What are your pain points and what are you struggling with when it comes to private lending? Is it finding private lenders? Is it convincing them? We answer these questions about private lending, minimal risk investments, and a whole lot more. Join us on this episode as we conduct a Q&A session with Mitch Stephen, his students, and other entrepreneurs on his bus tour. Mitch is a self-taught entrepreneur and the author of the book, My Life & 1,000 Houses: The Art of Owner Financing. Keith also introduces the podcast and the reason he’s doing it.
What I’m trying to do with the show and my online courses is getting people trained up and ready to be private lenders for you and for people like Mitch. I’ll give you a little background. I started this show on January 1st of 2018. The way this all came about was because I have a day job that I like. I do insurance adjusting for the oil field. I don’t deal with homes. I don’t deal with autos. I don’t deal with feelings or soft tissues. None of that. I deal with oil field equipment, big money and large item stuff. One day when I was walking out of Lloyd’s of London, I realized, “I handle a lot of other people’s money,” but I love my day job and there’s a lot of promise with that. I have a little equity in the company that I worked for, but I wanted to stay involved in real estate. The best way I could do that was through private lending.
I get to stay around with heavy hitters, people who do it every day. I get to learn from them whether they want to teach me or not. Oftentimes, I’ll make them hold my hand and walked me through their transaction. I got a call from a guy who I used to loan a lot of money to who said, “I’m switching over to wholesale.” I don’t need money, but my friend Landon needs a private lender. One of the first things that Landon asked me was, “Have you ever heard of Mitch Stephen?” I was like, “No. Who’s that?” To make the long story short, Landon and I started in LLC and now we do owner financing out of that LLC. It all started with a private lending contact. I don’t loan to the LLC because I do most of my lending out of my self-directed IRA. I like to sleep at night. I like to keep things above board and very transparent. I don’t loan to the LLC that we do our owner financing with, but it doesn’t mean we can’t use other people’s money or other people’s IRA.
Fast forward to about last September 2018, I was forced to take a family vacation to the beach. I’m not a beach person. I’m a mountain guy, but when you have a wife and two daughters that love sunshine, you do what you have to do. While I was miserable and destined, the idea struck me to start the show. Mitch does bust his tail and a lot of you do try to find private money. I’d like to bridge that gap and be able to get people who aren’t necessarily versed in real estate who aren’t going to go out and flip or landlord but might have that 401(k) or an IRA sitting around. Maybe they got lucky and inherited some cash, but they can put it to work. What I’d like to do is bring everybody together and create an economy by which we don’t need banks and we don’t need Wall Street brokers getting paid. I’m not going to begrudge anybody for getting paid, but when you’re losing my money, why should I pay you a bonus? That’s the way I look at it. It’s a meritocracy. That’s why I like private lending so much because I can pick and choose who I work with. The students or the gurus, I get to choose them who I work with as well.
When I kicked off the podcast, it got us going slowly, but there’s been traction little by little getting more and more episode downloads every month. It’s getting more and more interaction with people. That is going to lead to the Private Lender Academy, which is going to be the funnel to bring in your dentist, your orthodontist and your people with money who want to invest and help put things to work in your projects. We’re going to start that in an online community. Hopefully, by this time next 2020, we’ll be talking about having functions with Mitch and other people. I’m bringing everybody together so that you can introduce yourselves and your businesses to private lenders and negotiate the terms. That’s the other beautiful thing. Everything is negotiable. Nothing is taken for granted. It’s not like walking into a bank. I’d like to bring these two groups together and create this economy. I’m looking for from you. Besides indigestion, what are your pain points? What are you struggling with when it comes to private lending? Is it finding private lenders? Is it convincing them?
It is convincing private lenders. I know people who have money, but they were skeptical.
You need to realize that it's not about you, it's about the deal. You just need to explain to them.
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Are they skeptical of you or is it your process of doing the owner finance and having them fund the first lien?
I’m not sure. It’s the insecurity on their part because you don’t think that you deserve the money or like, “Why would anyone loan to me?” You can get over that. This is not about you. It’s about the deal. You just need to explain to them. They need to realize that it’s not about you, it’s about the deal. You either going to get paid this amount of money or you would get this house and this is how much you have involved. If that’s not a value to you or you don’t see how you’re protected with that, then don’t do this. It’s pretty cut and dried. I’m not going to force someone or talk someone into doing it. If they don’t see it, I’ll just leave them alone and go to the next one. You start getting into trouble when you start pushing round pegs into square holes. The other thing I want to address is create your own economy. That’s how I learned to move. I had my own economy during the recession. I didn’t need a bank. I didn’t need anyone to support me except for the team that I had built, which was my private lenders, my clients and my sellers. It’s about creating your own economy. You have to create your own economy from the very beginning until the end so that when there’s a slow down or if there’s a bump in the road for everyone else, it doesn’t affect you.
Manhattan Luxury Real Estates had four consecutive quarters of decline so there are some potential signs and writing on the wall that we may be coming in for the next market cycle, the next correction. What happened in ‘09? Who was lending money in ‘09? Not banks, it was private lenders. Part of my job is to get people over the hump to see that this is a good deal. That their money is going to be protected. Yes, there are risks in everything. I just read any prospectus from Schwab or Fidelity, but you can mitigate that risk. I’m trying to get people over that hump to when then they come to you, they’re ready to go. If they’re comfortable with the deal, then they’ll move forward and then everybody gets happy.
One of the main things is you can’t guarantee anything. You can’t have the word guarantee in anything you say. There is no guarantee. The whole United States will be knocked off the planet if there’s a nuclear war. There’s no guarantee. That’s how you look at it. When you tell people, “I have an investment with minimal risk or a very nice risk-reward situation.” That’s how you will start to phrase it like, “We have security backing up your home.”
This is one of the only investments that is secured by real estate, insurance policies and title insurance property. After Harvey flood, I require on any note that I originate or have touched flood insurance from the National Flood Insurance Program. If somebody is going to say $450 is going to kill my deal, then it’s not a deal. You don’t need to be lending on it. You shouldn’t be getting into that deal anyway. That’s my opinion. From a lending perspective, that’s where I come from with the flood insurance side of things.
How do you find them? How do you get their attention? How do you stand in front of them? Once you do, what’s your script? What do you talk about?
I was the guy who went to REIA meetings for three years and sat back there and never opened up my mouth. Now, that I’ve started the show, I can’t shut up. I go to REIA meetings all over here. I’m from the Houston area. I go to as many REIA meetings as I can. I go to every single Quest IRA event that I can and any other self-directed IRA custodian out there. Quest is the hometown for me that’s why I stick with them so much and I got my start with them, hence my loyalty. I go to those meetings and then I’ll just chat with people. I heard this great analogy. When you go to a singles bar, you don’t walk up and tell exactly you want. You have to go around it. I don’t talk about private lending. I don’t talk about real estate. I talked about what they do in their family and how they want to secure their future and lead that into, “Have you thought about private lending? It’s not for everybody.
The first time somebody takes a chunk of money and enhance it to you for three to five years, I don’t care how solid the paperwork is. That’s still a gut feeling. I would start just building rapport. Why wouldn’t even touch the topic of private lending at first? See where their mindsets are and go from there and lead them into that situation. You don’t want to take a guy who drives a Cadillac and make them drive a Pinto. You’ve got to know your audience. I do it on an individual basis. Mitch was easy. He’s been doing it for so long. It was his student who was telling me how great he is. I saw him work and I saw the numbers come in and they’re still coming in and I’m like, “This is good stuff. Thank you, Mr. Mitch.”
In my case, 100% of my clients are investors. I talked about private lender and their biggest fear is lending me $30,000 on a property. It’s such a small amount. In their eyes, 8% of $30,000 is big. How do you fix that situation?
When I first started private lending, I only did six-month loans and I want a minimum of 12%, but then I was working every five months trying to find another deal to put that into so that my money would just consistently run. I’m into owner financing model now for three years. I’m going to get 8% and I don’t have to work my money. All I do is check at the first of the month if the payment has come in and that’s it. How hard do they want to work for that is what it boils down to. As you can see, I’m very lazy. The only thing I like to do is eat. That’s all I want to do. Once I do my due diligence, once I underwrite and vet your project, I want to set it and forget it. I want to go Ron Popeil all the way for those three years or however long we’ve got our terms for. I want to do that. Ask him, “How hard do you want to work? Do you want to do it one time?” For the next three years, you’re going to get a consistent return.
You start getting into trouble when you start pushing round pegs into square holes.
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People that have 30 years to go before their IRA matures says, “I just want to set it and forget it.” I said, “How about a fifteen year? You can pay 10% if you get a 25-year M or 20-year M.” It’s not all about the rate. Sometimes it’s about the term and it depends on what the person that you’re talking to wants. Most of my people are older so I do 8% interest for only five years. I started talking with some of the younger people. They might just want to set it, forget it. You can do a twenty-year below with a five-year call. They can do anything they can think of because it’s private lending.
It’s all negotiable. If someone wants a shorter turnaround or they want the higher yield, then I wouldn’t fish in that pond with them. I will introduce them to a rehabber or a flipper and tell them, “If you change your mind or when you get tired of spinning your wheels for your money, come talk to me.” That’s how I weed those people out because I spend a lot of time trying to convince people who were only locked in on 14% and like, “No, you can do this. It’s great.” You’re just spinning your wheels. Identify them and be like, “Maybe rehab is better for you.” Look for the people like Mitch is talking about who want to do the set it and forget it.
Even if people say no, they’re stuck on the 40%. You just send them an email with your funding opportunity. Maybe you’ve got a house worth $100,000 that you’re picking up for 45%. You say, “I just want to show you the deals that I’m offering for 8%. Look at this, it’s a 45% LTV. How do you get burned on that?” You send it out. Just keep digging once every month or once a quarter and not too much. Just so you know that when a super stubborn or guilt comes by, pick one of the people that told you, “I just want to show you what happened this week. I’ve got a guy loaning on this deal here.”
Those drip campaigns will wear them down slowly but surely.
Just to add value to the group. Our company is called USA Private Money. We wrote a little eBook called Flip Your Capital. Many people can’t find flips and they go through with this training, education and so forth. We’ve got an unfair advantage because we speak at those events. We were able to raise $10 million in eighteen months with this little eBook. All of you can go take this eBook off our website and it’s the fourteen reasons why banks loan money on real estate and why you should too. If you create your own little eBook and comes across as the expert, we take a little different approach. We are bold about it. You can’t find a house you want to flip, how about flipping your capital? Let’s put your money to work. Flippers are a fantastic place to go to. You can get it to USA Private Money. In the middle of our webpage, it says, “Flip Your Capital.” Click that or FlipYourCapital.com.
That does a lot of value in adding to you because you’re giving somebody value up front. You’re changing their mindset up front with that eBook and it’s successful. I don’t how much would that averages out a month, but it’s a lot more than a dollar.
I need to write that book myself. I’m just about to finish with that book. How to become a passive lender using real estate as collateral? My life went to a thousand houses on how to become passive real estate investors using real as collateral. Part of the challenges though in the book was, there’s all these different ways that you could set up alone. I just had to pick one winning and not complicate it too much.
Before you publish it, pick up Bob Zachmeier’s book. It’s a fantastic book that you’re going to want to read through before your book is out.
The biggest thing is you have to put up the numbers. It’s a sales game. It’s just the same as anything else. I challenge all my students all the time, “I bet you can’t present to 50 people in a row even as an amateur. Your challenge is to get 50 notes in a row. Who in this room was going to go for that 50? I bet you can’t make it to fifteen. I guarantee you, you can’t make it to 50.” If you set your goal to get 50 notes in a row, I bet you can’t do it.
You just said guaranteed coming from the guy who said never guarantee. That’s how powerful that statement is though. Get your 50 notes and it won’t happen.
Create your own economy so that when there's a slow down or if there's a bump in the road for everyone else, it doesn't affect you.
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I learned this from Dan Kennedy. Dan said, “If you want to be seen as the expert, claim it.” The claimant is who write the book. We wrote this eBook and go out and figure out how to put together an eBook. When you look at ours, it’s junk compared to books. We’re turning it into a real book, but we raised $10 million with this concept. You can go and do it. The idea is when you’re sitting with someone, I would bulldog them with, “I wrote this eBook about the fourteen reasons or the ten reasons or the twenty reasons why you should do this,” and they will see you as an expert immediately.
Don’t rip them off verbatim. Don’t reinvent the wheel either. I appreciate that.
A typical private lender, describe him or her age or situation in life. What are the ways to find if somebody who is not going to be interested in this?
I don’t advertise on Snapchat for Millennials. I looked for somebody 45 and above. Mostly what we’re looking for is old 401(k)s to work with and someone who has put twenty years into the job market. It’s going to have some of that available to be able to piece together. Whereas someone who’s fresh out in their twenties early 30s. If they’re in their early 30s, they are just starting their family. They’re figuring out how they’re going to afford that mortgage. They may want a side house or do something on the side. Private lending doesn’t put you in Ferrari’s with bikini models. It’s just good old world towards us versus Steady Eddy capital buildings. I look for people who are a little more settled down in life. Forty-five is about the youngest. I started private lending in my late 30s. On my Facebook ads, I’ll go down to 35 just in case there’s one hotshot lawyer kid. A 35-year-old is a kid to me. If he or she wants to get into it, I’ll do that. Most of Mitch’s lenders are going to be retired people who are out of the game. They want a decent return, but they don’t want to have to work too hard for it. They want it secured so that it fits that mold.
You don’t go to the real estate club to go find people to do this because they’re all looking up to you. I did learn something from one of my ex-partners, Sam, who I did my first 450 deals with. Here’s what I’d like to say. Take the people that don’t have money that are easy to access and practice your pitch with them in an attempt to understand it. When they say, “That’d be great if I had any money.” You say, “I understand, but don’t you know someone that needs this kind of help?” They refer you to your dad or their uncle like, “My dad is rich. My uncle is rich.” You get them to bring them to the table. It’s taken a two-step process to get it done. One, you get your jitters out of your presentation with someone who doesn’t matter and then at the end you ask them and say they don’t matter because they don’t have the money. You can fall on your face for them and not feel so bad. Then you say, “I don’t know. Is there someone in your family who has a retirement plan or they’re sick and tired of living by the ticker tape or sick and tired of getting half a percent?” Then you get a referral from them and that referral gets brought in by their nephew or their son.
One of my private lenders is a stockbroker. He goes, “How is this possible?” I said, “I’m a hero if I get my clients 6%.”
A very good friend of my father works for Merrill Lynch. I’ve had lunch and breakfast with him and he says, “I can’t recommend anything that Merrill Lynch doesn’t get from on high.” SECs got government written all over it. You don’t want to mess with them as far as creating a fund and being able to advertise and all that and having only accredited investors and so on and so forth.
In my peer group, retired military guys at age 45 to 50, we have the TSP that contributed while we’re on active duty through payroll deduction. Once you retire, you can never contribute to it again. Unless you just leave it in there at the stock market, I was thinking of what would be the approach because they’ve got to convert it to something.
We’ve had a run here. We’ve got nine, ten years of a nice bull market run and you can attribute it to whoever or blame it on whoever. It doesn’t matter to me. I’m only looking at the facts, not the politics. We’re coming up due for a market cycle. Wouldn’t it be a great time to just go ahead and put that back and lock in 5% to 8%? As a private lender, I like to hear bigger numbers, but you can negotiate anything. The terms are more important than the percentage or the interest rate. I would come to him and be like, “How far is it going to fall this time for you? How long is it going to take?”
At my old job, we had the guy come in and he was one of this classic, “Stay in the market.” He gave this great spiel about, “If you stayed in the market, you see all this happened.” I was like, “From 2001 to 2011, you were flat. You lost a decade in the market. Your growth and your losses just wiped each other balance each other out. You might not get a flat line but you can get six, eight, ten or whatever percentage a year and you don’t have to work your money that hard. I don’t mind if people like you get a bonus for doing a good job because it keeps you successful and going.
If I screw up at my job, I don’t get a bonus. I can tell you that. When I screw up, I don’t get money for it. That’s how I would say. You can’t time the market, but we all know it’s coming. If it looks like a duck and it walks like a duck, maybe it sounds like one too. Thank you. I appreciate you coming in. Thank you for interacting with me. I appreciate it. If you could go on your iPhone, if you click the little purple thing right there, you can open it up and just type in the search Private Lender Podcast. I hope everybody enjoys themselves and pat yourselves on the back for coming out here. Try to better yourself and improve your situation. Thanks again. I appreciate it.
Mitch Stephen has been a self-employed RE investor for 20+ years. His real estate investing career started at the age of 23 when he read “Nothing Down” by Robert Allen.
REAL ESTATE INVESTOR:
Mitch, together with his wife, Tommi, and his daughter, Shannon purchased their fair share of local houses. Their company, Independence Day, Inc., has bought and sold over 1,500 properties in and about San Antonio, Tx since 1996. This company specializes in buying distressed properties with OPM and selling those properties with Owner Financing.
STORAGE FACILITY OWNER:
The Stephen family built wealth by purchasing very affordable homes, selling them for double the cost, and owner financing the sale by creating a note to their buyer. In 1991 the family made plans to keep their wealth and create “Forever Money” by acquiring Self-Storage and Boat Storage facilities primarily around Canyon Lake where they live in Texas. They started with 13 boat storages around the lake, and the storage business has grown to over 1,100 storage doors in 16 locations:
Mitch is the author 3 books:
MY LIFE & 1,000 HOUSES:
Failing Forward to Financial Freedom
MY LIFE & 1,000 HOUSES:
200+ Ways to Find Bargain Properties
MY LIFE & 1,000 HOUSES:
The Art of Owner Financing
For more info about these books go to 1000houses.com/the-book
Mitch offers Online Education, Group Coaching, and Full-on Mentorships as it relates to all the aspects of Owner Financing.
Mitch’s personal expertise includes; Raising Private Money, Finding Bargain Properties, Negotiating Favorable Terms, Dealing with Renovations and Contractors, Selling Houses, Selling Notes with little to NO Discount, and helping others deal with the every day throws of life in business. He is very familiar with Dodd-Frank, RMLOs, S.A.F.E. Act, Texas Property Code, Truth -in-Lending, R.E.S.P.A. and the legal options available in the owner finance domain. 1000Houses.com
Mitch forged the creation of a mass texting software, LiveComm.com to help solve problems that arise when you get numerous calls from bandit signs advertising Owner Financed Houses. http://LiveComm.com
Mitch as recently been named one of the Top 9 RE Investors to follow on Twitter.