BiggerPockets Podcast 289: Using Other People’s Money to Build Your Real Estate Empire with Matt Faircloth

by | BiggerPockets.com

Building a real estate business can be one of the best ways to achieve financial freedom. The problem for most, however, is money: There simply isn’t enough in your hands to get all the deals you want. That’s why today’s show might be the most impactful podcast episode you’ve ever heard. In today’s interview with Matt Faircloth, author of the new book Raising Private Capital, shares the steps needed to begin raising money from others to fund your real estate deals. You’ll discover the different types of private capital (and how to approach each), how Matt and his wife were able to grow from  30 units to over 300 (!) using other people’s money, and why talking about metrics to a private lender might not be a great idea at first. If you want to 10x your real estate portfolio or build your empire faster, this is one show you can’t afford to miss!

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This is BiggerPockets podcasts show 289.

I don’t even know what number this is.

No, we never do.

We never do oh 289.

That’s the first question is can I trust you? Are you going to do the right thing with my money? Then the next question is as you just said David, am I going to get my money back? Then it’s your role as the deal provider to sit them down and say, “Okay here’s the nuts and bolts of the deal. Here’s how you get it back. Here’s how you’re protected.”

You know with this mortgage on a private loan or if you’re doing a private equity deal this is how you have ownership in the property. Here’s the operating agreement and here’s your name you know, this is where you go right here and you have ownership alongside that so it’s right explaining how they’re protected and then the deal is going to unwind like this and this is when you’re going to get your money back and this is when we sell. You’re going to get a check or you’re going to get monthly dividends. Whatever it looks like, explaining that in finite detail on how where the money goes in and when it comes out.

How they get it back and then like once you’ve established their level of trust and their level of comfort then beyond all that then you can start on what kind of returns they’re going to get. That should never be the lead because then you kind of look like a snakey little salesman talking about like I can get to 18% on your money.

Yes.

And that once they like and trust you, then you can talk about that kind of stuff, but you’ve got to establish that kind of stuff first.

You’re listening to BiggerPockets Radio. Simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all of the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online.

Brandon: What’s going on everyone this is Brandon Turner today’s host of the BiggerPockets podcast here with my cohost as has been lately, Mr. David Greene. David Greene how are you?

David: What’s up BT? I’m doing terrific. I just hired a second real estate assistant for my team.

Brandon: Wow.

David: Here in Northern California.

Brandon: Look at you fancy.

David: This seems to be, yes beginning of her third week. I’m actually growing up and learning how to be a grown up and hiring people and trying to be a boss.

Brandon: Wow look at you. You’re the boss. Good job. Well.

David: Thanks man.

Brandon: That’s exciting exciting. You made a comment to one—I realized I just did it now to you. You once made a joke about how I never call you David. No one ever calls you, David. They always call you David Greene. I wonder why that is?

David: Why is that?

Brandon: I don’t know.

David: Can anyone out there tell me what about my face makes you want to say David Greene?

Brandon: David Greene.

David: Instead of just David.

Brandon: It must be there’s a lot of David’s. In fact, we just hired another David at Bigger Pockets so. Lots of Davids around. That’s okay. You know David Greene. You’re a good guy. It’s not true what they say about you.

David: Thanks Brandon.

Brandon: Alright well today’s show is a topical show. Normally we do a lot of story stuff, but today we have a guest who’s been on the show a couple of times before. We dive really really really deep into the topic of raising money. This is something a lot of people wonder how do you ask for private money lenders? How do you talk to them? How do you approach them? In fact, David you and the guests even do kind of a role-playing thing, which is kind of fun. Talking about how do you raise this private money. That’s what we’re talking about today, but before we get to that we got a few housekeeping things to do ahead of time. First of all let’s get to today’s Quick Tip.

David: Quick Tip.

Brandon: Alright today’s Quick Tip is very very simple. You should be following Bigger Pockets over on Instagram. Are you not on Instagram? Well then you’re probably not an 18-year-old girl, but if you are on Instagram like I am you should follow the Bigger Pockets @BiggerPockets. Of course follow David Greene there as well @DavidGreene24 and you can follow me at @BeardyBrandon. We’re putting a lot of real estate stuff on there, but really follow Bigger Pockets. It’s a good site. It’s a good Instagram page. Good stuff there. That was an easy quick tip right?

David: Very easy.

Brandon: A little self-serving you know. Whatever. I’ll take it.

David: Slightly. Let’s see which one of us gets more follow on our Instagram’s from what we had before.

Brandon: Oh this is such a good idea.

David: Right.

Brandon: Alright well come follow me. Don’t follow David or you can follow both of us. Alright with that let’s move on and get to today’s show sponsor.

Hey it’s Brandon so have you ever been listening to the podcast and you wish you could ask the guest or maybe myself a question or go more in depth on a topic. Well you know you actually can every single week with the live Bigger Pockets webinars. You know webinars are like live online classes hosted by myself or others in the community where you can get involved, ask questions, and leave inspired and ready to take action. Webinars are hosted at least once weekly and cover a wide array of topics from evaluating multi family deals to funding deals, to mastering the BRRRR strategy or just plain how to get started.

Did you know that Bigger Pockets Pro members can actually go back and watch previous webinars any time in case they missed it or need a refresher. Go register for the next webinar. Just go to BiggerPockets.com/Attend. That’s BiggerPockets.com/Attend, A-T-T-E-N-D and I’ll see you there.

Brandon: Alright big thanks to our sponsors always and now I think it’s time to get to the show. I don’t think we got anything else to really cover except for one thing. If you’re not subscribed to the BiggerPockets podcast wherever you’re listening or watching this. Make sure you click that little subscribe button. It helps us out a lot and then if you haven’t left a rate and review we would really really appreciate that, iTunes, Stitcher, Google Play, wherever you’re listening to this at leave us a rating and review.

Let us know what you think and tell the Internet that this is a cool podcast. Alright so I do want to say one more thing that sort of disclaimer before we get into today’s show. Please do not take anything we say today as legal advice. This applies to all BiggerPockets podcast episodes, but today we’re talking about something that actually does, there are some legal things involved and that’s when you’re raising money. If you’re going to go out there and start advertising that you’re raising money for your apartment complex deal, know that there are rules and laws that govern this stuff so this is not legal or tax advice.

Just keep that in mind, but the advice is fantastic nonetheless so definitely check it out. With that, today and we’re sitting down with and Matt Faircloth. Again we’ve had Matt on the show a couple of times before. He’s even a host of a webinar.

He hosts live online classes every couple of weeks over on Bigger Pockets. You probably know him. He is also the author of a brand-new book that Bigger Pockets is publishing and launching today called Raising Private Capital. You can get it BiggerPockets.com/PrivateMoneyBook, BiggerPockets.com/PrivateMoneyBook.

We talk about that later in the show. Honestly you should just go pick it up. It’s fantastic. Only available on BiggerPockets right now so BiggerPockets.com/Store or BiggerPockets.com/PrivateMoneyBook. You can get it there and with that you know Matt, he explains more about his stories. I won’t do a long intro, but he’s one of the investors I look up to a lot in the real estate space. He’s really taking his business to the next level. Owns over 300 units and he talks a lot about how private money helped him to do that. Without further ado let’s get over to Matt Faircloth.

Alright Mr. Matt Faircloth welcome back to the BiggerPockets podcast how are you doing man?

Matt: I’m great man it’s good to be with you guys.

Brandon: Yes, this should be fun so we’re talking about raising money today. One of those topics that you know a lot of people struggle with especially when you’re new, you’re not sure how to raise money, who to raise money from. You’re insecure, you’re saying, “Hey you know nobody is going to give me any money.” That really is a key to growth as we’ll talk about a little bit later.

You know before we get into that I want to go back kind of visit your story. A lot of people listen to this have heard your story before, but for those who have not why don’t you give us a quick rundown, who are you? Where did you come from? What do you do?

David: Where did you come from?

Brandon: Where did you come from?

Matt: Where did you come from? Alright well I grew up in Baltimore, but I got started investing in real estate in 2005 when I quit my day job just like many many other folks in the show read Rich Dad, Poor Dad and is like oh my goodness there’s a whole another way to live life and to you know set goals and to something to strive for. That inspired me to get into real estate and so you know started out on small stuff and built a small portfolio using mostly my money, but also like pretty much my parents did some investing in our business as well. Then grew it into getting into multifamily and bigger fix and flip and really scaled up a business when we started raising money from outside investors in 2011.

Now we’re in apartment buildings. We own an office complex. We you know we’re diverse. We’ve got you know fix and we’re building properties. We’re fixing and flipping properties and we’re also buying apartment buildings and doing some small onesie, twosie stuff too. We’re own a lot of parts in the spectrum for real estate investing and a lot of it has to do with working with private money.

Brandon: Yes, that’s awesome. Okay so how many units total did you think you have right now?

Matt: I believe it’s somewhere in the 380 range.

Brandon: That’s awesome. That’s awesome.

Matt: It is awesome.

Brandon: Alright so.

Matt: I pinch myself sometimes.

Brandon: Yes, I know that’s cool. It’s been fun because I’ve known you now for a number years so it’s fun to kind of see like.

Matt: Yes.

Brandon: You know far surpassed my abilities and my skill. You’re just crushing us.

Matt: Yes.

Brandon: You know keep going. Okay let’s talk about raising money so first question I got for you is why like why is raising money so important like knowing how to do this. Like why is it why are we dedicating the entire show today just to raising money?

Matt: Well you know there’s only so much money that I have. I mean like I have money of my own and I put my own money into my deals, but there’s only been so much money that I have and I can’t like we bought a 49 unit apartment building. There’s no I could not at my capacity at that time could I have bought that building on my own with my own capital. Raising money allows me and investors to it allows them to access the deals that they wouldn’t have access to. If they didn’t have you know other people’s money working alongside them so it just lets me control and take on bigger deals.

Brandon: In other words.

Matt: Alright.

Brandon: Yes, you can grow more.

Matt: Yes.

David: You can grow more and that makes sense because you’re using capital to kind of fuel the skills that you already have. Tell me how this is beneficial for the person who’s actually letting you borrow their money?

Matt: Well it gives them exposure to you know to other forms of investment. It allows them to—it gives them a wealth building tool that they wouldn’t have access to through a financial planner, through Wall Street. I am not a huge fan of Wall Street as a place to invest. I mean you know and I think that because there’s just not a whole lot of control. A passive investor has more control, has more collateral you know like if Microsoft goes down to zero tomorrow I can’t go take the CEOs house. You know.

Brandon: You can try. You can try.

Matt: Yes right I could try you know, but like I get past the gate. I don’t think I could pass the security gates and the Dobermans you know. If I loan someone money and I have, if I loan someone money then I could go and take the collateral. I have something that’s tangible that’s a just in case security safety net that’s there on a loan and that.

It’s such a better investment from the passive investment standpoint for investors because have collateral. They have better rates of return. They can compound the interest and they can grow exponentially so many different reasons why it’s better for them to.

Brandon: Well so a lot of people ask me when I talk about how I raise money from people or I tell them examples or stories of how I’ve done it. They say well why wouldn’t that person just go do their own deals then? Why are they going to be happy with you know X percent as a loan you know why don’t they just go and yes do it themselves.

Matt: Right I think I just go and they do it on my own and some investors could and should, but most of the time the folks that I’ve worked with its because of time and experience. They don’t have either one of those two things. Most of the people that invest with me that I’ve worked with for private investments they are working their tail off or they just love what they do and they don’t want to put the time in to go and run the fix and flip or to go and find the rental property or do whatever it is. You know, but we as real estate investors have time one thing that we need more money, but we have time to put that money to work. We also have experience that we can put forth, you know experience, relationships, contacts, deals whatever it is which that you know the doctor or the dentist or the person that’s got or the schoolteacher whatever it is that has a profession they might not have any of those things. Especially the time is the biggest one and it takes time to run this business and that’s something people discount too much is that it takes time to run deals and to find opportunities and to make contacts and stuff so.

Brandon: Yes, I love that, I love it alright so.

Matt: Yes.

Brandon: I guess yes I’ve told the story before here on the show but I’ll say it again like I did my very first private note, alone. I said this back when we launched the Dave VanHorn Notebook. Right so I did a private note, a loan on somebody. A friend of mine and yes I mean I think I charged him because it was a friend I charged him like eight percent on a flip that he was doing. It wasn’t even that much like I feel like I gave him a really good deal. In fact I usually pay a lot more than that to my private lenders. You know it was my first time that eight percent was the best money I have ever made. Like I loved getting that check because I did nothing for it at all.

Matt: Yes.

Brandon: Except for walk out to my mailbox and pick up a check. I mean like I even like I loved.

Matt: Yes.

Brandon: That money and as a private lender I realized like that’s like the top of the game is being a private lender and so like yes that’s why when people are like well why would that person want to lend? Because it’s the best money they can make. Like it’s really good money so yes.

Matt: Because it’s easy, yes. Yes.

Brandon: Yes.

Matt: It’s easy and there was collateral. Did you have a mortgage?

Brandon: Yes, I did, yes.

Matt: Yes so you had a collateral. Right you had collateral. You sleep easy and I know.

Brandon: Yes.

Matt: Your money is protected.

Brandon: Exactly.

Matt: You know and you’re getting this monthly check. It’s probably backed up through rents that he’s getting.

Brandon: Yes.

Matt: Or through you know other business ventures that he has going on is providing that monthly check to you and it’s your money at work. It is a great opportunity for passive investors and I think that some active investors like us. I call them deal providers because that’s what we do. We provide deals to people that have money that want to put their cash into a deal. I call them cash providers, but deal providers tend to discount the fact that the cash provider needs us. They do and it’s really cool investing in deals with us. They you know I’ve met deal providers that are a little you know sheepish about asking for money or that just don’t want to go out there and you know they look at it like they’re panhandling or something like that, but they’re not.

Brandon: Yes.

Matt: These people want the opportunities and if you present them in the right way you can build somebody’s wealth through investing in your business, you know.

Brandon: So they’re this is something I have talked about before as well here on the show, but it was like this fundamental shift in my mindset back I don’t know it probably happened like six years ago when all of the sudden I realized I was not begging I was not begging for money. I was offering an opportunity and when that.

Matt: Yes.

Brandon: When I first thought of that like everything changed. I stopped getting worried and then being all sheepish about asking people for money and raising money it was like no I have like I’m the hot girl at the bar. Like I’ve got the deal you know like I always felt like I was the dude trying to pick up girls at the bar, but I wasn’t like I was the asset. Right like.

Matt: Right.

Brandon: Once I realized that like everything became easier in that regard because I just changed my attitude. You should probably in your book have a chapter called like the hot girl at the bar.

Matt: Right I should. Yes, I should add that in, the hot girl at the bar. That’s hysterical. I love that.

Brandon: Anyway.

Matt: It’s funny, but it’s true.

Brandon: Yes.

Matt: Yes.

David: Yes I like to say there’s something about this right like actually investing with somebody else and giving your money and not having to do the work, it not only gets you a return on your money, but when you’re not working on a deal and you’re not stressing on it and you’re not putting your time and energy and resources into it it also allows you to go out there and make money in other ways that the deal finder can’t do because he is working on that deal. There is this term in economics called opportunity cost. It basically speaks about any time you choose option A it’s not just the money you’re making you’re losing with option A. You have to consider what you could have made with option B right.

Matt: Yes.

David: This deal that Brandon let his friend borrow money he made a percent interest on it, but how much money do you think you made during that same period of time doing other things because you didn’t have to manage the contract.

Brandon: Yes.

David: Or manage the rehab and find the deal and deal with the problems that came up and like there is something to be said even though there isn’t necessarily a monetary cost you can put on it. There is absolutely an opportunity cost you can put on it when you take on a deal yourself so there are some people.

Matt: Yes.

David: That have learned enough about investing that they feel like they can choose the right operator and they can make the right decision and they do way better letting somebody else invest for them and make money on the return. Then they put their time into other things.

Matt: Absolutely, absolutely that’s a great point.

David: Can you tell me for people who are hearing this and then they’re asking like well maybe this is something I should do, but I feel scared. Right.

Matt: Yes.

David: Is using other people’s money risky?

Matt: It can of course. The short answer is yes. It can be unless you find the right deals and I think that it’s up to the deal provider to do, I mean their side of the bargain is to find you know safe investments and deals that have been vetted and to know what they’re getting themselves into and not just go and take this cash provider’s money and go put it on the roulette wheel of real estate right. That’s not what you want to do.

You want to you know establish the right contacts and put the right property manager in place if that’s what you’re going to do or do you know property manage yourself whatever it is, but mitigate that risk to make sure that the cash provider is well taken care of because you know you are you as the deal provider are a steward of that cash providers money. I think that when you forget that is when it gets real risky and you know you treat it even as if it’s above your own money that it’s super important and these are you are a custodian so.

Brandon: Yes, that’s super good.

Matt: Yes.

Brandon: That’s why like that’s why we stress so much you know on being able to find good deals, the better deal you have the less risky a thing is. You know the more room you have.

Matt: You guys just make good deals.

Brandon: Yes.

Matt: You guys said you had to make find good deals, but really it’s about making good deals.

Brandon: Making them yes.

Matt: Yes you guys say all of the time on the show which I think is brilliant because in this marketplace I think in general you got to squeeze the lemon and make something great out of it. If you know how to do that if you learn that hopefully with your own money first or with some immediate immediate circle’s money then once you know.

Brandon: Yes.

Matt: How to do it then you’re then I think that you’re qualified to go out and raise money. I don’t think that your very first deal should be with an extended circle of private money. I don’t. I think that you’ve got to earn your stripes first and get some experience under your wings. Then I know that there’s some you know folks out there, gurus or using Facebook ads for somebody who’s out there talking about like you know buying apartment building with no experience and no money down.

Brandon: Yes.

Matt: And everything like that and I’m like you know that’s really about like buy my seminar.

Brandon: Yes.

Matt: Whatever it is he’s got.

Brandon: Yes.

Matt: I think that it’s really about like you’ve got to learn how to operate this business and get you know proficient at this business first and then you can go out and use other people’s money.

Brandon: Yes.

Matt: You know.

Brandon: You know one thing that I did kind of accidentally, but maybe not I mean like this is I couldn’t get private money and in fact we’ll talk about that. Maybe we should actually go there first. Well I’ll finish the thought.

Matt: Sure.

Brandon: Then we’ll go back. I was going to say I couldn’t get private money. I didn’t know anybody who was an investor who would ever give me money so my very first deal I ended up doing a hard money lender which was he charged 12% interest in 12 points.

Matt: No.

Brandon: 12 points which means for those people who don’t know means 12% of the loan he charged me as a fee so like it was I think it was the very first one was like an $80,000 loan so I think I paid him what’s that like nine grand or whatever that is.

Matt: Did he put like a local anesthetic on before he did that or was that?

Brandon: Yes. Well it was insane right and in fact like that deal I never really made a lot of money on that flip, but the point was like.

Matt: Borderline.

Brandon: Yes exactly right like he made so much more than I did, but I got into a deal. Like that’s what I had to do. I had no experience. I had no knowledge of what I was doing and he knew that so he like he was it was an incredibly risky loan for him and I had to pay that. Now you know I had to go and find a good enough deal that would make him happy to do it, but that might be if you are just getting started like you might have to pay a lot. Now hopefully you don’t pay 12 and 12, but like you might have to pay a lot of money.

Matt: That’s what it takes to say that you’ve done a deal.

Brandon: Yes.

Matt: Then that’s fine because the last thing I want anybody to do is to sit down in front of a potential private money partner that has potential like hundreds of thousands of dollars to put to work in your business. Like game changing you know money, owner equity or whatever and you sit down and you’re like well I’ve never done anything to this before. I have never even you know never even been involved in a real estate transaction one way or another. Unless they like and respect you because you are you like this is like your Uncle Charlie maybe they will still do it. If this is somebody who has real capital and put to work in your business and also maybe a network of other people that are willing to do the same thing odds are they’re not going to do it and so what you paid 12 plus 12 you’ve done a flip. You’ve accomplishment. You’ve checked the box right.

Brandon: Yes.

Matt: I was in the same boat. I’ve bought a lot of hard money when I first got started. I like took out credit card loans.

Brandon: Yes.

Matt: Did all I did whatever it took to get going and then now that I’ve done that and have established a track record for myself.

Brandon: Yes.

Matt: Then I’m able to you know reach out for more attractive capital.

Brandon: Yes, that’s so good. Okay so let’s take a step back now and maybe cover something I should have covered early on. What are we talking about when we say raising money? I mean for those people who are have like are still like what are they talking about? I mean were we thinking like this is Uncle John who is going to give us some money or are we talking like going to you know putting on a suit and going to a skyscraper to pitch people or what do you mean when you say private money?

Matt: Right so when I say raising private capital or raising private money I mean going to folks that are in your circles. They don’t have to be immediate circles. It doesn’t have to be like you know your parents or your siblings or whatever. Just people that you know in your greater circles and explaining to them what you do as a real estate investor showing them and understanding how real estate investors can benefit those that don’t want to do it full-time like we all do.

Right explaining all of that and then enrolling them in the possibility of working with us as a private money partner in whatever fashion that looks like. When I say raising private capital I’m talking about doing it out of your own network and you know could be your Facebook community. Could be whatever it looks like and that, but it does not necessarily mean like you said putting on a suit and walking them to the skyscraper and convincing a hedge fund to you know put $10 million to work in your business. That’s probably not the first step. The first step is probably going to the guy you went to high school with you know that you’re still friends with on Facebook that you know has a good job that he loves, but you know just doesn’t have time. He wants to put it to work in the business.

David: That’s a good segue so let’s say I’m listening to this and I’m thinking you know I’ve done a deal or two. I listened to BiggerPockets every day. I know what I’m doing here. I have a good idea how to invest. I just need a little more capital to ramp this up. I don’t want to go to a bunch of strangers that I don’t know and put on a conference and try to convince them. Like I’m not at that level. I kind of want to dip my toe into the waters and get used to this.

Matt: Yes.

David: Is it a good idea to start with family friends first? Can you answer that?

Matt: I think so and you’ve got to get beyond the it’s with your comfort level too. That’s how I got started, but that doesn’t mean that’s how you have to get started if you’re not comfortable talking to friends and family you’ve got to look at other networks around you that you can go to. You know I joined a BNI group, which is a networking group you know and everything like that. I was able to you know perform some strategic alliances with money partners through a BNI group. There’s other networking organizations you can go to that are outside of your local REA Group and that, but I do recommend talking to friends and family.

I think that there’s someone if a deal provider or an investor has that fear they really need to examine why they have that here. Is it because they’re not confident in themselves or is it because they are worried that they’re going to lose their friends and family’s money. You know why do they feel that way first? Let’s examine that and their confidence in their business and themselves before they go and completely discount I won’t talk to people that are my friends and family. You know.

David: Yes maybe you know in your heart you’re not ready yet and that’s why you don’t want someone.

Matt: Yes.

David: You know to go into business with you. Okay.

Matt: Right.

Brandon: Yes.

Matt: Right right maybe that’s what it is. Maybe that’s why you’re not comfortable you know putting people that you like and care about that work in your business.

David: Right.

Matt: If you’re not comfortable doing that I would ask questions before I completely discount it.

David: Why don’t we try this? Why don’t you approach me? I’ll be your buddy from high school who you know has done well and I have some money and you approach me with this proposition that you want to use my money to earn more money and we’ll role-play that for people to hear so they can get an idea of how easy these conversations can be.

Matt: Okay cool so are you still David Greene?

David: Yes, I’ll be David Greene.

Matt: Okay cool you’ll be David okay cool. Hey David what’s up man? How are you doing?

David: What’s going on bro how are you?

Matt: What do you do these days? What are you up to? Last time I checked you were in another job. What are you doing these days?

David: Well I was investing in real estate, but I became a realtor and I started a team and I am just man it’s kicking my butt. I’m working 16 hour days selling a bunch of houses. I just don’t have any time left to do anything with my money.

Matt: Oh that’s crazy so well you know I’m really active in investing and I’m on the other side of it. I’ve got more meals than I had money. We just bought an apartment building. I’ve got you know a bunch of fix and flips going and stuff like that and it’s really insane. I’m really excited it’s just the problem I’m having is you know I have all of these deals and not a lot of money to put forth into it.

David: Sounds like you got a Lamborghini, but no gas.

Matt: Yes, I know I need gas so to put a pin in it here what I find that you threw me off by saying that you were an active that you weren’t investing before because what I find. Here’s what I do. When I say that I’m active in investing you know what I do when I bring that up and I tell people even if you’re not a full-time investor you should mention that you are a real estate investor when you talk to people at the cocktail party or at the you know at wherever you are just say I’m a real estate investor. You can put it on Facebook whatever this because you’ll find that a lot of people say, “Man geez I sure wish I could invest in real estate too, but I just don’t have the time.”

That’s the key phrase that the potential private money partner or the cash provider says and when they do you can easily turn around, but say, “You know what David Greene I understand you don’t have the time, but guess what I do.” I have the network, the time, the resources, the know-how to put money to work and real estate. Show you. Let me make that happen.

That’s when the light goes off in your head and then I mean like that he says you know what he’s right. I have money to put to work in real estate and you know he can say when you go further with is like well maybe I don’t have a whole lot of cash, but what I talk about further in the book is the other means that people might not realize they even have to put to work in your real estate business. These people don’t need to have like a half million dollars in cash just sitting in their savings account that could go.

Brandon: Yes.

Matt: To work in your business. They could have a retirement account and you know there’s a lot of different ways you can put retirement money to work in real estate. They could own their home free and clear or almost free and clear and they can put that money to work in real estate. They don’t have to be independently wealthy with just millions sitting around waiting for somebody to come and pitch them on a real estate deal. As real estate investors we need to get educated in different ways that money can play in our business and then become educators to potential private money partners. This is how your money can work for me and this is how it’s going to benefit you and how I can make you wealthy through means you didn’t even know about.

David: I feel like the biggest concern that most people are going to have is how do I know I’m going to get my money back? You know like the return is important, but I don’t think the people even listen to you about that until they feel safe with this proposition you have. How do you handle that objection from people when that’s what they’re concerned about?

Matt: That’s great and I think that you’re bringing up the number one question that a potential cash provider has when they’re looking for the first time they invest with somebody and so many deal providers I talk to want to get into the deal. They want to talk about how sexy this apartment building deal is or how much money this fix and flip is going to make and everything like that. What the thing is is that the cash provider doesn’t they really that’s not their first second or third question. It’s not. They care more about can I like the first question is like can I trust you?

Brandon: Yes, yes.

Matt: Unless it is your Uncle Charlie or your cousin Joanna or whatever right that that’s the first question is can I trust you? Are you going to do the right thing with my money? Then the next question is as you just said David, “Am I going to get my money back?” Then it’s your role as the dealer provider to sit them down and say, “Okay here’s the nuts and bolts of the deal. Here’s how you get it back. Here’s how you’re protected you know with this mortgage on a private loan or if you’re doing a private equity deal this is how you have ownership in the property. Here’s the operating agreement and here’s your name you know this is where you go right here and you have ownership alongside that.”

It’s right explaining how they’re protected and then the deal is going to unwind like this and this is when you’re going to get your money back and this is when we sell, you’re going to get a check or you’re going to get monthly dividends. Whatever it looks like explaining that in finite detail on how, where the money goes in and when it comes out and how they get it back and then like once you’ve established their level of trust and their level of comfort then beyond all of that then you can start on what kind of returns they’re going to get. That should never be the lead because then you kind of look like a snakey little salesman talking about like I can get you 18% on your money.

Brandon: Yes.

Matt: In that. Once they like and trust you then you can talk about that kind of stuff, but you’ve got to establish that kind of stuff first.

Brandon: I love that you said that because again I think a lot of people want to lead with, “Oh you’re going to get a 10% return. You’re going to get 12% return.” But like you said like that’s not what they really care about.

Matt: They don’t care about that.

Brandon: The question they want to answer is can they trust you?

Matt: Yes.

Brandon: Yes, I love to start with when I’m talking to people I love to start with stories or talk about things that I’ve done because then they get a like a real good understanding.

Matt: Yes.

Brandon: Like yes I had a buddy like we bought a you know I needed money for a triplex so he lent me in the triplex. He was earning you know a good return on his money and it made sure that he was safe so if I didn’t if I you know packed up and moved over to Mexico for a you know go live on the beach and be a bum, he could take the property back and actually would make more money than what he was making from me lending. Like by telling a story like that it illustrates that they put themselves in that person’s shoes without you trying to sell them anything. I mean stories are just fantastic for reasons like that in general.

Matt: Yes.

Brandon: Yes.

Matt: Yes, I know it really is I mean there’s a lot of great stories of that I can think of of folks and I’ve done business with probably over a hundred private money partners in my career up until now and looking at what they’ve been able to do with the money I got people that got their kids going in college with the money they made and with through doing private money deals with us with my company. I’ve got a guy who’s halfway he’s halfway there. He’s looking to do enough deals with my company to where he can have a passive income to where he can move back to his home country in Argentina and make enough to live in Argentina off of passive income. This guy is like 32 years old right now.

Brandon: Oh.

Matt: He’ll probably in the next three years I bet she’ll move back to Argentina because through doing passive investments through my company. It’s amazing. I’m so grateful I’m able to provide that to him.

David: There’s something about real estate I was thinking about as you were talking Matt where I was comparing it to other investment opportunities. I don’t know of anything else that you can buy and have collateral of the property you can take back if something goes wrong.

Matt: Yes.

David: If you buy bitcoin and the price of bitcoin drops there’s nothing you get in return for that. You know. If you buy stocks and the company goes like the stock drops you get nothing in return. I can’t think of a hardly any of it.

Matt: If you buy a bond and a bond is a loan, but the company could easily just file bankruptcy oh that loan goes away bye-bye. You know there is very little things have true collateral aside from sticks and bricks in real estate.

David: That’s awesome.

Matt: That really is.

Brandon: Yes. Well cool so I want to shift gears a little bit here and talk about the couple of different types of raising money when people talk about debt, money, or equity you know what is the difference? Which do you prefer? How should listeners kind of approach that? Can you talk about that for a little bit?

Matt: Yes, well I recommend that people start with debt because it’s simpler. It’s easier to understand. It’s not complicated. There’s way less regulations around it and everything like that.

Brandon: What is the difference there?

Matt: Sure debt is like you know bought I mean the simplest way to you know to explain debt is just this borrowing money. It’s me going to David and say, “Hey David, can I borrow you know ten dollars to go by my lunch over here or something like that.” It’s worth borrowing a hundred thousand dollars from David from his self-directed IRA account and then giving him collateral on a property that I’m going to be fixing up and everything like that. He and I because it’s a private money deal it’s a I can go back and forth and negotiate the terms of that deal with him unlike that’s what’s great of private money versus hard money or bank money or whatever that David and I can sit down and say, “You know what David listen this is a fix and flip. It’s not producing cash flow right now. I’d like to pay you at the end of the project when the property sells. Are you okay if I just let the interest accrue until the property you know sells at the end?”

David just might say something like, “You know Matt. That’s great. I’m comfortable with that. Are you okay if I charge one more percent interest in exchange for letting the money you know pileup until the end of the deal?” Is yes that’s great. Let’s do that and we can have that conversation. It’s hard to do that with a bank or with a hard money lender or whatever and so that’s what debt is. It’s just you know me borrowing money from David, giving him some sort of collateral on the property and then me going forth and doing a BRRRR or doing a flip or doing whatever it is with the money you know until the project is complete.

David: Is it fair to say that debt is basically paying someone for the use of their money with your money and equity is giving them a piece of the deal and paying them for their money with a percentage of the profit that comes out when you’re done.

Matt: Yes, yes they own a percentage of the property alongside yes perfectly that’s a great way to explain it.

David: Okay awesome.

Brandon: Cool alright so another big question people want to know they know now what you know what raising money is and kind of how to approach people, but how do you find them? Like a lot of people just say I don’t know rich people. I don’t hang out with rich people as you said earlier.

Matt: That’s the biggest misconception.

Brandon: Yes.

Matt: That you need rich people.

Brandon: Yes.

David: To put to work in your business and I think that that’s probably something that I’d love to that I’d love to just tell them well as real estate investors is these people do not need to be a multi-multimillionaires and if you’re going to do debt they don’t even need to be accredited. I know that this big misconception. We can talk about accredited investors real quick, but people think that you have to only be working with accredited investors to do debt deals. You don’t even need to be working with accredited investors to do equity deals either, but we can talk about that in a second. Do you want me to cover what accredited is?

Brandon: Sure.

David: I know that’s.

Brandon: Sure why not.

David: Something that. Okay.

Matt: It’s just it’s a certain like stamps that an investor gets to say that they are and that’s if they earned over a certain dollar amount per year. It’s like 200—I think it’s like $200,000 if they’re single, $300,000 if they’re married. They have to have a net worth over a million not including their primary residence. There are some other stipulations in there too, but that is it’s one of those stamps that investors think that the real estate investors like deal providers think that their cash providers need to have to do business with them. They don’t and you could be dealing business with your with a sibling or something like that. It just happens to have $200,000 sitting in an IRA account.

Brandon: Yes.

David: They’re qualified to loan money to you and the sibling doesn’t have to have over a net worth—over a million in net worth whatever it is. They just have to have the money and they’re willing to put to work in your business.

Brandon: Yes.

David: You know on that topic. Oh go ahead Brandon.

Brandon: Well I was going to say like yes I partnered or worked with a lender who just had money in a home equity line of credit. Like they you know they didn’t have a lot of cash.

David: Yes.

Brandon: Sitting around. In talking with them they’re like, “Oh yes well our house is paid off. The house is worth $200,000.” So you have $200,000 just sitting there and they’re like, “Oh yes we have a line of credit on it too. We just haven’t used it.” So they had like.

David: Yes.

Brandon: Hundred I think it was like $150,000 line of credit just sitting there so.

David: Yes.

Brandon: Yes.

Matt: Well there’s so many misconceptions on what it takes to invest in real estate and I think that that’s that’s one thing that you know I do my best to cover and I had to get like deeply educated on myself because a lot of people were asking me stuff like that and I wanted to make sure that I was checking all of the right boxes and maintaining a legal status for myself. I learned a lot about those kinds of things and you know I put it out there when we you know when I wrote the book about what you need to you know what it takes to cover yourself from a legal standpoint especially when you do equity deals because that’s like this whole big gray area that a lot of people think that they are stepping into the great unknown when they start assembling people to invest on the ownership side with them. It’s way simpler than people are making it and there’s a lot of misconceptions out there around it too.

Brandon: Yes, that’s so true.

David: What do people need to know about raising money and making sure that they’re not breaking any SEC guidelines or rules?

Matt: First of all this is a huge misconception, but when you borrow if I borrow money from you that’s not I’m not the SEC gets involved. Let me back up. The SEC gets involved during in the sale of a security okay. If I sell you a security that is a that’s something the SEC well this is what the S stands for by the way you know. Right.

David: Securities and exchange commission for individuals.

Matt: That’s right it says securities of exchange commission and so they get involved if in the sale of securities, but if I borrow money from you I did not sell you a security because for me to sell you a security you have to be on the same side of the transaction as me and believe it or not it’s viewed to be you borrowing me borrowing money from you is viewed to be an adversarial transaction. Where at like you can come and take my property and I have to pay you interest and everything like that and so we’re not on the same side of the deal. We could become adversaries because you know you could come and take the asset that I’m working on and everything like that, but so it has to be an investment of equities. That’s the first and that’s why people like all of the SEC gets involved in private loans.

They actually don’t. If it’s me borrowing money from you directly then the SEC doesn’t get involved in that. There is four other things that qualify it as a security number one is it has to be an investment of money so if David and I decide he and I are going to partner up and link arms and start up a real estate brokerage and both put in sweat that’s not a security because we didn’t both put in money. We put in sweat into the deal.

The second thing is there has to be an expectation of profit meaning Brandon can’t just say well like more like not like Brandon, but you know somebody like my Uncle Charlie can’t say, “Hey Matt I see you’re investing in real estate. I’m just going to give you $10 grand as a you know I hope you get going or this is also like things that kick starter where people just put money up into your business as a you know good luck with that you know kind of thing.” That’s not an expectation of profit. They’re just giving it to you. Those things discounted from being a security and the other thing is as I just said it has to be you have to be on the same side of the transaction and there’s another one and geez I’m on the spot here now and I’m forgetting it so.

Brandon: It’s alright.

Matt: I’ll remember it in a second, but the thing is to say I’m not a lawyer and then you so that you should consult with a lawyer on these kinds of things when you do security transactions because I’m definitely not as you can tell so.

Brandon: That makes sense so you talk a lot more about this legal stuff within the book, but you also I believe did like a bonus video.

Matt: Yes.

Brandon: Wasn’t that right with an attorney tell us about that.

Matt: Yes, that’s where he covers all four of these prongs. Maybe we’ll leave it as a secret or whatever, but there’s four prongs you have to cover for it something to be a security. I’ve covered three of them right here, but yes as a bonus item for the book I sit down with my attorney Jean Strawbridge who is an absolute brainiac when it comes to the legal side of securities and what is legal and what’s not legal when assembling transactions. I do and I think it’s like an hour and a half interview with him and we just do an absolute like deep dive to the bottom of the Marianna Trench together and talk about all of the SEC regs and what is legal, what’s not legal and that’s one of the four bonus items that are available with the book.

Brandon: That’s awesome well this is probably a good transition. Let’s talk about the book real quick because it’s launching today here with yes with this podcast is launching so congratulations. How does it feel to be a published author? Awesome?

Matt: I had to pinch myself.

Brandon: There you go.

Matt: I literally had to pinch myself, but yes.

Brandon: That’s awesome.

Matt: Thank you.

Brandon: Well welcome to the club it’s a lot of fun so alright the book is called what?

Matt: It’s called Raising Private Capital.

Brandon: What’s it about?

Matt: Yes I know right BiggerPockets does not like to get creative with the book titles.

Brandon: No we keep our titles pretty.

David: This is what it’s about.

Brandon: Yes, pretty pretty simple. Alright so it’s called Raising Private Capital subtitle.

Matt: Yes.

Brandon: Building your real estate empire using other people’s money.

Matt: Yes.

Brandon: Which is awesome. Of course people can go get pick it up at BiggerPockets.com/PrivateMoneyBook and if there was like one thing you wanted people to know like, “Hey you should get this book because what?”

Matt: Because it’s a the book talks about how to create win-win scenarios and it’s about how we as deal providers can win big and get ourselves into way larger transactions and 10 times your portfolio and everything like that through working with private capital and how we working with other with folks that are investing with us as cash providers that don’t have the time or the wherewithal, the network to invest in real estate, but have the capital one way or another how they can just absolutely exponentially build their wealth they’re working with. It’s about how private capital arrangements are absolutely win-win scenarios that we can assemble and benefit both sides.

Brandon: That’s so true. That’s awesome. Just reading off kind out of the back of the book here or a little bit of information is this inside to discover private money partners in places you didn’t know existed.

Matt: Yes.

Brandon: The prerequisites—prerequisites am I saying that right? Prerequisites for or needed to start raising money how to structure debt and equity deals when using and when to use each strategy, the best way to provide win-win deals. How to protect all parties involved using in a private money transaction, proper private equity exit strategies and so much more so. I know this book looks amazing. I’m waiting for Katie to send me my actual I mean we’re recording this here you know a month and some ahead of time, but you know I am excited for this book so. Yes, supercool so people can.

Matt: Thank you.

Brandon: Yes, they can get it at BiggerPockets.com/PrivateMoneyBook. Again BiggerPockets.com/PrivateMoneyBook and that is all you can get it right now. That’s the only place we’re selling right now is on BiggerPockets. We will eventually hopefully get it over on Audible and Amazon and all of that, but right now we’re only launching it and selling it on BiggerPockets is kind of a special treat to our members here at BP. When you actually get it as we like to do we like to overwhelm people with value, with bonuses.

That’s how we operate at BiggerPockets so when you get it you’re going to get four bonus content then first of all is that thing we just talked about that protect yourselves from SEC violations, interview with syndication attorney Jean Trowbridge. Next you had e-book called 10 Steps to Analyzing an Apartment Building Deal. That sounds amazing. You’re an apartment guy and like there’s some special things about analyzing apartments that I know you’re really good at Matt.

Matt: Yes.

Brandon: I’m assuming you go into all of that stuff there.

Matt: The reason why we provided that was because a lot of people that put private money to work in yes in some way or another I eventually want to do it in apartment buildings.

Brandon: Yes.

Matt: It’s kind of hot right now, but also it’s a great place to you know put cash providers and that’s a good way for deal providers to win too so I thought it was a valid conversation so I pretty much wrote an ebook on you know finding and putting together and the structure of apartment building deals.

Brandon: That’s awesome. Then we got a worksheet fail proof action plan to secure your first private money deal. What is that?

Matt: That’s a roadmap to that so people read this book and they’ll say, “Geez where do I start? What should I do now?” The like that that book action plan is really just like so follow this. Here is your roadmap to go through your first deal so it’s taking someone who’s done a few transactions and has done some sort of you know dipped their toe in real estate a bit. Okay, I’m ready to start raising private money.

What should I do now? Well that action plan, that roadmap is a like that’s follow this and this will pretty much talk you through the action steps of the book and it’s like an interactive workbook that they can just fill out and you know it will take them through their first transaction.

Brandon: Perfect perfect and then of course we want to encourage, we like to encourage people to take action quick and because like again if you don’t jump at stuff life passes you by right so we are offering a exclusive launch only online class with you. It’s a live class so this encouraged people. We want you to pick up the book and want you to start changing your life right away so for those people who buy in the first two weeks of this launch before August 10 you’re going to get invited to a special live online class with Matt. Matt, what are you going to be talking about in that class?

Matt: We’re going to talk about structuring your first equity deal and I talked about and how they should people should start with debt and but once people are ready to move into equity or thinking about doing equity in the future I talk about the step-by-step process that you need to do to structure an equity deal. I’ll talk about the four prongs that I just mentioned that make something a security and ways you can either mitigate those to make it so the deal you’re doing is not a security that takes the SEC out of the equation and if you want to do an SEC you know qualified deal and I’ll talk you through how to do that as well. It’s going to be a really chock full of lots of you know lots of goodness and it really help people get going in the next level to take to do equity stuff.

Brandon: That’s awesome and of course like we will record that webinar so if you buy in the first you know during the launch, the first two weeks before was it August 10th. If you buy in that and you can’t make it to the live class you will still be able to get access to the webinar recording, but again that’s only if you purchased before August 10th so don’t delay. If you’re listening to this podcast way in the future at some point after the launch is over still go to BiggerPockets.com/PrivateMoneyBook. Pick up a copy, get all of this cool stuff and the book really is like going to change lives. I mean really like you said earlier it took you I think you mentioned earlier before we started recording that it took you like six years right to get to 30 units and then it took another six years.

Matt: Yes.

Brandon: To get to 300. Like this literally helped you 10X your business.

Matt: Yes.

Brandon: Once you learned how to harness other people’s money.

Matt: It’s been incredible. It’s been I mean raising private capital has been a game changer for us and if I look at the lives of the people that have worked with us as well it’s been a game changer for them too.

Brandon: Yes.

Matt: And investing in our business.

Brandon: Yes, supercool and you know one reason I’m excited to read this because you know like I have not raised a lot of money. I’ve raised some money, but I’m nervous every time. Like it always is kind of is a scary sort of thing, but the truth about anything when you’re scared of doing anything the more you educate yourself, the less fear you have typically of that. I’m excited you know more than usual for this book because I want to learn like I want to get over that fear of asking people and to work with people to raise my money for my deal so.

Anyway super excited so anyway did you guys check that out again BiggerPockets.com/PrivateMoneyBook. Now we’re going to move on here and talk about the deal deep dive which we’re going to do here next then we’re going to do the Fire Round and the Famous Four so let’s go first to a new segment of the show, which we are just now introducing called the Deal Deep Dive.

This new segment of the show where we’re going to go deep into one particular deal to really like get people make them feel like they’re there right. We’re going to go into detail on this thing so Matt what is the deal you want to talk about today with your—in today’s Deal Deep Dive.

Matt: Since we’re talking about private capital today I thought it would be interesting to talk about my very first private money deal that wasn’t like with immediate family. It was with someone who is a you know third-party they came in not related to us. This was through an investor that was through an alumni association with my wife through grad school and again same thing. Like she mentioned hey we’re doing some real estate stuff and he said the keywords of, “Geez I sure wish I could invest in real estate, but I don’t. I just don’t have the time.”

It was like ding. My wife said you should talk to my husband and so I went up and had breakfast with this guy. We talked about deals. He was willing to.

He’s you know I’ve got about $50,000 bucks that I’m willing to put to work in real estate. I just don’t know where to put it and I said great good to know. Let me get back to you and so about a month later this was like post crash and a lot of things were cheap and stuff like that, but everything needed a bunch of work and needed a bunch of hair plucked off of it so a local wholesaler approached me with two townhomes that were for sale for I mean this is you know right here in Trenton, New Jersey. Two two bedroom, one bath townhomes for sale for like $45,000 combined.

They needed work and simultaneously somebody that was like a local family friend had approached us and said, “Hey I’ve got some IRA capital.” He had done real estate investing with another guy’s IRA so he actually sat me down and showed me what he had been doing with IRA capital and I talked to my attorney and researched it and put together a proposition to this other investor and working with my friend’s IRA like friend of the family’s IRA and because he couldn’t put you can’t take the IRA money and put it to work in your own business. You can’t take IRA money and put it to work with these people ask me that all the time. Can I take my IRA money and give it to myself? No, you can’t stop right there.

You have to work with somebody else and that so he put his he offered up his IRA money. He also had $50 grand and so I took this private equity guy who was you know my wife is an alumni friend, he put up 50 and then I borrowed 50 from this IRA from this you know friend of our family. We put together a $100 grand and none of my own money and bought these two townhomes and then put bought them for you know $45 grand and then put in another $50 grand worth of renovation of money into them right. Whole investment of a hundred thousand dollars so $50 equity and then $50 in a loan so a hundred thousand dollar investment, renovated them, filled them up full of tenants once we were done that they appraised for $150 grand.

Brandon: That’s awesome.

Matt: Combined so yes it was a BRRRR property. It was a BRRRR deal, which was awesome because you know they appraised for a good bit more than we had invested in equity and debt so we were able to refinance them. We paid off the private lender and the refinance and was also able to pull out some of my equity guy’s capital and we took that that like seed capital he had in and we did more deals with it. We were left with these two townhomes that were leased cash flowing nicely and everything like that. We had that and then we took the equity and put it forth into other opportunities, which was awesome.

We then we held the properties for about six years and then just sold them about a year ago to own as a turnkey because I had another investor that came to me that said hey I’m looking to buy investment properties. I qualify for bank money. I’ve got some of my own money to put forth into a deal and I’d like to start buying some rentals. We sold those two properties to him, made a nice profit and you know he was very happy. The turnkey buyer was making is making a great return on his money as well and me and this equity guy from years ago now got another check you know he got a check, we got a check from the refinance that we were able to put forward in new deals. We made passive income, monthly you know for years and years and then we got a nice check at the end when we sold the property so.

Brandon: Awesome.

Matt: Phenomenal opportunity and the private lender that lent to us at his IRA did business with us for years and years from there on forward too so.

Brandon: That’s awesome. Do you remember what it went for?

Matt: Yes.

Brandon: Remember that?

Matt: Let’s see we appraised each property appraised for $750 or $75,000 a piece, rents were when we first did the work, rents were at $950 so.

Brandon: That’s awesome.

Matt: A little more than the 1% rule like the 1.3% rule.

Brandon: Yes.

Matt: Cash flow came in around $350 bucks a month per property.

Brandon: That’s cool. Did the tenants paying their own water sewer garbage in there?

Matt: That’s what’s great about single-family homes.

Brandon: Yes.

Matt: You know I have a theory that there’s no better investment than a single-family home with a tenant that pays their rent on time and doesn’t move.

Brandon: There. Fantastic.

Matt: You know yes but then they move out at some point and then you get crushed when the tenant moves out and you got to pay to renovate it and everything like that, which is where it hurts, but once the tenant is in there they pay all of the utilities. They shovel the snow.

Brandon: Yes.

Matt: They do everything. You know that’s great.

Brandon: You know in fact I’m actually talking today I’m due in actually like in an hour from now or two hours from now from when we’re recording this anyway not when this goes live, but I’m actually doing a webinar for Bigger Pockets on single-family houses because I agree there are some fantastic benefits to owning single-family houses. That’s what I’m talking about so if you guys want to see what’s going on I’ll do that webinar I try to do every three or four months so it’s probably coming up again sometime soon. To see what webinar is going on this week go to BiggerPockets.com/Webinar to see a list or if you are a BiggerPockets Pro member you can watch replays of all the past webinars so go to BiggerPockets.com/ProReplay and check out the replay on the financial freedom through single-family houses webinar that was back a few months ago so or a month ago whenever it was alright so with that let’s go so last question of the deal deep dive what did you learn from that? If you had to pick out like a lesson or two that you learned from that experience of that property looking back both good or bad?

Matt: Well that was my first BRRRR deal.

Brandon: Okay.

Matt: And that’s how, but before I was before I knew BiggerPockets and knew of that I learned the power of buying, adding value, and then recouping some of that value through a refinance so I learned that. I learned how to structure an equity deal because me in this equity investor put together like a big you know a partnership where I did most of the work. He did some work, but I did most of the work and that which was it was a great arrangement there and I also want to structure private loans. I’ve learned a ton. It was a very small project in the grand scheme of things, but I learned a ton you know a million times over to grow a portfolio from there.

Brandon: Awesome, awesome I love it. Alright well cool well that was the end of the first deal deep dive. Everybody I would encourage you if you enjoyed that segment or you like that segment let us know. Hit us up on social at BiggerPockets and let us know if you like to Deal Deep Dive. We’re going to be you know tweaking that, testing it, and kind of come up with I really love that idea of just going deep into a topic so let us know your feedback again. Any of the social media networks at BiggerPockets and you can let us know there. With that let’s head over to the world-famous Fire Round.

David: Fire Round.

It’s time for the Fire Round.

Brandon: Here’s a quick tip for you. One of the easiest ways you can protect your properties is investing in a great security system. By far, my personal recommendation and the one I use in my own home is Simply Safe. Simply Safe is awesome. It’s incredibly reliable with really fast response times, which is huge. It’s really easy to move between properties and there’s no contracts either. I really like it. I’m not alone. It’s C-Net’s Editor’s Choice and the Wire Cutters call it the best home security so go to SimplySafe.com/Pockets to learn more. That’s SimplySafe.com/Pockets.

Alright let’s get to the Fire Round. These questions come direct out of the BiggerPockets forums, the world’s greatest, largest most important forum for real estate investors on the Internet. These are real questions that people are asking and then we thought you’d be a good one to answer them, helping out the community as I know you’re already do, Matt. Look number, what kind of rates are investors getting from private lenders? What kind of holding periods and are they getting interest only or are they paying you know amortized for private lenders?

Matt: Okay so I’ve rarely amortized a private loan do an investor because I recommend doing private loans for short-term projects because if it’s a long-term project you can get better loans from a bank, whether if you’re not bankable there’s people you can work with that can be your sponsor. It can help you get a loan so I rarely do any a loan longer than say like 6 to 12 months to answer the time thing and that’s why I don’t amortize because why would I amortize a loan over like 6 to 12 months. You’re just not going to get the benefits of it to right and with regards to rates I typically pay somewhere between like 7% to 9% maybe 10%. I try and avoid points at all costs and that and just if you’re just getting started in raising and borrowing private money that’s what I pay.

You may have to pay more than that. You may have to pay similar to what you paid for your first deal like you know like 12 plus 12 or whatever just so you can get your foot in the door into a deal and that. I think that as you’ve got more seasoning and you’ve done more and more projects you can start commanding what the rates are as you move forward.

David: Very nice.

Brandon: Alright.

David: Next question I am interested in working with private money lenders, but I see that many of the sites out there are scams. Is there a serious reliable source for private money lenders available?

Matt: Yes see that’s I don’t recommend those online sites for finding private money lenders. I recommend you you know, but in the book I talk about how to find them right around you even though you might not think you know private money folks. I talk about how to look for them in places that you didn’t think to look and what the signs the like the signs, the hints of private money leaves and everything like that and how to look for it. I don’t recommend looking for it online for those very reasons because I think a lot of those sites are either scams or it’s a hard money lender in disguise.

Brandon: Yes, that’s exactly, that’s a really good point, yes. People want things handed to them on a silver platter and not have to work at for it.

Matt: Yes.

Brandon: Like well there should be a website of people who just want to give me money for free and then they can.

Matt: Yes, right GiveMeMoneyForFree.com.

Brandon: Yes, exactly.

Matt: That’s a website right. You just go to GiveMeMoney.com and just go and I can borrow money at four and a half percent.

Brandon: Yes, all day.

Matt: With collateral and no terms you know, yes.

Brandon: Exactly what then I would invest in real estate, but you know yes.

Matt: Right.

Brandon: It’s people living there now if you are looking for a hard money lender of course there is there is a lot of websites out there for hard money lenders. In fact, BiggerPockets I believe has the largest directory of hard money lenders. It’s free to go and peruse so BiggerPockets.com/HardMoneyLenders. Again if you’re just getting started that might be where you have to get started. That’s fine. Just budget you know I meant to mention this earlier. People might be surprised when they hear how much I paid for private or hard money at the beginning or how much you’re paying for private money because they’re used to hearing 3%-4% right.

Matt: Yes.

Brandon: People are talking, but the one thing I remember I still remember the day I read it. I read it in some early real estate book back when I was very getting like just getting started with a real estate and the person just mentioned kind of offhand like yes certain types of financing is expensive. Hard money is expensive. You did, but just put it into your numbers when you run the math on your deal and if it works out then great. Who cares how much it is. I mean technically a lender can charge you.

Matt: You’re right.

Brandon: A hundred grand, but if you’re still making the profit you want.

Matt: Something, yes.

Brandon: Yes then it’s worth it right so don’t worry so much about how much they’re making and oh that’s unfair or that’s a lot of money. Like can you still make your money? Just plug it into your math when you do your numbers and like if you’re using the BiggerPockets calculator is like the flipping or the rental calculator or the BRRRR calculator. You can actually put those fees and points right into the calculator themselves.

Matt: Yes.

Brandon: Run the numbers. Find out so.

Matt: Yes, yes, no and that’s 2222 and how dare they make money?

Brandon: Yes, really.

Matt: I mean that’s why I talk about win-win.

Brandon: Yes.

Matt: I mean it’s like it’s their right to make money too and they deserve to do that because they are taking a risk and so and everything like that and they deserve to get compensated for that risk as well, but like you said as long as your deal makes money as long as you hit your profit points that you want to make that’s why I keep talking about win win because they should make money and so should you. Both sides should. Because it’s triple. You can discuss that until you hit a point that both sides see as a win.

Brandon: Yes, that’s awesome that’s awesome alright cool. That’s a good one so can I combine private money with an actual conventional loan? Like can I get a conventional loan on the purchase and then private money on the rehabs? How would that work? How could I structure something like that?

Matt: Absolutely. It is very hard to do that as a loan like if I go and borrow money from ABC bank down the street and then go to David Greene and have him loan me money as a sell—like for the you know the other part of it like the down down money or whatever. It’s going to be very hard to do because David is going to want I’m going to want to give him some sort of collateral. It’s like a mortgage on the property so it’s going to be very hard to do with that bank in first because they’re not going to want to see a second sitting behind them right so you’re going to need to do that through an equity arrangement and you can do it. It’s done all the time. We do it through venture. David you know shows up as a lender on the books of the deal, but he doesn’t have collateral so we give him a percentage of the profit too.

He has actually he gets an interest rate on his money, but then he gets the percentage of profits. It’s called a joint venture and we do that all of the time. I talk about that in depth in the book.

Brandon: Super cool.

Matt: Yes.

David: Alright. Next question. I’ve heard many people say that you need a mentor as you’re starting out. I’ve also heard people say that some people pay for these mentors or coaches. That’s different than other areas of life where you don’t have to pay for a mentor. What have people done and if you do pay for your coach how does the fee work?

Matt: I rarely you know I have paid for coaching. It didn’t work out for me I’d rather either do like an apprenticeship type of thing where I you know find a way to add value to somebody’s business and that they can like I can learn alongside them and that kind of thing so I give them time in exchange for for the education, but real stuff. Not like just let me follow you around and ask you a million and a half questions and call that an apprenticeship. No, like let me find a pane in your business and add value to it and then you know like let me like to help you raise your game as an investor and call that an apprenticeship, but for mentorships we’ve found that like giving some sort of equity is the best way to do it.

Like I had a guy mentor me through my very first apartment building deal and you know he got a small percentage ownership of that apartment building deal and everything like that. We were able to negotiate that way and yes so the minority stake, but we still got the lion share, but in exchange for helping us he was attached to the success of the deal so.

Brandon: There you go. That’s great. Yes yes the mentor thing is interesting because like a lot of the terms.

Matt: It really is.

Brandon: Are kind of convoluted too so like some people call them and says the mentor when they’re really a coach and some people are a coach.

Matt: Yes.

Brandon: Does that mean they’re all bad, are they all good? Like it’s such a broad thing. We always just advice people be careful. You know like be careful with what you do. I mean there are national mentors who you will never even step foot in the same room or talk with that you might pay $50 grand to or there might be the guy that lives next door who owns three properties that will do it for free. Now is one better than the other? Depends on what you’re trying to do or how much money you’ve got to throw around or.

Matt: Everybody is different.

Brandon: Yes, everyone is different.

Matt: You got to be able to speak to maybe the mentor that you’re talking to just as an altruistic you know vein in their blood.

Brandon: Yes.

Matt: In their arm or whatever. Like I just want to help somebody. I want to feel like I’m giving back. Maybe that speaks to them. Maybe they’re looking to expand their portfolio or maybe they’ve got a pain that you can help them address, but I think that in getting to know them and getting to know why they would help you is how you can address that.

Brandon: Yes you know I was actually when we were looking for questions for the Fire Round another one that we were looking at was very similar. It basically said I mean what’s with all these investors wanting money? If I was a veteran investor I would kindly take on students and mentor them through deals, but like would you? Like I don’t like I yes.

David: That’s what you say before you’ve ever had to do deals or got busy.

Brandon:  Yes exactly.

Matt: Right.

Brandon: That’s what people like so I understand.

Matt: So it’s just say it to the board person.

Brandon: Yes, exactly.

Matt: You know I really like. Right yes.

Brandon: I understand people wanting to charge money for mentoring, but I also know that that is a lot of people. That is their business. They don’t even do real estate. They just mentor people in real estate. They don’t even do real estate. That’s a thing.

Matt: You got to be careful that and the people that are just charging money for their time you know and that’s and I don’t want to make money for my time. I want to create equity you know.

Brandon: Yes.

Matt: And everything like that for myself and create more wealth and it all so I’ve rarely taken compensation for my time for just talking to somebody and getting paid by the hour. I’d rather you know do a win-win where I get a small percentage.

Brandon: Yes.

Matt: Or the asset or something like that in exchange for helping them win or just helping somebody because I care about them and doing like a you know a couple of phone calls or whatever or just because it makes me feel good or it helps me giveback or whatever.

Brandon: Yes.

Matt: You know.

Brandon: Yes, yes, that’s great. Alright well let’s move on to the last segment of the show, our.

Famous Four

Alright these are the last four questions of the day or the last four for me. Anyway, the four questions we ask every guest, every week, and we want to see what you got to say and I know you’ve answered these a couple of times before Matt, but maybe they’ve changed and maybe not so number one. Do you have a favorite real estate related book other than your own of course?

Matt: Now I can say that. Now I can say that.

Brandon: Now you can.

Matt: Man.

Brandon: I know.

Matt: Yes yes I couldn’t say that before. There are quite a few real estate related books. You know I had the book lined up for the second question, but also you know I may have said this in the other podcast, but the book that really helped me understand private money before I knew about it and whatnot was Rich Dad’s Cash Flow Quadrant.

Brandon: Oh yes.

Matt: Because it talks about the ESBI quadrants and I think that and the cash providers that invest in our businesses are in the I quadrant. That’s where we all want to be. Like you said the guy just said he’s just walking out to your mailbox and getting that check.

Brandon: Yes.

Matt: You were in the I quadrant and that’s a phenomenal place to be because your money is what’s making you money and that. I think people just strive for that, but I think that in seeing my path starting out as an E, working through being self-employed and being S and now in the B quadrant and work my way towards just becoming just an I. Well my money is making money for me is phenomenal and he talks a lot about how real estate provides that path so Rich Dad’s Cash Flow Quadrant I would have to say.

Brandon: Alright cool.

David: Alright Matt what is your favorite business book?

Matt: So my favorite business book is I guess we can call this a business book. It’s really like a life book, but it’s Lifeonaire and I heard you talk about it a lot.

Brandon: Yes.

Matt: On the podcast Brandon, but I read it and it’s phenomenal. It made me think about just I’m going to make decisions based on time now not based on like how much money can I make. No this is how much time can I create with these decisions and stuff like and that so that book is phenomenal. I recommended it to others too so and that’s recent book that I read. Thank you for plugging that.

Brandon: Yes no problem. Yes that’s one of my favorite books. I’ve been bugging David Greene here to read that for quite some time. I’m still working on them. He’ll get there.

Matt: Yes he’ll get there.

Brandon: Alright number three, David.

David: What are your favorite hobbies?

Matt: I have a four-year-old and a one-year-old that keep me very very busy so just like I sound like a typical you know dad who’s in love with his kids, but just hanging out with my kids. I make wine that’s another hobby of mine and just travel. I’ve been doing more and more travel. I took my son, my four-year-old son I took him for the first his first roller coaster ride a couple of weeks ago and I sat him down and I was like son the only way to ride a roller coaster is to sit up front just so you know.

He and I we went in a little longer line to sit at the very very front of the roller coaster so just enjoying life and traveling and creating memories with my family is probably my absolute number one hobby and you know making pretty good wine is a second one.

Brandon: Awesome awesome.

Matt: Yes.

Brandon: Alright Matt what do you think separate successful real estate investors from those who give up, fail, or never get started.

Matt: Today I’ll say the other two podcasts that I have been on I said something different I believe, but this one I’ll say and this has to do with raising private money, but mitigating fear and letting if you let fear stop you it will and fear can absolutely be an immobilizing emotion, but if you can get through it and keep moving even though you’re afraid and getting to the point where I’m at like you said you know this new person is giving me money. That’s a little scary. It still is and everything like that.

I just I have never just the dirty little secret is the fear doesn’t go away and I think that people expect that well when the fear stops then I’ll start taking action, but the secret is the fear never goes away. You just learn to act in spite of it and I think that that’s the key to success is just moving forward even though you’re a little scared, a little unsure, and just being confident enough in yourself that will just keep putting one foot in front of the other and you know keep walking until I get to success.

David: That’s a great answer.

Brandon: That’s really good. Yes.

David: Alright where can people find out more about you?

Matt: So my obviously BiggerPockets you know I’m out there on BP so you can check me out you know teaching webinars for BP and you can check out the book and you can also check me out on my company website, which is DerosaGroup.com. That’s DerosaGroup.com. They can hear all about what we’re up to.

Brandon: Perfect. Alright Matt well like we said earlier make sure you guys pick up a copy of the book. This is one of those books that I mean clearly it pays for itself if you can help you know or get one more private lending deals.

Matt: Absolutely.

Brandon: Somewhere in your future or get a little bit clearer understanding at SEC rules or on you know equity debt all of that stuff. It’s one of those no-brainer books. I think this is going to sell a billion and one copies because it helps every single investor out there.

Matt: I just want to provide value. I just want to provide value.

Brandon: Love it.

Matt: To people and help them avoid making mistakes that I did when I first got started. I talk about a lot in my personal story and a lot of mistakes that I made. I mean hopes that not to like out myself, but in hopes to help people avoid doing that and they can have a clear, cleaner path to success for themselves so that’s my hope.

Brandon: Super cool. Alright well Matt, thank you very much. We’ll see you around BiggerPockets and also I will say this you’re doing an amazing job at teaching webinars here on BiggerPockets so make sure you guys sign up for one of Matt’s webinars. You do one every other week right?

Matt: Yes.

Brandon: BiggerPockets.com.

Matt: Oddly enough, Brandon.

Brandon: Yes.

Matt: We talk about raising money.

Brandon: No way. No way.

Matt: We talk about doing deals with other people with other people’s money.

Brandon: Yes.

Matt: How to make that happen and how to find it and how to you know how to assemble it and everything like that so.

Brandon: That’s awesome.

Matt: They should come join us for those two.

Brandon: They should. BiggerPockets.com/Webinar. Check it out there and you’ll see Matt’s up coming webinars there. I believe David Greene here is going to start doing some webinars, teaching some classes as well.

David: Sweet.

Brandon: You know we’re teaching the world how to do this stuff one investor at a time. Thank you all. Alright Matt get out of here. We’ll see you later.

Matt: Cool thanks guys.

Brandon: Thank you.

David: Thanks, Matt.

Brandon: Alright that was the interview with Matt Faircloth. Fantastic like you know I know a lot about raising private money because I’ve done it, but I still like my mind is exploding with information and excitement. Like I’m ready to go out and have some conversations about private money raising. Are you going to start raising some money yet Greeney? I know we’ve been talking about it.

David: If anything Matt has me more intrigued with this than when I was before.

Brandon: Yes.

David: You know like you think you know something then you hear someone who does it and you realize how much you don’t know and yes that’s definitely this is something that’s going to happen in the future. I’m absolutely going to start raising money and making an effort to do that and kind of add some gasoline to my own Lamborghini over here.

Brandon: There you go. That was a nice analogy there. Well good deal good deal. Well I don’t know. What else have you got? Anything for us?

David: Yes, I want to make one last point.

Brandon: Please.

David: This is something I was thinking about while we were recording, but I didn’t say it. This might be the absolute best time in all of our lifetimes to raise private money.

Brandon: Yes.

David: Interest rates being stupid low and real estate being such a safe investment compared to other things has created an environment where people need to lend their money to get a return because they cannot get a return at the bank. They cannot get a return like with CDs, like all of the typical ways that people look to earn a return. The interest rates are just stupid low so you can raise money easier now than ever. If you’ve been thinking about doing this I would highly recommend that you take the jump, buy the book, learn how to do it, and start doing it just like I need to do myself because we all may look back 20 or 30 years and say what the heck were we thinking not raising money when it was that easy.

Brandon: Yes, that’s so true so true. Get out there. Do it. Don’t be afraid and you know we’ll see you next week on the BiggerPockets podcast. We got some fun shows coming up here we have got planned out so you guys are in for some treats especially David and I are going to be doing a solo show pretty soon talking to you guys about some cool stuff, financial independence and got some news coming up on where Josh Dorkin has been and what the future of Josh Dorkin is looking like some kind of cool stuff going on there so hang tight for that and we’ll see you all next week for the BiggerPockets podcast.

David: Alright.

Brandon: My name is Brandon and this is David. You want to take us out?

David: Yes, this is David don’t need a last name, no last name and Brandon doesn’t know the show number Turner.

Brandon: Signing off.

David: Signing off. Good job.

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In This Episode We Cover:

  • Who Matt Faircloth is
  • How they’ve reached 380 units to date
  • Tips for building wealth by investing in business
  • What you should know about opportunity cost
  • Finding deals versus making good deals
  • How to raise private money
  • Tips for starting a business with friends and family
  • A role-play call with David
  • The number one question potential cash providers ask
  • Why you should start with debt
  • A new way to look at debt
  • When the SEC gets involved
  • About his book
  • And SO much more!

raising-private-capital

Links from the Show

Books Mentioned in this Show

Fire Round Questions

Tweetable Topics:

  • “When it comes to raising money, you got to establish trust first.” (Tweet This!)
  • “People should start with debt.” (Tweet This!)
  • “It’s not about finding good deals, it’s about making good deals.” (Tweet This!)
  • “You’ve got to squeeze the lemon and make something out of it.” (Tweet This!)

Connect with Matt

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners — without the non-stop pitch prevalent around the industry.

With over 180,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!

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