Jason Bible shares the deets on how he gets money to fund his deals....and he does lots of deals!
Jason got his first taste of real estate investing after joining a local real estate club. In 2012, he made his first transaction and hasn’t looked back. Jason founded HoustonHouseBuyers in July of 2013, in its’ first year produced $3M of gross revenue, through wholesaling, leasing, and flipping 70 houses. HoustonHouseBuyer’s is expected to buy 100 houses in 2015 and produce nearly $6M in gross revenue.
Jason has more than a decade of experience in risk management in the private and public sector. He managed the risk finance program for The University Of Texas Health Science Center at Houston. During his tenure he managed the workers’ compensation program for 5,000 employees, property conservation program for $2B in insured assets, business continuity and emergency response program. He also managed the Fire and Life Safety program responsible for nearly 5MM gross square feet of laboratory, class room and office space. His program additionally reviewed plans for new biomedical research facilities, one facility built annually during his tenure at $250MM per project.
Jason has a BS in environmental Science from Sam Houston State, Masters in Security Management from The University of Houston and an MBA in finance from Houston Baptist University. He lives in Houston with his wife Sarah and two sons, Cameron and Carson.
This episode is full of great tips on getting funding from when you don’t have any experience real estate investing up until you’ve built relationships with small local banks.
It took Jason 6 weeks to buy his first house which was a rental. He worked through the tough times making 15-20 offers per week and not getting very far.
Then he decided to partner with someone and put a 40k budget to work for marketing.
That’s how you get the ball rolling!
So many people are afraid to spend money to get the deals. The fact of the matter is you can net over 40k on a rehab and do it multiple times for that 40k budget in marketing.
The numbers don’t have to be that big, but an investment will likely need to be made to get going.
Jason’s tips for finding a good hard money lender to get funding for your first deals are as follows:
* Go to local Real Estate Investor Association meetings
* Find out who does lending and how long they’ve been lending and how many deals they’re funding per month
* Narrow down your list to the ones that are doing the most and for the longest amount of time
He was paying roughly 3 points and 13% interest for his hard money loans in the beginning. Those aren’t bad numbers for hard money.
After getting some deals under your belt, put together a packet showing before and after pictures and the numbers for the deals to show to potential private lenders.
Private lenders are people that lend money to investors to fund their deals. They typical lend the money because the interest paid is much better than other forms of investing and a lot less risky.
The best thing to do when looking for private lenders and who to borrow from is to find the ones that are already lending to other investors. This way you don’t have to convince them to lend money. You don’t ever want to have to do that.
I have a guide that you use to find out exactly how to find private lenders and what to do to approach them. You can download that here:
Private lenders will typically lend at anywhere from 0 to 2 points and 8 to 12% interest. You can typically get 12 month terms and interest only or no monthly payments.
What to be careful of….
You have to be careful to only borrow from one lender for each deal. Do not pool funds from multiple people as that gets into securities and must conform to all of the laws regarding securities.
Also never market specific deals with numbers to private lenders. Find out more about this in the free download for this episode below.
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Danny Johnson: Welcome to the Flipping Junkie Podcast. My name is Danny Johnson, former software developer turned house water flipper flipping hundreds of houses. Each week we bring you interview, strategies and stories and motivation to help you get started flipping houses and on your way to becoming your own boss and achieving financial freedom. Thanks for spending time with me today. Now let’s get to it.
Today’s guest is Jason Bible. Jason got his first taste of real estate investing after joining a local real estate club and in 2012 he made his first transaction hasn’t looked back. Jason founded Houston House Buyers in July of 2013 and in its first year produced over $3 million dollars of gross revenue through wholesaling, leasing and flipping 70 houses. Houston House Buyers expected to buy 100 houses in 2015 and produce nearly $6 million dollars in gross revenue. That just goes to show you that Jason really knows what he’s doing and he’s doing a lot very quickly as he gets started in this business.
In this episode we’re going to talk a lot about what a lot of you were probably struggling with out there that are still sitting on the sidelines waiting and wanting to get started flipping houses and be a part of real estate investing. Usually the major thing holding a lot of people back is where they’re going to get funding to do deals. It costs a lot of money to buy houses and fix them up and a lot of people just don’t have that money. I didn’t have that money when I started. Jason didn’t neither and what we talk about in the episode is we cover how to get started by using hard money loans from hard money lenders to get started with, to gain some experience, and then move into private lenders.
We’re going to show you how to find private lenders, how to work with them and then also we get into talking about small local banks, which is usually the next progression. In this episode he really shows this awesome trip. I love this tip on how to find the small local banks that some of the hard money lenders are using and even who exactly to speak with at that small local bank. It’s an awesome tip.
I’m glad he shared it with us. I’m going to try to put it to work myself and then we also cover to be careful of whenever you solicit loans from private lenders. You’ve got to watch out for things regarding SEC guidelines and all that stuff. Check out the episode you’re really going to love it and then I’ve also got a download, a Quick Guide on Finding an Approaching Private Lenders that you can get on the show notes page and that’s at flippingjunkie.com/15. So the show notes and that guide you can download at flippingjunkie.com/15. Enjoy the episode.
Hey Jason, how are you doing?
Jason Bible: I’m doing good.
Danny Johnson: Hey, thanks for being on the show.
Jason Bible: Well, it’s great. I’m always willing to help out and your website has been invaluable to me for the last few years, so I thought it’d be great to see if I can get on the show and share some things that I’ve learned.
Danny Johnson: Hey man, we really appreciate that. Let’s jump in and find out a little bit more about you and how and why you got started flipping houses just so people have a little bit more of the backstory of what you got fired up and excited about this business.
Jason Bible: Okay. Well, I previously had a fantastic career in risk management in health and safety and I was working on my MBA in finance back in 2008. I graduated in December 2009 and I started looking for a job. If you remember the 2008-2009 era, it was kind of hectic in the world of high finance. Everyone thought the world was going to end and it was not the perfect time for a career change. I went and interviewed with a whole bunch of different companies, firms, funds. I really did the interview gauntlet. The prevailing thought back then was, “Hey, you’re great. But we really don’t know what the world holds for us in the next six months or a year. But if you’re free, we’d love to talk to you two years now.” And I thought, “Well, it’s it’s ridiculous.”
I was still working full time as a risk manager and I had always wondered how to get into real estate and not real estate as building, read, or anything like that, but how did mom and pop do it. And so I joined a local real estate club here in Houston and I believe it’s December 2010 and I joined this group between Christmas and New Year’s. So that week there we can have that kind of dead time for those people. So I was going to real estate classes during that break between Christmas and New Year and I signed up for a small mentoring program here at the real estate club in Houston. And then from there, it took probably six weeks before I bought my first house and it was a rental property and then I searched and searched and searched and really couldn’t find anything for about two months. And then as luck would have it, when my wife went out of town, I bought two houses that day one right around lunchtime and one in the evening and then eventually we had bought our fourth house that same year.
So we were testing a couple of different things out. We were using a landlord model. We we’re buying, fixing it up and then renting it out and then we had two properties we ended up flipping. And those were a lesson in themselves you know. One property we broke even on, another one we made about $2,500 bucks on, so not exactly the best business model but as you know on some of these things your tuition is learning sometimes. So sometimes you’re not going to make a lot of money. But you learn something, you apply it to the next one. So that was in 2011 and then 2012, I spent most the year writing offers. I was probably writing 15 to 20 offers a week. It was it was absurd and the houses that we’re getting under contract at the end of day the numbers really never made sense. I joined a mastermind group here in Houston with four or five of us, it wasn’t a real big group, and really I was looking for folks who are taking single family real estate to the next level. I mean, there’s a lot of mastermind groups out there for commercial and multifamily and small office and all that stuff. For single families there’s really not – I mean, single family movers and shakers, I’m not the guy that buys a house ___ [0:07:01].
So we put together this little group and one of the folks I admit this group is now my current business partner. One day where we were chatting over lunch he said, “Hey, if you were to start a real estate company what would it look like?”
And so, I put together a little one page business plan and a proforma in Excel, nothing real fancy or sexy and said, “Hey, I think this is what we can do and I think this would be the vision of the strategy around it.”
And he said, “You know, I think this might work.”
And so we kind of sat down and worked out the rest of the details and said, “You know, I think this is something that would be pretty cool.” So July 2013, I left my job July 4th. How ironic is that? Well, I guess July 3rd is my last day of work. And then I did what any good entrepreneur did and I went on a family vacation for a week. We had already scheduled and then that following week we actually started. So we started July 2013 and we did six or seven houses that that first six months and anybody, at least that I’ve talked to in business, it takes about six or seven months to get things going. Your marketing is kind of rolling in, you’re getting deals under contract, you’re meeting with sellers, our sales cycles typically three to six months. So the follow up is important, but most people aren’t ready to make a decision the first time we meet them. So we did six or seven houses that first six months and then we knew we were going to start rolling and we had somebody really special approach us January 15th 2014 and we brought him onboard as our first employee and that first year we bought about 67 houses.
Danny Johnson: Wow.
Jason Bible: And this year we’re on pace to buy just under 100. I think we’re going to land somewhere between 92 and 96 for the year. So that’s kind of how we started and one of the reasons for our quick growth is we put a lot of money right back in the marketing for expansion. Although our balance sheet statement look great, we just really pour a lot of that stuff right back in the marketing just so that we can keep growing. For us we really just reinvested all of our revenue really right back into growing the business into our marketing.
Danny Johnson: Yeah, that’s a great way to do it. I know a lot of people do a deal, make some money and then go out and sort of blow it in, have a lot of fun with it and it’s kind of hard really to put it back into the business and grow and compound it. It’s an awesome way to grow really fast. I was wondering though I mean it sounds like you guys picked it up pretty quick though and started rolling along with quite a few deals, so how were you able to fund all of these deals? Did you guys have a lot of money to work with that you could buy these houses with? How did you fund all of it?
Jason Bible: Well, we started Houston House Buyers with $40,000. My partner put $20,000 and I put $20,000 and really all that money was for was for marketing. So $40,000 dollars for marketing plus buying houses really didn’t go anywhere, right? So what we did was approached private lenders very early on. In fact, our first three deals we actually used hard money for and that was I mean working with hard money lenders is fantastic and I recommend anybody who’s new in this business, first couple of deals work with a hard money lender. The hard money lenders I’ve worked with are great because they’re really not going to let you lose. I’ve seen some investors that’ll bring private money in too early and they really don’t have the experience to evaluate a deal and go through the process of flipping a house, managing contractors all that stuff, and it could really hurt them. And so my recommendation is always start out with – do a couple of hard money loans so that you know what you’re doing and then you can start bringing on private money, but our first couple deals were hard money loans.
Danny Johnson: How did you how did you find those hard money lenders and know that they were the ones that you wanted to work with? What was the process of finding and evaluating the hard money lenders to go with? Did you ever deal first also?
Jason Bible: No. I just had conversations with them first. How I found them, there are a whole bunch of REIAs here in Houston, ton of real estate clubs and really I distilled the list out of who work with based on how big they were. If they were one of the top three or four in terms of volume private money lenders in the city, then I knew they had a pretty good appetite for doing deals. There’s a lot of hard money lenders out there that will do two, three, four deals a month and those really aren’t the guys you want to work with. You want to work with the guy or gal that’s due doing 20 and 30 loans a month. They see a lot of deals, they know a lot of investors, they know the neighborhoods better than you will and that’s how I evaluated them and the other issue too is you want to find a hard money lender that’s got enough money. There’s a prevailing thought out there that hard money lenders have all this money and they really don’t. How a hard money lender works is it’s a mix of private money that they’ve raised and bank financing and in some cases, they have some institutional money. I know some guys here have got some hedge funds that are backing them up now. But you want to make sure that they’ve got all the loan volume to do to add you to their client list and do those deals. So that was really what I was looking for when I was evaluating hard money lenders. Maybe the other criteria I was looking at was, are they investors as well? There are some hard money lenders that are just lenders and there are hard money lenders that also invest in real estate as well. So we have a couple of those here in Houston. In fact the largest hard money lenders are also investors. They own a national franchise, let’s say, they are a home investors franchise for somebody else or they just run their own shop where they’re doing two, three, or four deals a month. So when I’m looking for hard money lender, that’s what I’m looking for, somebody that’s active in the business and is doing a lot of volume.
Danny Johnson: Great tip especially if you don’t have a lot of experience or have done a lot so you can learn a lot from them because they’re actually doing the business as well and not just learning from it secondhand from other people that they’ve lent to. I know there are some hard money lenders out there that just charge a fortune for the money and that’s why it’s called hard money, but what type of terms for these loans were you getting?
Jason Bible: Oh, it was typically three points at 13%. I think we did one like three and 14%. I don’t think those terms are all that bad. I mean it sounds like highway robbery but when you consider there really aren’t that many financing options for these types of assets, it’s not really that bad at the end of the day. What I’ve found is that people that complain about private money being too expensive, it’s usually because their deals are already too thin. So that’s an issue or a private money lender will not agree with their comps and they want them to bring more money to the table. It’s usually a combination too. If hard money kills the deal, it’s probably never a deal to begin with. Typical three and 13% and three and 14%
Danny Johnson: Yes. That’s not that bad because I find there a lot of people charging 15%-16% three to four points, so it’s all over the board. For the people listening if you go and talk to some hard money lenders and are telling you 18%, five points, six month term that kind of thing, start talking to other people because you’re going to find better out there.
Jason Bible: I’ll tell you what the killer is and I’ve been to a couple of national conferences now that has a focus just on hard money because we have some interest in possibly getting the hard money in the future. And what’s amazing to me is – and this in particular to the California folks and some of those other types of markets where not only is the hard money lender want three or four point or five points and 14% or 15% but they also want you to put 20% down regardless of how deep you buy the deal and I think that is just absolutely absurd.
Danny Johnson: They want skin in the game. Do you know if that’s just for new people or if that’s just for everybody in general?
Jason Bible: You know, in talking to these lenders, that’s for everybody. And I’m like, “You’ve got to be kidding me.” You can go to your bank. If you’ve got some pretty decent credit and a good job, start working with the local bank and a local bank or actually fund these things. We’re working with one now that we’ve got a line of credit with and we’re working with the second. And we’ve actually –to investors that we have wholesaled to, we refer them over to our bank and our bank has set up little lines of credit. They’ll do 20% down on a cost and repair basis and they’ll include repairs in. That’s 1.25% plus prime, I mean it’s insanely cheap money.
Danny Johnson: I think a question that some people might have in their heads when you talk –because that’s something that isn’t talked about a whole lot, is the small local banks. What kinds of things do those small local banks require to do these loans? Are they going to slow you down for buying the houses?
Jason Bible: No. Our banks can close in five days and typically the challenge we’ve got with the local bank is the backlog for appraisals. We’ve got so much real estate activity going on down here in Houston that appraisers are having problems getting out. They’ve just got so much business they’re having problems getting out there and look at the property. So our bank had literally fund and closed a deal within 48 hours if they can get an appraisal back fast enough. But if you’re working with local banks who work with other investors – I’ll give you a perfect tip for this. Find out who your top five hard money lenders are in your market and then this is a perfect time of year to go by their offices because typically the most hard money lenders have a bank that’s financing them on the backend. What I would do is go to the hard money lender’s office around the holidays and just look and see where they keep their Christmas cards. Usually it’s upfront somewhere by the receptionist desk and then just start flipping through and figuring out which banks are funding those hard money lenders.
Danny Johnson: Wow. That’s an incredible idea.
Jason Bible: I absolutely love it. I figured it out one day and I thought, “Oh, well look at this. Here’s Joe Blow for Enterprise Bank.” And then it’s got the guy’s name on it right.
Danny Johnson: Yeah and you find out directly who you need to talk to because there’s no convincing them. They’re already aware of how lucrative it can be to land on those types of deals, so that’s awesome. That’s a great idea.
Jason Bible: We can probably segway this and go talking about private money, I mean, that’s how I raise private money. I don’t go out there and try and convince mom and pop 401K corporate job person to start investing in real estate. I go find other real investors that have self-directed IRAs or have already done loans before. That’s the easiest way to get money in this business. Go ahead and talk to somebody who’s already done it, who’s got it.
Danny Johnson: Right, absolutely. Why work so hard to convince somebody when there’s people out there that are already doing it. You just have to find them.
Jason Bible: It’s interesting because when I tell people that strategy particularly for private money they go, “Oh, but I can’t.” I’m having problems finding real estate investors that have got money to lend. Well then I say, “Then you’re talking to the wrong investors because if they don’t have excess capital to lend, they’re not very good investors.”
Danny Johnson: Right. That’s the lesson to learn with a lot of stuff with this business. If you talk with three people and then you feel like everybody – like you’ve talked to a good enough sample, you know you’re way off.
Jason Bible: Yeah.
Danny Johnson: You’ve got to talk to a lot of people because you’re going to find –the majority of people are probably on the smaller scale, lesser basis with regards to real estate investing and when you find the ones that are the real deal, the whole opinion of everything changes.
Jason Bible: Yeah. I think that’s one of the biggest issues is you’ll get this, “Hey, I talked to six people regarding private money” or “I talked to five sellers and I haven’t gotten a deal.” You don’t understand, everyone says it’s a numbers game but in implementation, I don’t think they know what that means. I mean it’s literally talking to hundreds and hundreds of people until you start to figure out what does a motivated seller look like or what does a motivated lender – that’s one thing I don’t hear a lot of people talking about, is a motivated lender. I hear a lot of folks talk about – everybody has a potential to be a private money lender and I’m like, “Well, yeah everybody’s got a potential to be a motivated seller.” But 99% of those people are never going to lend and 99% are never going to say your house is going to make sense. So you’ve got to do some homework in distilling what those people look like. Otherwise you can spend a whole lot of time just meeting with people not getting anywhere.
Danny Johnson: Right. And the perfect example of that is you said at the beginning this episode for a period you were making 15 to 20 offers a week.
Jason Bible: Yeah.
Danny Johnson: Absolutely. I feel like that’s something that you should be doing every week. And then when you get better at it and you get better at filtering leads and finding out, like you said, who the real motivated seller is. You don’t necessarily have to make as many because you get better at determining where to spend your time. But yeah, let’s go ahead and go into that private lending. How did you switch from the hard money to private lenders? How did you make that switch?
Jason Bible: Well, I’ll tell you one thing I always wanted to do with private money is (A) find the people that are already lending and then (B) I wanted to show them proof of concept, in other words, have already done this. So how it worked for me is, we have already a couple of deals and somebody said I met this gentleman at one of these networking events and he said, hey I’m a lender and I’m like, that’s good because I’m probably a borrower and he said, well, let’s just go for coffee some day. So okay fine. We went to Starbucks like a whole lot of business gets done at Starbucks, I sat down and I said, “Hey this is what I do, buy and sell houses.” I think at the time we’ve done for five of these things and I said, “Here’s kind of our resume. Are you interested in lending? What are your concerns?” And basically within about 10 minutes he said, “Okay, you got a deal for me?” And I said, “Well, no. I didn’t bring one.” And I think that’s a good thing. You don’t want to give them some kind of a sales pitch and really that’s how I started the meeting out, I said, hey, maybe we’re kind of compatible or maybe we’re not. It’s a lot like dating. You know like, hey maybe this works for you or maybe it doesn’t and that’s fine, but let’s talk about how we work and what we’ve done. I think in order to raise private money, you’ve got to do so through action. In other words, I’ve done all this stuff already. I’ve done it with hard money lenders. I’m just looking for better terms. I’m looking for folks that may be easier to work with. Some hard money lenders can’t close as fast as private money lenders, so that’s certainly an advantage. So really that’s how I started and then from there we got one private money lender and his business partner we’ve probably borrowed $5 or $7 million bucks just between the two of them.
Danny Johnson: Wow.
Jason Bible: It’s really been quite lucrative just with those two. And then from there, I reach out to any of the local REIAs, hey do you need anybody to speak this week about doing deals. Do you need anybody to help sponsor a bus tour? Just getting your name out there to say, “Hey, we do a lot of deals.” And then at that point it starts to snowball into, “Hey, I got money to lend” or “I’ve got the self-direct IRA” or “I got this IRA from an old company I used to work at and I’d love to do real estate. I flipped two to three houses. How do I get that into a self-directed IRA and start investing with you guys.” So that’s really what it is. Just get a couple under your belt with a hard money lender and then just network your butt off and find those investors that are already investing in real estate who are already lending.
Danny Johnson: Right. So that’s absolutely the key, what you’ve just said. If you don’t have a lot of experience and you’re thinking hard money lender that’s going to cost a fortune but you don’t look at it that way. You’re getting your foot in the door getting a chance to learn and getting the experience to move on, then from after two, three or four deals or whatever it takes to being able to be someone that a private lender’s going to want to work with so you’re not begging them, you’re just showing them “Look this is what I did. this is what I meant to continue to do. Here’s the numbers for the houses that we’ve done. Do you want to be a part of this?” And like you said, within minutes, the real private lenders are going to say, “Bring me a deal.”
Jason Bible: Yeah. They sit there and look at it and go, “Geez, this guy has done four or five of these things in the last six months.” And the other dirty secret in the private money business is that most investors don’t have the volume to keep private money investors money at work all the time. As you grow in your business, even if you’re only doing one or two deals a month, you’re constantly rolling those dollars into the next deal. And private money lenders, their first concern is, is this guy not going to lose my money, right? Most folks we work with are at or near retirement with the exception of some real estate investors. We worked with you guys that are 40-50 years old that are still in the game. They just have self-directed IRA they want to put to work. But the little secret is (A) is this person going to be able to protect my principal, in other words, are they going to lose my money, yes or no. And then the second one is the return is really not all that important as much as it is you gotta keep that money at work. And so, private money lenders in a lot of cases like to think they’re passive investors and they’re really not. And it has a lot to do with the investors they have working their money. One of the promises we were able to make pretty early on was, “Hey, if you commit $200,000 we’ll probably be able to keep that money at work.” And at most, there’ll be a gap of maybe two weeks from one closing to the next. This isn’t something when you’re first starting out you’d be able to do, but when you get a couple of those deals rolling, they’ll start to see it and you’ll be able to have an educated conversation with them to say, “Hey you may be getting 12% but your money maybe sitting a month in between each one of the deals and when you really calculate your return it’s somewhere between 8% and 9%. So how do we do this instead, how about you just lend your money to me at 10% and I’ll keep it at work all year long. A lot of private money lenders really latch on to that message. You have to have a little bit of a track record and work with them for a while but really that’s what it is. And when you talk about the growing, that’s the most important part, right? You get your foot in the door with the hard money lender so you can go to private money lender and say, “Hey, I’ve already done this” so you get better terms and then you keep rolling it from deal to deal. And then you can again go back and negotiate those terms for a longer term commitment and a lot less interest.
Danny Johnson: Right. And so what kind of terms were you looking at in the beginning with the private lenders, interest rate points are anything and then term and if there’s any extensions on the loans and all that stuff.
Jason Bible: So we start out with hard money which was three or four points and in between 12% and 14%. Our first private money lender, he’s very active and he almost has hard money lender rates and it’s two points and 12%. So we were able to shave off some points on it and a point or two in interest. Now we balance anywhere between zero points and 8% all the way up to zero point and 12%. So that’s our typical our typical term and then we’ve got some bank money that’s prime plus 1.25. I think it’s like 5.25% or 6% something like that. It’s pretty inexpensive. The way I look at it and I try to explain this to a lot of investors, it’s kind of like when you first start working out, you’re sore single day and it’s an absolutely miserable experience. But as you begin to eat right and work out more, you get more efficient. Borrowing is very similar to that where you pay the high rates with hard money lenders and you get a private money, and then you go from private money into cheaper private money, into bank financing, and then to quite possibly if you want to build your own fund. You just get more efficient at your business and your money becomes more efficient.
Danny Johnson: Right, absolutely. Now what kind of – because most people talk about the points and the interest rate, but let’s talk a little bit more in depth about it. So what of – because I have some lenders where I don’t make any payments until I sell the house and I just pay all the interest at the end and then somewhere I’m just paying interest only monthly on the money borrowed and everything is always included as far as the purchase price plus repairs because I’m buying at a certain percentage below market value. How is it for you? Would you find the same thing?
Jason Bible: Yeah, absolutely. A lot of times when we started out early on, we were making monthly payments and then – well, it would depend. If it was going into some guy’s checking account, he wanted to see a monthly payment. If it was going into his IRA, we would just defer the interest payment until we close the deal. And now, I’ve just told private money lenders I’m like, look, we’ve got at any one time between 30 and 40 houses that we are either buying, selling or rehabbing. And granted we can go into Quickbooks and set up a schedule and send out checks and all that. But the problem is, let’s say, we’ve got you know one private money lender that’s got three houses, one closes this week, one next week, and one the following week then he’s funding another deal two weeks from now. So what ends up happening is we may send a payment. He doesn’t get the payment before closing and then we’ve got a pay off and then he has to refund that payment and it’s going into his IRA and now we’ve got lenders who are pooling with other lenders to lend her another deal. So then I would have to write a check like to five different IRAs. I’ve just got to the point where the guys, “Look, we’re just not making payments anymore.” It’s too much of a pain in the ass to manage and really that started pretty early on. And they had already done a couple deals with this and they just said, “Yeah, we don’t care. Just that’s mine.” And to be honest with you, they didn’t want to manage it. They really came to us and said, “Do you really want to send us payments and all this stuff?” And I said, “You know, to be honest with you, no.”
Danny Johnson: It just makes it easier for everybody, right?
Jason Bible: Yeah, I mean, imagine I’ve got these couple of guys that have pulled some dollars together and it would be like one guy’s checking account and then the other guy’s IRA and then the second deal would be like both of the guys IRA, one of the guy’s checking accounts and his wife’s IRA. And I have to send them – one group of my lenders, I had to send them 10 checks a month for three deals and they just got tired of doing that. When you start to look at it, you’re just tired of doing the math and then when you have to do that the payoff at the end and hey, did you get all the interest for the month and then you got a pro-rate it and it was like, okay this is this just doesn’t make any sense. We’re making this a lot harder than we need to. So now what we do is just we agree on a rate and they agree on you know the numbers. Obviously, the numbers still have to work, in other words, how much are you buying it for the rehab and the ARB and that’s what we put in for the loan and that takes care of itself. With regards to repair estimates or repair costs, all that stuff is included in the loan in most cases. If we’ve got a little deal and we’ve been doing a lot of these lately where the rehab is under $15,000 we don’t even ask for the rehab any more. We just say, “Hey, look just buy the thing and we’ll rehab it and put it back on the market.” They’re fine with that. Most the time we do is, let’s say, the rehab is under about $50,000 we’ll do one draw so they don’t have any more than the construction into the loan, so let’s say, we’re doing a house, $200,000 house needs $50,000 rehab. We’ll do the $50,000 rehab. And by the time I get around to sending them an email for the construction draw, it’s usually already listed. So I’ll just ___ [0:32:45] and say, “Hey, guys we’d like to make that $50,000 construction draw in one draw. By the way here’s a picture of the house. You guys are welcome to go by the house and take a look at it.” Houses about $50,000 rehab typically will do two draws, halfway through somewhere, let’s say, it’s $100,000 rehab, we’ll do a $50,000 draw, send them a note, say “Hey, we’re halfway through. Here are some pictures.” In fact, some of the lenders don’t even want pictures anymore because they don’t like it clogging up their email. So they’ll just say, “Hey, just let me know how much you want and when you want it.” So okay fine. For new investors that sounds crazy, but as you start to work with these private lenders, they’re trying to reduce the amount of work they actually want to do for the most amount of return. So a lot of times I’m just sending them an email and say “Hey, we’re taking a $50,000 draw on this. Here’s our wiring instructions. Send it over whenever you get a chance.”
Danny Johnson: Yeah it’s really awesome. It’s nice when you get to that point and it doesn’t honestly take that long. Some people listening might think, “Well yeah, they’ve done it for years and they had to build up to that.” It just depends on the lender really because some private lenders, especially if they’re just doing some of the retirement money lending, they can be getting comfortable after two deals with you to where they don’t really want to know anything. Obviously you’ve got to be on the up and up and be a good person and not take advantage of anybody and people will be willing to do that with your. It makes it so easy when you can do that with all the parts of your business and get all these things where you don’t have this back and forth for everything, so that you can focus on just getting more deals.
Jason Bible: You’re right. It doesn’t take 100 deals to get to that state. I mean, you’re talking two or three deals and if they if they begin to realize that you’re a professional operator, they look at it just like lending. Look at it this way, they’re not calling the mutual fund that pays a dividend every quarter, “Hey, where’s my dividend payment?” I mean, nobody does that, right? So what they’re trying to figure out in those first couple of deals is, “Hey, is this a reputable operator that’s not going to lose my money. In fact, are they going to make any money with the least amount of drama as possible?” It literally only takes two or three deals to get to that point where it’s a machine. In fact, they start calling you. I’ve got a new private money lender we brought on board a month or so ago and we’re closing to sell that first deal I think next week. And he’s already calling me, he’s like, “Hey, I’m ready to do some more. I just want to churn and burn [0:35:26] in this thing.” And in fact, what he’s doing is he’s getting a couple of his buddies from work and they’re all putting together little LLC and pooling all of it and lending it to us. For them, they get it. If you’re really operating like a professional operator – that’s one of the things it’s kind of interesting is when you talk to people about “Hey, I’ve talked to this person” or I’ll even refer private money lenders out. If somebody says, “Hey, I got a deal that I need to fund,” I’ll send that information over to one of our private lenders and then our private money lender will contact them and set up a meeting if they want to invest in one of their deals. And I’ve heard investors that I’ve done that with who will call me and say, “Hey, I’m really interested in the deal. Can I give a little presentation?” Then I talk to the private money lender and they basically said I’m not sure if they really know what they’re doing from an operational standpoint, not that you know what you’re doing as far as rehab. It’s like managing any project, right? But they get this feeling like they’re not a professional business owner or operator and that doesn’t necessarily mean that if you’re new, you’re not professional and a good operator. I mean, if you’re somebody who’s been in corporate America, has been great project manager for years, then you can do this business. It’s not that hard but there’s something there that they have some trepidation about. So yeah, you don’t have to spend years and years doing this to where you build up a cash, if you will, private money lenders that are just ready to start lending to you. It really is, I mean, it is a people business but they can tell if you’re a professional operator or not.
Danny Johnson: Right. And you just need to be anyway. You need to run a business like it’s a business. If you’re sold on this business because you think that you can do it sitting at home in your underwear all the time. It’s not realistic.
Jason Bible: Good luck with that.
Danny Johnson: Maybe eventually you build up to that after 10 years or something. But it’s definitely not just going to get into it and be that way. It’s going to be work.
Jason Bible: I’ll tell you what, all the guys that I know that are – some of them have net worths in the hundreds of millions of dollars. I’m in my office right now and the guy that owns our building we’re getting to know pretty well. He owns 6,000 units down here and he owns this building and a bunch other stuff and I don’t see him in his undies at home hanging out. He’s up here working just like anybody else.
Danny Johnson: That’s right. We’ve got a whole lot of awesome information in this episode already and the one thing I still want to touch on though that people need to be aware of is if you are reaching out for private money, there are some SEC guidelines that you have to follow. Are you aware of any of those that we could talk about? Stuff to just be careful of?
Jason Bible: Yeah. You know what I do, I have always worked with folks who would be considered a credit investors. And there are a couple of reasons I do that and I haven’t been so concerned with the SEC issue – well, let me back up. The only times I’ve ever seen the SEC get involved in real estate stuff is when people start losing money. I know they came down on one of the real estate clubs here in Houston and with regards to how they were raising private money. I think you have to be really careful on the solicitation side. I see it on Facebook all the time where somebody will put up, “Hey, we need money for this deal at 12% interest and here’s all the numbers.” I’m not an expert, I’m not an SEC attorney, but I don’t know if that’s legal.
Danny Johnson: Yeah. I don’t think it is. I don’t think you can talk specifics when you’re reaching out to a general audience.
Jason Bible: Yeah. I don’t think you can either. A lot of times what happens with us is we talk about doing deals and private money lenders approach us.
Danny Johnson: Right.
Jason Bible: And these are probably the private money lenders that have net worths in the millions, tens of millions and in a lot of cases. So we’re not dealing with mom and pop who’s got a net worth of $200,000 and we’re trying to borrow $50,000. Not to disparage that in any way, but the person who has a lower net worth, if you will, is typically less sophisticated. In fact, our private money lenders, when we just getting into this business, are way more sophisticated in this business than we were and they knew that going into – I mean, there was no hiding that fact, right? A couple of these private money lenders have been in real estate for 25 years. Those are the people that we typically work with and there are those guys and gals in every single market across the country. So don’t think that if you’re in some small market, there’s not somebody who’s got a significant network that’s not investing in real estate. That’s, I think, that’s typically how we avoid some of the SEC entanglements. I’m not out there saying, “Well, how much money do you have?” The other thing too is that we don’t tell people what we “pay” for money, so we’ll have private lenders that after a series of time where we’re developing a relationship with them, they’ll say, “Hey, what kind of interest do you pay?” And I said, “I don’t know. What you want?” They always had a smile and they say, “Well, I want five points and 20%. I said, “Well, I’ve got this Excel spreadsheet I keep in my office and I’ll put you on the spreadsheet, but what we do is we start with the lowest money first and then we kind of move on up that list, so there may be a deal in the future that five points and 20% makes sense, but your money might not be at work for a long time.” Then they say, “Oh, okay. I got to make sense.” So then the question is, “Well, at what point is my money competitive?” And I’d say, “Well, this is what we see in the market.” In the market I see some folks paying 8%, some paying 12% and then a lot of times they’ll ask the question, “Do you pay points?” And typically I’ll say and this is my favorite response, the last guy I tried this on absolutely loved it. I said, “Well, do you like sleeping at night?” He said, “Well yeah, what do you mean?” I said, “Do you ever worry if I got your money to work that you’re not going get paid back, you’re not going to make your turn?” And he goes, “Absolutely not.” And I go, “Okay. We don’t pay points.” And he goes. “I see.” And I said,” Yeah.” There’s probably somebody out there, another investor, that will pay five points and 20% for your money, but the reality is, the investor that is paying that much more than hard money they don’t have any other options and there’s a reason for that. That discussion we always have is, “Look, I like to talk just about interest rates because unless you’ve got tens of millions of dollars, we can probably keep that might work damn year, year round.” So it makes their return look a lot better when you don’t have to pay points, but that money is always at work. That’s typically the conversation we have with them and I think that avoids a lot of the SEC entanglements one can have.
Danny Johnson: Right, yeah. Like you mentioned, it’s usually dealing with solicitation. And as we mentioned further back in the episode as far as finding people that are doing the lending already. It’s not like you’re finding somebody that’s never done this and convincing them to lend money on your deal. You’re finding people that have already done this before and then like you said at the REIA meetings, the real estate investor association meetings, finding out who’s doing some lending, taking them the coffee, talking to them and telling them about deals you’re doing and they’re going to say, “Hey, I’d like to lend on one” or something like that. It’s very simple.
Jason Bible: Yeah. I can’t encourage your listeners enough to do those first couple of deals with a hard money lender, that way when you’re sitting down with some potential private money lender that’s already done some investing in real estate, it’s not a discussion on, “Well this might work” or maybe you’ll – I mean, you know better probably just about anybody that there are so many people that never get off home plate or even step up to the plate to swing in this business. And when those folks self-identify themselves as private money lenders, they have a flock of people that come to see them. Let’s say, if they say at a meeting “Hey, I’m a private money lender.” There’ll be 30 people standing there next to him wanting to talk to him. But the reality is 29 of those people are never going to do a deal in their life, so when you reach out to contact one of those private lenders that you meet in a REIA meeting or you trade business cards and they say, “Hey, I’m a lender” and you could say, “Hey I’ve already done four, five, six deals…” or maybe it’s two or three deals and “…would you be interested in possibly doing some lending with us?” “Oh yeah. Okay. Let’s go to coffee or chat somewhere else.” So I think that proof of concept or show what you’ve actually done something in the past is so incredibly powerful in this industry.
Danny Johnson: Oh yeah, absolutely. What Melissa, my wife, and I did when we were cranking up and getting some new private lenders is we put together – and we hadn’t even done too many deals at that point, but we had put together sort of like a booklet. I had maybe five deals with pictures of the house before and after and numbers for the deals. And man, what that shows people because if you’re sitting across from them telling them numbers, a lot of that’s just coming in one ear out the other. But when they’ve got pictures with houses with addresses and stuff like that, of deals that you’ve already done showing that you know what you’re doing, that just goes so so far with them.
Jason Bible: Oh yeah. One of the things that we do is when we’ve got new private money lenders is they always ask – and it’s the same question, “Can you like send me some stuff?” What stuff do you want? We’ve got a private lender – always love asking the question, “Would you send us some stuff like, what the docs look like.”And what’s so fascinating is when you start having that discussion, they’ve already said yes. At this point they’re just trying to figure out, “Okay, what does this thing look like and what’s going to be required for me” and that sort of thing. So we actually have a Google Drive account set up just for new private money lenders and we just sent them all the – hey, this is the document. Here are some samples, houses that we’ve done in the past and then we have a Google Drive count that has all of our ___ [0:45:52] in it, so we just send them all the ___ [0:45:54] and say, “Hey, here’s all the buy and the sell.” And in some cases we will give them referrals to other private money lenders that we’ve worked with which is very powerful. So I think showing them all that stuff and they get overwhelmed with all this information. What’s fascinating about that approach and what I love about that approach is it really gets to the heart of, “Are you really interested in lending or not?” It could be maybe they just don’t like your personality or something or they just really don’t want to lend for some reason if that’s someone who hasn’t done any lending in the past. So it’s an interesting way to really set expectations early on like, “Hey, I’m an investor. I do this all the time. Here are some pictures. Here’s what we do.” Interested or not – I don’t want to he was, you’re not necessarily selling but you’re really having a discussion on, “Are you ready to do this or not because we are.”
Danny Johnson: Yeah. But what’s so awesome about that too is how many other investors that approached them, like you said, with the example at the REIA meeting 30 investors run up and one of them is probably really worth looking at to do lending on in with everything that you just said with the Google Drive and everything is very professional. How many even experienced other investors have that, that they show these lenders.
Jason Bible: Yeah. I would imagine it’s a pretty small group.
Danny Johnson: Oh yeah. Well awesome. Jason you’ve shared a ton of great information with everybody about getting funding for deals and I know a lot of people are sitting on the sidelines who have learned a lot about getting started in real estate investing and flipping houses but I haven’t done anything because they’re asking themselves, “Where am I going to get money to be able to buy these houses and do this?” And I think you share pretty much the roadmap in how to do it. And like you said before, it takes action, it takes getting out there and talking to enough people, and doing enough marketing making enough offers to get leads, to get deals, and go from there.
Jason Bible: Yeah. ___ [0:47:58] be any reason the deal didn’t close. I know the old Bill saying, “Hey, you find that deal the money is there.” I mean you still got to work to find that money, but yeah just start networking. There’s plenty of money in your local REIAs from other investors who are investing. There shouldn’t be any reason. You got to go out find it.
Danny Johnson: Yeah, yeah absolutely. Hey, is there a place that people can find you that are listening?
Jason Bible: Yeah. Probably Facebook is the best place right now. If you just search for Jason Bible, last name spelled B-I-B-L-E in Houston Texas, I do a lot of stuff, if you will, on Facebook. I’ve spoken in a lot of conferences. I just got back from speaking at the National Fortune Builders conference about a month ago and I started a series on Facebook called Twelve Weeks to Awesome, you spell twelveweekstoawesome all one word and it’s a group of a few hundred of us. I think we might hit 200. We only started the group about a week ago and I’m just doing videos and some commentary on how to start in real estate. In other words, if you spend 12 weeks really just getting after it, start a business, this would set you up to start doing a deal or two in the next few month. So find on Facebook that’s the best place to interact with me and then if you’re interested in starting at real estate, twelveweekstoawesome is a great place to do it.
Danny Johnson: Great. Cool. Well thanks again for being on the show.
Jason Bible: All right. Well thanks so much for your time.
Thank you so much for listening to the podcast. I hope you enjoyed this episode. We’ve got a lot more great stuff coming up, so be sure to subscribe on iTunes. And if you would please leave rating and review for the show I’d really appreciate it and we got a lot of good stuff planned for you. Be sure to go to the show notes page at flipping junkie dot com slash one five – that’s the number 15 – flippingjunkie.com/15 to get the guide for finding an approaching private money lenders as well as the other key points from the show on the show notes page. All right. Well thank you very much and we’ll see you next week.
Fantastic show, Danny! I really appreciate your focus on building business and bringing on guests like Jason that REALLY know their stuff – the mindset talk and pep shows are great to a certain point, but it’s harder to just find excellent, to-the-point info that shows an investor how to get it done. Keep up the great work!
As a person extremely motivated and anxious to get into investing in real estate, this was probably the most informative piece of education I’ve found thus far. The financial side of the business is really the primary factor holding me back right now. Finally, a person with great experience flat out saying hard-money is definitely a great starting point eliminates a ton of questions. I wouldn’t mind another podcast that goes into even more detail of searching for, contacting and actually interacting with a hard money lender.
Looking forward to the next podcast. Thanks Danny and Jason!
Thanks, Randy. I’m starting a series for the podcast where we start with mindset and creating the right foundation and then move through each aspect in an order that makes sense for people getting into the business. We will for sure do an episode focused on hard money. I should invite Jason to do that episode.
Very useful and encouraging article; after 5 years working as a real estate photographer and observing agents, I myself have become interested in investing.
I always wanted to make handsome investment in real estate but was not pretty confident. Your article has elaborated things for me for good reason. Thanks for sharing.
Wonderful article. It inspired me to invest more in real estate market. You have also suggested ways to arrange for funds. Thanks for your effort.
If possible, I would like to find out how Jason funded his first buy and also the very quick next four.