Do you want to learn strategies on how to fund real estate deals? Jeff Rutkowski welcomes JD Esajian. In this episode, JD talks with Jeff about focusing on building relationships with local or community banks. Huge banking industries will not likely fund startups. But small banks will. The key to any funding strategy is relationships. When meeting someone, be confident and look them in the eye as you introduce yourself as a real estate investor. You’ll open new doors and opportunities! If you want to learn more strategies to fund real estate deals, this episode’s for you. Tune in!
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Practical Strategies On How To Fund Real Estate Deals With JD Esajian
We got my man, JD, our resident expert in the house. We’re going to get into a topic that is near and dear to most investors’ hearts. It’s showing you the money. How are we going to fund these deals? How we’re going to reduce our cost of capital? Things if we could go back in time, we would have done differently. Before we get into that, let’s get into our word of the week. It’s HELOC, representing Home Equity Lines of Credit.
It’s a very powerful tool.
There are 1st and 2nd position HELOCs. What HELOCs give you the ability to do is tap into the equity inside of your home. I talked about this in a previous episode. If you had $100,000 sitting in a Wells Fargo account at 0.5% interest, you’d want to get that the heck out of there, get that growing and working for you. As a real estate investor, you want to begin looking at equity in your home in the same way. That’s your money. It’s sitting there, but it’s not doing anything for you.
Let’s pull it out at a low-interest rate at 3%, 4%. Let’s get it growing for us at 10%, 12%, whatever it may be. Home Equity Lines of Credit give you the ability to do that. It’s also a very powerful form of asset protection. Let’s say you have a house worth $300,000. You have a first position mortgage for $100,000 on it. You pull a Home Equity Lines of Credit. If it’s a primary residence, sometimes they’ll give you up to 90% loan-to-value investment property. It should be able to pull at least 70% or 75% out of there. In that example, maybe you’re able to pull $150,000 out.
Even if you don’t use that $150,000, you have checkbook control over that. An attorney goes to do an asset search on you to see if there is anything to go after. They’ll see that property is encumbered up to $250,000. They’ll see there is not a lot to go after in this particular asset. Home Equity Lines of Credit, powerful for many reasons, get your money growing quicker for you and asset protection, but a powerful way of funding your deals.
We funded some of our first deals by accident, almost with Home Equity Lines of Credit from our parents’ homes.
Let’s get into the show.
Let’s get into this, JD. As always, it’s great to have you here. I’m glad to have you here.
I’m great to be here. I’m excited about the topic because I know you are too, because it’s a question we often get asked.
For the new investor, probably number one fear.
If not number 1, it’s number 2.
“I’d love to get into the business, but I don’t have the money. I don’t know how do I find my deals?” I remember early on when I joined FortuneBuilders as a student. You guys always used to say, “A day would come where you realize that the folks out there with money need us more than we need them.” I trusted you guys. I looked up to you guys, but at the back of my head, I was like, “I’ll be the judge of that.” That doesn’t make sense to me. Why is that true in your opinion that people with money need us more than we need them?
The reason looking back, overcoming up on many years career and owning real estate is because we have a vehicle or the opportunity to pay someone a pretty handsome interest on their money. We have the opportunity to make them money, fixed against real estate, tied to an actual asset that’s worth something and that return that we typically pay in that activity is much greater than many other places that people put their money. We have an opportunity for them to make money.
I remember Than shares this story a lot. Than loves his mommy, he’s a big fan of his mom. His mom taught him a lot. Mrs. Merrill, small business owner. She had a dance studio. Long story short is Than was able to help his mom retire through converting her into a private lender with a HELOC and starting in CT Homes. She’s still funding some of those and equity street capital.
My parents, we did the same thing with them once we learned about the HELOC. They tapped a little equity that my mom and dad had in the home that we grew up in. Similar to what we did with Mrs. Merrill, borrow that money.
Create multiple streams of income and be smart with the capital you have.
If you care about your friends and family members. You love them. You need to start borrowing their money because we have the vehicle to make that money grow. In this business, we’re going to get into some of the top ways you’re funding deals, looking back at some things that you would do differently, but let’s rocket fire. Let’s come up with ten different ways of funding deals real quick. We got hard money.
We talked about HELOCs.
We got private money. We got cash, credit cards, business lines of credit.
Personal lines of credit.
Self-directed retirement accounts or other types of retirement accounts.
The average investor or the new investor thinks, “If I don’t have the money myself, I can’t do it.” The reality is even if you have the money yourself, it’s probably not the best idea to use your money.
You’re better off leveraging because you can create multiple streams of income. If you had a $200,000 or whatever amount of money sitting to fund a portion or all of your next deal, you could do that. You’re locking in that capital into that one opportunity, whereas, if you kept that money where it was at, borrowed money to do that transaction and then invested your money, whether as hard money or private lender or into longer-term assets, you’re making money buying, fixing and selling by borrowing. You’ve got your capital working for you in this other activity. You’re creating multiple strings of income. You’re making more money. You’re being smart with the capital that you have.
We’ve all seen the financial advisor commercials. People walking around and they got the number floating over their head, it’s like, “You need $3 million saved by the time you’re 55. You need $10 million. You need $7 million. If you don’t get it, you’re screwed.” The reality is very few people are going to be able to save their way to that number. We’ve learned as wise financial investors that we borrow our way to wealth and retirement. One of my first loans was a hard money loan at 5 points and 13.99%.
I got you beat there. Fifteen percent interest in five points was what we used to borrow hard money at. Same on the points, but we had you beat on the interest. I paid a little more interest.
Was that Sunrise financial?
It was and a couple of other ones. There were two main ones in Connecticut. That’s what we had available to us. We factored it into our deal and analysis and were happy to borrow it because that’s what we had available. We made a lot of money on deals borrowing 15% and 5 points.
You bring up a great point that we should pause here for a moment. A lot of people may be even reading. Every time I say that from the stage, I hear a gasp in the room, “That’s expensive running.” Don’t get me wrong. We always want to be sourcing a cheaper capital which makes our offers more competitive and increases our profit margins. What it comes down to is the availability of capital is what’s more important than the cost. You alluded to that. You have a deal hit your desk. All you have available to you is 5 points and 15%. Even with that capital, you’re going to turn a $40,000 profit.
You do the deal. You write your offer appropriately with all the other numbers the whole time, etc. How much work it’s going to take? You do the deal because if you sit there and say, “I’m not going to pay 15% and 5 points.” You give up a $40,000 profit. That’s not smart investing.
“If you give it up, we’ll take it.” Send it our way. We’ll send you a thank you card. We rattled off almost ten different ways of funding your deals. What would you say in CT Homes? The last time we talked, you had 39 projects going.
I had your acquisitions guy in here. He was bragging about 100 deals a year and all of that stuff. You guys do that awkwardly, but I’m like, “When are you going to hit 200?” He didn’t have a good answer for me. He said, “We’re doing less but making more.” Good answer. Why not 200?
I used to be a lot taller before we started doing 100 deals every year. The reality is we have found a sweet spot for our business in terms of the personnel we have and the team. We don’t have 100 people on staff. We don’t need to. The 10, 11 people that we have full-time, being able to do 100 deals seems to be the right fit for us and our team at this point. We’ve done things over the last years to improve our profitability. Driving construction costs down, being more competitive on our offers and better negotiating on the price. We can be more profitable than we were before. It’s not a bad number to reach every year on a transaction.
I’m not knocking it. I’m just messing with you. 2021 so far as I understand, it is probably going to be your most profitable year in the company’s history.
This will be on CT Homes books. 2021 will be the most profitable year that we’ve had. The first full year was ‘04. Variety of factors related to the cost of money, which we’re talking about on this particular show. The market has certainly been a factor in that. The way we’ve sold our homes, which you and I have talked about the way we’ve acquired them. It will be a strong year that we’ll roll into 2022.
It’s an impressive operation. If you live in San Diego or you’re in the area, stop by and have a chance to look in their office. It’s incredible. Grab one of these coffees, too. You ever have one of these OG Kraveman.
Pete knows what he’s doing back there. It’s good. Local Krave, folks. If you’re in San Diego, we’ll give Pete and them a big plug because one, they’re awesome. They make great coffee. Pete’s a hell of a baker too. Do you see all the bread that he has? They’re homemade-baked. He bakes them right there. I would recommend the pumpkin bread that he’s got going on.
How much of a pumpkin? I’ll give it a try, though.
It’s seasonal. Pete knows what he’s doing on the baking ones and twos.
I feel like one of the few things that have been consistent during COVID is Pete at the café. I don’t think I’ve ever walked in and not seen him there.
He’s here early. He’s here before everyone gets here, getting the roasting going, whatever they do back there. Good coffee too.
Most profitable year. 2021 is going to be for you guys. Forty deals on the books. You’re having to fund a lot of deals. What are the top three ways within CT Homes you’re funding those deals?
I’ll tell you exactly what we do. We’ll back up and probably talk about what we would do differently if we could go back. The simple answer is that we borrow 100% of the funds that we need to do our transactions most of the time. That’s the purchase capital and the renovation capital. We do that between a combination of 1 or 2 lenders. In the first position, we use lines of credit from banks that we’ve established and grown over the years. It’s a loan-to-value ranging from 65% to 70% of the appraised value, not the future value but the current value.
Work toward better relationships and lower capital costs.
You’ve got a property for $100,000 or $1 million. More common. $650,000 at a minimum.
The purchase price, whichever is less. Most of the time, the purchase price is going to be less than the appraised value. We’re getting the funding off of the lesser of the two. Banks are keeping themselves in a secure position. We have two lines of credit that we access that. The combined capital between those two lines of credit is over $20 million. It’s a revolving line in that they will fund us the percentages that we talked about. The amount available in that line fluctuates depending on how much we have out on those deals. That’s in the first position. Most banks and hard money lenders want to be in the first position.
The second position behind them is that we’ll have various private investors with capital looking for a more secure return at a higher rate than they’re getting in their savings account, checking account, or a CD. Friends and family have been investing with us since the beginning, new relationships we’ve met over the years. We have between those people at CT Homes, anywhere $15 million to $17 million that we flow through with those various private lenders. That money gets secured in the second position.
We’re very clear with them of the pros and cons of being in the 1st and 2nd position. At the same time and this is a statement I make to our lenders. We’ve always paid back all of our lenders, principal and interest, even on transactions where we’ve made less or, in some cases, not made anything at all. We pay full principal and interest back to the investor. That’s not the goal when that happens, but sometimes that happens. That’s what we do to fund our transactions. You asked me 40 and usually 25 to 40 going on at any given time.
About $40 million that’s revolving and cranking out these deals. The first position is going to be 65%, 70% or purchase price, whichever is lower with a business line of credit. Ballpark rate, what are the rates that somebody could set up one of those lines?
Those lines didn’t start out at $10 million or $15 million. We started out with a $1 million line and proved that we could return that capital. Those lines vary anywhere from 5% to 7%. There is usually an amount above prime that adds to it. We average about 6%. The second position funding for our private investors, we have and continue to pay 10% for that money.
On one occasion, my daughters as well, their first-ever private lender.
I’m happy to do it.
They talk about that deal all the time. Flat rate 10%, second position, very professional with how you’re communicating with your lenders, setting this up and getting this paid out. Is that it? Those two ways are getting the deal done or would there be an additional way that when you need it, you’re pulling in?
Those are two primary ways over 90% of the time. We do have some other smaller lines at other institutions that we can pull from if we need to. We also have HELOCs against different properties that the company owns that we can access from, which is one of the ones we mentioned. That is what we do. It’s very different than what we did when we started. That’s what you work towards is better relationships, lower cost of capital, better LTVs. Once you have given someone money-back principal and interest, you’ve done that multiple times in the conversation of their availability to land or even interest rates can be negotiated at that point.
Whether it’s an institution or Uncle Joe, the way you treat your lenders will go a long way in terms, you know being one of our lenders, if they want to come back and lend to us again. Will they tell other people about the experience? A big part of borrowing money for everyone reading, no matter what amount you’re borrowing, is how you treat that lender.
Whether you consider it a small or not small amount of money, that’s a significant amount to that person. Being upfront with communication right, securing their money properly, also how you communicate with them about getting paid back. Are you giving them updates throughout the transaction? Do they need those updates? Are you treating them like a customer?
Anytime you’re borrowing money in any capacity, you want to be clear upfront with how you’re going to communicate throughout the loan. You want to follow through and do it. The worst thing you could ever do is borrow some of his money, and then they don’t hear from you.
They’re asking you for updates.
Bad things started going through their mind. That’s not a good experience. You’ll learn as you go out there and start raising private money. Maybe it’s a brand new lender. They’re loaning on a deal for the first time. Maybe they’re a little skeptical and nervous, but once that loan gets paid off and they realize what they did, then they’re like, “How do we get it working again?”
“When do you need my money again? Do you need my money again? I want to get it back in action with you and earn more interest.”
Everybody’s got a guy. They start to say, “I got a guy growing my money at 10%. Can I meet your guy?”
You get a call or an email from someone who was introduced through one of the other lenders. They have $100,000 or $200,000. You start getting those 6- or 7-figure emails with people wanting to lend money to you. Asking you more about what your process is, and can they get involved?
I remember Andy Tanner, a mutual mentor of ours. He showed me an email years ago. It was a buddy or somebody that had sold a company for a big profit. He said, “I’m sitting on a few million dollars, Andy. I would be honored if I could loan it to you. You can go and invest in me.” That’s what we offer. That might sound funny, but that is the reality is when people see that you can confidently and consistently grow their money at 10% plus returns, they’re going to become your best friend. They’re going to want to loan more off the top 65% of the deals getting covered by institutional lending or a business line of credit.
Purchase capital. They don’t fund anything on the rehab side, but that’s for the purchase side.
As a brand new business, that’s something that likely is probably not going to be available out of the gate. Even you mentioned it didn’t start at a $20 million line.
You don’t have a track record yet. You’re a newer business.
Going back to the first few years of CT Homes, what did it look like then? How was it different?
At that time in Connecticut, we did our banking at a big national company, people know them, the Wells Fargo, Bank of America, bigger banks, which I’m not saying are bad, but you’re much less important to them in your local area than the small branch-type bank. We were banking at one of those institutions. Frankly, they didn’t want to give us the time a day. They weren’t open to talking about different ways to find our deals or more creative financing. We used back then hard money, which is someone else’s capital institutionalized, hard money lenders at a higher rate because it’s a riskier opportunity.
Our investing is riskier, so the lending has to reflect that in terms of what they receive. We would borrow hard money at 15% and 5 points. Depending on the lender that we were using, they would also do a construction loan, which would be funded somewhere around 90% to 100% of the rehab we would need, but they would distribute it in draws. There’d be a longer process for getting that money paid to the contractors. They’d come out and do inspections. We’d have to set that up ahead of time.
We had some credit card lines that we had established that we would pull credit from. One thing we didn’t mention on other ways to fund deals is seller financing. We would ask about seller financing, someone that owns the home extending some form of financing. We’d need to bring less money. Occasionally, we would use internal capital that we had, which we didn’t have a lot of built-up at that point, but we needed to. It was hard money and a few private investors that we had at that time, some home equity lines from our parents’ homes, then some credit card lines that we had created and built.
The main thing is the hard money took over that first position spot, which is filled by the business lines of credit. Hard money is a great place to start.
Even continue with if you can continue to negotiate rates with them.
When coming up with funding ideas, focus and build relationships with local or community banks.
One thing that was eye-opening to me was that hard money lender is going to look at you. Personally, business, pull your credit and look at your financials all of that, but they’re leaning heavily on the value of the deal over you. I’ve shared on the show my story before FortuneBuilders. I ended in bankruptcy before I started over again in ‘08. I was blown away by the fact that about six months removed from bankruptcy, I’m getting 80% of my deals funded by hard money lenders. They’re looking at it almost like the investor does.
They’re not going to loan you money and trust you that you’re going to sell it for this much or whatever. They’re sending out their appraiser to say, “When we fix this property up, it’ll be looked up.” They’re sending a contractor out to verify your estimates. They know, “If this guy screws us, we can step in here.”
“Our money is secure in a safe position. The value is there for us to recoup that money.”
The main difference is hard money is going to dictate the terms to you. Private money is, you could dig terms.
There is more flexibility.
In your private lending program, what are some of the non-negotiables? What are the terms that you set for the private lenders?
In our private investing program, we fixed the interest rate, that’s 10%. The investors know what they can expect. We also do not pay monthly interest payments on the money that’s lent to us. We pay that principal and the entire interest when the deal sells. That’s part of the program upfront. They are secured in the second position and their money is secured the same way that the first position lender is. We have a deed of trust, mortgage deed, they get added to the insurance policy and we also have a promissory note created. Those are the three main security instruments.
Those are the major terms of the agreement. Depending on who the lender is. If they want more regular updates on the actual deal, we’ll send those. If they like to know that, “In the second month, this is where we’re at.” We’ll do that, but we’ll ask them upfront. Some lenders they’re like, “I get what you guys do. I don’t need to see all that.” Some want to see that, but what we always do as the transaction is completing or we’re getting the home sold is we notify them about 30 days before that we’re expecting to sell the home, which means they’re expected to get paid back.
We send them some after photos of the home so they can see where their money went to work. We have systems that give them all the things they need to reconvey their loan, as an example. When they have to notarize something and send it to us, we give them and send them a prepaid FedEx label as an example. It’s very easy for them to get us back what we need so that we can release their loan and pay them off. Those things get communicated upfront because that’s important for someone to know. If they’re thinking about lending money, it gives them more confidence, peace of mind and lets them know what to expect. It’s good business communication.
As always, folks, we’re here to help you scale your business or get into this business. If you’re looking to take your real estate investing business to the next level or establish one and get started, there could not be a better place to start than the training that we provide on almost a weekly basis. That is 100% free to you. It’s a free one-day training that will greatly increase your confidence level. What is this going to do is all the excuses that may be in your head and why you can’t get started or why it’s not a good time or why you can’t go to the next level? You’re going to see the light at the end of the tunnel.
You’re going to see the systems, resources and tools that JD and his team use on a weekly basis to do that. Will there be something that you can invest in ways that we can help you beyond that? There is. We have coaching, an online curriculum, a lot of events and all of that stuff, but that is up to you to decide. Either way, the one-day training is where you want to start, where it all begins, where it began for myself, a version of it. It evolved into something a lot better.
We spend a lot of time on that free one-day training talking about this topic in more detail. It is, for a lot of people, either a mental hurdle, an actual hurdle or a combination of both. We break that down because we do have a ton of systems. There are so many ways to think about funding your deals and that’s what we spend time amongst many other things in the class.
One of my favorite parts of that training is the private money scripting. Than or one of our top speakers goes through about six steps to raising private money and scripts that they use and things like that. Tap into that. I’m a private lender. I loan you money in a second position to do a deal. How are you securing that money? How do I have confidence that I’m getting this money back?
When I talked to a lender, I wanted to explain to you how we secured your capital into this transaction. As a private investor, you’re going to be in the second position behind the bank in this case. We secure money in three main ways. We’re going to have a mortgage deed, a deed of trust sometimes it’s called, which is the amount of money you’ve lent and the paperwork around that’ll get recorded on the land records. That’s a public record. That’s your major security instrument. If, for some reason, our company falls into a hole and we’re not there anymore. That’s your security to say, “I have interest in this property.” That’s the primary way.
Second, to that, we’ll have a promise to pay. A promissory note, which is from our business to you saying, “This is the amount you’ve committed to lending. These are the terms. This is our interest. This is the start date. This is the estimated payoff date depending on the transaction.” That’s our promise to pay you. That does not get recorded on the land record. That’s, in addition, a private contract. The third thing is going to be we’ll add you to the insurance policy as a loss payee for this property. That’ll be your third security instrument.
You can’t make somebody much more secure than that.
That’s what all banks do.
When you’re able to communicate this opportunity properly and exactly, it does become a no-brainer. The most important skillset is making sure you know how to buy properties. That you’re buying that numbers that are going to protect that person. If you know how to do that, it’s game over. Let’s go back in time. You shared in the beginning it was more hard money, first position, private money, you would leverage things like owner financing subject to which, by the way, I’m assuming you don’t eliminate those?
We always ask because if you don’t ask, you never know. We’re buying a property where the seller is doing seller financing. Not 100%. We’re buying $800,000 assets and bringing $100,000 down. That’s to cover a little money that he wanted and also pay off a small debt and the commission to the agent. The seller is financing the rest. In this case, at 7%, that was the rate that he wanted, which is still a good rate. No points.
We’re going to be into this transaction for a lot less money out of pocket. We wouldn’t have been able to do that if we didn’t ask, “Are you interested in seller financing?” In this case, he’s going to make more money on the transaction. By doing that, he didn’t need the money right away, which is the big differentiator. We asked and explained it to him. He was stoked. He was totally on board.
We should probably do a show on seller financing.
There is so much to that. It is a great way to fund deals. Most people either don’t think about asking. Don’t think someone’s going to want to do it. Don’t know how to communicate it. Don’t know what it is.
Let us know if that’s something you’d be interested in us breaking down on an upcoming episode. Subject to seller financing. Two additional weapons in your arsenal. Maybe 10% or 15% of the deals you do, it’ll work. When it works, it’s a beautiful thing.
I can tell you it’ll never work if you don’t ask.
That’s 100% of shots you don’t take.
It’s worth learning and asking about because you never know.
What will you do differently to fund your deals out of the gate or maybe things that you would have done sooner to get yourself in the position that you are quicker?
The immediate things that come up, first off, are making more relationships. Let me be specific. Let’s start on the side of where we were banking at the time. It was Bank of America where we had our accounts initially. I’m not going to sit here and say anything bad about them, but we would go in to ask the manager or the bank manager about alternative ways that they could think about or could we sit down and look at funding or deals because we were starting to buy a lot of homes. The gentleman at the time didn’t care about that.
One of the things I would do differently if I went back is I would start immediately with making better relationships with other types of banks and focusing on a smaller branch, local either town or community banks, and building a relationship with them. That doesn’t mean sending them a hello card. Building a relationship with them is banking with them.
If you learn how to leverage and borrow money, you can make more money to help other people make more money.
Putting your money in their bank.
Your town community bank. You find those kinds of places that have 1, 2, 4, maybe a dozen branches depending on the size or more. You go in there and build relationships and move accounts over to them. That’s something that we would do right away. One of the biggest changes in our ability to fund our deals was when we moved to San Diego. We took that knowledge that we wish we had done when we started.
We did that here when we moved because it created a new opportunity for us. We were in a new market. That would be out of the gate. The first thing I would do is find better institutions that are more willing to think outside of the box, maybe care about the community more, understand the local market better and are willing to help small businesses and bank with them.
That’s the mission of smaller community banks.
Help develop credit unions maybe depending on the same type of thing.
Is it convenient closing all your accounts over here and open it? There is a little process to go through. Oftentimes, I bank with Wells Fargo. I feel like I’m always bashing Wells Fargo on this show.
I wouldn’t use them either personally, but that’s my experience with them.
We would develop good relationships with a teller at a specific branch or things like that. It’s such a big corporation. They are there for years. They’re gone.
They don’t have the ability to help you in other areas that are important as the business.
That is a great tip of advice. You get your money out of large institutions. Look for your local community bank credit union. It’s not just going in and introducing yourself. It’s doing business with them, referring business to them as well.
Understanding their programs too. Their business is to get more customers. They’re going to want to talk to you. Maybe they already have programs that allow you to fund your deals differently. Maybe they have some intermediate financing at different rates. Understanding what their programs are and then either using those or starting to build a relationship and maybe introducing or talking to them about other types of funding that could fit into what you’re looking to do.
Did you get anything else?
In the same conversation of other relationships, as anyone in business, being excited about what you do and communicating that to other people will make them want to know more about what you do. In essence, you find private investors by talking about and being excited about what you do. We did that a lot starting. I would do even more of that because you never know who the person is sitting next to you or the person you’re talking to at a bar. Whoever it is might have an amount of money that’s very different. Visually looking at them, you might think that they have.
If you can, in a quick elevator pitch, when you’re talking to someone, usually there’s an exchange of, “What do you do?” If you can do and get good at that or learn our systems to do that and transfer what is attractive about our business or what’s interesting about it and piquing their interest. They might ask you a question about, “How do I get involved?” I’ll give you an example here. This was an organic thing that happened.
This was our third year in business. We were in Connecticut. I drove up to New York City to see a friend of mine that flew into Manhattan. We had lunch with a woman that we went to high school with. At this point, we were out of high school. We were out of college. We were friends with her. We meet her for Boba tea. This was the beginning of the 2006 time period. Bianca is her name. She brought her boyfriend at the time, a gentleman named Lyle. We talked and had Boba tea.
I did what I talked about. I was transferring, “What do you do?” He asked me what I did. I explained. He’s like, “That’s interesting. I’ve always thought about investing in real estate. Are there opportunities for me to get involved?” I went into, “We have a private investor program.” It was very early on, so it didn’t flow off the tongue as it does. I would do more of those conversations because that conversation has turned into Lyle a great friendship. Two, he has multiple seven figures invested at CT Homes secured against the real estate at any given time.
He also invested in our syndications and equity street. It all started with a casual conversation at lunch in New York City in ‘06. I would be, get more confident in presenting and understanding what the opportunity is. I’d be more confident in those conversations when you meet someone. Introduce yourself, “What do you do?” They’re going to ask you what you do, “I’m a real estate investor. I’m a residentiary developer.” Look him in the eye and be confident and those will open up more doors. Maybe that person doesn’t have money to lend, but maybe their parents do. Do more of those conversations.
There are so many people who have a general interest. That’s why TV shows are so popular. My coach taught me years ago. He said, “When you’re looking at an individual, you ask yourself one question. If you get a yes, you should network with that person.” I’d write this down. This is key. You look up, I don’t care who it is, where they are. You look at them and ask yourself, “Are they breathing? Do they have breath in their lungs?” If the answer is yes, you want to be passionate. You want to get your opportunity to fire them up because you don’t know where it’s going to lead. It’s not like we’re selling perfume or something. Everybody has a need for real estate and a place to live.
It’s a basic human need.
Those are two good tips. Can we get a third?
The third thing I would do differently going back, knowing what I know, I would go door-to-door to banks and present them this opportunity to lend to us in real estate. That goes with my first point. The guidance line, it’s old. It’s not a traditional source of capital for most banks. Some do, but it is a very good way for them to be secure against real estate.
I would go into all banks and have that conversation. I’d try to get that proposal or that opportunity in front of whoever their credit manager at that time. It’s 2.5. It’s not a full 3 one, but if you do those first two and you start wherever you’re at in a year and more time than that, you’ll have better relationships. You’ll create different relationships.
One thing that came to mind as well is we work closely with a company called NCH, Nevada Corporate Headquarters, asset protection, tax planning and stuff like that. They have a business credibility program. I went through it years ago. Dun & Bradstreet is your credit score for your business versus your personal FICO score. Certain little things that they set up for me that I was able to get unsecured lines of credit in less than twelve months. It was stuff that I never even thought of. I wasn’t even on my radar in the beginning and getting started. Have you guys been intentional at all in those areas?
Organically and not organically, I’ve done things to improve our business line of credit to help us get better and bigger lines. Your business line of credit is very important. Your rating at Dun & Bradstreet affects that. That’s one of the things that we help and teach our students to do from day one. The day you join our education, you start working on those things. You can get to that end game faster.
This was a great show.
We covered a lot of ground. This is the number one question that we get or I fear that I hear from newer investors or even experienced investors because they want to grow, what are you guys doing to grow your business in terms of capital with new investors or new students in our community? “I don’t have the money. How am I going to do my first deal?” I’ll say it’s easy to overcome. I’m saying that sitting in the seat with the experience that I have. I remember when I bought my first house, how little to nothing I knew about how to finance.
The other thing I would say what I’d do differently is to educate faster. I’d spend more time, invest more money educating around the different ways to fund deals. When we learned about seller financing at the end of our first year or the beginning of our second year in business, it opened up other doors. When we heard that there were other ways that banks could finance deals. We started looking for these guidelines. Those came through either being in rooms with people that were already doing that, being in networking events or being a part of a mastermind or going to invest in a seminar where we would learn or hear someone talk about something. I never knew that was even possible.
Keep learning and growing. That training that I was talking about earlier, what they get into there is breaking down the private lender presentation. That’s going to be a key. If you were paying attention to JD, whether they’re in the first year of their business, years later, one thing that was a common thread was private money.
It’s always been a part of our funding. Our capital stack, as they say.
I appreciate you coming out and sharing your wisdom as always.
It was a fun show. You’re doing more deals if you learn how to leverage and borrow money. You’re able to make more money and make other people more money. It’s a big important topic.
The biggest fear of new investors is where does the money come from. It’s something that, with a bit of education and implementation, you can overcome very quickly. The focus turns to like, “I got all this money ready to go. Now I’ve got to find the deals.” That’s what it comes down to. I appreciate you coming on.
That sound resonates through your body and gets me ready to go out of here and raise more money. Hopefully, others will do the same.
I appreciate you all. Please continue to share your comments. Let us know what you love and want to see more of. Any topics that we haven’t hit. Share us with a friend. Any friends or family members that you think could benefit from this type of financial education because it’s not taught in traditional schooling. Help us get the message out to everyone we can. That’s it for this episode.
About JD Esajian
After growing up in the central valley of California and attending the University of Southern California, I bought my first house in 1999 and developed my love of real estate. Starting and building CT Homes with my brother and close friends has been a life dream and passion. To be able to help sellers and buyers, as well as improve communities is an extremely rewarding experience and a true joy. Building long term relationship with our customers and creating wow experiences is our daily goal.