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5 Real Estate Deals Using Other People’s Money


You want to invest in real estate, but you don’t have the money. Are you out of luck? Good news—money is NOT a dealbreaker. There are several levers you can pull to get the capital you need, and today’s guest is going to share them with you!

Welcome back to the Real Estate Rookie podcast! Shortly after being cut, former professional football player Darnell Leslie was determined to try his hand at real estate investing. There was only one problem: he needed money. But, after convincing some family members to partner with him, Darnell quickly realized that he could use other people’s money to fund ALL of his real estate deals. He started building his network and found private money and hard money lenders, using a polished private capital “pitch” to bring them on board. Over the last few years, he has completed five deals using very little of his own money!

Is money the ONE thing stopping you from buying real estate? In this episode, you’ll learn everything you need to know to start using other people’s money instead. From structuring private money and hard money agreements to buying materials for your renovation projects, Darnell walks you through each step!

Ashley:
This is Real Estate rookie episode 396. Are you unsure how to structure a private or hard money deal? Today we’ll get into what is working using other people’s money OPM. My name is Ashley Care and I’m here with Tony Jay Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today’s guest is buying properties, all cash, building his portfolio using other people’s money, the holy grail of real estate investing. He’s making flips more affordable for his area to ensure they actually sail on the backend. And we’ll learn how consistency is key to staying actionable, and we will hear how he’s doing this himself. So Darnell, welcome to the Real Estate Rookie Podcast.

Darnell :
What is going on? I’m so hyped to be here for you guys. First off, I want to give you guys your flowers. I started off watching BiggerPockets maybe three or four years ago, and I honestly pivoted from watching the actual show to watching the Rookie podcast when you guys launched this right after Covid. And you guys have extremely helped me just propel my business. So shout out to you too, and I appreciate you guys having me.

Ashley:
Well, we are so excited to have you here. Full circle moment. You start out listening to the podcast and now you are here to share your experience and to help others get started. Darnell, how did you even get started in real estate investing? Was it family or what kind of happened in your life that brought you to that starting point?

Darnell :
Yeah, for me, real estate investing was a foreign language of sort. I had no idea what it even was. I thought you had to be a millionaire to buy properties and invest in houses and just live and pay a mortgage. It was probably my last year playing ball up in Canada. I was with the Hamilton Tiger Cats and one of my buddies had told me to be Rich Dad, poor dad. So pretty cliche story, right? I read the audio book, I had the book on my phone, and I was listening to it and it dawned on me like, look, I can make money outside of playing football. One, that was one reality that I didn’t really understand because I was so focused on playing ball. But reading Rich Dad, poor Dad taught me how to make money, leveraging your time, how to make money, leveraging other money and just rinse and repeating that whole process. So for me, real estate investing was the pivotal moment after reading that book and I shortly realized that you can buy properties using OPM other people’s money by getting into few different masterminds with Amy Maju and I joined Matt Fair, Klaus Mastermind as well. So there’s been a whole bunch of just small intricacies that have played a part into me getting my first deal, but that’s kind of how I got my start, reached that poor dad.

Ashley:
And were there any pivotal books or podcasts or what were some of the resources? You had mentioned masterminds. What other things kind of helped you gain that knowledge to get the momentum to actually take action?

Darnell :
Going to meetups as well really helped me. Obviously reading the books was cool, watching a lot of YouTube videos and content and things of that nature. But I think when you actually put the rubber to the road and you get around other like-minded people getting to meet up events and seeing how they’re growing their portfolios and you ask the questions live in person and just hearing from a whole bunch of different talks and hosts that are at these meetup events, that really is what kind of propelled me. But also being involved on the BiggerPockets community on the forms page, that was huge and pivotal as well. That same last year that I was playing ball in Canada, I made a dummy BiggerPockets profile. I had no photo on it. It was just really just my name. And it was like some made up bio. I’m a property manager looking to invest in x, Y, Z market, no idea. But I was on the forums watching and listening and seeing people ask and respond to questions. And to me that just, it sparked another trigger on my mind just allowing me to understand that people are willing to help you out there and people want to see you excel in real estate. There’s a lot of people that want to extend their hand and just give you guidance. So for me, it was getting around those actual individuals and getting the meetups. That’s really what kind of propelled me.

Ashley:
Darnell, you mentioned playing football. I see the jerseys up behind you. Has that experience in your football career kind of led you into real estate or what kind of has made that transition into doing real estate from football? At what point did you decide I need to have something else after football?

Darnell :
Again, real estate was very foreign that last year of playing ball. It was like, all right, what’s rich, sad, poor dad? What does real estate? How do you make money work for you? And that sort of thing. But then it was really covid that had hit that I think we all are aware of that kind of shut the world down. For me. Unfortunately, I lost my last job playing football due to Covid. I was playing with the New York guardians in the XFL during 2019, and that league folded due to Covid. The whole world shut down. So I lost my job and I came back home. I was in kind of a bad mental state. I was living back home with my mom and dad. Nobody wants to be in that place where you’re not doing what you think you should be doing with your life.

Darnell :
So I just had to do a lot of internal digging and diving and figuring out what exactly that next path would be for me. And again, reading Rich Dad Cord Dad, that was a spark in my mind as to, well, you can’t make money outside of football and doing other things. So again, just diving into the content. YouTube University, BiggerPockets obviously was pivotal, but just listening to podcasts day in and day out, I literally listened to David Green every single day in the gym, just trying to figure out ways to get involved in real estate. So for me, that’s kind of how that transition happened. It wasn’t the easiest. It was pretty abrupt, but it was worth it. I would do it all over again if I could.

Tony:
Yeah. You mentioned a few times. I know just diving deep into the content and the community, and I think a lot of people also, they know BiggerPockets do the podcast and maybe the YouTube channel, but they aren’t aware of the vast wealth of knowledge that exists inside of the BiggerPockets guys. The forums go back to the beginning of BiggerPockets. That’s where it started. And that’s actually how I found about BP is that I was doing a Google search for whatever, how to buy your first rental property. And I stumbled across the BiggerPockets forums. And like you said, Darnell, there’s so many experienced and investors who are inside of the forums that are just giving value, giving value, giving value. So for all of our rookies, I’m sure a lot of you maybe are already in the Facebook group, but go and join the forums as well and use that as another resource to give you some of that support as you go on this journey. Now, Darnell, you also mentioned Matt Faircloth and I love Matt. He’s a great guy, him and his wife, both amazing real estate investors. But I read his book when I was getting started as well, how to Raise Private Capital. Did you read that book? I guess how did that influence you as you kind of started this journey?

Darnell :
I read that book too late, to be honest. I read that book after pitching myself and the vision that I had for my family to my family about starting our own real estate company and business. I read that book really after my second or third deal because I was raising OPM organically, but not really intentional around it. Didn’t have any formal approach to doing it or what the mindset should be when you’re doing it and how to protect your lenders ultimately and adding value to them. So reading that book came kind of a year or two late for me, but at the same time, it was perfect timing because that’s when I was really trying to be more professional in my approach to raising private capital. So understanding, again, the ways to protect your lenders, the ways to approach them and give them more value, that book was everything I needed. It was like the literal blueprint to raising private capital.

Ashley:
Can you maybe give us a little insight as to what that pitch was like to your family?

Darnell :
Yeah, I’d love to. So it is funny. So again, it was Covid. I had just bought a condo in Germantown, Maryland, and again, I’m scratching my head, football’s done. And at this point I’m like, look, I don’t want to work a nine to five my entire life. I know I’m going to probably have to get my feet under me and start getting just momentum with being an actual working class person as opposed to just playing football my entire life. So I had to figure out a way to get out of that rat race one way or another. And again, reading Rich Dad, poor Dad taught me that you can do that through real estate. So I put together this five page, five or six page PowerPoint that literally spelt out what the LLC name could be, what our goal would be with real estate, how we would raise the funds and the capital, kind of where our target market would be, what the benefits are for us, not just myself, but for my younger cousins and my children and my nieces and nephews, and just everybody that comes behind me because I’m at the point now where I’m really in sacrifice, my time and freedom to see my younger generation succeed.

Darnell :
And that was the entire vision that I had for my family. So I put that deck together pretty much, and we got on the call for maybe an hour, an hour and a half on Zoom, this covid, this like May, and we’re just talking ping ponging back and forth, and I’m like, well, shoot, my family’s actually buying into this. They really believe in the vision that I have and that they can see us going long term. So for me, it was very easy. They were all very supportive. I come from a very big foreign family. I’m Jamaican, so they’re all hustlers by nature. A lot of them are already involved in real estate at a higher level than I am, but just being able to talk to them and bounce ideas off of them really just made this whole process easy starting out.

Ashley:
Darnell, we’re going to take a short break and when we come back, I want to see how you’re structuring those kind of proposals and the pitches differently now compared to when you first did it for your family. So we’ll be right back. Okay. We are back with Darnell who just told us about doing his first ever pitch to his family to get them started in real estate investing with him to get their first deal. And so you sat down, you did a five or six point presentation over Zoom that you went through with them, and everybody seems on board. So now what do you do differently in your presentation? So one thing that I noticed is you said in that presentation to your family, you did a slide about LLC names, potential names. How important is that now to you when you’re actually doing a proposal? And then go ahead and tell us what your proposal looks like now.

Darnell :
Yeah, for sure. Great point, Ashley. And I think that was believe one of the things that I also realized moving forward is you don’t have to have all the steps and the finer details figured out before you get started. And I think that’s what stunts the growth and progress of a lot of entrepreneurs, especially in real estate. So that was a step that I probably could have stepped out on and skipped, but I think that was just another thing that I was trying to do to show that I’m taking the initiative. So I wanted to get that out there, but that’s a great point. I don’t think it’s very necessary, but it was something that I wanted to do just so that they understood that Darnell is he’s doing what he needs to do for the family.

Ashley:
Darnell, I just want to say you have no idea how many times I spent designing logos and business cards for the different things I’ve started is time wasters from actually implementing. And I just wanted to highlight that that’s a step you can actually skip when you’re trying to build your business as to it’s not the immediate need. Yeah,

Darnell :
A hundred percent. And I didn’t even realize that until after effect. To your point, logos and names and color schemes, they all look cool, but start the business. Just start the business and then let the momentum take you to the next step and the next step and the next step. And I learned that just through experience. So if any tip for any rookie out there, anybody listening, take the initiative, take the action, just start and then take the momentum from there. But I guess how I’m pitching my deals now or talking to lenders now, it’s been very organic. The first time that I actually raised capital after that event with my family was two family members. After that, it went on a separate venture and the way it was, I had a formal deck. So in the meantime of me getting fired from football and getting cut my last year from that league forwarding to maybe the start of 2020 or the end of 2021, at this point I’m understanding I can raise capital from my family, so how can I do it with other people?

Darnell :
So I used that deck on two of my family members, but then also on another friend of mine, I guess you can call ’em that, we’ve just been talking about real estate ping pong ideas back and forth. So it was three letters that I brought in on my next deal after that. So the pitch was from Amy. It was a deck that literally had my face on the front page, what my career was like, who I was as a person, kind of selling yourself to the private lender themselves. Initially they wanted be able to trust me as a person with their capital and to build this business. The next few slides detailed out what the fix and flip was or what the bur strategy was or what the buy hole was going to be. And it broke it down slide by slide as to how we’re going to raise the capital, how we’re going to actually go ahead and flip or renovate the property, make it get up to standards, but then how we’re going to get you your money back.

Darnell :
Most importantly, that next slide broke down the details as to what the difference between investing your real estate does for you and what the difference in investing in stock bonds, mutual funds and other commodities does for you. And the last step pretty much tied it all together and asked for any questions. And then at that point, me being the deal maker in a sense, would have to answer their questions, make them feel okay, and make sure that they’re getting all the value that they need for me to be secured. So the pitch now, and I’ve used this once in the past, I don’t use it. I haven’t used it since because again, all my lenders are organically now my network, but her pitch of just introducing yourself, Hey Ashley, I’m Darnell Leslie. I’m a local real estate investor, and I help my investors make double digit returns backed by real estate.

Darnell :
Are you interested? When she said that and put that in the PowerPoint, I’m like, well, if I’m an investor who has a lot of money, why would I not be enticed by that? Tell me more please. And now if you have a slam dunk deal, obviously I’m going to give you money if I want to make some money. So putting kind of all the pieces together from Amy and reading Matt Fair Klaus’s book, that really just propelled me and put me on a different level of being more professional without presenting myself to my private lenders so that they can feel more comfortable, that I can provide value to them. So that was kind of how that all went.

Tony:
I love that framework. And a couple follow up questions here. So you put together the deck. Are you just emailing it over to them and letting them read through it as they want? Or are you saying, if I’m trying to pitch Ashley, I’m saying, Hey Ash, I want to walk you through this yellow hop into Zoom call, and you’re walking them through the presentation on the actual Zoom call together. What? What’s been your strategy when you were using that deck?

Darnell :
That was it, Tony. That was spot on. So the three lenders that I had on my next deal, each got on a separate Zoom call. Obviously, I’m not going to disclose your identity, so I don’t want you to all co. Well, we’re all lending money to so-and-So no, this is a private matter professional, right? You’re doing business with me and my company and I’m trying to provide value to you and your family. So we got on a one-on-one Zoom call. It was maybe like 35 minutes, 45 minutes each. The deck was fairly simple, but really straight to the point. All these individuals knew me as a person already. So the selling piece really wasn’t selling, it was just me reiterating, look, this is who you’re dealing with. This is who Darnell is, this is what kind of person that I am from the personal side, but what I’m getting to on the investing side and professional side. And so all of those calls went very smoothly. I want to say most of them didn’t last longer than I expected it to. Again, they had no questions. They were like, look, Darnell, we love you. We know you. We like this deal. What are the next steps? How can we help you? And so I was just, again, I’m blessed to come from a family and a network of people that really understand who I’m as a person. So that’s kind of how that went. So

Tony:
Darnell, were all of these people then family members or was it anyone else that you had met through networking or events?

Darnell :
Two were family. One was again, another close friend or a mutual connection that I know from playing football.

Tony:
Gotcha. And so I guess just last question on the actual pitch piece, how did you initially present the idea to them? Were these the same family members that were in that first deal with you or was this someone else, a newer family member, and you said, Hey, I’ve got something for you. Let’s hop on a call. How did you actually get them to the point of getting on that Zoom call with you?

Darnell :
Yeah, so I have again, mom dad’s side, right? The business is through my mom’s side of the family. There’s nine of them, my mom’s one of 10. So the nine aunts, uncles and relatives. Our LLC has maybe eight or nine different people in it. So one of the individuals from that LLC invested into the next deal. My dad’s side. Another individual invested into this deal, and then on the third side was just a mutual connection,

Tony:
But specifically how did you get them onto the Zoom call was just a text saying, Hey, I got an opportunity for you.

Ashley:
You invited them out for coffee and started telling them about it. What was the initial conversation that was brought up, especially to that friend that’s not part of your family that maybe heard your family talking about it, but what was that first interaction you had with them?

Darnell :
So these are all people that I’ve talked about really stayed with in the past. Right after reading Reset, poor ed in Canada. I’m coming home and I’m talking, I’m pitching ideas. Obviously, I don’t know what anybody in my family makes per number or what any of my friends or network makes per number. But one of the things that I’m realizing is that when I’m putting myself out there, has that, Hey, I’m getting into real estate. I want to do X, Y, Z in real estate and I want to build my business this way. And they’re saying, well, hey, look, I got some money. I’m able to cash out some stocks. What do you want to do in real estate that I can add value to and be a part of and help you build? So it was really the natural organic conversations that were happening to where when I knew that I had a next deal coming up, I’m going to you because it was just something that I kept of because I knew that I wanted to be able to build a portfolio using OPM and add value to other people that wanted to invest in real estate that really had no time or know how to do.

Darnell :
So really it was just through formal conversation or informal conversation, I’ll say that turned into us getting on a call and taking the next step is to investing together.

Ashley:
So Darnell, now that you have your investors, how are you actually structuring these agreements? What are the terms? What are the payments like?

Darnell :
Yeah, so they’re very fluid and I think that’s the benefit of OPM and that’s why I want to continue building my business using OPM as opposed to using a bank. You both know, no, you don’t have hard terms. Your terms are really based on what makes sense for you and what makes sense for your lender. For me in my business, if my lenders are to give me 50% of the amount I need or less, they’re going to get 8% back on their money annualized return. Hopefully I’m in the deal for four to six months. So it’s a very quick return on your money. If they’re giving me 50% or anything to the full amount, you’ll get 10%. If you’re giving me all the money that I need for purchase in rehab, you’ll get 12% annualized. So I kind of break it down into three different stages to keep it very cut and dry so they understand, well, I could receive X, Y, Z based on how much I’m giving him for this deal.

Darnell :
The way I protect them is through mainly it’s a promissory note, but I’ve had one lender so far that wants to also be put on title insurance. So I add ’em as the owner on the title insurance. So if I just run away with their money, they still can legally show, Hey, I’m on title insurance on this property. I have some sort of claim to the rights on this property. I’ve also heard other ways where people are adding their lenders onto or writing their lenders out. Unrecorded deed of trust. I’ve never gone that route. None of my lenders have ever asked for it, but if they did, I’d be open to doing it because I understand how that process could go with title. I understand it’s another layer of security, and I know that it’s for me, my lenders that I’m working with consistently, they already know I’m not going to run away. Again, it comes down to them trusting you as the person and trusting your business model and trusting how you operate with them and being communicative and just not trying to be shady with what you’re doing. So I think it all comes back down to trust, but there’s a few ways that I can protect them, but the main way is always through a promissory note.

Tony:
Yeah, I’m curious how you set it up as well, but I know that’s how I do all of my private money transactions where I give them both the deed of trust is what is called in California, but whatever your mortgage security document is, but it’s a deed of trust that gets filed with the county shows that my private money lenders have a lien against that for their note amount. And then I also give them the promissory note. So I give them both the documents. Every time I do a transaction, it’s a little bit more hoops, but for me, I just feel like it does make us come across a little bit more professional when they can see that the paperwork’s there and everything’s tied in. And if Tony did run away in the middle of the night, they do have some form of recourse for any deals. Since you’ve done Ash, how did you structure from a paperwork side of things?

Ashley:
Yeah, I’ve only ever used the same several money lenders, and it’s just been a promissory note. And I think that kind of goes back to Darnell’s point. He started out with family, friends, people that knew him that the same with me as people I’ve known for a while, that they know where I live, they know where they can come after me if something happens at their property. But I’m doing a new private money loan with somebody, I’ve never done it before, that lives out of state. We know each other, but he does a lot of private money loans. In this time, we will be doing a deed of trust for the property. So it’ll be my first time actually having to do that.

Tony:
And darn, I don’t know if we asked, but are you using the private money to fund flips or burs? What exactly are you using the private money for

Darnell :
All exit strategies? I’ve only wholesaled one deal, but I’m using private money right now to get into the property. So if I can purchase a property all cash, I will do that using OPM just because of where the hard money fees are right now. But if I can use that money to also rehab the property, depending on if it’s a cosmetic flip and it’ll take maybe fewer 30 grand as opposed to being a full gut needing another 120,000. So just depending on where it is, that’s how I’ll kind of use the OPM and

Tony:
What market

Darnell :
I’m in, the DMV market, dc, Maryland, Virginia,

Ashley:
Darnell. Once you have your private money lender, what’s kind of the process? Is it okay, you’ll get your money back at the 12 months? I’ll talk to you then. What’s the length of your agreement and how does it actually pan out? Are you making interest payments along the way? Are they getting a lump sum at the end?

Darnell :
Yeah, great question. So for me, again, going back to the whole trust thing of everything we’ve been saying, I’m very transparent when it comes to my lenders. I understand that this is a big investment. If you’re giving me $150,000 for something, you want to hear progress reports on this property. There’s people out there that I’m sure will just take your money run and not talk to you until the deal’s done. No, outside of seeing my social media and seeing what I post on a daily basis, I’m going to shoot you a text at least once a month, give you photo updates, personalized so you can understand this is where your money is going, this is what it’s getting paid toward, and this is a progress report that we’re making on that deal. So I’m very transparent in that factor when it comes to actually paying the lenders back their money again, I’ve been in a flip the longest for nine months out in dc, a headache, but on close date, you get wired that money the same day.

Darnell :
I’m not holding your money for a year. I’m not trying to use that money on another quick deal. No, when this property is done, I need your okay and understanding that this promissory note is now null and void and we’re moving on to the next deal. And if you want to keep your principal capital with me and I pay you out your interest, that’s even awesome because now I have more money to sit with that I can use for an EMD that I can use for proof of funds that I can use to get us the next deal moving forward as opposed to being kind of sheisty and not letting you know exactly where we are in the process just so I can hold onto your money for another three or four months. So it’s all transparency for me,

Tony:
And it’s interesting you run it that way. I almost do it the opposite. Not in an effort to conceal information, but just like, Hey, you’re trusting me with this process. So trust me and me and my private money learners, even joke when they’re wired funds in for a deal, we’re like, okay, cool, I’ll talk to you in four months when the wire comes back. So I guess it depends on your relationship with the private money lender. So Darnell, I want to dig into how your ability to raise private money has actually impacted your investing, but we’ll get to that right after. A quick word from our sales sponsors. Alright, we are back and Darnell, just talk through how he’s structuring his different deals, the paperwork that he’s using, how he’s making it legit. But I want to know, Darnell, how has your ability to raise OPM impacted your investing so far?

Darnell :
Oh man. It’s skyrocketed in the sense of just giving me more confidence with just also the ease of mind as well. We all have LLCs, right? In businesses, not that you need one to necessarily get every sort of bank loan. You can go no doc and DSCR, but when you’re dealing with hard money companies, it’s a lot because they ask for so much documentation, they don’t drag their feet, but you’re kind of going on their time of how things are getting done and you have to meet all the requirements to make sure that they can actually fund the deal that you want them to fund. If your credit score is shot, you’re probably not going to get as much guaranteed on this loan as you want to, right? If you don’t have the necessary proof of funds or you can’t close on x, y, Z date, you’re probably not going to get the money that you want.

Darnell :
So there’s a lot of rules and restrictions that go into dealing with hard money companies, and if you need that route, that’s a great route. That’s how I kind of started off. But for me, private capital has allowed me to think less about the whole formal process of securing a deal. Whereas if you can just open your phone and look into your business bank account and see what you need to close on the property, then you just coordinate with closing and title yourself and you handle it that way. So it’s allowed me to just take a step back and be more levelheaded in the situation to be more calm, but also using private capital, I’m paying less fees, so I’m recouping and keeping more money in my pocket when I go to purchase and sell the deal. I’m not paying points, I’m not paying origination fees, I’m not paying money to get into loan because I already have the money, but also on the backend, I’m not paying you 15% plus a monthly payout on your interest. So is kind of a smaller and minute difference in the numbers of things, but at the same time, if I can keep two and a half points and 3% on the loan, I’m going to do that all day every day. So it’ll allow you to scale a little bit more just by keeping more money and recouping more money after the sale.

Ashley:
So Darnell, you had mentioned that you held onto one property.

Darnell :
I’ve kept two. I’ll say I have a burr and then I have one that I also bird in Hagerstown, so I have two bur. Okay.

Ashley:
And then how many have you actually acquired with private money throughout this time?

Darnell :
I’m going to say five.

Ashley:
And that’s over the course 2022. Wow. Yeah, that’s awesome. So by purchasing these properties and using the private money, what would be just maybe your top one thing or three things that a rookie investor should be doing right now, if they have the same goal of you of doing five flips throughout the next couple years, acquiring a couple properties to hold, what’s one to three things that they can take action on that they can do right now to start raising private money?

Darnell :
Man, sell yourself. Understand your skills, hone in on those. If you’re a great deal finder, start finding great deals. And actually that might be the thing that I’ll say. So besides selling yourself and understanding your strength, be able to find a great deal and learn how to underwrite. And if you can’t underwrite, find a real estate friendly agent on BiggerPockets. They have ’em all over the place and have them or ask them to run numbers for you on this deal rental property or flip, whatever the case is. But just start understanding the intangibles that you bring to the table. I think a lot of people listening to this show might work nine to five. So you have communication skills, you have organization skills, you have time management, you have a lot of intangible qualities that go into raising private capital and at the next step understand what a great deal looks like. So you can pitch that to an investor. You have to make the deal look so good that they would feel bad for not investing with you a hundred percent. The deal has to make sense numbers wise to where they just feel like, well

Ashley:
Dang, they’re missing out a

Darnell :
Hundred percent. That’s it, right? So understand your traits and your skills, sell yourself, but be able to find a great deal and run numbers.

Ashley:
So when you’re running the numbers and you’re doing your underwriting, how are you deciding which those two that you decided to keep as a burr and then the ones you have flipped, how did you actually decide which strategy you’re going to be using?

Darnell :
Yeah, great question. So for me, I do all that early on in the game before I’ll make an offer a really advantageous offer for myself. I’ll say, I don’t want to say low ball, it’ll be advantageous for me, but at that point I’m running numbers based on what that looks like and I always want to make sure I have more than one extra strategy in place. So I always have two or more. So if it’s going to be a great flip, it also has to be a deal that can somewhat cash flow and if not, it’ll be an area that can appreciate over the next two or somewhat some odd years if I have to hold the property long-term or I have to be able to just wholesale it off back or do a short-term rental and be like Tony. But so for me it’s really just understanding the multiple exit strategies and being able to be an agent with long and foster that’s allowed me to do a lot of the digging on the back end that people don’t have access to.

Darnell :
It’s one thing to use a little, but it’s a whole nother thing to be able to tap into the MLS and see real live property data and ownership data in one place and get on the leasing portal and see what properties in that subdivision are also renting. You can get the same data from Zillow, from Zillow, Redfin, and truly all those websites. But I think being able to be an agent and see that data before it actually comes live on market from other comps, I think that’s another advantage. But for me, that’s kind of how I’m doing it. I’m looking at the numbers early on and just trying to figure out if it’s a burr, can I refi out all my money plus my private lender’s money and pay them back? Maybe I don’t keep any money for myself, but I have the property long term that’s payout for me and that’s enough for me. I’ve got cashflow and that’s enough for me. So just understanding the different exit strategies and trying to make sense of what the profit will look like short and long term.

Tony:
Darnell, I’m curious, when you’re trying to make that decision, do you have certain metrics, I need X dollars per month, I’m going to keep it as a rental or x percent ROI, if I’m going to use this as a flip, are there benchmarks that you’re using?

Darnell :
So kind of loose? I’m not too stuck on either, but for rental property, I’m trying to get 12% cash on cash return. So whatever money I put in on the down payment, any repairs, I need to recoup at least 12% of that annually just to make it make sense long-term based on where I could put my money in the stock market or some other commodity. So I think stocks are going at what, seven to 8%, so it’s got to be comparable, but to the high side for a flip, I’m looking to get at least 30% return on investment. So all the money that I’m putting into that deal, based on what it’ll sell at, I need to be able to make at least 30% of my money to make that deal make sense for my time. And I can go either way on the deal just depending on how I see the market fluctuating and where I see rates going and where I see buyer activity at. But for me, those are kind of the two metrics, 30% on the flip, and then 12% on a long-term rental.

Tony:
One follow-up. Question to that, Darnell, do you feel that given where interest rates are today and on a rental property, maybe you’re between high sixes, low sevens today, maybe a little bit higher depending on what kind of debt you’re using, do you feel that these somewhat more elevated rates, are you still finding deals that will allow you to get a 12% kind of double digit return on a long-term rental?

Darnell :
It’s hard. The one I closed as a burr in Hagerstown, maybe four or five months ago, that one is I think nine or 8%. But the reason that I took that deal was because it was a fix and flip cosmetic job. Bought it for one 30, put 30 K into it, it appraised for like 2 35. So I was able to take out all my capital plus the investor’s interest and still be at where the market rent was, right? So my mortgage on that property was what? Right now it’s 1650 and I’m renting it out for 1850. So I’m not really cash flowing in a sense. And one of the thing I want to highlight to the rookies is your cashflow is not yours. So that $200 bump that I’m getting in monthly income from that property that’s staying in the property, that’s rainy day money. So for me, I’m able to find deals that maybe aren’t panning out to be that full 12%, but you can definitely find ’em depending on how steep you buy or how low you buy and how much the rehab is for sure.

Tony:
So you hit on something, Darnell, that kind of leads me into my next question about depends on how you find them. So what strategies are you using to find these deals? Are you going on market? Do you have a wholesaler you’re working with? Are you going direct to seller? What strategies have you used that have worked well for you so far?

Darnell :
I’m going to all of them. I’m not picky. Whatever can bring me of the best deal possible that makes sense for me and my lenders, that’s what I’m going with. I’ve used wholesalers twice. I’ve used an agent on my last flipping Frederick. I used word of mouth on the birth that I’m living in now. Whenever the deal can make sense numbers wise, that’s the deal that I’m going to underwrite the hardest and that’s what I’m going to take. I think a lot of people, they shy against going to wholesalers because oh, I don’t want somebody to get an additional $20,000 off of me. That’s crazy. I can find my own deal. It might be, but if you can all win in the end of the day, who cares if they make 20 K on your deal? You win, your investors win, they win. It’s what real estate’s about. It’s a people business. So if they can do their job and make 20,000, thank you, sir. Thank you. You gave me a great deal for 20 k. I appreciate you. So I’m really not opposed to either, but I’m getting deals through every single way.

Ashley:
Darnell, how are you handling that deal flow? As in you’re getting stuff from agents, maybe you’re even spending your own time on Zillow, you’re getting stuff from wholesalers. If you get an email, here’s a property. Are you stopping everything and analyzing it or do you have some kind of system or process to handle that deal flow as different people send you deals that they’re seeing?

Darnell :
Yeah, for me it’s very slow paced. So every time I’ve had an active project under rehab, I’m not looking at any new deals only because I’m the type of person where I don’t want to spread myself too thin. And I am in a sense, a one man operation. From my business entity standpoint, I don’t have VAs, I don’t have a staff working with me. It is really just me doing the in and out daily numbers on these deals and management. So as deals come in, they kind sit in my inbox and if I have a downtime, I’ll kind of click through really quick and look at the spreads and see, oh, that looks cool. Let me see what that’s like. But I’m probably not going to end up buying three and four deals at a time right now just because one, my capital wouldn’t stretch that far. My lenders, but also I’m not at the point to where I’m scaling my business to outsource roles to where somebody can be a PM at this job, somebody can be a PM at this job. Somebody can run numbers on these two jobs. So me being a one man team right now is really allowing me to just be slower in the process. But I am looking at deals pretty much daily if that answers your question.

Ashley:
And you know what, Darnell, that’s actually a superpower to have the patience to do that. I mean that is actually really hard to do, is to do one at a time and not feel like you should be doing more because everybody else is doing more or just getting excited. I have the adrenaline rush now I need to find another deal that takes really, really strategic patience and that is a superpower to know that this is what’s working for you and being able to maintain that and go with that. So yeah, that’s definitely a superpower I want to highlight for you.

Darnell :
I had to tell myself to do that and sit down a little bit. I was finding myself getting this frenzy and FOMO of deal, deal, deal, squirrel, and it is unhealthy for you because if you’re not at that position to actively attain those deals and operate them at a successful rate, then you’re going to put yourself in a bad position. So I had to really tell myself, Darnell, you’ve got to deal going on right now. Focus on this. Give this deal your entire attention. When this is done, a next deal will come to you. You have to understand it and believe that, that there’s millions of properties for sale every day. So I don’t want to be in a chase for properties. I think that’s when you can get in a lot of troubles when you start chasing the money and the accolades and whatever comes with it. So spot on

Ashley:
And just having the time to focus on that one deal, you’re probably making a better profit on it because you are being diligent in that focus on that one property instead of spreading yourself too thin. We’ve had guests on the podcast that say, you know what? We’re not buying more properties right now. We’re stabilizing the ones we have, especially short-term rentals as we’re adding Tony, adding a pool, the adding asana, a hot tub, all these different things to just add more revenue to the thing that the property they already have. And focusing on that and the operations of it. I think that’s such a hard thing to do, especially with social media and you see everybody’s buying, oh, and all these things going on, the shiny object syndrome, but that is a real superpower, having that patience to really focus on one thing and what you’re doing. And I’m sure there’s times during the rehab where it’s kind of almost stagnant and boring a little bit as to like, okay, I could have time to actually look at another deal. But

Tony:
Yeah, Ash, you bring a really good point. And honestly it makes me think of some of the investors that I look up to or entrepreneurs that I look up to who have told me that at certain points they had to scale back their business because they realized they had scaled so big that even though the revenue was more, the actual money in their pocket at the end of the day was less because they had so much infrastructure to support this business that they built. So I feel like when you can scale a little bit more slowly and really only add in people as you actually need them, then it becomes easier to make sure that not only are you protecting the top line, but the bottom line as well. Right. But darn, it’s something you mentioned earlier that I just want to circle back to really quickly was that I think you said you picked up one of these properties for like $130,000 or something like that. So I guess what price points are you targeting? What is your underwriting process look like? How are you identifying what’s a good deal and what’s not a good deal?

Darnell :
So price points are really open in the DMV market in dc, right? For an example, a three bed, two bath throw home in DC could go for half a million dollars, but a three bed, two bath, single family house up north Maryland can go for $136,000. So it’s a vast difference in the matter of an hour and a half drive going up two 70 highway. And so for me, again, it comes down to the numbers. If I can understand that I can get really a really steep deal in DC but still be able to cashflow very strongly on that 12% mark or get a good 30% on a flip. I’m going to take it in DC and I’m going to try to raise more private capital and maybe bring in some hard money because I know that’s still a great deal overall. Whereas in Hagerstown or Frederick, I can purchase these properties all cash because I have that amount of money in a business bank account that I can use.

Darnell :
So it really depends on the market between dc, Maryland, Virginia, even up in Baltimore can kind of be cheaper side depending on where you are. So it depends on what part of the DMV I’m in that my underwriting would change, then my price points would change. Sorry. But the underwriting is pretty much stagnant across the board. So fix and flip, again, I’m looking at purchase price, looking at rehab costs, looking at paying commissions upfront, adding all those factors in. And then on the resale, what’s the estimated A RV, what’s the estimated commissions and taxes, and then looking at the net profit there. And on a rental, it’s the same exact thing. What’s the monthly mortgage going to be at? Maybe worst case, half a point higher on a mortgage. What are the repairs needed? What are the possible CapEx is? And building that in and try to back check to figure out what my net monthly income would be on that property as well. So it really just depends on where I’m at in the market, but there’s such a vast difference, Tony,

Tony:
I think that’s one of the bigger challenges too. Dunno of going into some of these bigger cities where it’s like you have these massive swings and prices. It’s like where I’m at in SoCal, you’re not going to see a half a million dollar property and a hundred thousand dollars property anywhere near each other. So we know that we’re kind of playing within the same box. But some of these other markets, there are those big swings. And I think that’s where maybe some of the rookie investors who’re trying to go out of state, they can kind of maybe miss the mark sometimes because they go into some of these markets and like, man, I can pick up a house for a hundred thousand dollars, but if you don’t know that area, you could end up buying it. Maybe a place that’s not really supportive of your investment goals. Ash, do you see swings like that in purchase prices where you’re at? Or is it all pretty consistent?

Ashley:
It’s all pretty consistent, I would say as far as swing, maybe it’s such on a smaller scale, you’re not going to, in the country you’ll see a million dollar house and then a hundred thousand dollars house just because it’s in the rural area of where people have land and they either have a small house, they have a medium sized house, they have a big house. But when you get into the city, the price is pretty consistent per neighborhood. I would say that even if you know the different streets you want to be in and stuff that there is a little bit of difference, but not huge and drastic like that at all. But I do want to ask Darnell about your rehabs. When you’re going and looking at a project, are you doing full gut rehabs? Cosmetic? What’s your ideal type of rehab?

Darnell :
I like the worst of the worst houses. I like to walk through the houses and have to cover.

Tony:
Have hold your nose. Yeah,

Ashley:
Don’t open the fridge.

Tony:
Don’t open the fridge, don’t open the toilets, don’t open the toilets.

Darnell :
Yeah, I like the full gut jobs mainly because it allows you to want to be more competitive in your purchase price and your offers, things like that. But also I’m kind of like a visionary in a sense. So I like to see the worst of the worst. Imagine going through a demo process, getting it up to the immaculate HGTV finishes, and just looking back four or five months ago and seeing that transition, that change, that property went through, that I can give and sell to a deserving family. To me that’s so gratifying. I’m not going to turn my shoulder on a cosmetic job if it’ll make me in my business of money, obviously. But I like the projects that are the worst of the worst. You got to do structural work, finish work, everything in between, only because again, it’s the most fulfilling to me. But I know some people, they don’t want to walk through a house that smells like cat pee necessarily, but I get it.

Ashley:
So when you’re doing these rehabs, are you using the private money to fund the contractors and the material cost too? Or are you using different strategies for that?

Darnell :
Yeah, so private capital for me again, is the seed. It’s the start money for me. And if I need more capital and I can’t raise it myself, I’m going to hard money. But initially the private capital would be my down payment, closing costs, holding costs, and anything I can use on the backend for the rehab, I’ll use private capital. I’ll use the hard money to actually purchase the property with the remaining 85 to 80%. And if I need more money for the rehab, I’ll use hard money. But ideally it’s going to be strictly just for purchasing is the hard money. And then if I can use private to get into the deal and rehab, I’ll use private because usually those are your costs that’ll fluctuate the most. And so now what I’m actually doing is I’m focused on building business credit. So one of the things that I’ve done after my last flip was I opened up a Home Depot credit card and I opened up a form to core credit card.

Darnell :
Why? Because that’s, I’m going to get most of my materials moving forward. So I have a credit line with Home Depot now that’s allowing me on the flip that I have in Frederick to go to Home Depot and buy up to, I think it’s like $23,000 worth of material on a credit card that I’m paying 0% interest for 12 years. That’s OPM in a different stance, but it’s corporate OPM if you think about it, right? But I’m still paying 0% on that money and then within 12 months I’ll be well out of that flip. So I’ll pay that card off in full, right? It’s not going to crush my credit score because it’s tied to my business, but I’m also going to be replenishing that card fully. So if it does hurt my credit at any point, it’ll be rebounded at a later date. So it’s understanding how to collateralize and find different ways of purchasing collateralizing and rehabbing a property. So I’m using OPM to get into the deal strong, using hard money to the remainder of the deal, using again, OPM to rehab the deal and then using business line of credit to also help me purchase materials and finishes that I need also. So it’s a mix of all, it’s kind of some sort of arbitrage, I’ll say.

Ashley:
Yeah, Darnell mine and Tony’s eyes got real big. You said 12 years instead of 12 months?

Tony:
I know it’s 12 months. Okay, it’s 12. 12

Ashley:
Months. Yeah, I was going to say, yeah, our got real big. And then you said, again, I’ve paid off 12 months and my rehabs are done. But yeah, I’ve done that too, is open up the 0% interest credit card for rehab and I just give it to my contractor and we load it up and then when we refinance the property, the credit card is paid off just like any other debt on the property. And having that safety net of making sure that credit card payment doesn’t start accruing interest, that you’re getting one that’s 12 months or 18 months so that you have enough time to make sure you paid it off. And I just like to give a disclaimer, if you are not good with credit cards or you have a lot of other credit card debt, probably don’t do this strategy. And honestly, probably you won’t get approved anyways for a 0% interest credit card if you do have bad credit and don’t have a good history with credit card. But just a full disclaimer there, make sure you can be responsible and you’re not stuck with $20,000 in material costs and 25% interest, you end up having to pay on it because you can’t pay it off.

Darnell :
I think one more thing I would add to that, Ashley, is you get approved for that sort of financing the same way you would for a personal credit card. The banks do try to do their best to protect themselves and protect you as a lender and the borrower as a borrower, sorry. So again, if you can’t afford that type of stress, definitely don’t do it. But there’s a lot of benefits that come to it because once you pay those cards off in full, your next strategy should be, Hey, I’m going to hit the bank up again. Excuse me, Mr. Banker. Mrs. Banker, can I get an increase on my line of credit? So the next flip, I have $50,000 worth of line of credit that I can use for the rehab moving forward. So it’s just a way to just be strategic, but you hit it spot on, be responsible with it.

Tony:
Last question. I’ll ask for you now before we wrap things up is I’m curious, are there any safeguards that you’re using when you’re using the hard money while doing the rehabs? Have you found anything that works well for you navigating that relationship?

Darnell :
Yeah, for sure. I actually found my current hard money lender that I’m using through social media. He found me by me posting videos about my previous flips. He was like, yo, I’m a lender. Let’s touch base. Let’s get on a call. Let’s figure out how we can help you. And I was like, let’s do it. So me posting on social media allowed me to find this current lender, but I think continually going back to him as my lender is going to help me grow my business because it’s all relationships. So he’s going to see that I have a slam dunk deal that’ll make his company money. I’m going to see that he trusts me as a borrower and I can close on a deal that actually makes sense and make myself some money. So when I continually go back to him and replenish those lines of credit in that loan, it’ll just make the relationship stronger.

Darnell :
Because we each trust each other. We know that we can both do our job to the highest extent. So going back to the same lender over and over and using that relationship is going to be key for me and really anybody that uses bank financing moving forward. So one of the ways that hard money kind of protects you is that they require you to give them an itemized scope of work. They’re in it for you to win as the investor, but they’re ultimately in it for them so they can make their money back for their company. If your deal doesn’t make sense, they’re not going to invest with you, which is why they’re making sure that they have their systems in place to make sure that they can ultimately win as well. So with all the hard money companies that I’ve worked with in the past, they’ve asked for the itemized scope of work, right?

Darnell :
They’ve asked to see the bid from the actual contractor doing the work. So the itemized scope of work is going to literally tell you and spell out, alright, demo’s going to cost five grand reframing and finishing off a bathroom is going to cost seven grand. Laying new LVP flooring throughout, it’s going to cost three grand. So they want to see those type of concrete numbers so that they know exactly where their money is going and to make sure that they do actually make sense. And you’re not telling them some fluff that they’ve been through and see that a kitchen remodel is going to cost you a thousand dollars. They’re going to automatically raise their red flag and start asking more questions. So the hard money company is really there to protect you as a lender. And although it’s a lot of documentation and talking back and forth and conversations, it’s ultimately for your best interest as an investor.

Darnell :
And so that’s kind of how they protect themselves and you on the front end. But also throughout the deal, I’ve dealt with hard money companies that will require you to have a draw schedule. The draw schedule being how many times they’re going to give you money to draw out of escrow for the rehab budget. So the two hard money companies that I used early on, they required a four draw schedule, meaning I would have to front the first initial payment. I want to say the first demo that I did was six grand. So I fronted the first six grand they wanted to see, I had skin in the game, I was committed to the property, I was committed to the deal. So I fronted that six grand and as soon as they saw that demo was done, they brought an inspector out. They charged me a fee to bring the inspector out there to walk through the property and see that the demo was done, and then they replenished my six grand.

Darnell :
But then they also gave me that second draw of money, which is going to be for the structural framing of the property. So that was draw two. Once the structural framing is done, then they bring in the inspector again to say, Hey, Darnell, we see that the structural framing is done on the property. What’s the next step that you need on this scope of work? You have the third draw being for $30,000 for putting in drywall and insulation and rough and plumbing, things like that. Then they’ll front the third draw. Once they come back and you say, Hey, Mr. Linder, I’m done with the third draw. We now need the fourth and final draw. They’ll come back and bring the inspector again and they’ll see that, all right, Darnell, you’ve finished off all the stuff behind the walls. Rough and plumbing’s, good drywall’s up, paint’s done. Here’s the for throw the payer contractors out. So that’s really how the contractors will protect you ultimately as the borrower, because they got to protect themselves as well. But in that process, they’re just making sure that you’re doing your due diligence and you’re an active investor in your property, not just letting the contractors run wild with their money. So that’s kind of how they work.

Ashley:
And before everyone starts thinking, this is so nice of the lender, like, wow, what customer service above and beyond they are charging you for each of those site visits, just so you know, for all of the inspector’s work. But Darnell, thank you so much for joining us. This was a phenomenal episode on private money, a little bit of hard money. We really appreciate you taking the time to come on here and to share your experience. We’re going to put your information into the show notes so people can learn more about you and reach out to you. I’m Ashley, and he’s Tony. Thank you guys so much for joining us on this week’s Real Estate rookie, and we’ll see you on the next episode.

 

 

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