All Forum Posts by: Lew Payne

Derek - and how do you convey that to others?  I generally convey my credit worthiness to lending institutions through my credit report (which they insist on running - even after I tell them I'm a man of my word).  In school, I conveyed my diligence by doing all my homework, despite telling the teacher that I'm not lazy and a man of my word.  In summary, what we are and how we demonstrate it are two entirely different things.

One should not confuse who they are with the image they project, the image they think they project, the image they think that others see, and what others actually see (or what they need to see).

Interesting question - I'd like to know as well, since the law keeps changing (I first invested in trust deeds back in 1985 or so). I imagine it's interesting... if there is a licensing requirement, how specific is it? What happens if you transfer the note to an LLC, and sell a 100% interest in the LLC instead?

As I've grown old, I've grown wiser (my wife calls it skeptical).  I share similar frustrations from the other end of the coin, from...

1) People writing wanting to know if I'll fund their deal, claiming that they are real estate investors.  When I ask them to provide two years worth of property addresses, dates and amounts (normal business due-diligence), they tell me this will be their first deal.  Hint - you're not a real estate "investor" if you've never invested... in much the same way as the publisher of a book on neurosurgery is not a qualified surgeon.  It's fine to be new - but it's misleading to misrepresent yourself for something you're not.

2) People writing wanting to know if I'm interested in funding two or three 7-unit buildings (I received this message today - after they read a post where I complain about how novice investors seem to not be able to provide useful information when communicating)... with no further information.  I'm supposed to either guess, or pry it out of them.

3) Today, as a result of my post and being online so much (I worked from home this time), I received a chat message asking if I'd like to fund a deal... no further information!  When I replied with "email me the details" (I was trying to be nice), the person replied with, "I think you'll think it's a very good deal" - as if they're able to read my mind.

4) I received a message from someone claiming to be an investor in FL, wanting to know if I'd fund there (which I do).  After I replied, he then asked that I tell him what I'm interested in funding!  In other words - represents himself as an "investor" but I have to tell him what property I'd buy!

It's a frustrating day, all around... from both sides of the coin, it appears.

I agree with you about the fact that some people flex their [supposed] money but not their word.  Likewise, I suppose many of them like to pretend they have money (especially in a forum), and can't be bothered with reality.

I also have backed away from deals, and I have my reasons for doing so.  I do not own a printing press; therefore, I'm limited in how much total cash I can invest.  If my cash is tied up in existing deals, I can't loan what I don't have.  In other words, it's cyclical.

Another reason I back away is some so-called investors scare me.  I had one guy (on here) who sent me videos of him in his "financing empire" high-rise office overlooking the city, videos of him and a semi-toothless friend trying to pet a horse, and videos of him touting his "handywoman" as he walked through a gutted home that needed major remodeling.  He expected me to view them and become enchanted with doing business with him... despite the fact that these videos have nothing to do with due-diligence (and only serve to reflect an unprofessional image of someone more focused on promotion than execution).  When I explained to him that I wanted the addresses of the prior deals he had done over the past two years, all business names he had used during that time, and the name of the escrow companies he had used along with a contact name - he stopped communicating.

I don't expect a new investor to be well polished, or even confident in what he's doing (and that's okay with me).  But what I do expect is some humility and genuine focus on business, not to mention authenticity.  Don't try to be someone you're not - I want to work with genuine people who understand and acknowledge their limitations, not someone who masks their limitations under a guise of confidence.

Indeed, Jay. I get asked "what are your terms?" even before the person tells me how much they need or what the deal is (ARV, comps, etc). The "terms" are - what are we both comfortable with that results in an acceptable risk/reward ratio for us both - those are my terms. That's the beauty of doing ongoing business with trusted *partners* - if they make an error (it costs more to repair than anticipated), they are willing to accept responsibility and complete the deal (thus not impacting their partners) even if it means less profit for them.

You first need to understand my sense of humor in order to apply proper context to the answer I'm about to give.  Here goes...

I tell everyone who's curious about investing in real estate, flipping homes, or investing in options or futures the same thing - it's extremely risky, and you shouldn't do it unless you are prepared to declare bankruptcy and leave your family destitute.

In evaluating my answer, you first have to understand that opportunity is the result of inequality - if all things were equal (we all knew the exact same things and came to the exact same conclusions on them), our world would be devoid of opportunity.  It is due to the fact that we all have different risk tolerances, differing confidence in our abilities, differing skills, and different trust levels when it comes to dealing with others - it is due to the existence of these factors that OPPORTUNITY exists.  The fewer the people who enter my field, the more opportunity there is for me.  Now you see the sarcasm in my reply, yet it is sarcasm that is founded on truth.

In reality, I hate to see people enter into a new venture haphazardly - leaving a wake of destruction in their path (especially at the expense of others).  If you don't have proper legal structures in place to protect your family against adverse risk and shield your excess equity, don't get into any risky venture.  Do proper estate (IDGT with wholly discretionary distribution provisions) planning and business structure (separate holding, operating and management LLCs) planning before venturing into this.  As with anything in life, there are exceptions to this - such as just starting out with your first or second property, and/or if you really have no personal equity or a near-zero net worth.

Is this a serious question?  I do it for the profit, so I can leave a legacy for my kids that will in turn finance the education of their (eventual) children, and that of my descendants (it's called a dynasty trust).  I do it so that my wife and I can afford the finer things in life.  I do it so that I can be free to choose who I do business with, who I don't, and on what terms.  I do it so that I can diversify my investments beyond ETFs, oil and index futures, and mutual funds.  Unless you're running a non-profit, most business is profit-oriented... I don't do it to purposely lose money.

As far as "do I invest for a percentage of the flip" - since it's my own money, I have the flexibility of evaluating each deal on its own merits, and drawing my own conclusions.  I invest for a fixed rate of return, for a percentage of profits, for a percentage of cash flow and a different percentage of equity upon divestiture, or whatever makes sense given the parties and the situation.  I don't invest in deals which don't make sense to all parties involved - I believe in partners, not adversaries.

I'm retired; managing my investments is my full-time job now.

 I'll briefly address some of the above comments here:

I have personally found that anyone who decides "it would be nice to invest in real estate" begins calling themselves a "real estate investor."  Time and time again, I have been approached by "investors" wanting me to loan them money.  I'm an experienced business person - as with any business investment, I do my due diligence before pulling the trigger.  As soon as I ask them to answer my standard set of questions, they come back and tell me they've never done a deal... but that they "have a friend" that has, who is helping them.  As soon as I ask them to have their "friend that does" contact me in person so I can perform due diligence on them, they go silent.

I have personally found the experienced flippers I lend to tend to want to obtain 100% financing from a private lender like me.  It takes me no more than 48 hours to fund a deal, sometimes sooner (as in zero hours - if we stay in touch and know what's coming up, I keep the cash in escrow even before the deal is signed).  An accounting or finance major can tell you why these flippers don't use their own money - the rate of return on their investment is infinite, as opposed to fixed, while the risk/reward ratio is inverse.  In addition, the ones I work with are busy using their money for purchasing rentals free and clear, while 100% financing their flips.  They are money and business savvy, have a way of doing things which leads to maximum yield, know how to obtain maximum tax benefits, and have a realistic plan they execute.  Above all, they do not spend their time in forums condoning others or calling "********" on their methods.

I have personally found that the majority of people, regardless of income bracket, have expenses that are commensurate with their income.  Not everyone believes in nor follows the "Rich Dad, Poor Dad" forumula (especially given that the author declared bankruptcy and stiffed his lenders), and not everyone's priorities are the same.  It is these innate differences that provide opportunity for others - those of us who are willing to make the sacrifices have a better chance of reaping the rewards (but there's no guarantee).  Were it not for these people (in all walks of life - not just real estate), we would all be on equal footing and have no such opportunities.  Thanks to these people, I can borrow money at 3.5% (prox) from a lender that is making 100% profit on that loan, then loan it out short-term myself and make 300% profit myself.  It all comes at a price, however - I am willing to assume the risk, which applies to my estate.

I have personally found that few people are what they claim to be.  "Investors" are far and few between, especially in real estate - most categorize themselves as such after reading a book on "flipping," joining an online forum, or attending a meeting group or seminar.  The concept of "due diligence" seems to be lost on these so-called investors.  It is my firm belief that both investors and private lenders should do DUE DILIGENCE on each other - specifically, they should VERIFY each others' claims, as that is the first step in establishing credibility and establishing truthfulness.  Expect to be vetted out if you contact me about investing with you (because that is, in effect, what I am doing).

One more thing... a while back, I commented in a different thread about why investors don't respond when contacted.  If you were in the business of risking your money on someone else, would you take them seriously if their first contact with you went something like, "Hello... do you lend money?" or "Hello... I am a real estate INVESTOR and I'd like to borrow money on my FIRST DEAL" (hint - you're not an investor if you have yet to invest) or "I have a property I am looking at - will you lend me money on it" (without providing an address - much less anything else).  This is why people like me don't respond to certain queries - those who don't treat this as a business have broken fundamentals, while those who do (and have common sense) are worth talking to.

I sometimes participate on here (this forum) when I have leisure time and get tired of reading poor advice (of which there is plenty) from inexperienced people dispensing their wisdom (especially questions about LLCs and land trusts) or gurus screwing others over (I was instrumental - as documented on here by the victim - in their recovery of tens of thousands of dollars).  I enjoy helping those who appreciate my help, and I abstain from helping those who place little value on my advice, or participating in threads that deteriorate into chaos.

I guess I'm from the  old school, in that I believe people who need something should come ask for it - and if they're serious, they should persist.  We are no longer children, where our parents attempt to anticipate our needs and spoon-feed us.  Yet that is how so many beginners treat their new "investment" business - they expect others to come to them to solve their problems, or they're incapable of communicating at an adult level when reaching out.  I can't imagine what would happen if they were managing a tenant, much less how they would attend to fulfilling their contractual obligations to their lender.

With that,  I want to close by saying that we must all scrutinize strangers wanting to do business with us, applying due-diligence to the information they provide, regardless of their online reputation.  I have a verifiable (via independent title company property profiles and affidavits from the licensed and bonded escrow company) track record, and I am not offended when asked to produce it prior to consummating a deal.  I have the same expectation of my borrower/flipper - to provide me the documentation that allows me to do due-diligence on them (which only needs to be done once), prior to establishing an ongoing business relationship with them.

I am one of those "cashed-up" investors, and I am one of those people who finances 100% of the purchase price, in addition to renovation costs.  Over the past year and a half, I have completed 24 such deals (of which 23 are in FL).

I am here (in this forum), I am known by the escrow companies I've done continuous business with, and I have always been here for investors that take the time and effort to seek me out or ask around.

I don't see how you're going to "iron things out" at the closing, when doing so requires a fair amount of negotiation and meeting with partners, as well as the requisite legal work.  It's like telling someone "we'll work out the terms of your Will right before a fatal accident."

http://jamespublishing.com/shop/the-limited-liabil...

That's one of the sources I use to draft LLC agreements.