BiggerPockets Real Estate Podcast - 106: How to Do 100+ Deals Without a Bank (While Raising Unlimited Funds) with Mike Sumsky

Episode Date: January 22, 2015

Is it possible to build a large real estate business without the use of banks? Our guest today, Mike Sumsky, shows us that it’s not only possible – but can be incredibly beneficial! Mike has done well over 100 deals in the past several years using a variety of creative finance methods and shows you how you can do the same. Listen for great tips on obtaining private money, finding deals by knocking on doors, and other innovative strategies for building your real estate business. Whether you want to overcome a lack of funding or you just want to explore creative ways to raise capital, this is an episode you don’t want to miss! In This Show We Cover: Mike’s thoughts on creative real estate investing How he got his first properties Investing while losing a job The beauty of taking action without knowing everything yet How to get your first deal from knocking on doors The anatomy of a short sale Tips on applying for a bank loan How to learn while doing Closing on a house with less than 5 thousand dollars What “Subject To” type deals are Everything you need to know about private money How to become “the prize” in each transaction Plus MUCH more! Links From the Show: BiggerPockets’ Trivia (email) BP Podcast Show 105 Video of the flood with Brandon And another video BiggerPockets’ List of Real Estate Meet ups CreditKarma BiggerPockets Forums Buildium Books Mentioned in the Show Brandon Turner’s The Book on Investing in Real Estate with No (and Low) Money Down Think and Grow Rich by Napoleon Hill Pitch Anything: An Innovative Method for Presenting, Persuading, and Winning the Deal by Oren Klaff Landlording on Auto-Pilot by Mike Butler The E-Myth : Why Most Small Businesses Don’t Work and What to Do About It by Michael E. Gerber Work the System by Sam Carpenter Connect with Mike Mikes’s BiggerPockets Profile Mike’s Blog Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast. Show 106. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all 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. What's going on, everybody? This is Josh Dork and host to the Bigger Pock.

Pockets podcast here with my co-host, Mr. Brandon Turner. What up, Brandon Turner. Josh Dorkin. How are you today? I'm good. I'm good. Right now I'm talking to you while you're sitting on the beach in Hawaii. Must be nice. It is really nice. Look at me sitting on. No, we recorded this ahead of time, people. But while you're listening to this, I'm probably sitting on the beach, maybe. Wow. Wow. Yeah. Yeah, it must feel good, huh? Feels real good. Yeah. Look at the hot girl over there. Wow. Wow. Can't wait for Heather to listen to this show. It's my wife. What are you talking about? Oh, I was a hot girl that I'm going to be, okay, just making sure. Just making sure. Oh, no, no. Things are good. Things are good. It's going to be, I'm really looking forward to this week, getting away from you. I mean, getting away from life and my tenants and stuff. Yeah.

Abuse I take. It's horrible. It's horrible. Well, well, listen, man, things, things are moving along here at bigger pockets. And, you know, we're plugging along on the shows here. Today's show is awesome. Awesome. We got a really, really, really cool show. and I'm super excited about it. Today's guest, should we talk about him or should we? We can talk. Well, we'll hint. So today's show, the guest is, because I did not plug it all in the interview, today's guest is a perfect example of what people can do if they just follow simple, creative, investing ideas like the ones you can learn in my book.

You like that? Well, done. Well done. Okay. Now, he's a creative guy. Creative guy. He's a creative. and he's got some amazing advice for folks.

So we definitely encourage you to listen up. Before that way, you know, we've got this new little segment that we've been doing on trivia, don't we? Bigger Pockets, Trivia. Yeah. Like I said last week, we need some kind of jingle guys. So, you know, send us an email, Brandon at Bigger Pockets, or just send it to him. I don't want to get flooded. Yeah.

If you've got any jingles that you want to put together for us and we can test them out. out. Well, since we don't have a jingle, I'll just go ahead and say the trivia here. All right, so as we announced last week, we are going to be doing weekly trivia questions here on the Bigger Pockets podcast about the previous show. So if you think you know the answer today's question, email it to trivia at biggerpockets.com, and you might win a copy of the book on investing in real estate with no low money down. and that you will get the digital and the audio version. So yeah, do it. Today's question is, on the last show, we chatted with Ophelia Nicholson

about how she went from minimum wage to flipping numerous houses as a full-time gig. So the question today is, Ophelia mentioned that she partnered with a certain family member on her first few flips. What family member was this? I know. Good job.

You paid attention? What? You paid it. Look out for the plantains in the bed. Yeah, thank you. All right, if you think you know, email us the answer to trivia at biggerpockets.com in the next week. And our assistant will get in touch with you. And if you won, you'll win that cool prize.

So with that, let's get to the show. All right. Well, today's show, Brandon, features a man named Mike. Yes, it does. Mike is a real estate investor from Kitsap County, Washington, who's done pretty much everything under the kitchen sink. in real estate. Most of it is using none of his own money. In fact, he only used his own money for his first deal. So today we're actually going to talk about, you know, how he kind of kicked things off,

how he's done over 100 deals, only using the bank on one of those. And it's really powerful, really exciting. And we get into a whole lot of depth on private money, finding private money, using private money, and something that we actually haven't talked about at all, which is if you're considering becoming a private money lender, what do you need to do? do. You know, if you got money sitting in the bank and you don't want to be a landlord, you don't want to deal with tenants and toilets and you're just trying to figure out, hey, you know, how do I make some money on that cash? What do I do? Well, being a private money lender is a really good option. And the great thing is Mike is just such a smart guy and he gives

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So with that, why don't we bring him on? Mike, welcome to the show. It's good to have you here. Hey, it's good to be here, guys. How you doing? Well, how about yourself? Pretty good. I see, Brandon, you survived the big flood of 2015.

I did. That was crazy. That was crazy. Did you guys see my video? I saw. You had two videos. One of them, you're like rescuing a tentative. or something like that in the middle of the water?

I did. I didn't see that one. Yeah, well, it was, yeah, we had a good time. Is it like some old lady you were carrying on your shoulders? No, I was on the way to my tenant's house. He was on his bed. Here's the fear. Here's a quick 30 second story.

So we had this massive flood and one of my tenants called and said, you know, I'm stuck on my bed. I can't get off my bed because he said, I'm in a basement apartment. There's about a foot of water. It's covering the baseboard heaters and I think they're still on. Now, I would assume that the breaker would try. trip, not a problem, right? However, just the one in a million chance that the breakers didn't trip, I'm not going to tell him, yeah, just jump into the water, see what happens.

So, like, I call the police and they said, we can't get over there, sorry. The police said that. I'm like, oh, I was like, well, what do I do? And they're like, I don't know, just have him stay there for a while. And I'm like, that's not a good idea. So anyway, my wife and I went and bought boots, and we got into the water and we walked over and shut his power. We actually broke into where the water heater, because I didn't have my key with me, broke into where the electrical panel was, shut the heater off and then moved them out. Well, I know rubber kind of protects

you, but like, if you're in rubber boots that are up to your knees or waist, then you're walking through water that's electrified. I don't think that matters, does it? Yeah, I don't know. I'm not an electrician. I don't know, but I was okay risking myself. I just didn't want to get sued by telling him to jump into the water.

So, yeah, normally, normally I don't do that kind of. That was the first time and probably only time landlord activity. Anyway, so Mike, you're yet another Washington guy. Interesting how we're completely overrepresented by Washington guests. I wonder why that is, Brandon. We're overrunning this podcast with Washingtonians. Yeah, we are. Well, you know, I meet people at local meetups and stuff, just like Mike here. And we met and hit it off. And I told them at the time, I said, we need to get you on the show. And that was like, what, a year, year and a half ago. Yeah, I was, I think it was about a year ago. Yeah. Yeah. So anyway, I'm glad we finally got to coordinate this together. So today we're going to talk about creative, really. estate investing because you've done a lot of stuff. I know you've done pretty much everything that there is to do in real estate, it seems, and you've done most of it without using the traditional methods. And so that's what we're going to kind of focus on. Yep. Yeah. Cool. Awesome. Awesome. All right.

Well, let's, I mean, let's just kind of jump into the story. What got you introduced to real estate? Why did you suddenly stop whatever you were doing or just, you know, go from nowhere to real estate? What got you into this thing? Well, you know, I grew up in a family of entrepreneurs. My parents, they They own a business. It's actually semi-related real estate. It was in real estate publishing, so they own several of the Homesland Real Estate magazine franchises.

So, you know, just the magazines you see in the grocery store, the realtors, you know, advertiser properties. And so, you know, I kind of was raised with some of that mindset. I remember back when I was in high school or junior high, my dad gave me this book called Think and Grow Rich. And it was a big, it was an old tattered copy. I think he'd had for decades. And he said, you know, I could charge you.

$10,000 for this book and it would be completely worth it. And, you know, I just shrugged it off at the time. You know, come on, dad, whatever. No one's going to pay $10,000 for a book. But, you know, I think I eventually... Oh, yeah, they will. That's right. You know, I think I eventually got to reading it sometime in, you know, late in high school or in a college. And, you know, when I was in college, I kind of, that was when the time when Rich Dad was coming out. And my parents had a few rental properties of their own. And so, you know, I kind of thought, you know, investing is something I definitely want to. want to do. At the time, I didn't know I wanted to do it as a business, but I thought, hey, you know, if I can pick up a rental and, you know, you do like talk about the house hacking,

Brandon. That was actually one of my first ventures into real estate. I got a Carlton Sheets course. So I know several people that have been on podcasts have mentioned that. And, you know, that was kind of a false start for me. I read the information, listened to the cassette tapes, I think, at the time. And, you know, you get all excited. You go out there. And it's like, as far as implementing, you know, I just hit a brick wall and I thought, oh, this doesn't really work. And so I decided to use a realtor, a friend of mine to go out and look for properties. And at the time, I was living in Seattle, at University of Washington. And I was dating my girlfriend of the time, who's now my wife. And she was living in Bremerton. And Bremerton's a city just about an

hour ferry ride to the west of Seattle, where property values were a lot cheaper than the Seattle area. and I ended up finding a triplex that was on the market. And it seemed like a pretty reasonable price. In fact, I think that after getting my mortgage and renting out the other two units, I think my total cost of living would be about $150 or $200 a month. So I thought, you know, this is perfect. I'll be able to have my first place. I'll be able to rent it out.

And I actually had a plan at the time to convert one of the larger units and split that so I can make a fourplex. So got my offer accepted, was about a week and a half away from closing, and I lost my job. Oh, no. Bad timing. It was bad timing. And so I had to get out of that deal, unfortunately. You know, in hindsight, I wish I would have just found some way to, you know, to actually get the deal done.

I don't know if I could have, you know, not mention that I had lost my job, but I figured, you know, I'd saved up enough money. I could probably handle $150 a month for a while while I was searching for something new. I was an engineer at the time. And my engineering, since I lost my job, I lost that chance at that triplex. I kind of gave up for a bit, but I still had the interest in getting into real estate. And that's when I actually found the local real estate club that I belong to now. It's a real estate association of Puget Sound. and it was there that I met people that were kind of into this whole creative real estate, wholesaling,

you know, all the different methods of finding motivated sellers and spent about a year and a half kind of in that little circuit, getting education but not taking action. And it wasn't a, yeah, and that was the big thing. I mean, I talk about this now when I have people that are new that come to me and it's, you know, that's the biggest trap to fall into is trying to learn everything before you take action. because you just never get started. So a lot of it is on the job. How do you think you overcome that? I mean, what do you tell people, you know, do just go do something, just jump overboard and do it?

Or what kind of advice do you give to people who are facing that today? Well, you know, I think that you learn enough to start taking action because you're not going to know everything. And most of the learning is going to be done on the job. So just for an example, when I finally got into action, I was doing a couple things. One, I bought Bandit Signs, and I started putting those up everywhere. I don't do them anymore, but at the time I started getting calls, so as soon as sellers started calling me, I was forced into action. And, you know, I realized that everything that I learned in a book doesn't really matter

until, you know, you actually get that call and you start learning from actually doing. The other thing I did was I started knocking doors. And that was a really, really scary experience for me. going out and, you know, people say that I look kind of young right now, but 10 years ago when I got started, I looked like I was in high school. So the thought of like this kid going up to a door and saying, you know, I want to buy your property was pretty scary. So my first deal actually came from a door knock. I was going to say, yeah, can you kind of tell us what your, what was the pitch? I mean, what do you do? Who are you walking up to? What doors you

banging on. And when you get there, what were you saying? Yeah, well, back then I was, I had got a list of pre-foreclosure properties. And so what I would do is I'd go to the door and I'd knock on the door. And, you know, basically my pitch was something along the lines of, you know, I know there may be an issue with the mortgage on the property. And I can help you if you want to stay or I can help you if you want to sell, you know, so what's your situation? You know, so what's your situation? And I got a lot of weird looks and some people slam the door on my face, but this one, woman answer the door and she said, well, you know, I, we were letting a house go to foreclosure. You know, we can't even sell it if we wanted to because we owe more than it's worth.

And, you know, the one thought I had was, you know, I know there's this thing called a short sale, but I really didn't know how to do a short sale. So I just mentioned what I knew about. I said, you know, your bank may be willing to let you sell for less than what you owe, you know, is can I get a little more information? And she said, well, my husband, he's at work right now. He's going to come back later. Can you maybe come back this afternoon?

And so, you know, as soon as I left that house, I ran home. This is, you know, long before I discovered bigger pockets. Hey, mom. I need some help. Can you make me lunch? And so, you know, it's actually funny. I think I might have, that's back when I, I think I'd moved back to my parents at that point after college.

So, yeah, that might have been an accurate statement. But at any rate, I went online and there's, you know, I found a real, estate forum that I used to post to every now and then. And I just put it out there. I said, you know, I have the seller and they wanted to do a short sale. You know, what do I do? And I got a lot of help. And I was able to get enough information to go back with a purchase and sale agreement and, you know, get this house under contract at a price that I thought would work as an investment. I really didn't know anything about private money or how to finance. In fact, that first deal was the first and only deal that I've ever done where I actually got bank financing. Really? Yeah. So I stumbled

through the short sale process. I asked for a lot of help from local real estate investors when I come into a problem. And I actually got this deal accepted. And then I proceeded to do the Cardinal Sin and these types of transactions, which I didn't know. It was a bad thing at the time. But I thought, hey, these people didn't want to move. So I thought, well, best of all scenarios, I'll keep them in the house and rent to them and then give them the option to buy it back, which you're talking about the people who stop paying their mortgage. That's right. Oh, those people. Okay, I'm just, I'm just, I just want to clarify. Just want to clarify. Like I said, I was young. You know, I thought I was doing the right thing. You know, I thought, you know, this is a good thing to do. Now, fortunately, everything ended up being great with this transaction. So I got my bank financing. I had a low mortgage. So my rent that the rent that they paid me was much lower than their mortgage was. So I had good cash flow. They actually, actually did buy the house back from me. Really?

About 18 months. Oh, wow. When they bought it, they had about 50,000 in equity. And, you know, when they bought it back from me, and then I made about $40,000 on the deal. So I was very fortunate to actually have it work out well. But it was shortly after I started this transaction when I was talking to other investors about why I did. And they said, you should not have done that.

Yeah, I can't say I'd recommend it, you know, but that's cool that I worked out. like that. That's awesome. Yeah, I want to hear, you know, for those people who don't quite understand how that whole thing would work, right? So you're an investor, you walk, walk up, they're upside down. And you're trying to help them to kind of put together this, the short sale, right? So can you just explain what did you do specifically? Like, what did you have to do? What did they have to do? How did you end up getting, you know, a piece of the deal? And how did all that come together? Just, you know, Again, if people don't understand this stuff, it could be kind of daunting. Well, so, you know, I think that things have changed quite a bit since when I did it.

And in fact, in Washington State, you know, they've since passed legislation which limits, you know, what you can do with pre-foreclosure properties. And I know there's other laws around the country for that. And it's meant to protect the seller. But, you know, a lot of times what it does is it, you know, it hurts investors' opportunity to do some of these deals. So back then, I actually did all of the negotiating with the bank myself. So I got a purchase and sale agreement at a price that was less than what the seller owed, but it was at a price that I felt would work as an investment. I don't really know how I came up with that number, but it seemed a good number to me.

And the bank was, you know, we submitted everything to the lender. They requested a hardship package, which was, you know, the seller's financial information and a statement about why they fell behind in payments. Then they did a broker's price opinion. So a broker came out to the property, estimated what the value was. determined if the offer I was giving them would be better than what they might get if they took it through the foreclosure process. So that was kind of the on the purchase side of things. Again, I didn't know anything about raising private money, so I thought, well, the next logical

thing is to go get to apply for a bank loan. And at the time, when I did this deal, I had started working again. Actually, I got a pretty good job selling surgical equipment. I was a neurosurgical salesperson. And so I had decent income. I was able to qualify her for this loan. And then when I purchased the property, I figured, you know, what price could I sell this to, which would be, I guess, basically market value in a year or so to this family that would, you know, ensure that if once they closed and bought it back from me, I'd be making some money. And, you know, they, you know, that was during the time when the market was really, you know, appreciating a lot. So the house values went up way more than what I had actually agreed to sell it to them for. So that's kind of how the process went.

But again, I would not recommend anybody do this now, especially the part of letting the person stay in the property because more times than not, it doesn't really end very well. Yeah. Yeah. Gotcha. Now, that's great. That's great. Cool. So you do this deal and it's kind of working. It's going okay. What happens next? Do you have the bug all of a sudden? You're like, all right, I'm just doing this. I mean, you're doing the medical equipment, surgical sales. So probably doing pretty well. And you said that was the last deal that you got financing for, and therefore, you were doing creative, right? That's right. So why, and my question is, why somebody who actually has the financial wherewithal to use their money, do you decide,

hey, I'm going to just start doing this creative stuff? Or I'm making assumptions about Yeah, well, so one of the things that I, you know, obviously realized that is when I started getting other calls from sellers, a lot of the properties that they were, that they had when I wanted to buy would not be financible by a regular mortgage anyway. And, you know, so I realized that in order to be able to purchase these, I was going to have to get creative. I started learning about private money at the time. So, you know, shortly after I did this particular deal, I got a call on a bandit signed from another property. It happened to be another short sale. So I had two short sales in a row. But this particular one, they had two mortgages, the first and a second. And one of the investors that had helped me give me some advice on doing the first short sale, I came to him and I said, you know, I've got this other deal.

I don't really know exactly how to do it, but if you can help me out, I'd be happy to give you half of the profit. And so, you know, that's one thing that I've learned. And I've actually, you know, kind of taken now that I've, you know, a lot more experience than people come to me. I realize that, you know, given up half of this investment to an experienced investor that allows me to learn while I'm doing is, you know, I'd rather do that than get all of nothing. Yeah. So the second deal, we actually short-sailed the second mortgage and took the first mortgage over subject two. So they had two loans.

They were over-financed, but the first mortgage alone was, you know, low enough that if we were to buy the house by just discounting the second, and take over the payments on the existing first loan, then we could still, we could buy the property without very much cash out of pocket. So, I don't know if you only describe kind of how that works a little bit, but allowed us to get into the house with less than $5,000. Yeah, sure.

Let's hear it. Maybe you can go a little more into that. Yeah, well, I mean, I don't know the exact numbers has been so long ago, but let's just assume that we have a seller who owes a property that for round numbers is worth $100,000. And maybe they have a $70,000 first mortgage and a $35,000 second mortgage. Well, what I did at the time was the property was going into default. I contacted the seller, and the seller is not going to make any money from this no matter what.

They're basically the only options they have are to try and reinstate the mortgage and keep the property, which that was an option for them financially, or do a short sale. And so with that particular transaction, we contacted the second lender, who had saved the $35,000 second mortgage. If that was to go to auction, that lender would get nothing. So what we did is we negotiated so that instead of getting nothing they got, I think it was $1,500. So we discounted the mortgage over, they say, $33,000. And bought the property by cashing out the second loan and taking over the debt on the first. mortgage subject to. So the debt stayed in the seller's name, but we bought the house. And when I say

we, it was me and the partner that I talked about giving half the deal to. Can you talk about real quick? So you took it over subject two. And I don't know if we're going to make subject to, you know, we're probably not a major focus of this episode. But what are the downsides of that? I mean, that sounds really great, right? Like, oh, I can just go take somebody's mortgage and start paying on it. Like, why is that not more commonly on? And their name and their name stays on the note. and you get all the benefits without any of the headaches, right? I mean, so, yay, win, right? Well, there's definitely some things that you certainly have to disclose

if you're doing a transaction like that. So essentially what you're doing is you're buying the house, but the existing seller's loan is not getting paid off at closing. The biggest thing that needs to be disclosed is that if the loan's not paid off, that there's a due-on-sale clause on that loan, which can give the lender the right to call that loan due, if it's title transfers. So the seller basically is putting their credit in my hands at that point.

So you definitely have to disclose to the seller in writing that they completely understand this is what's going on. You know, at the time I was, I don't really do subject to anymore because I've had a chance to be able to get a pretty good private money so I can pay cash for most of anything that I purchased now. But at the time, the reason that the seller would be willing to do that is they didn't really have any other options. They're probably going to lose the house to foreclosure. and I was able to show them that we are going to be bringing money into purchase this house.

We're not going to get paid until their loan ultimately gets paid off. So, you know, we have a high incentive to do everything that we say we're going to do so that we can ultimately resell the house and get a profit. So, you know, that's kind of how

that one transaction went down. And I started learning about private money shortly after that one. So I started doing more cash transactions rather than the, you know, creative subject to type deals. Okay, so for those people who don't know what private money is, I want to, I want to touch on that quite a bit because that's one of the things that, you know, I've heard you talk about

before and I think is awesome. So before we get there, I can ask you a couple kind of set up questions. First of all, how many deals since that point, since you've only done one with bank financing, how many have you done since then? I've probably, I lost count, but it's probably somewhere around 120 to 125 deals. That's awesome. And only a bank on one of them. And only a bank on the one.

Wow. Okay. And what kind of deals are those, you know, what do those include? Yeah, there's a good mix in there. You know, I've, I started wholesaling and I continue to wholesale. So basically that's, you know, negotiating a good price in a property, but finding a, you know, a rehabber who, you know, would pay me for the right for me to be able to sign that contract over to them. So, you know, I've done some quick wholesale transactions, you know, where obviously I don't need any money. I've also done a complete full, you know, seller finance deals where the seller owns the property free and clear. And, you know, I may make a cash offer at a big discount where for the seller that price would be too low for them be willing to sell. And if they might be taking that money and sticking it in a bank anyway, I would say, well, you know, if this cash price wouldn't work, I can pay you more if you'd be willing to carry a contract. And basically, the seller would be a bank to me. So instead of me paying a bank or a private

lender, I make monthly payments to the seller. So that is another way that I was able to do transactions without any of my cash or getting bank financing. I own quite a few buy and hold rentals now. Let's see, I've done seller financing, short sales subject to wholesaling. You know, I do a little bit of everything, but it's not a lot of any one thing. I wouldn't say that I'm a big expert at just one particular strategy. I guess I kind of learned. I kind of learned to be somewhat of a transaction engineer. So, you know, I go into a situation where a seller has a problem with the house and I figure, how can I solve that problem and make a profit?

It may mean buying cash at a big discount, or it may mean getting the seller a higher price if they can have more flexible terms. That's great. That's great. And I think, you know, to everybody listening, that's your job. You know, as a real estate investor, your job is to solve the problems of the sellers and you pick it up and do with it however, you know, what you're going to do with it, right? But, yeah, that's awesome.

I know, Brandon, I know you wanted to kind of dig in on the private money stuff. Yeah, I mean, why don't we just do that? What is private money and how does it work? So private money is where you get to use other people's money in order to purchase real estate. Okay, so when I say private money, I have a distinction of private money versus what some people call hard money. And, you know, hard money is typically loans that are made by people that loan money for a living, you know, professional money lenders. With hard money, you're usually paying a higher interest rate and you're often paying points. And those loans tend to be

short-term loans because a hard money lender's job is to be able to churn that money as fast as possible. And if they're getting four points and 12% interest, you know, that money will make more money for them if they can relend that, you know, that amount out, you know, frequently. So say every four months or every six months. So generally those, those types of loans, you know, they're very valuable, I think, for an investor to have in their arsenal to be able to just pay cash for a place by using a private or a hard money lender. But there comes a point when, you know, you're limited on the types of deals that you can do if you are just limited to high interest, high points, short-term money.

So private money, in my opinion, would be more classified as money that is other people's money. It's usually lent by somebody who's not in the business of lending money. You're usually able to get that money at a lot lower interest rate and usually a lot longer time frame. In fact, I found that it's sometimes easier to get low-interest private money than it is to get high-interest private money. Interesting. So, yeah, private money could be your mom.

It could be your uncle. It could be the postman. It could be the guy Kinghouse, right? That's right. Okay. And I'd love you to explain that last thing. Why have you found it easier to get low-interest private money versus high-interest private money? How are you doing that?

You know, if you don't mind, I can give you a little story about how I got my first low-interest private lender, which might explain some of this. You know, I did borrow, I did find a, initially some kind of more hard money lenders. These are, say, the 12% interest folks. And when the market was kind of booming in the, you know, the mid-2000s

or so, or 2004, five, six, I was using, you know, I was buying money or properties with 12% money with the intention to fix them and flip them. So it works pretty well if you're fixing them and flipping them, but if for some reason you can't sell a house, it's really

hard to cash flow a property with a 12% interest loan. So I happen to have one of these properties that I intended to flip. And I got a 12% loan with a six-month balloon payment. And this was back in 2007, which was kind of right near the top of the market. So this particular house, I fixed up and tried to sell and I couldn't. I lowered the price and I still couldn't sell it. And so So, you know, this, I think I had, you know, $210,000 at 12% interest, which basically that's a $2,100 a month payment plus taxes and insurance. And the place could maybe rent out for $15,000 or $1,600 a month. So I was in a little bit of predicament.

And, you know, coincidentally, I, you know, I knew a person through my wife's side of the family who I'd met and talked about real estate quite a bit. And he had a lot of rental properties. He was a retired. He was still a landlord, but he was retired from his main business, and he just basically managed his rentals. And so, you know, I had a sincere interest in learning from this guy, and I ended asking him if I could buy him lunch and kind of pick his brain about real estate.

And while I met with him, I was starting to talk about kind of what he was doing with his properties and, you know, his history as a real estate investor. And I found out that he owned a lot of rentals, and, you know, a lot of times he sold houses on contract. So, you know, I think when an investor sells a house on a contract, they're usually longer-term notes and they're usually at lower interest rates. So it was pretty clear that he was happy with a little lower rate. You know, I didn't really discuss any particular deals with him at the time. But, you know, I stayed in touch with him. And I think a few weeks after this meeting, I sent him a letter.

And I thought, you know, I'm wondering if he would be willing to invest on this deal so I can refinance out of this 12% money. And I thought, you know, if I could get it down to say 9%, I'd probably be okay. I'd have a little bit of a negative cash flow, but it would be enough that I could probably sustain until I sold it. So, you know, in this letter I wrote, I thought, you know, I need to leave a little room for negotiation. So I asked him if he had, you know, $210,000 that was not earning a 7% return and if he'd consider, you know, investing with me on this property. Well, instead of, you know, negotiating, he came back, said, you know, 7% seems about right. And And he said, when can I see the place?

So, you know, I about stumbled out of my chair when I heard him say that. Nice. You know, I thought, gosh, you know, in the past, you know, the way I was taught about private money back at the time is it wasn't the cost of money that matters. It's the availability. So, you know, back then it was, you know, a lot of the old timers that were teaching real estate, the gurvers were saying, you know, I paid 12 percent. I'd pay 15 percent, five, ten points. It didn't matter. as long as I was making money, it didn't matter what I paid.

So I kind of had a fear of asking for a lower rate because I thought there's no way that this smart person here is going to accept it. But, you know, he did. And a week later, I had $210,000 at 7% and refinanced out of this other loan. It allowed me to now rent that property and have essentially a break-even cash flow. So the biggest lesson at that point

was smart investors with a lot of money think 7% is a great return. Yeah. And it is. Well, you got money in the bank making zero point what percent. I mean, seven percent is a gimmie. That's right. And the stock market in 2007 wasn't going to have a real future for the next couple of years. And so the biggest lesson, and Josh, when you're asking, why is it sometimes easier

to get low interest money than it is high interest money? What I found is that for the folks that you want to borrow money from, that you want to invest with you, they often equate high return with high risk. So often a double-digit interest rate return is a little bit scary because for most of us, especially if, you know, you've not been doing this for a long time as far as, you know, like hard money lenders, they understand real estate. They're trying to secure. They invest money at a low loan to value. They can ask for those high returns. And it's a good investment for them. But for the folks that want their money just to kind of sit there for a long time earning a consistent return, you know, when you hear double-digit returns, you think, oh, high return.

Yeah, it's cool. But, you know, that also comes at a high risk. So 7%. And, you know, now I'm basically down to 6% for most of my, my, my, my, my, private money. You're a thief. I love, I mean, I love that. Like that low, I mean, relatively low interest rate, private money is what every real

estate investor would love to have. Yeah. I mean, that is the golden goose or whatever. I mean, like, that's amazing. So maybe you can offer some advice to the listeners end of me. I mean, how do we, how do you, do you just ask the guy? I mean, is that simple, send a letter? I mean, is there a, is there a method?

you would recommend for people approaching people about the private money? Yeah, well, you know, I think with my first low interest private lender, it was a matter of, you know, he'd been doing it for a long time. He's obviously, he's retired, but he was buying real estate when he was my age. And, you know, I think that at that, by meeting with him and kind of picking his brain and talking about my business and asking him about what he did when he was my age, you know, maybe he saw a little bit of him when he was younger in me. Yep. And, you know, I was genuinely interested in learning from him and asking him questions and getting his advice. And, you know, I think that he saw that, you know, I was somewhat of a go-getter. I, you know, I could recognize a deal. He obviously understood that, you know, he understood real estate. You know, in fact, most of my private lenders, you know, almost all of them, actually, I think all of them, they've owned a lot of rental real estate in the past. And they're kind of to the point now where they, they, they love real estate, they're interested in it, but they're not interested in managing tenants or dealing with toilets and, you know, all that stuff. But they know that an investment that's secured by real property that's purchased at a discount that is an income producing property

is a pretty good bet when it comes to security. Okay? So, you know, part of finding those types of private lenders is to kind of get an idea of who's, what is that demographic? You know, And so, you know, like I found, you know, retired folks that own real estate in the past. You know, it's about getting to know a lot of people and having them understand what you do. And then at the same time that the other switch for me was kind of turning the tables on that whole private money negotiation from something where I don't feel like I'm borrowing money. Because when you're a borrower of money, you feel like you have to, like the person who has the money is the prize. You know, that's what I'm after. And whenever you have that dynamic in a negotiation where one thing is sought after more than another.

So if I'm prising that money where that's very scarce and I've got to convince this guy to lend to me, well, I'm not going to get the money. What I've learned is money right now is it's abundant. There's millions and billions of dollars out there that's not earning a good return. but there is not a lot of avenues for those folks to invest that provides a good, consistent, secure rate of return. And so by me having the deal, I have the prize. I have what's wanted. So it's less of me asking or trying to convince them to lend more of, it's more of, hey, I have this opportunity. And I use private lenders.

And, you know, folks like you, you mind if I ask you a few questions to see if your money is right for my deal. Yeah. It's great. I love that. I love that. And, you know, me and Josh both read this book last year, and it was in like one of my top five business books of the year, that post I put out. But it was called Pitch Anything by Oren Klaff. And it was very much one of the focuses of this, of that entire book was, you know, they are not the prize. You are the prize. Yeah. And, you know, a couple years ago, that same thing happened to me. There was like this switch in my head where I realized that. And it completely changed my business forever. I mean, all of a sudden, I realized, I didn't need to beg for money. I had a good deal. I knew what I was. doing. I mean, like, most people don't know what they're doing in real estate. I kind of knew what I was doing. So I was the prize. And it's an amazing place to be. So yeah. So it's clear that, you know, obviously, I've got that book on my bookshelf here. Nice. It would not be a book. I'm not going to recommend that one at the end, but it is probably one of the best books that someone can get on raising private money. Yep. And so highly, highly recommend it. If you own a short term rental, here's something worth knowing.

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you're the real deal? You're not full of it. You know, how do I, how do, you know, so flip this for us, if you would, because I think we don't really talk about that enough. I think we usually hit the other side. Like, how do you find those guys? Well, if I'm one of those guys, now what? Yeah, I think you have to devet the, the deal and the person. Okay, so it's important as if you've got the money that you're looking to lend on a deal, you know, you can't just trust everything that you hear from the investor, you have to be able to go out and do some of your own due diligence on the property. So, you know, if investor says, hey, this place is worth $200,000 and I'm buying it for $110, you know, you're going to want to see some information

that either investor can provide that you can vet and double check. You know, I would definitely want to have a real estate agent on my team as a private money lender so that you can get a good idea for values. You want to be able to make sure that the investor is prepared with, you know, their research on the property. So do they have a good, you know, firm written estimate for repairs from a licensed contractor? Do they have a time frame for how long this property is going to take? I mean, market conditions can change. Does this investor have a plan B? So, you know, a lot of times people go into a deal with a plan A only. So I said, hey, if I'm going to buy this with the intent, all I'm going to do is flip it. And then they find out that if, you know, they might,

plan A doesn't always happen. And so they have to go to plan B. If everything fell apart, what's the worst that could happen? You know, so if you're a private lender, can you, would you be able to recover your principal, get your investment out? The other thing I would want to make sure as a private lender is, you know, is this, do I have a first mortgage? Is there any other investors that are investing in this deal? You know, you know, I've heard stories of people that have had second mortgages that were behind large first mortgages where the investors stopped paying on the first. And in order for them protect their mortgage, they'd have to actually cash out the first lender. They might not have enough money to do that.

So you want to understand, you know, who's investing in the property? Is this the first? Is this the second mortgage? Obviously, first mortgages are the safest. You also want to kind of get to know the experience of the investor. Now, I would not say that in order to be able to borrow private money, you have to have a lot of experience because, you know, everybody has to start from ground zero. You know, everybody has to do their first deal. And, you know, if that brand new investor is able to have enough, you know, good experience people on their team, and they find a great deal that the deal itself, you know, is that good security.

And so one of the things, if the deal is good, you want to make sure that if everything goes wrong in this deal, is your money still protected? So what's the worst that can happen? And so some of the things that might be the worst that could happen is, you know, the investor thinks that this property is worth 200. You want to be able to lend money at a low enough loan to value where if you had to discount that property to sell it, do a sake like a fire sale. If you discount of that house, 20%, would you still be able to get your cash back? You know, for instance, one of the rules that I have is whenever I buy a piece of real estate, I will not fund it more than 70% of the fixed up value. So if that house is worth 200,000 fixed up, I'm not going to borrow more than 140,000.

What that does is it protects me as an investor and it also protects the private lender. So that if I got hit by a bus or if I stopped paying, you know, Would that lender be able to liquidate that property and get their investment back? Yep. I had coffee with a guy last couple weeks ago who was a private lender. On his first deal, he lent on a private loan, but he lent a second mortgage. And he lent on the rehab budget on the property, not just like so the first mortgage was the entire purchase price. Then he lent all the repair money for the second.

Well, the guy took the money and ran. And now he's out, got this property. He's out of his money. The property is not fixed up. It's right. Yeah. And so he has just nothing he can do. I mean, like they can foreclose, but he's second mortgage isn't going to get anything.

And I mean, those are the dangers that when you don't necessarily know what you're doing when you get into it. I mean, everyone makes mistakes. And I actually think he'll be able to turn it around. Like we talked for quite a while on how he can, you know, probably rehab it himself and at least get most of his money back. But, yeah, I mean, there's a lot of dangers in private lending and that kind of shows what could happen. Yeah. So you bring up a good point. So, you know, when I borrow private money, I do borrow the rehab funds.

And, you know, my, my lenders have been doing this long enough that, you know, I can borrow the full amount of the rehab at closing. But if you're about to, if you're going to lend private money to somebody, you know, for the first time, I would, I would not recommend giving that investor all of the money for the rehab, you know, the first time around. So, for instance, if it needs $30,000 and fix up, you can arrange it so you're going to be doing draws. So you do enough money to close the property and enough to get started on the remodel. then be able to have somebody that can inspect the work that's being done so that when it comes time for doing the second draw, that you can monitor that and release that money over time. That's how hard money lenders do deals. So, you know, if you're a private money lender, you may want to kind of look and say, hey, what do you hard money lenders look for? Nowadays, they'll pull credit of an investor a lot of times. See, you know, is this person paying their bills? And, you know, some private or hard money lenders will do that as a, um, a, a, um, a, um, a, condition of giving the loan. Not all of them. And to add to that as a borrower, what I typically have done when I try to get private money, I'll actually just go to like, you know, credit karma.com, which is like get a free credit report. I'll print that entire thing out and I'll give it to my private lender. And like without him asking for it. Yeah, just up front, like I want to be completely open. Here's what my credit history looks like right now. And that thing goes so far. I mean, that goes so far just in that openness to be able to attract money. So it's just a, yeah. And I do the

same thing, and I highly recommend that. And here's the other thing. If you're an investor, you're borrowing money for a deal from a private lender. You have to do everything to make sure that lender gets paid, even if it means that you're not eating. Okay? So, you know, that's the one thing I, when the market was going up and it was easy to make money, things were great.

But, you know, I was through this market when the market crashed. And I went from, you know, doing two deals a month, making a ton of money to all of a sudden that was not buying nearly as many houses as I was in the past. I had a full staff and I had an office and a lot of expenses. But I always made sure that, you know, if I had a payment due to a private lender, they were getting paid. Yeah. Yeah. Yeah. So you don't. The word's going to spread and you're never going to get anybody's money ever again. Absolutely. Yeah. Yeah. So where would I, you know, all right, we talked about the reverse. Let's go back to looking for for lenders. You know, it's all about relationships, right? I mean, what,

the best way to formulate a plan to get your first private money? Is it, you know, take everybody on your Facebook and take all your friends in your inner circle and say, hey, okay, who's got money? Hit those guys up and then, you know, see if they know somebody who knows somebody or you literally just, you know, make sure to tell everybody that you know what exactly you do. Always make sure you're talking about real estate and always make sure you're, you know, you let them know that, listen, there's a whole funnel of deals that are, you know, always available and I'm always seeking, you know, funds to finance those deals. I mean, is that kind of the approach you take? Yeah, you know, I don't go and advertise for private money. I don't

hit my list of, you know, people on Facebook or LinkedIn or that sort of thing saying, hey, who's got money that they want to lend on a deal? You know, I'm much more subtle about it. I typically, I like, you know, people know what I do. You know, I've been a full-time real estate investor for 10 years. They know I flip houses, you know, flipping houses and, you know, and rental properties and that sort of thing, it's a sexy business. A lot of times people have questions about it. So, you know, if it comes up in discussion, a lot of times, you know, people ask me questions about what I do because, you know, creative real estate investing and, you know, people see

all those shows online about flip this house and, and, you know, they go, wow, that's, you know, so you're like those guys on TV. Just like them. Just like them. Exactly. You know, all that drama and everything. and no. But, you know, in the process of, of, you know, discussing this, I mean, occasionally that will come up where someone will say, you know, you do this for a living. You know, I didn't

think they're giving mortgages out or, you know, I, you know, I heard that's, that's, you know, how do you fund all these? You have cash. And I said, well, no, you know, I actually, I use private lenders, you know, folks just like you might have money sitting in the bank or CD and not getting a, you know, a secure return. So a lot of times people will invest with me, you know, when I buy my real estate. And, you know, it's kind of like a push-pull type thing. I never try to get too eager. Again, it's that Pitch Anything book where, you know, you want to be the prize. You don't want to be out there, you know, begging for someone to work with you. So, you know, I usually play a little hard to get. I might say something. If they ask about,

you know, are you taking on other investors or something like that? I, you know, I might say, well, you know, I've got a lot of investors and lenders that are waiting for other deals. So, at this point, you know, I probably wouldn't, I'm probably not taking on too many other investors. But, you know, hey, if something falls through in the future with somebody else that's got a deal or somebody else that normally would lend to me, I mean, do you want me to contact you? You know, I can't guarantee it'll happen in the next year or so, but is that something you want me to touch base with you about? And, you know, sometimes they'll say, yeah, you know, I'd like that. So, you know, it's about getting the word out of what you do. it's not being too eager, not throwing up over somebody about, you know, borrowing money.

And I think it's also about putting yourself in locations and situations where you're around those types of people. So, you know, landlord associations. You know, I haven't actively done this, but I've heard of some people say, you know, go to like charity events. You know, go to charity events. You're obviously surrounding yourself with people that have a lot of money. and it's about networking and and you know just being yourself and expanding your network. Is that kind of like, you know, going to a funeral to pick up girls? I mean, is that like a Vince Vaughan? Oh man, yeah, that's a little unconsher, but yeah, I think that I'll give you

another great source of private money is selling. Funerals. Oh, what did you say, Brandon? Funerals. Oh, Jesus. No, I'll give you... You guys are doing a good job of raising the bar for real estate. Really? That's what's happening.

Yeah, go to a funeral, get some good money. Anyway, you were saying. Well, one of my best private lenders happens to be someone who sold me a house. And when they sold me the property, it was on a seller finance transaction. So, you know, happened to be a landlord on the place free and clear. Really, really good guy. You know, he didn't like my cash price because it was low, but, you know, he didn't have a place to put the money, it was going to earn a better return. So I paid him more, and he carried the

financing. So what that did was it established, I guess, a business relationship with this seller. So every month, I had a payment to make to him. I always paid on time. In fact, most of the time I paid early. And a lot of times in this, you know, early on, since he lived, you know, near my house, you know, on my way to go and looking for another property, I'd call him up and say, hey, I've got a check, can I just go drop it off with you? And I, you know, I'd hand deliver the monthly mortgage payment. So when I, when I hand deliver the monthly mortgage payment, what it allowed me to do is to give, you know, five or ten minutes with them and just kind of chat about things that were going on. Yeah. And, you know, after about six months of doing this, and, you know,

he started asking me more about my real estate business. That was one of the questions he posed. He said, you know, I remember you saying something about you, you know, using private money. He said, how does that work? And, you know, what do you pay? And back at the time, I was paying 7%. So I said, you know, I pay 7%. And he literally looked at me and said, oh, my God, I wish you would have told me sooner. He said, I got money in the bank. It's been earning next to nothing.

I want to just take it out. And he said, you know, you have any other investments that you might be looking for private money. And at the time, I had kind of realized that, you know, I didn't want to barf all over the guy and say, oh, yeah. You know, I'm kind of, you know, freaking out because I think this is a great thing. but, you know, I kept my cool as best I could, and I said, you know, right now I've got other lenders that I'm working with. You know, can I give you a call if I have something that comes up in the future? And so he said, sure. And sure enough, after about a month, I gave him a call on a deal. And he lent on that first one. And we've had a great, you know, investor lender relationships since.

So he's lent on quite a few deals for me. And he's partnered up with me on a few now where I actually don't have a payment anymore. on some of these deals. So that's kind of another like a little cool little twist that I've had recently on some transactions. So you work, you work together so you don't have a payment because he's going to get the back end instead. You're saying, well, he, yeah, so I, I, after the market crashed and I was doing a lot of flipping, but I wasn't really, most of the properties that I was holding were not, I wasn't intending to hold them. I was just kind of like trying to keep them, you know, my head above water. So they didn't have much cash flow. I realized I need to start buying houses and cash flow properties so that I don't have to flip a house every month just to pay the bills. And so I started

buying small multifamily properties in Bremerton, duplexes. Nice. They were, you know, the benefit of being able to borrow at six and seven percent is that when you borrow, if you buy properties at a discount, then you're able to get those to cash flow at that interest rate. So I started, you know, picking up a couple duplexes here, a couple duplexes there where one side would pay the more. And The other side would be all cash flow. So it was basically about $300 per door or about $600 per building. And I was using the private lender money for that. So that helped me to get good recurring cash flow so that it helped the smooth out the bumps from between flipping. And, you know, I had heard, you know, some investors talking about doing deals where instead

of borrowing where you're paying an interest rate, you know, you work a split with the, with the lender. So instead of having a payment, you know, the lender lends all the money. You put the tenant in after you do the fix-up. And as income comes in, you pay your expenses and you split the net profit. Yeah. And so what that allowed me to do was to really, you know, smooth out the cash flow bumps because, you know, when the time that you purchase the house and remodel it, the property is vacant before you can find a tenant, I mean, if you have to pay a mortgage payment every month on that. And then you're multiplying that by multiple properties, it can get pretty expensive. So it's nice to not have a payment. And for the lender, it basically works out to

about the same interest rate as I would otherwise pay. But now he gets to participate in the equity when we ultimately sell. So it's... I love it. So, I mean, the bottom line is, you know, if you're smart about how you approach your relationships, and, you know, obviously you're not going to get there overnight. But, you know, in terms of working with these private money lenders, I mean, theoretically, it's an untapped source of unlimited funds for somebody who knows how to do it. I mean, you know, you're, you know, if you tap out your, you know, guy A, then, you know, you got B, C, D, and E, and, you know, you keep going until you find more guys. And that's really how the big guys are doing their business anyway. You know, these big, huge deals are happening the same way, right?

Yeah, and you know you don't even need to have many private lenders. When you find two or three good ones, you know, oftentimes they're going to be able to do multiple deals where, you know, you just know that you've got money for your next one. And they're interested and eager to participate because, you know, it's the only reason that they're going to land is because they're making, you know, a better return or a safer return than, or more secure return than what they were getting in other investments. So, and, you know, I don't like to use the word safe when it comes to real estate investing, especially when you're borrowing private money.

You know, there's a lot of, you know, it's pretty regulated. And so, you know, you want to be able to look up what you can and can't do as far as, you know, soliciting for private money. One of the kind of words that you don't want to use is safe. You know, you can't say an investment is safe or guaranteed or you can't, you know, so there's some, you know, I prefer the word secure because real estate and, you know, private money is secured against real estate. And so, you know, for lenders that are looking for a regular, consistent, secure return, you know, this is a good avenue for them to go out. That's awesome. I love it. I love it. Yeah, private money is probably, I mean, favorite strategy of anything. Like, again, it's kind of like the golden goose that you get to. So very cool. I'm glad we got to cover that today. We could probably talk for like forever on all these different strategies.

And I are scrabbling on our notes right here back and forth. It's really funny. We literally had like, 30 more questions. We're going to do a show on all these different things. We're like, you know what? We're just going to talk about private money. We're going to keep digging in, keep digging in. And so awesome, awesome stuff. Cool. Yeah, we'll get you back to talk about more of this other stuff in the very near future. But let's transition this thing and move over to the fire round. It's time for the fire round. All right, the fire round. These questions come direct from the BiggerPockets forums, which people can get to by going to biggerpockets.com slash forums. They can ask questions, answer them, whatever. First question, I'm going to throw at you.

How do I get the ARV or after repair value on a multifamily? So on a multifamily, you know, I guess it depends on the size of the multifamily property because multifamily properties are appraised differently depending on how many units. You know, one to four units is considered residential. A lot of times they are appraised on the comparable sales approach. When you start getting five units and up, a lot of times they're appraised on the income approach. So, you know, the first thing I would do when it comes to trying to determine the ARV, you want to have somebody that is on your team that can, as a professional that can give you that solid advice. If you've never looked up comps on a house, I mean, there's a lot of online tools that you can get free,

you know, websites that you can start looking for properties and comparable values. But, you know, if you're looking for a multifamily property, and you might want to contact a real estate agent who is familiar with multifamily properties because, you know, again, they're based off of cap rates and, you know, a lot of other equations, not just on a, what's, what's the nearest comp and how much did that sell for? So you got to look at the income and expenses and all that. So always get help. Whatever you don't know, someone else does. Yeah, there you go. There you go. Awesome. All right. Well, how do I know if a home I'm looking at is a good deal or not? Well, I guess it depends on what your exit strategies.

What's your intent with the property? So if you're looking at something that might be, if your intent is to buy and keep for cash flow, then you're going to be looking at things like, you know, after I, if I buy this property when it's all fixed up and I have a certain payment, after paying my taxes and insurance and my mortgage and my maintenance and potentially management, how much money is left over for me? So if you're buying for cash flow, you want to make sure that that has. house actually does cash flow. If you're looking at the property from a buy and flip standpoint,

you have to determine, okay, if I purchase this house and I put all the money into it, and I leave myself a little bit of a buffer in case I have to, I go over budget, how much money, how much equity will I have? And if I sold the house based on where I think the property would sell for and after paying all realtor fees and accounting for, you know, holding costs, you know, how much is left for me. And so you want to be able to set set guidelines for what you consider deal. For me, if it's a buy, fix, and flip, I want to be at no more than 70 cents on the dollar. After all the fix-ups done, I want to have 30% equity so that I can use a real estate agent, try to sell it quickly, price it right, and still have, say, about 20% profit. Nice. Great. Nice question. I'm about to purchase a multifamily property, and I'm wondering what is best, a 15-year or a 30-year mortgage?

That's a great question. I think that also depends on your goals as an investor. If one of your goals is to pay that property off as quickly as possible, 15-year mortgages will save you a lot over time on the total amount of interest that you pay on a building. But I think that if the 15-year mortgage, because your expenses are higher, then your cash flow is going to be lower. So if a property that you're buying on a 15-year note means that you're going to have to feed it every single month, I don't think that's a smart way to go. I think it's important to be able to make sure that the investment pays for itself. So you have cash flow on that unit or that property from the day you buy it.

That may mean going into a 30-year loan because it'll allow you to have better cash flow now. And so if you can get away with a 15-year loan and still have good cash flow, then I like the idea of paying that off as quickly as possible because that ultimately will allow you to increase. When that 15 years is up, all of a sudden your positive cash flow is enormous compared to what it was. when you had that loan. Yeah, makes sense. Makes sense. Cool.

Cool. All right, what are the advantage of setting up my own management company to manage my own properties versus hiring it out? Well, you know, I actually manage my own properties. What I don't do right now is I don't pay myself for management, I probably should. Oh, yeah. So I might not be the best person to answer the advantages of doing that. I will, though, say that I've started using Buildium to manage.

my properties. I think, Brandon, you maybe tried that out once. Yeah, I haven't, like, I used them a couple times, but I haven't, like, fully committed yet. So, I, I love, I love building them. So right now I manage a little over 30 units. And, you know, I was, I would consider myself, now I look back at how I did manage that property before. And I think, man, I was a horrible property manager, you know, because I started off and it was like, you know, rent was doing the first but late after the fifth. So all my tenants paid, you know, closer to the fifth. And, you know, when to have mortgages due on the first, you know, you try to create yourself a little problem when you have to float all that money before you have all your rents in. And, you know, if a tenant paid late,

I didn't have a good way to track late fees. And so it was like, oh, I called this tenant up and say, hey, you know, you miss rent supposed to be in yesterday. So you've got a $40 late fee. And, you know, maybe they'd pay me on that day, but they wouldn't include the late fees. So now to have to remember to come after them like the following month to try to collect. And that never worked out. And so, you know, what Bill DeM allowed me to do was to, you know, let the system not only do the payment notifications, but also collect the late fees. So, you know, if the late fee happened, they would automatically get notified. It would go on their lease ledger. If they didn't pay it, it would show up next month. And five days before the payments do, they get a reminder.

and applications. I mean, they do a full credit report and background check. I don't have to do all this little separate things. I'll basically let the system help manage the property. So now, you know, myself, I'm able to manage 30 units with, honestly, not a whole lot of extra time out of my day because of using it. So I really recommend it. Cool. I need to dig in more.

And there are lots of other platforms as well. Oh, yeah, yeah. Absolutely. You got to, I mean, having something. You find what works for you. Yeah. Yeah. It's, you know, the Excel method was what I tried before, and that really did not work.

That's what we're doing right now. And it, my wife, my wife holds it together, but, you know, I feel like we could do so much better. Like, and I know we could. So I just got to do it. So cool. All right. Moving on to the end of the show, the world famous. Famous for.

Famous for number one, what is your favorite real estate book? favorite book you know brandon i think that you recommended this one uh landlording on autopilot by mike butler that was a great book yeah that was a fantastic book i read that this year so that that's one that helped me out on uh basically being a property manager because i'm not outsourcing that yeah fantastic book you know you know what i love about this conversation you're somebody who's been doing this for over a decade now and you're still learning and you know i make tons of mistakes well yeah that's i mean you know we all talk about it that's the beauty of this whole thing yeah yeah And I always harp on this, but the guy who says, hey, I'm the expert, I know everything.

Please go the other way, guys. Do not turn to those guys for help because, you know, they're not telling you the truth. I came out and spoke at Mike's real estate club a while back. And that's one of the things that, you know, I really liked about you, Mike, is that you were so honest about like everything, about your struggles, about what you're doing, about what you're, you know, what you need. I just thought that was great. And so, like, I look up to you because of that, you know, and I see you with

somebody I can learn from because you're open and honest. And I wish more people realize that. Anybody who says that they're in this business and they don't make mistakes so they don't lose money on a property or something like that. Or, you know, most of them are full of it. I mean, you have to have some, you have to understand that there's always something to learn. And if you, once you, when you think you know it all, that's when you're, you're bound for failure because stuff happens and you always have to be learning. Definitely. Definitely. All right, cool. What's your favorite business book? Okay, so there's a couple that I probably shouldn't be mentioning because everybody else mentions them.

So, you know, people talk about the e-myth. I'm actually going to give another book that I read, which is great for systematizing businesses. And I think I saw Brandon, you wrote an article that included this, is called Work the System by Sam Carpenter. Yeah. And Work the System is, it's similar to the E-Mith. I was able to, I found it a lot easier to digest and kind of take in. So it's about systematizing your business and working on your business instead of in your business. and I think that he still offers a free digital download of it too, on his website.

I have that actually in my bookshelf right back here. Oh, sweet. There you go. There you go. Awesome. All right, cool, cool. And what about hobbies? What do you do for fun?

I see the football behind you, the Seahawks. Woo-hoo. Yeah. Go Broncos. Oh, man. Yeah, my wife and I are both huge Seahawks fans. We were lucky enough to win the opportunity to buy tickets to Super Bowl last year through because we're season tickets. So that was incredible.

We didn't do the face paint. You know, what we do, you know, we're not, we don't get all dolled up like some of the crazy fanatics. But, you know, we're both huge fans. So, you know, we go to most of the games and, you know, we're just really excited about the hawks. But, you know, outside of that, outside of football, you know, in the summer, in the spring, I love playing golf. I love getting out there. and it's just a great way to relax. I've been playing for quite a few years.

So that's a great, you know, fun hobby. And then, you know, I like the outdoors too. So in the fall, I like to fish and hunt and and spend time in the mountains. That's kind of one of my, you know, long-time hobbies. You're taking me golf in the summer, just so you know. Oh, absolutely. I'm just going to put that out there.

Absolutely. There's absolutely nothing relaxing about the game of golf. I don't know what is wrong with you, but, you know, It's really hard at first and it's really frustrating. It's even frustrating after you've played it for a while. But, yeah, I love it. Nice. All right.

My final question of the day, what do you believe sets apart successful real estate investors from those who give up, fail, or never get started? You know, I think without a doubt, it's kind of relates to what I said towards the beginning about taking action before knowing everything. And, you know, so getting yourself out of that education. trap or you think you've got to learn the next quick tip or next, you know, strategy to make money quick in real estate. You want to set yourself up so that you're into action. You're talking to sellers. You're doing marketing to get sellers contacting you. And then when you're along

the way, that's when you get the on-the-job training. And you're not going to have all the answers, but what you can do is you can take action and you can check your work before you have to commit. So when it comes to, say, making an offer on a house, put the offer out. You know, you might have an inspection contingency and you can use other people, professionals in their industries, to be able to check your numbers to make sure it's a good deal. Fair enough. Rock on. Awesome.

Awesome. All right, Mike, where can people find out more about you? You know, you can find me on Bigger Pockets, Mike Sumsky. And also, you know, I have a blog, Mike Sumsky.com. Occasionally will post real estate information. So they can find me there too. Awesome, man. Very cool.

Listen, thank you so much for coming on. You know, I think as, as, as, as, Brandon said, we're definitely going to have to bring you back and talk about some of these other things. This was great. Tons of amazing bits of information. So thanks for being here, man. It was a lot of fun. Thanks, guys. That was Mike Sumsky. Big thanks to Mike for being on the show. That was awesome. Lots of cool stuff. I love how we kind of covered the other side of private money. I think it's something that a lot of people have always wondered about. I thought it was awesome. Yeah. Yeah, I think that's cool. I think it's nice to be able to see from both sides,

kind of how a private money lender thinks and how you can attract that. Because I mean, half of our audience probably is looking to borrow private money. The other half is looking to lend private money. And that's the beauty of bigger pockets, right? It brings everybody together. It does. It does. And if you're not on bigger pockets, then you should be create a profile, set it up. It's free. Get on there. Introduce yourself to the community. Let people know who you are, what you're looking for. It's like the world's greatest marketplace for real estate, everything. So get out there and get involved. and participate and share and let people know who you are and what you're doing. And Brandon is taking a photograph of me while I'm podcasting. Unprecedented. Take the picture. Take the picture.

I don't think he knows how to take a picture. Shocking. All right. Otherwise, guys, thanks for, thanks for listening to the show. If you have yet to leave us a review, a rating on iTunes, please do that. Those ratings really, really help us. The reviews help us out. They help us expand the audience. Get new people listening, joining Bigger Pockets, becoming a part of it. of our world. And, you know, obviously the more people that join us and get involved, the bigger audience becomes and the more opportunities that we create for everybody. So, you know, get involved. Come on down. And thank you for listening to the Bigger Pockets podcast. I hope everybody watches the YouTube video of this show when it comes out so you can see Brandon becoming a little photography

diva here, taking photos of us as we record for some reason. But thanks again, guys. Show 106 on the Bigger Pockets podcast. I'm Josh Dorkin, signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others

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