Welcome to Cleveland real estate investor. On this podcast, you'll hear about every aspect of the real estate investment business. You will talk to your rockstar investors about their businesses, how they built them, where they came from, and where they're going. Who am I? I'm Joe Lieber and I've made millions of dollars from the real estate investment business over the last 20 years. If you're ready to hear the good and bad from a guy who's learned this business from the school of hard knocks and get educated by some bad ass entrepreneurs, then put your helmet on, strap on your chin strap. Let's ride.
(00:36): Yo, yo, yo, what's up? Thanks for tuning in to another episode of Cleveland real estate investor. I appreciate you being here. Hopefully you're enjoying this. We're doing episode number seven now and today is going to, we're going to talk about private money, money, money, money, love talking about money. So first, let's start off with the differences. The difference between private money and hard money. Here's the difference between private and hard money. Okay. Hard money is very, very expensive. It's a things like 10 points, 18% would be hard money alone. It's very high risk. Typically for someone who's lending it and it's almost like loan shark and man, it's stuff's serious. Seriously expensive. I would never have, nor would I want to borrow hard money. It's just too expensive. It's usually people who don't have the experience and don't know where to go to get private money and they're going to pay a fortune for it and if that's your only option to get into the game, you got to do it.
(01:37): You got to start somewhere. I mean it just is what it is, but it's expensive. So I like to borrow private money when I borrow money or I lend private money even better, and here's what that is. It's cheaper, it's still expensive, but it's much cheaper than hard money. Private money, it looks like this. Private money can be zero points. One, two points is charged somewhere, three points, maybe four points. Who knows the pen, your experience level pin on the deal. And rates are usually between seven and a max, 12% and that's ever changing depending how available money is to the marketplace. Like right now at the time of this recording, well Coronavirus is huge and there is just tons of private money out there. Nobody wants to be in the stock market right now. Nobody, people are losing money in stocks 401ks everywhere. So they want out of that and they want to put it into hard assets.
(02:31): So when you have that, all that opportunity to raise the money out, their rates come down, private money rates come down. So you could probably get money for seven and 9% right now if you have experienced on the right deal. So it does happen. But I've just explained the difference between private and hard money right now really is what I'm trying to do. So private money, I want to tell you a story about the first time that I actually ever raised private money. So I got into the game in 1998 and I never raised private money. It was always just taking traditional bank loans or wholesaling something or something like that where I never raise private money. It wasn't till like 2010 is when I finally took my first private money loan. And it's crazy like the rush you get when that happens cause think about it, the person you're raising it from, they earned that money.
(03:24): It's a lot of money. You know we're talking, you see a hundred thousand dollars blocks of money and they believe in you enough to say, Hey, I believe in you. I like your vision, I trust you and yeah, I'm going to lend you money man. There's no better feeling than that. It felt so good the first time I got it, I couldn't believe somebody actually wanted to invest in me basically. And then yeah, after that happens in reality is that you start saying to yourself, well who the hell wouldn't want to do this? Right? You typically a good real estate investor should be buying assets of 50% of the after repaired value. And that's really what the investors lending on the purchase price of the asset against after repaired value. So if you have a $100,000 house, typically you'll buy it for 50 that's a pretty secure deal. I actually had an investor wants to said to me, private money investor.
(04:14): He goes, man, I hope you screw up. I love this neighborhood and this would be a deal, right? It's, it is a deal. He's like, I want it myself, but you didn't control the deal I did so he said, the next best thing about us, lend on it. Watch you do all the work over here. Even if you do half the work and screw up, I'm going to take the house I have to work done. He was right. There was a dream job. It was a no lose for him. Of course, I didn't screw up obviously. How could you buy a house at half price, but it just made sense. Lending in a house a 50% he went a hundred percent of the purchase price. Now you'll see a lot of private money lenders or hard money lenders that want money down on the purchase price even though you're already getting the house at half the value.
(04:57): But when I raised money because I have experience with it, I get 100% of the purchase price and I even get rehab funds too, so I would borrow $75,000 at go pay 50,000 for the house, have $25,000 to rehab the house with, so I don't have any of my money invested. Now I will say that takes years and years. It gets to, it takes a lot of relationships. People get to know who you are to do stuff like that, right? It takes a while, but you can build into that where you can have none of your money into these deals and still make a handsome profit. I have lent money to a few local real estate investors here in town and I lent her into those terms and I didn't even know them. I just knew they were experienced real estate investors and I stupidly am a very trusting person, but that's just how I'm built.
(05:43): Whatever, and it didn't worked out fine. There was no issue. They were great guys. I still continue to lend to them. I hope I can lend more money to them, but I lent 100% of purchase price plus repairs and you know, it worked out well. So you can do that and are investors that will take that risk with you and it's worth it. Or you can still raise the money on draws. If you have an investor who will pay for the house and give you 25,000 let's just say for example, to repair it, you can do a draw schedule. Give me 5,000 bucks to get started, come out and see that I've put the plumbing in or the furnace in John another 5,000 after the plumbings and draw money for the roof. Pay the roofer directly. There's ways to structure these deals, get people involved where the, the private money lender can feel comfortable and secure and still make it Evan Tejas for you and him, he'll get a handsome return.
(06:33): You're going to get yourself involved in a real estate deal. It really makes sense. I've even been doing a lot of joint venture agreements. You know, I have people call me who bring deals to me all the time. Hey man, I got a house over here in Brook park and it's a deal. It's, you know, 55,000 it's worth one 30 it needs 40 but I wanted to do this deal and I'm coming in and I'm lending on it with them, you know, and we're doing a joint venture together and I advise people to the deals because I see younger guys younger now. I mean it's younger guys, younger people in the business in general who are older than me that have no idea. Oh God, I don't know. Should we do the dry waste? Just replace a couple of blocks. You should do the whole driveway.
(07:08): I go out there and kinda, you know, massage them through it and explain them. No, don't do this. Don't do that. Turn left. Don't turn right. So many years I've been doing this. I can see around those corners, man. It's worth it. It is so worth it. Owning a brokerage for 20 years. I work with so many first time home buyers. I know what they want. I know I've sold so many palaces. The first time home buyers. I know what happens when they walk in and the wife runs to the kitchen and then she runs the bathroom and the husband just kind of standing there looking at the roof. He's looking at the driveway, he's looking at the windows, he runs downstairs and looks at the furnace. It's different, right? The thought process of husband and wife's, especially young first time home buyers. And I am taking younger, younger real estate investors trying to get into the game and show them these things that I've experienced and help them through these deals.
(07:50): And it just becomes a wonderful joint venture opportunity. But back to this money thing. So people are getting crushed right now, especially with this Coronavirus 401ks are down, the stocks are down. It's so valid. It's ridiculous. Like everyone wants a loan on a hard asset cause I'm going matter what happens. The principal always remains because the hard asset is always there and always throws an ROI. I talked to stock investors and 99% of them don't take a dividend check. So even if you have a hundred GS in the stock market and it goes up 10% and you make 10 grand, they don't call their brokers and say, Hey send me a check over here for 10 GS, leave my Hunter and play. No one ever does that. They have to reinvest their dividends. It's probably real estate so much. Cause if you take a hundred GS and you have to buy a house, you buy a cash flowing asset that rents for 1500 bucks a month.
(08:42): You got your hundred grand out there every month, you're taking the check, you take it and put it right in your pocket. 1500 bucks every month. So I know you didn't come to this podcast for me to explain to you how awesome real estate is. You've already heard it. There are way educators out there than me. I can tell you how awesome real estate is, but this is just some of the things. So private money and why people are excited about private money and they should be over the stock market and other alternative things out there. So, yeah, that's all I really want to say today. I just want to talk to you about private money is very easy to get right now. It's all over the place. You can get it cheap. Everybody wants to lend and is secured by real estate. Obviously you're going to secure them with a first lien position, mortgage to the property.
(09:24): It starts with conversations. It's very easy to get. You wouldn't believe people really, really, really do have money out there. They really do. It's all over. Older folks. I see him. I'll be standing in line at the bank. I know we've all seen this and this. A little lady in front of Akos. I want to renew my CD and you're thinking, Oh my gosh, you're getting 0.005% if I paid you 5% that's five fold. What you're getting now secured by real estate. Holy smokes. They have no idea. It's just an education process. You have no idea. Educate, educate them and real estate. It's not like it used to be. It's talked about everywhere. Everywhere you look online, there's bigger pockets as always. Websites. Robert Kiyosaki, I mean everywhere you look now, did we hold on my real estate and people know and they know what's out there and you just sit there and you can present them with an opportunity.
(10:15): Would you ever consider, you know, I never went directly at people and said, will you lend to me on this house? No. I would say, Hey, I'm buying a house now. If he can relate it to them, like if they live in like Brook park or Parma, he's like, Hey, I'm buying a house in Parma and you know it's $40,000 and it needs like 25 worth of work. Do you know anyone that you could refer me to that might be interested in doing a private loan against that? And it kind of deflects it right? And they were like, well, why? Why are we interested in doing that? Now? Many times that's happened a lot. Most of the time. So that's just a great way to raise capital and the nonchalant way they're asking, but you're asking him directly and sometimes they might hook you into someone who does lend money or someone who might want to have a stable return on investment.
(10:57): Let me explain everything to you. I do interest only payments for investors, so take this for what it is for yourself. So let's just pretend I raise money at 8% or raise a hundred grand at 8% that's 8,000 bucks a year. So I will pay someone monthly over the course of the year and eight grand, it would be $666 a month for a year interest only and at the end of the year I still owed them a hundred grand back. So it's just interest only payments at 8% really, really cool. Give us some cashflow and they don't have to worry about their principal balance going down. A hundred grand remains in play. This is a quick example, so hopefully this will shed some light for you on private money and hope you enjoyed the show today. Thanks for tuning in.
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