle for six months and they’re not getting it invested, they might as well have it in something, making something instead of nothing. If hard money lenders understand the concept of buying notes, even if there’s a mezzanine financing position of 30 to 60 days giving other investors the opportunity to purchase the asset and then come in and get refinanced out with other people’s money, cheaper money, they would make a killing on stuff.
Raising capital is easy if you will just get out and market your deals, market who you are. Get out and talk. Share your message. I see a lot of people that haven’t closed on twenty deals or ten deals, which is a little scary. There’s nothing wrong with it, but they’re actually going out and sharing their message, which is a beautiful thing. They’re sharing out their knowledge and they’re not afraid of taking action. They’ve closed on some deals, they got some more case studies but using those case studies to the best of their ability to raise capital. There’s nothing wrong with it. Every other job you’ve ever done, you all had to start somewhere brand new. You use case studies.
Raising Private Capital: Raising capital is easy if you will just get out and market your deals, market who you are.
When I was a banker for JPMorgan Chase or financial advisor selling Smith Barney Funds, I wasn’t the best, but I use training. I was trained at what to say, how to work it, how to learn it. That’s the beautiful thing in the note business and the real estate business. There are plenty of case studies, plenty of things to talk about the deals with the types of deals that you do or what you’re looking for in a deal. Draw your strength from that. You’re surrounded by great people. Understand that you have that beautiful thing working for you. That’s an amazing thing. Draw strength from that because you’ve surrounded yourself with other people. That’s the thing that could be uplifting to you as well.
Is crowdfunding a good strategy to putting a business model? One of the things that I went to a few years back was the crowd funding institute, Crowdfunding College. I took a class there for a day in Vegas with Ruth Hedges. She said one big thing, “Crowdfunding is a great concept. It’s a great thing. It’s been around for years. If you’re marketing your crowds, if you’re out talking to people, you’re crowdfunding.” Just because you pay money to be on a crowdfunding platform or to put a PPM together is worthless unless you’re going to share the message or you’re going to share what’s going on. The same concept of building an audience, building a tribe, building a following is important.
It’s more important to do that on the front end versus go out and spend $50,000 or $15,000 or whatever it costs you to put Reg D or your Reg A together. That’s the thing you need to keep in mind. If you want to take your business to another level, I don’t think you need to look at that until you’ve raised $1 million. Paying for a private placement memorandum is stupid if you’ve never closed $1 million in private funds. If you’ve never done $1 million with JV deals, it’s silly. Crowdfunding is the strategy of going out and networking. It’s the same concept there. If you think back to when you bought your first house or when you’re doing any fix and flips along the way, drop on that.
One of the great things I love to tell people when they send their first Lionel Richie email out, “Hello, is it deals you’re looking for?” is to send an email out to your database and say, “Maybe you know that I’ve been an IT expert for the last twenty years. Many of you probably did not know that I’ve been an active real estate investor for five, six, seven, three or twelve months.”We all start somewhere, and I guarantee you’re not the only IT expert out there who is thinking about what’s coming up around the bend. “Am I making enough with what I’m doing? Do I need to look at something else? Am I getting too old and am I going to be put out to pasture?” Those are the things that you need to look at and we all are looking for retirement.
If you saw the article that Jeffrey Wolf posted on The WCN Crew or on Facebook talking about how 42% of Americans will retire broke, that’s a big audience. If you’re doing something completely different than what your normal job as an IT expert, it’s part of your retirement, it’s part of your hobbies. You buy and sell real estate. That’s what you’re doing with your note business and you’ve just got to brand it. There’s nothing wrong with that. If you were going to start a cookie company, if you’re going start a pizza place or a bar, what would you be doing? You’d be creating stuff. You’d be sharing things with people. Say, “I got this other thing I’m doing.” I don’t seem to understand why there was such a hurdle for it. I don’t know if it’s because of finances but you have to realize that you’re only hurting yourself if you’re not taking the little things to do.
If you’re not doing the things on a daily basis, if you start making it a regular habit or a weekly habit of an email or blast or sharing deals that you’re focused on, it becomes relatively easy relatively quickly because you get used to it. It’s not as easy as what you would be doing after twenty years in the job, but with twenty years in the job, you’ve got over 10,000 hours of expertise on it. You’ve got to start those hours of expertise somewhere in sharing the message, sharing what you’re doing, networking, and putting those plans in place to make that side trip, to move in a different direction.
We’re all lazy people. If I had $1 million in here, I wouldn’t be raising capital. I haven’t gotten to the point where I hit with all the deals that we’ve done. I’ve done a lot more than what I would’ve ever done if I just sat around on my hunches trying to best my own funds, and that’s an important thing to do. You’ve got to leverage your time, leverage money, especially if you’re working fulltime. It also depends a little bit on what your goals are. If your goals are to make 10%, 12% return on your money monthly and you got money on the sidelines not making that, put that in place. I know we’ve got quite a few investors. They want to make 10%, 12% of their money that finally will be active. They’re buying performing notes. They’re good, they’re happy with the goal.
If that’s your goal, then it will be fine, but I guarantee most of you need to be making more than 10% to 12% to catch up to where you ultimately want to be in a few years or decades so that you can retire. We all can agree it’s going to be costlier in a few years than it is now. You’re oftentimes going to want to live better than you are right now, to travel and do things. You don’t want to sit home and watch TV and rot away in your couch. That’s the last thing that you want to do, and I guarantee people don’t take it into consideration. I can live for $5,000 a month on what I do now. That’s living, but is it really living? You’re barely getting by. Is it living a life that you want to live or would you rather do the things you have to take the trips and do the travel that you want to do?
I see the big problem with people also who don’t reach out. They don’t network. They don’t do the things and they are going out and doing things that aren’t associated with it. At some point, they’re going to run out of funds and they need to come back, but they’re just scared. Your “why” has to outweigh your comfort level or for you to really take action. Your fears have to outweigh your comfort zone. It’s the only way you’re going to get off the couch to go to a Meetup group. The only way you’re going to get off out of YouTube or Facebook to write the email is if you would have fears of things happening. Those fears get closer every day if you’re not doing the things to make things happen.
Raising Private Capital: Your “why” has to outweigh your comfort level for you to really take action.
I know behind every great man is an even better woman. I’m very blessed to have both very strong women here, Stephanie and Jennifer. They do a great job to help us succeed. You look back at things and there are a lot of people along the way who have helped out. There’s a lot of amazing women out there that are doing some great things and I’m so proud of what they’re doing. The note business is a very male dominated society, the asset managers, the hedge fund guys. If you’re a woman, I honestly believe this business is a whole lot easier for you than guys. It’s easier for women to raise private capital than it is for guys. Why? It comes down to the sales aspect of things.
When a guy is trying to sell you some deal, no matter what you were a guy or girl, you’re going to have a wall that goes up. When a lady talks about the same thing, the wall goes down almost immediately. I’ve seen it happen time and time again in this business where the ladies have an easier time of reaching out and talking to asset managers. They have an easy time raising capital as long as they’re showing what they know. Ladies, if you’re not going out and doing the things to do that, shame on you. You’re only hurting yourself and delaying your success out there. There are a lot of great people out there doing things besides just the ladies.
You don’t want to delay your success. If you’ve got a number you’ve got to hit, you’ve need to start looking at how are you going to get to that. If you need to be making $100,000 a year, you probably need to be doing at least ten to fifteen deals a year. If you only got enough money for two, three, or four deals, what does that mean? It means you need to start going out and raise another $250,000 or another $500,000 to put that money to work, to start exponentially growing your money that you need to do. It’s important. It’s up to you to go out and make things happen. I don’t want any of you to delay your success. I don’t want any of you to not find the type of money or the type of success or the type of life that you deserve, that you want to have, that you want to accomplish. You can have that. It’s very viable.
You can do the things that you want to do. You can accomplish all your dreams. It’s all up to you if you’re doing the things on a daily or monthly basis, even weekly basis to really drive that team to success, drive your own wagon across the Wild West of non-performing notes. It paints the picture a little bit different. Whether you like it or not, we’ve got a train waiting for us at the end of the tunnel. We’ve all got something that we’ve got to catch up at some point. Some of us know the time, some of us have a very specific date that we’ve got to get to. For others, we don’t know the time that we have left. We don’t know how long this market will be. That’s why I always try to tell people on a day in, day out basis, “It’s not a crystal ball. I would not be here, I’d be in Vegas or I’d be in other places.”
That’s why you have to take advantage of the market where it’s at right now. There are so much private money sitting out there. If you’re not marketing for raising capital or not marketing for raising private capital, you’re only hurting yourself. There are so many people with IRAs making nothing. They’ve got so many people that have 401(k)s or CDs on the sidelines that are now 11-Ks or Certificate of Disappointments, making nothing. If you have a half decent deal, not as skinny deal, you share what’s going on and share your knowledge. Share the good, the bad, and the ugly of it. It’d be a lot better off in the long run. I know sometimes getting that first joint venture partner, that first money partner is the scariest thing.
I can remember Wayne Snell from Platinum Ventures. A few years back, Wayne was using his own money. Wayne had been snake-bit a couple times. He is a little bit different than most people. I remember he came down to San Antonio for the San Antonio Mastermind we were having that at the time. The first night, he went to the local REIA Club. I remember him coming back the next day just jacked up, so excited, because he had talked to a guy there, raised $25,000 to fund his deal. He is like, “It was so much easier than I thought it was.” They talked about the types of deals we used in some case studies and the person was like, ” Let’s do it. You know what you’re doing.” I don’t think Wayne had done a lot of deals. He’s done a couple of owner finance deals and a couple of rentals in Dallas. That’s what you have to realize more than anything else, you’re going to be selling yourself, more so your knowledge and experience of knowing what the hell to do when things go south.
Raising Private Capital: Sharing what’s going on is half the battle. The other half of the battle is getting it out and posting in places where people will hear you.
It’s important to educate yourself. It’s important to know what your options. If you’re dealing with other people’s money, you got to be prepared and make damn sure that their money is being protected and then share that. If you’re buying first liens only on non-performing notes or on residential homes, you’re buying below 70% of value. You’re using insurance, you have attorneys who are doing all the work, you’ve got great vendors and you’re obviously double checking values, taxes, and then the title. If you keep those things in mind and have a decent picture and share what your plan is and what the story of that asset is, there’s nobody that will stop you from raising capital. The only person stopping you from doing things with OPM is you. It’s very easy, taking the picture of the property, talking about the stories, “Is it occupied? Is it vacant? What’s your strategy with it? If the borrowers showed interest in re-performing or modifying, if they don’t bring money on the table, we’re going to foreclose. We started foreclosure three months ago. My attorney says we have another six months, so this could be a twelve-month deal.
Sharing what’s going on is half the battle. The other half of the battle is getting it out and posting in places where people will hear you. We, as note investors, are a pretty friendly bunch. We want to see people succeed. Those that don’t want to see people succeed don’t hang around very long and often burn themselves out of this business relatively fast. You can do amazing things. Ladies, you can rock this house. You can go out and do some things. It’s easier for women to raise capital than it is for guys, but you’ve got to share the stories, share the message to begin with. Hopefully, this was helpful for you. It’s an important thing. You go out and make something happen. Do some great stuff. Have a great day.