BiggerPockets Real Estate Podcast - 222: Lessons Learned from 40+ Years as a Real Estate Investor with Jay Hinrichs

Episode Date: April 13, 2017

Success leaves clues! Rather than trying to figure it all out on your own, why not listen to someone who has been involved with nearly every aspect of real estate for decades? On today’s episode of The BiggerPockets Podcast, we sit down with Jay Hinrichs, an investor and hard money lender from Oregon, to learn how he has navigated the real estate market for more than 40 years—and how you can grow your own business from his wisdom! In This Episode We Cover: How Jay Hinrichs started when he was 18 A discussion on whether you should get a license or not His first houses in the Bay area Why agents are not investing What a hard money lender is How to be approved by hard money lender How Jay became the largest hard money lender in his area Why you should consider the BRRRR strategy (and how he’s been doing it for years) How to do something nice for somebody (through BiggerPockets) Why you should go ask in the Forums Tips for finding the right partners How to get the “lion’s share“ The most common question in the Forums And SO much more! Links from the Show BiggerPockets Forums BiggerPockets New Members Introduction Joel Owens’ BP Profile Josh’s Twitter Profile BiggerPockets Keyword Alerts BiggerPockets Hard Money Lenders (listing) Books Mentioned in this Show Think and Grow Rich by Napoleon Hill Rocket Fuel by Gino Wickman Tweetable Topics: “When you’re starting out and you don’t have the money, you need to honor the money.” (Tweet This!) “Any investor that I bring in a deal always makes more money than I do.” (Tweet This!) “I will never retire. I’ll be doing this until I’m not functional. I love what I do.” (Tweet This!) “Every market is different. You have to play to the market.” (Tweet This!) Connect with Jay Jay’s BiggerPockets Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 222. You guys have, you know, the number one side on the planet. And I think a lot of people, you get a lot of kudos and I want to give you kudos as well. I mean, it's incredible what you guys have created here. 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 Dorkin. House to the Bigger Pockets podcast here with my co-host, Mr. Brandon Turner. What's going on, man? Oh, you know, just sitting around here doing nothing in the sunshine while you're in Denver, in the cold, you know. In the sunshine. Yeah. Looks like you got like some, some.

some some block on your nose there man i might i might get a little bit like stuck all over my face and uh yeah yeah you know i'm still here ugly oh josh is on fire today no i'm out here in hawaii still and i still got my kind of bad microphone that i had last week because i'm waiting to get my good one fixed but anyway so pardon the crappy mic today but uh no i'm still out here on my hawai trip which i'm trying to get josh to come out so if you guys want to hit twitter jr dorkin and tell josh to get out to Hawaii so we can go surfing together. Brandon's too cheap to buy me a flight. I offered to buy it out of the, you know, out of the bigger pockets.

Out of my money. Exactly. I will easily use your credit card for this. You get some good miles out of it. All right. Yeah. Yeah. Good show today.

Awesome show. Yeah. Today's show is awesome with a bigger pockets power, power loser. Yes. Yes. Yes. So it's an incredible show. Like this guy has led a journey over decades.

that is fascinating. He's done a whole lot of amazing stuff. And we're going to dive in this show is for everybody. And it's just inspirational, I think. So before we do, this is show 222 of the Bigger Pockets podcast. You can check out the show notes at biggerpockets.com slash show 222. Brennan, do we have a quick tip today? We do have a quick tip.

Very, very, very quick. If you've not yet left a new member introduction in the forums, go do that today. You'll hear why later in the episode. Right on biggerpockets.com slash forums. Cool. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense.

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slash BP pod. All right, guys. So today's guests, like I said before, this guy has been around the block. You've probably seen him around the site. He's got 14,500 plus posts. As of last night when we put the intro together, he's everywhere on the site, and he is constantly giving out advice, and it's usually pretty much spot on. He doesn't pull his punches.

And like I said, he's been out there. He's been doing it all. So let's bring him on. All right, Jay, welcome to the show, man. it is definitively a pleasure to have you here after all these years. Well, it's my pleasure, and I'm happy to be here. So for those people who don't know, Jay has been a very, very active member of our Bigger Pockets, forums. In fact, I looked out today, 15,000, something like that, 15,000 posts, which is, what, top five, I think.

I think Josh has beaten you here. Is he incarcerated? Is that what's going on? Is he locked away? Is that why? He might be. It spends a lot of time on our forums. So we're, we're, we're.

We're kind of excited. I mean, honestly, Jay, I don't, like, I've seen you give advice on a ton of stuff and you have experience it seems like in almost every area of real estate. Is that true? I mean, like, do you, have you done a lot of stuff? Well, I grew up in the industry and then I got licensed at 18 and I've been doing it for 42 years actively. So, yes, I've done quite a bit of different things in real estate, kind of a role with what's hot at the moment and never get too stuck in one niche. And I've always had an open. open mind. Awesome. Love it. Well, so let's let's just get the whole story. I mean, you know, as somebody who's done a lot, I'd love to learn how your path came about and how you got started at 18. And yeah, if you could just share the story, you know, kick it off with how you said the family was involved. Yeah, my dad was a real estate broker. And my dad had gone from a lot of different jobs and had finally got into real estate in the mid-60s and, you know, finally found his calling, did quite well at it. He was a very good salesman. And I started to go out to college.

I actually went to Colorado. I went to Leadville of all places. I was at Colorado Mountain College. And I wasn't, I just didn't enjoy. I was just done with school. And my dad said, come back home and you can live at the house. And why don't you get your real estate license? So I did that. I had graduated high school a year early. So right about my 18th birthday, I took my license course and got my license. And then I started working on the easiest thing I thought to sell at the time. And that was land because land was traditionally owner financed. You didn't have any appraisals, no banks.

And being a kid at 18, you didn't want to wait a long time and go through a lot of red tape to get a commission check. So I defaulted to what was the quickest thing I could sell and the quickest thing to get paid on. and it took a little time to get going, but after about 90 days, I made my first commission check of $665. And, you know, I was off and running. I mean, it just snowballed from there. Nice, nice. And would you recommend other people who are thinking about getting started to take that same path to start by getting their license to learn the business? Well, that was, you know, that was, you know, 1975.

And that was pre-internet, pre all this stuff. So I can't really say that. There's a lot of different paths. And people are able to fast forward into different kinds of investing a little easier than in my day. But I do believe a real estate license will give you some foundation. And I think a lot of these folks, especially if they're fixing flippers, the real estate license is almost mandatory just simply because, the money you can save on, you know, when you're buying a property commissions and when you're

selling. And then sometimes if you have a deal that doesn't go right, a commission, a listing commission could be the difference between breaking even or making a profit. Yeah, for sure. For sure. So I was going to ask, what about like when you got into real estate investments, so you started out as an agent, how long did it take you to actually get into the investing side where you're starting buying and selling your own properties? I probably didn't start buying properties for 10 years, 12 years, other than my own personal residences. Now, remember, I lived in the Bay Area. So we were already, by the time I would, you know, my second, well, my first house was in 1977 was $100,000, you know, which was a lot of money in those

days. And then my next house in Palo Alto was almost 200 in 1982. And again, probably 10 times what you could buy a house for in other parts of the country. Do you still have those houses? Oh, yeah, sure do. All of us. Oh, yeah. All seven of them I owned in the Bay Area. I sure, I got a right of my portfolio. Good for you, man. Good for you. No, I sold them like everybody would do.

And moved up the chain, right? So because they would never go over, you know, 300,000 or $300,000. It's got to stop. It can't keep going up, can it? The house I paid $184 in Palo Alto, I think, was just listed at $2.4 million. Oh, wow. Yeah, it got crazy in the Bay Area. Who was to know?

That was pre-computer. You know, I was pre-Apple and Google and everything else. So that's kind of most of my income at that point, and I got married early, had kids early, went to, you know, raising my family and saving money. And I didn't really start to invest until my late 20s when I had, you know, I was property capitalized, you know. Right on. And again, in those days, you didn't go out and, you know, with no internet and connecting with investors and lenders giving 100% mortgages. and all the other kind of stuff that they did there for a while, you know, you had to have some capital.

Yeah. So let me ask you, it took you 10 years. I mean, you waited until you had capital to get started. My question really ties to real estate agents because there's so many real estate agents who never, ever become investors. And, you know, I think it's a shame because they have access to all this information

that puts them ahead of the game. Why do you think more agents aren't out there investing? and if you had advice for other agents who feel like maybe they're stuck who want to do it, but never can quite get there, what would you say to them? Well, I think a lot of the agents that, well, the ones that really want to get into investing tend to go to commercial real estate. And the ones that do go to commercial real estate do quite well, very, very well. I met Joel Owens, who's on this site in Oakland, and, you know, he's done extremely well

as a commercial broker. So with the other agents that are selling houses, I think, they just get really busy. And a lot of them, you know, they live a lifestyle. They'll make enough money to live a lifestyle that they like and they're happy. I do know a lot of agents that make, you know, mid six figures and up. And then those folks do invest. You know, it's just like anybody out there in America only a certain amount of people really want to invest.

Not everybody wants to. Yeah. That makes sense. That makes sense. So I'm curious, like when you guys, into the game, like when you bought your first property, I mean, what was that, first of all, do you remember what year that was and what was that and how did you end up, how'd that story come about? On an investment side, I was buying, to start with, I was buying land. I didn't buy houses.

I was buying land and then reselling it on terms. And so I would buy properties in Northern California, Sonoma, Lake, Mendocino counties, and I would then sell them on, you know, 10 and 20-year contracts. So I kind of got into the, my version of cash flow in those days was I picked up a property at a tax sale for $8,000. I sold it for 40 with $5,000 down and $400 a month for 20 years. That was my version of investing. And I did a lot of that. So I was going to say, does that still work today? I mean, is still a thing?

It is. In the land business, absolutely. Okay. Certain areas, yep. Okay. Do you still do that kind of stuff? Like what's been, like, since then? How long did I continue for?

Well, I did that as I rolled into, I kind of got out of that and I got into lending. I fell into the lending business. So by the late 80s, I had built up this cash flow that got me through the kind of the crunch. And then I actually went to work for a hard money lender that had been lending my dad a lot of money over the years in his land developments. And I mentored with him and he didn't have any errors in no succession. and he was older and he passed away and I ended up owning the company.

He sold it to me. So it was already up and running $50 million hard money company in Oakland. So I did that for about five years and then kind of got burnt out and we had the recession in the early 90s in California and I got offered to be bought out by Spartan mortgage and I went ahead and took that buyout

and changed gears and came up to the Northwest, Pacific Northwest. I found that decade of the 90s, I found the timber business, which I loved. Oh, wow. Another story. Oh, man. Well, we're going to dive into that because you're obviously a fascinating man. So the first question is, how do we go and identify somebody who's got a great business that has no errors?

You can pass it down to us because that sounds like a really cool plan. Yeah, it was, like I said, it was just my dad had done business with them for 20 years. and because I was paling around with my dad in real estate from seven years old, they all knew me as a little kid. So now I'm like 32 and Jack needs somebody to help them. And I came in and in California, you just needed to be a real estate broker to be a hard money lender, which I was. And so, you know, a year and a half of driving around and I say, I can do this. I know how to, you know, I can figure out what value is. Nice.

Can you explain for those? I mean, I think most people are familiar with what a hard. money lender is, but just in case there's people listening that aren't. Can you explain what is a hard money lender and why would somebody use them? Well, in today's version, a hard money lender is they call themselves private money lenders, hard money lenders. And it's basically private capital or raised through some sort of PPM or folks will have a credit facility with a local bank and they will bring in investor or bank money and then they relend it out to. to investors primarily for fix and flip. I'd say 90% of the hard money lending is in fix and flip. And the reason that there's such a market for it right now is, you know, post-08, the banks have gotten out of it.

I mean, it's pretty tough to get to walk into a bank and say, hey, I watched, you know, on TV and I want to now be a flipper, right? Because I too want to make $40,000 a month. And will you give me a loan? I mean, the banks are just not giving it. giving those loans. So the hard money niche fills that void of capital to buy, fix up, and resell properties. Okay. That makes sense. Yeah, and they do that. And they've tightened up their criteria quite a bit as well. They almost underwrite to bank standards, at least they were last few

years. It's starting to get more competitive. I will say that the crowd funders that have come in, the lending homes of the world and really shares and those folks have put, a lot of price compression into pricing for hard money, especially out here on the West Coast. It's not a lot higher now than bank financing if you could get bank financing. Interesting. So can you explain, let's say I'm somebody who I want to be a fix and flipper and I want to be, you know, the next fix and flip star on TV. How do I go out and get a hard money loan?

Like what is a lender going to look for in my loan application? Well, you have to have capital. That's the first thing. And as I watch and answer on bigger pockets, a lot of folks are thinking a hard money lender is going to be their gap funder is going to be their equity lender. And that's just not the case. If someone wants to go out and fix and flip, the first thing they need to do is put their equity together, whether they have their own personal equity or they're going to put a little group of friends together, you know, hey, everybody pitched 10 grand in or friends and family that will give them, you know, unsecured equity. So once you have unsecured equity or true equity, then the hard money lender is going to look at your back. They usually do a background check, and then they'll usually do a credit check.

A lot of them will have different criteria where you're at credit. When I ran my hard money companies, credit was not a big issue to me, but that's kind of what the competition did as well. It was more about equity. So most lenders are really keen on equity. Okay. And is there a percentage like a, you know, low? own to value LTV that you see lenders today looking for? Yeah, yeah, the market right now is, it's gotten a lot better.

I was just talking to one of the big crowd funders yesterday and on a, like a $5 million line of credit. And they were at, they've gotten to 75% LTV or ARV and they'll do 90% of cost. And that's about, that's about, so 10% equity. When I do my construction loans for new construction. that's why I'm at with my banks. Rates are better, but I'm at 90% of cost, 75% ARV. Okay, so can you explain how that would work out in terms of like a real deal?

Like, let's say there was, I was going to say for like a newbie, just, you know, like, let's dumb this down as much as we can for somebody who's never done this, right? So you were going to go with a hypothetical there. Yeah, I was going to say, like, let's say it was a, you know, I mean, let's go, let's go fix and flip. Let's say I wanted to buy a property that I could buy the property for two. $200,000 and it needs $100,000 worth of work. So total, $300,000 and thing. I think it'll be worth $400 when I'm done.

Like, how does the hard money lender look at a deal like that? Buy it for two, put $100 into it, and it's worth. So, well, first off, what they're going to do is they're going to look at ARV, your $400. The max exposure, they're going to have is 75% of that. Okay. So roughly $300,000. And then they're going to want at least 10% of cost.

So theoretically you would have, they would go to 300, but they want 10% of cost. That's 30 grand. So they're going to loan you about 270,000. You're going to come in with a check for 30. Now, that's for very experienced folks. That would be like someone like myself. For newbies or people that are just starting out, you can figure on double the equity requirement, if not more. And then I know other lenders that won't lend any of the rehab.

And they'll just give you 80% of purchase price. And then you have to have your own cash for the rehab. Yeah. So it just depends on what the company underwriting rules are. Sure. And I like that you brought up to, like, maybe it's your cash that you bring, or maybe it's you put together, you know, a little partnership with a couple of friends or something. Like it doesn't necessarily mean, oh, I don't have 30 grand.

I can't do that deal. But it's, well, you know, how am I going to come up with that $30,000? You know, maybe it's a line of credit if you have a whole microline of credit on your house or, yeah, a partner, family member, friend, whatever. there's more ways that's going to cat than one. Is that the phrase? My butchering the phrase. More than one way to skin a cat.

There you go. All right. Anyway. So, yeah, and that's the biggest thing that I see where folks, you know, as it relates to posting on bigger pockets, they're trying to get their first couple deals, but they don't really honor the equity. They don't, they're trying to find this, you know, unicorn private lender to loan of money because they're only getting 1% in the bank and they should lend it to them for 8%

and take an equity position, which is really a junior position to a big lender. It's as risky as anything you can do in the lending business or the investing business. So folks, really, if they're going to, you can do that as you get experience in the business and build your track record and your portfolio and your book of business. But starting out, you need to be able to, you want to bring those folks in and give them a super handsome return to where, hey, I'm making a lot of money on this deal because I'm believing in you to start your first couple deals and then we're going to kind of grow a business together. More of a capital partner.

I like to call them capital partners as opposed to investors. That makes sense. That makes sense. All right. So you got a whole long story. So we're probably going to be jumping around here a little bit. Speaking of jumping around, I do want to go back to land. And then I want to get into this timber thing that you were talking about.

So on the land, you said, you know, you go to a sale, you can pick up a property. I forget your exact numbers that you threw out there, but pick up property at an auction and you pretty much just sell it later and you were collecting payments on it. How would somebody go about doing that today? Is that, you know, you said it's still possible, but how would somebody find land where they can do that with? How would somebody go about figuring out how to make money with land? Well, the first thing I have to do is qualify that. I did not, there's plenty of land you can buy in the Western United States at tax sales and all over. That's basically worthless desert plots that have no true value to anybody.

And they're traded in these tax sales and have been for the last hundred years. I targeted properties that were close in could actually be built on. And a lot of times I would put a driveway in. I might perk it. I might put a well on it. I mean, I get it ready for the turnkey person who wants to build a home on it or maybe it's going to bring a mobile home in there, that type of situation. So there are people that tout, you know, buying any old land out in the middle of nowhere,

and that's not what I'm talking about. I was very specific on buying properties that I can add value to and then, you know, make the delta on it. Got it. So you're talking, you know, adding power, water lines, making sure sewage, making sure that the land's prepped, and then you turn it over to the guy who's going to build on it. Exactly, exactly. We're talking, you know, usable, buildable, something you can, you know, that you're proud to sell.

Got it. Okay, cool. Thank you for the clarity on that. That makes a lot of sense. You talked about finding yourself in the 90s in the timber biz. You went from this lending biz ended up somehow into the timber biz. What does that mean? Is that more land or what?

Yeah, it was land. And again, it's, you know, it's your 50s. 15 degrees of separation. My parents at the time were living in Maui, and I went over there for Christmas, and my dad says, you've got to meet this guy at the pool. He's wild.

He's from Portland, Oregon, and he's in the timber business. So I meet him, and he's just the greatest guy, right? You know, a lot of us, Northwesterners are really neat people. We are. Yeah, I don't know about that. Yeah, what? Anyway, the folks of the timber business.

So he starts to describe this, And he was really cute because he didn't know anything about real estate. He called it Realty. I was driving him by this piece of Realty. And he's a logger, right? He's a logger. They call him JIPO loggers. And I had a for-sale sign on it.

It had a realty sign on it. And I walked up and I cruised the timber. Cruze the timber means to do like an appraisal of the timber, value your timber. And boy, I think there's like $160,000 worth of timber on this property. And I called the real estate agency, the realty. and they wanted $120 for it, there's got to be a way we can buy that. And I had a little house on it.

It was out at Gaston, Oregon. And I said, okay, I mean, the numbers start going through my head. Okay, we can buy this property, log it, end up with the land free and clear. I can do that. So this is the day before Southwest Airlines. It cost me $900 to fly to Portland from San Francisco. I fly up there.

I look at it. I don't know one tree from Shinole. I thought they were all pine trees. you know, they were fir trees. And I just took a risk. I said, okay, I'll put the 120 up and let's do it. And sure enough, we logged the thing in two weeks. We get like $157,000 in cash back in the bank in 30 days.

And now we own this 40 acres with a house on it, free and clear, which when we had the equipment in there, we did a bunch of clearing and made little picnic areas and whatnot. And we put it back on the market for 129, sold it for 110. that summer, and I'm like, this is a new business. So then what happened is, and your bigger pockets folks are going to really love this, especially those that are into direct mail and marketing, I would say, well, well, Steve, he was my partner. How do you find these timber deals?

Well, I get up at 5 o'clock in the morning in my truck, and I just start driving up the roads, and, you know, again, pre-Google Earth or anything, I just start driving up the roads, and when I see a patch of timber, I drive up the driveway and knock on the door. I go, oh, that's just totally inefficient. And so I said, I want to go to the courthouse. I want to see what kind of maps they have. So I go into the courthouses, the local county courthouses here, and they have the best mapping and telemetry stuff.

You can take the plat maps and overlay an aerial on them, and you can tell right there if they have timber on them. I said, okay, well, we're going to create our own database. So long story short, I created a database from the Oregon border to just south of Tacoma. Every property that had marketable timber or visible timber on it that wasn't owned by Warehouser or Willamette Industries or somebody like that that was privately held, 10 acres or more with visible timber, and we created a database on those. Then we went in, in the old days, you could get the reverse directory, right?

So this is like 92, 93. We get the reverse directory, and then I have telemarketers come in, and I say, start calling them in the evenings, hey, we're going to be out. This is now like siding salesmen. We're going to be out in your neighborhood and we're going to be logging right down the street. Would you like an evaluation of your timber? No one's ever called them. People in rural areas of the Northwest never get telemarketed. You couldn't get them off the phone. They want to chat with you. Oh, yeah, we don't know what our timber's worth. So boom, I took him from doing 10, 12 deals a year to where we were averaging close to 100, 100 a year. And I saved him from driving around aimlessly,

driving up driveways. So my telemarketer would make an appointment. My secretary would make a map. He's not very good with directions, you know, so we'd have the directions to get there. And then I ran the back end. I got us all our financing. I got customized lines of credit with my local banks here to buy timber, because you can buy timber as timber deeds as well. You don't have to buy the land. A lot of the people were, I don't want to sell my land. I don't want to sell my land. I said, well, we don't have to.

We can buy your timber. Well, I don't want you to cut it because I don't know what I'm going to get. I said, no problem. I'm going to give you $100,000 check before I ever move on to the property. Well, we did that through a normal escrow. It was a timber deed. And my bank would then advance off my timber deed line of credit. So we were doing this total OPM.

We had 100% financing. Wow. Wow, that's amazing. You know, the most amazing part of this whole thing, which, by the way, incredibly clever, was that your partner was able to get within, what, $3,000 of the amount of the value of the timber on the property. Like, that's insane. Oh, yeah, he's uncanny. But he grew up in the industry.

He owned a mill, and, you know, he's been in the woods all his life. Did you buy out? Brandon. Did you buy out in Aberdeen, like Grace Harbor, my area? I looked at one big chunk up above. They had started to make a subdivision out of it. It was on the northwest side of town, and it was just like half built, but we never put it together.

It was, you know, the economy was kind of changing. The guy that owned it was an engineer down here in Portland, so I didn't pull the trigger on that one. That makes sense. Well, I noticed, you know, I have a good idea. Probably a good idea. I have a keyword alert set up. You know, in bigger pockets you have keyword alerts.

that you get triggered when people mention your area. And so I always get triggered, not always, but, you know, Jay mentions Aberdeen occasionally or Grace Harbor occasionally, and I always get jumping those conversations. You're one of the few guys that knows where I live and kind of how I am. It's like, you know, one of my favorite little weekend flights is up, well, it used to be up to Hokweam there to have a hamburger at the airport there. Yeah, which now it shut down and in the restaurant. Yeah, I'd go there and then up to Friday Harbor and then.

Do you guys need a room or something? We're going to go flying someday. We haven't yet, but we're still doing it. I know. I'll get you this summer. You were having a baby, and I thought, well, your young wife is going to want to go to be a man. This is a podcast, gentlemen. So I'm going to just interrupt this low test and dive in here.

All right, Jay, so this is awesome. I love it that, you know, again, very, very clever. What next? So, you know, you've gone through this run on the timber biz. Obviously, there's a transition at some point. What was it? Why? Part of the timber business, the reason it was so good was because the Japanese economy. The export logs were just hugely valuable.

When their economy kind of tanked, the timber business started to slowly go down. The stumpage values went down. The timber values went down. So it wasn't as profitable. And I had a 10-year run as a partner with Steve. We're still great friends. We went still at fishing two weeks ago. But I was ready to move on.

he was born and bred and timber. He kept the company. He bought me out. I took some land and some cash. And then I started back into what my dad taught me back in the 70s and 80s, buying tax sales and foreclosures. So in the Portland market, I set up a foreclosure buying situation. By now I had a great relationship with my bank based on all our timber deals that we had done.

And I was able to go into my bank and get a $5 million line of credit to go by courthouse steps to foreclosure sales. Now, we had to pay cash for the foreclosure, but within 48 hours, I could go to my bank. As soon as I had the trustees deed, they'd backfill my line of credit and I'd get all my cash back. And then boom, I was able to do that. So I did that for about three years. It's a hugely intensive business in, you don't work on the weekends, but boy, Monday through Friday, you know, your bids are coming in at 10 o'clock at night. You've got to be a, you know, bidding at 10 in the morning. You get a pop-up bid at 7.30 in the morning. You got to run over and look at the house, make sure it's still standing. I mean, it was pretty intense. And then once you buy them,

you got to rehab them and sell them all. So I got to thinking, so I'm watching all these people, and all of a sudden, the competition just got crazy as when Northwest Trustees group was able to start putting the trustee sales up on the websites, all of a sudden, you know, ladies are showing up to bid with their baby in the stroller. And so that's your, it used to be 10 of us. Now it's 30 of us. And they're bidding these things up. And I'm like, you know, I think I would rather go back to mold hard money lending days and just lend the money out to these folks.

Let them do all the work. I'll make, you know, little less. Sometimes I make more. And so I rolled out of that and I started up, you know, my hard money company in basically 2002 in the Portland market. and I was able to do that with my bank. I had significant lines of credit with them that I used for my hard money activities. And then in the Portland market, it was becoming very tough for deal flow, and that's how I ended up out in the Midwest.

I had ended up of all places in Jackson, Mississippi in 2002, through some guy I met on the Internet. I flew out there, and I really kind of liked the low-value asset, that and I saw a niche. Most of the players were still at the $7,500,000 minimum, and these guys were just dying to get $20,000 and $30,000 loans. Well, you can, because of the loans are so small, you can charge a way higher APR on them.

I'm certain to interview a closing attorney, and I'm looking upside down on a note he's got, and it says 2.5%. And I look at him, I go, who's lending money at 2.5% hard money. He goes, no, brother, that's 2.5% a month. It said, done. So fast forward in a year and a half,

I'm the largest hard money lender in Mississippi. And I'm doing pretty good in Memphis, and I'm over in Georgia, and I'm up in Indianapolis, and I'm all over the southwest. And I had about $35 million out in those markets. So when I talk about, and then most of my clients,

were buying these, I was funding their turnkey operations. So they're buying the homes, fixing them up and selling to all these people in L.A. So, ergo, and then we invented the Burr method back in 2002, 2003. So we start to figure this out. I'm meeting with some mortgage brokers down in L.A. who are also with the marketing reps in L.A. You know, most of the turnkey stuff comes from marketing reps out of Los Angeles. So I'm meeting with the marketing reps and with the lenders that are doing these deals.

And they're like, you know, it'd be a lot easier if, you know, we could sell a whole heck a lot of this, Jay. If you would put the person in title with your hard money and loan, and then I'll do the rate and term refi, pay you off and we'll be done. I said, well, you know, I'll do that. And so from 2002 to 2008, we were averaging 300 loans a year or so in the Burma, all, all. all Burr method, all we'd put them into title, and then they would, they would do a rate in term refi and pay us off. That's awesome. So in those days, the buyers, not only, they didn't have to put up their own cash, they borrowed

the money from me. I only required $1,000 from them. So they were buying a rental house with $1,000 down, but they had to be pre-approved. They had to have 700 FICO, W2, full underwriting before I'd do my hard money loan. And then they would get their rate in term refi, and we'd get paid off, and it worked quite nicely. Now that method is come back. It died from 08 to about two, two and a half

years ago. It completely stopped because the lender, you know, the takeout lender stopped. But that's how I did that. Can you explain real quick for people that don't know what like the burr process is like why that works? Can you explain to a brand newbie who's never heard that before? What are we talking about? And what does

Burr stand for? Well, that's, that's Brandon coined that term. So I'll let him tell you what it stands for. Buy rehab, rent, refinement. finance repeat. I did not, clearly I did not invent that because it's been around since longer before I was ever, I was still in high school when you were burying apparently. Well, and let me clarify in that because I think it's really important. Like, you know,

that's one of those things. Like some guru comes up like, hey, I've got the blah, blah, blah. And like, I invented this. Well, no, you didn't invent it. You know, like, Brandon didn't invent Burr. It's just he put together a name for what he was doing. But like, tons of people have been doing it way before he ever even thought of the idea. So, you know, just, yeah, Yeah. When somebody says they have a new thing, really it's a new name. It's a new name for an old thing. Yeah, typically. Yeah, there isn't anything new in real estate hardly ever. Yeah. If someone's doing it now, someone did it 20 years ago, did it 40 years ago, did it 60 years ago.

So what that means is how it's being played out today is because the hard money lenders aren't doing what we did because it did become risky when people couldn't refine. people are paying cash now and then they buy it, they rehab it, they get it reappraised, they pull their cash out. Hopefully the theory is, or the hope is they've bought a wholesale deal and they rehabbed it at such a price that they've got substantial equity so that when they do their 75% refi, it pulls all their cash back. So it's a way for them to get into rental properties with literally, well, they have to have the money to buy at first, but they can rinse and repeat. They can end up with 100% financing using X amount of dollars to start and just start to roll through. So for up to 10 mortgages most folks can get, theoretically, you can, you know, with one set of capital, you can end up with 10 homes without having to wait to save up the money. for each home for 30% down to buy each one. And that's why it's a popular method.

Yeah. Yeah. You know, just to put out there, like the biggest problem you have, and you alluded to this is if you can't get the refinance, you know, like that's why hard money lenders don't like to do burr that much because, you know, I wouldn't do it. Yeah. Yeah, because like, like, what if you can't get the refi?

So I like, I use private money lenders. I use family and friends, people that I know well. I say, hey, this is the plan. This is what I want to do. If something goes wrong, I can't get the refi. well, you know, I'll sell it then. You know, worst case, we may have to extend the loan another year. And I make my lenders aware of that up front that this is what I want to do, but here is the risk.

The risk is I can't refi it. Well, with a hard money lender, we're just, most of them are, especially now, the hard money lenders are pretty formal and pretty stick to their, whatever the terms of the notes are. Especially you go with a crowd funder, those guys aren't going to bend. You know, if you miss the date by a day and you owe two more points, they're going to charge you two more points. they're going to charge you two more points. Yeah. Well, that's extremely regulated. So obviously that ties in.

All right, so, you know, you're doing these bird loans. You know, you said about 300 loans over that period. 08 comes. The market, you know, hits the skids. How do you get through that downfall? And what have you been doing since? Okay. That's great question.

So, again, this gave me a Ph.D. in Midwest rentals. I had about 480 loans out in force in 08. I ended up owning a little over 200 houses because the people could not refinance. All my borrowers were out L.A., 95% of them. They either gave me the keys or they went dark and I had to foreclose. And so from the year of 2009, I actually repositioned my family, my wife and I and my dogs. and we rented a house in Mississippi and Madison

and brought our plane down and I sat there for a year flying to all these little towns, you know, these little cities that were where I'd done all these loans foreclosing on houses. Literally, now I know why the banks,

I never am going to say the banks are just discombobulated when it comes to foreclosures. Because here I am, I'm the bank. My borrow went dark on me in L.A. I'm knocking on the door. the tenant doesn't know who I am. I'm trying to tell them, here's my card. I'm a lender from Oregon.

And by the way, I now own your house and you need to give me the rent. They think I'm lying. I mean, it was tough. It was tough. So that took about two years for me to straighten all that out and understand the, you know, the demographics and the renters and so and so forth. It took two years to do that. and it's taken eight years or so to, I'm down to probably like my last four or five of those after a couple hundred.

So you just sold them off? Sold them off and, you know, took some pretty major losses at the same time. But proud to say, I made it through without any reorganization. I paid all my lenders 100% and their interest. Thank God my loans were at bank rates. And my bankers did stick by me. call them all due, you know, they let me, they let me pay them off. That's cool. So, so then at the same time, I'd also had some hard money lending going in the Portland market and I'd gravitated into new,

new construction hard money loans. And I had probably about 12 of those go bad. And then I had to go in and put the pieces back together, literally, you know, three quarters built houses. So I get in there and I redo them and those, those we did a little bit better with because they were in the Portland market. And it got me to thinking, you know, this building isn't all that difficult. And at the end of the day, being the hard money lender, I'm the one taking 100% of the risk. These guys had just gone away. The builder's gone. You know, he handed me the keys. And that's so I decided, you know, I'm going to go out and I think I'm going to try this myself. So in 03-ish, I talked my bank into selling me eight of their REO lots. They gave me,

because I've been with my same banker for 24 years. He basically, I'd put 10% in, but then it was 100% financing. The market started recoup. I hired a builder by fee. We did really good on them. So fast forward to now, and I've built probably 200-some homes, you know, since 2003. And then I found Charleston, South Carolina, about four years ago. and being in aviation like I am,

I'm pretty keen to what Boeing's doing. And I fly in there and I see this big Boeing factory. And I knew the 787 had fixed their battery problems. And I knew it was a plastic airplane. And it was going to be, you know, I just figured, you know, this is really going to go. Going airplanes are made a plastic? The 787 is. I'm never flying again.

It's stronger than metal. Okay. Yeah. So don't worry. And so, you know, I pioneered areas in Charleston where everybody thought we were crazy. And we've done extremely good there. Yeah. Yeah, I was buying in regentrifying areas.

There was just me and like two other local guys doing it. And it was a risk. You know, I couldn't get a bank to loan me the money. We had to do it with all cash. And now I have bank facilities there, you know, 25 houses later. I've proved the model. So, you know, and that's a great market. So that's what I'm doing today.

And then I still have significant capital in play in the turnkey business and fix and flip business in hard money. But I don't do what I used to do where I had a big company and I was on the internet and, and, you know, we were marketing. I've pretty much just identified 12, 13, you know, companies that I like. And I've become their capital partners. But we're doing the same thing. We're providing capital for them to buy inventory, rehab homes, sell it.

And it's more of a joint venture type situation than a hard money loan. Hey, Jay? Yes. Wow. You're kind of a big deal, apparently. Not really. I'm just behind the, you know, under the radar. No, this is great, man.

I mean, it's really awesome. I love just seeing the path. You know, one thing leads to the next. I love hearing about your connection to markets and what the markets are doing and identifying motion in markets, things like, you know, talking about Boeing and, you know, areas kind of building up and talking about how, you know, the economy plays into your strategy and just kind of watching the shift that you've made over the years

and kind of the rebound on the hard money area. It's just, it's really fascinating. What, I mean, you've done, you've pretty much done it all. What, what's been the most exciting over the years? I mean, you know, things maybe you can't do today anymore that were amazing and you wish you could, but the market doesn't really allow for it over your, you know, what was it, 40-year career? What's been the most fun? Well, I really enjoyed the timber business because, one, it got me out into the, into the woods.

the loggers are really on it those are subcontractors that show up at 430 in the morning every morning as opposed to guys that work on houses and and you can get killed if you don't do it right so the the level of you know uh i'm not saying sophistication the skill involved in the woods is is much more intense than one would just think that you know you walked up and chainsawed a tree down and i just love the way you could go from buying something and being cashed out in 45 days. And it was quite profitable. So I like that.

I'm enjoying the new home construction quite a bit as well. And I really like the teams I've put together all throughout the country because we've got some really good strategic partners. And I've met a few on bigger pockets. And I've taken a liking to a few folks that, you know, I frankly would not be doing what they're doing without me. and I met them on, you know, I get a lot of stuff on bigger pockets, as you can imagine, and I don't have the time to mentor or sit there and write out a business plan for people that asked me.

But I've taken a few under my wings, so I'm very, very proud of that. I ran into a young man on bigger pockets out in Indianapolis that, you know, he was whining pretty hard about the wholesaling and blah, blah, blah. And I kind of gave him a hard time. And then I said, okay. I'm going to give you a, I'll pay for your real estate license. You just got to go get it. So I paid for his real estate license, and he just emailed me. He just passed and he's going to interview with the broker.

So those kind of things where I get up at the morning. I'm going to do something nice for somebody today. That's awesome. Oh, man. That is that awesome. It's time. It's time. It's time. It's time.

The Random Five. All right, and it's time once again for that part of the show, which we call our random five, where we ask you five random questions just to get to know you a little better. So, number one, would you rather be a farmer or a politician? And why? Farmer. No, I'll grow timber for replanting. That'll get me on the right side of the politicians. Planning the forest.

Yep. All right. What's the dirtiest job you ever did? It could be real estate related. Well, this year I bought in Portland five hoarder houses, and they were about as nasty as they can be. When my wife gets back from out of town, she's got a, I don't know how to upload things on your site.

So she's going to upload some pictures because I got some good competition for some of your hoarder houses. Oh, I can't wait to do that. Yeah, you can't even walk through them. They're just, well, I had to bulldoze them all. They're that bad. Really? Wow.

The whole houses, they're down. Wow. Oh, my God. Yeah, I can't. I'll see those pictures. If you get them to us... I got pictures. If you get them to us before we air the show, which is like in, what, a week

and a half or something he comes live. Anyway, we'll put the link in the show notes at biggerpockets.com. So I show 2-2. And our guests can see what those pictures look like. So that's awesome. All right. Cool. Next question for me.

If your house, you wake up in the middle of the night, your house is on fire. You got to run out of the house. It's going to burn down. What one object besides your wife would you grab? on your way out the door. Well, I don't know. I mean, that's too random. I have a hard time with that.

Okay. Well, we'll go away. Not your dog. Come on. Yeah, my two dogs sleep on our bed, so I guess I have to take them along with the cat. We got a menagerie on the bed. Leave the cat.

Nobody needs a cat. Yeah, we all need cats. All right. Josh, next question. All right, next question. And I feel like was it you, Brandon, who had the pet peeve about this? Maybe it was somebody else. Do you stand or walk on escalators?

Me? Yeah. Well, I usually will walk because I get on a lot of really big escalators, especially like in the Atlanta airport. There's really big ones there. And I'm getting off a flight and I want to get some, you know, get some blood circulating. So I'll walk on them. Okay.

By the way, it was Scott Trench that has the issue with. Oh, Scott. Okay. Yeah. All right. Last question of the random five. Let's go with this one. I like this one.

I do too. What is one thing you could, okay, if you could un-invent one thing in the world so that it no longer existed, what would it be? No political answers, please. Yeah, because I was going to say TFR for Marlago. What's that? Well, that's a temporary flight restriction for when the president is there. And so it screws up the whole world. And the poor people in Florida that have flight schools, which there's a huge amount,

every time Trump is in Florida, their whole schools are shut down. So I would end up a TFR. Yeah. All right, good. All right. Yeah, thank you. For decades, real estate has been a cornerstone of the, world's largest portfolios. But it's also historically been sort of complex, time-consuming,

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and cash flow protection. One claim can erase years of returns. If you own a rental property, don't assume you're covered. Have NREG review your insurance with someone who gets investing at NRE.com slash BP pod. That's NREIG.com slash BP pod. You know, I don't want to necessarily be about BP, but, you know, as a consequence of you're being so active, you know, I think it makes sense to ask the question, why do you participate on bigger pockets? You know, is it just the sheer love? Is it, you know, obviously you get value out of it? You find partners and opportunities, but why exactly do you do it? Well, one, I work out of my house. So, you know, I'm on the computer. And it's, you know, it's, just something I'm interested in. It's something I've done. And I usually have an opinion that, you know, on most things, as you probably read. Really? Some people, some people probably like it, some don't. But I do tend to speak my mind. And if I can help some folks, that's great. And, you know, I pretty much only go to, you know, bigger pockets. And then I have my aviation website that I go to.

And then, you know, sports. So those are about what my interests are. And I don't know. I can't really fathom why I do it. But it is, it's, you do have that, like, addiction button. And I am addicted. I will tell you. I am addicted.

That's funny. Well, just on that note, I do want to encourage it. I mean, there's a lot of people listening to a show. Our shows get, you know, 150,000 listens each. Like, there's a lot of people listening right now who do not engage in the forums. And I want to just encourage you guys, like, you know, I know I've been helped a ton by things that Jay has said in the past and by a lot of other people on the site. So if you guys have, I mean, five, ten minutes a day even, jump on and just offer your advice.

Like, you never know, like, who's life you can change forever just by, like, saying one thing or, hey, don't buy that deal or, hey, you know, you're doing a good job. Like, those little things, like, make a massive difference. I know they did for me. I know they have for, you know, thousands and thousands of other people. So that's my encouragement to you guys. Well, I think also the, I know with the folks that will hit me, I'm like, Post it out on so that if I'm going to take the time to reply to your detailed question, everybody can see it, or at least who's interested, right? I'm not going to engage in, you know, don't be embarrassed to ask the question.

Yep. You know, just go ahead and you can tag me, and I'm happy to answer the question. I love that because, you know, I've been saying that for a lot of years, and I know Brandon does it too. It's, you know, if somebody sends a private message with a question, just put it out there because, you know, not only are you going to, get Jay if you're messaging Jay, but you'll, you know, you'll likely get other people, other opinions that might be better than Jay's on that particular subject. Oftentimes, if it's Brandon answering, the other opinions will be better. You don't want my opinion anyway, but.

Well, a lot of real estate, too, is I'll get on there and go, it's like, it's regionalized. You can't make a global United States, you know, everything's the same in the United States. I mean, I'm in 14 different states and I can tell you, every one of them is different, you know, how they transact. So before we kind of wrap this segment up, we had a couple of quick questions. One, you've talked about being in 14 different states. You've got teams throughout the country. How do you go about building a good team and finding partners that you really could rely on and trust?

Well, first off, my core partners that I started with when I decided to go back into funding for turnkey and fix and flip were the guys that I was already doing it with prior to 08. And these are the guys that helped me. They didn't run away and hide. And so they already had, and they needed help, you know, because they had been bruised through 08, 010. But I knew their character and their credibility. And so I'm like, you know, we all know how to do it. We don't need the practice. We know what we're doing. I have access to the capital. You guys can execute. So let's put this partnership together. So that was my core. As I've built out of it has been, you know, a couple folks off of BP.

And then just I'll watch people on BP occasionally. And if I kind of like them, I'll follow them for a while. And if I kind of like what they're doing and I think I might be of some benefit, I may contact them. Yeah. Right. But I don't advertise and I'm not looking to advertise because I don't want to get swamped with. what I don't have the time for basically. I'll take on a newbie, you know, like one a year.

Otherwise, I'm looking for more experienced folks that I can do this with. And right now I'm pretty much filled up. I've got all that I need. Well, you know, if I can just add on to that, like, I say this all the time. So I'm really, I love hearing your side of this, but I tell newbies on time, like, get active, get involved, ask questions, grow. Like, if you can just put yourself out there and be seen as a person who is excited and ambitious and is actually doing what they say they're going to do,

like guys like Jay will see you and they'll follow you and maybe they'll want to work with you someday. But when you're just hiding, you're lurking in the background, reading once in a while. Like, I mean, it's fine. You might learn a lot, but the best networking is when you put yourself out there and just start talking and engaging and building those, I guess, even relationships.

I don't know, it's a weird thing to say you build relationships online, but most of my best friends in the world are from bigger pockets that I met online. And half of them are I've never been met. It's true. So anyway, put yourself out there. And yeah, you never know what kind of relationships you'll build. Cool. All right, next question.

Oh, go ahead. No, I was going to say, I got, you know, last question for me. You had mentioned newbies. And so I think the question is, what are the biggest mistakes you see newbies make? You know, you're talking to, you know, 150, potentially hundreds of thousands of people right now. what do you want to tell all those new real estate investors to help them avoid making these mistakes? What I do, and I'll be a guest speaker occasionally at Rios and stuff up and down the coast here, I'll get in a room, and I'm going to use this analogy, and I'll say, you know, how many of you are investors?

Boom, half or all the room goes up. How many of you are private lenders? The other half of the hands go up. And I'll say, my job is done here. See that investor over there? There's your private lender. Go talk. So I'll just say, you know, most of the newbies are looking for the unicorn private investor

that for some reason they think that this private investor with a lot of money is only getting 1% in the bank and they should be lending it to them for a low amount of money. And they spin their wheels. They never find this guy that is or person. guy, gal, retirement account or whatever. And my advice to them is you need to set it up and always honor the money. When you're starting out and you don't have the money, you need to honor the money. And when you honor the money, you give the money the lion's share.

So if you're going to make $30,000 on a deal and you're starting out, pay them $20 and you take 10. Do that a few times. Build up your credibility. Don't sit there and say, I'm going to make $30,000. on this and I'm doing all the work and the money guy should only make 10 because he should be happy to make 10 because he's only making 1,000 in the bank. That is a flawed thinking and that's where I see most newbies make their mistake. Flip it around. Even today with my investment group, they make the lion's share. I make less. Any investor I bring in always makes more money than I do.

and then when I put my own capital into the deal, and I do, I put significant capital in, I carve that out and that's mine, and I make 100% of that. I know what all my competition is doing. They're all trying to do, you know, 8 to 10%. And if I can come in there higher and say, this deal is going to make 30%, I'm going to give you 20, I'll take 10. Boom, I've closed the deal. That's how you raise capital.

I like that. That's awesome. My last question before we go to the fire round was simple. like you as a guy who's been on the forums a long time what are the most common or what is the most common questions you see over and over and over is there anything that that comes to mind that maybe like by answering it here then you know people won't ask it as much yeah that'll never change because most everything that's asked is is answered asked an answered counselor you know the you'll get the help i got a contract what do i do i

you know, I mean, you get that one all the time. You know, there's just a lot of those type of questions that, you know, if they would do a little bit of a search on the site, they probably could get it answered first before they asked the question. Second, but I think it's okay to, I wouldn't want to discourage people from doing that because then you're going to keep people from posting and you're not going to get quite as much. If everybody went and just searched it and read the thing, there'd be no reason for them to post. So there's a fine lot. There's a fine line there of letting them answer ask the same question over and over and over.

Yeah. Yeah. And there's been times where I've asked questions and then somebody would just be like, we already covered that over in this thread. But I go read that thread. I'm like, well, that's not quite what I wanted. I wanted to continue the conversation based on, you know. And so, yeah, I would say also, yeah, don't be afraid to post. Even if you think it's been asked before, if you have a, you know, if it's a unique thing posted,

I mean, my thinking is more, you know, I don't know, a good example. It's like, where do I find hard money lenders? You know, like a question like that, a person could probably say, oh, go to the bigger pockets, hardmoney lender directory, bigger pockets. That comes with hard money lenders or whatever. But a lot of questions are just not answerable in a, you know, one-on-one thing. You know what I'm saying? Like, it's not just yes or no on a lot of questions.

So, yeah, engaging conversations, jump in the forums, ask questions, all that stuff. So with that, I got, I got, I got, I got less. Oh, you're not going to let me go. I lost, whatever, fine. Well, you're going to go to the, you're going to go to the fire. Before you do, I just, I just, I got to ask, I got to ask Jay, Jay, Jay, you've been in the game for about 40 something years. I mean, I'm assuming at this point you probably could retire, but you continue to participate. Why?

Well, 08, 010 kind of took my retirement away from me. So, so that isn't true. Getting better. I'm about, I'm about back to where I was, but I will never retire. It's just like when I work with Mr. Langer, who, you know, at 77, 78, couldn't do it anymore. I mean, I'll be doing this until I'm not functional or can't rationally do it. I love what I do. It's never been worked to me.

I never, the idea of, oh, I need free time. I do this. I mean, I get all the free time I ever want it anyway. I travel all over the country. I travel all over the world, you know, on business and pleasure. So it's just, it's just not work. I mean, I love what I do. Yeah, I love that.

Cool. That's great. All right. Well, hey, let's head over to the next segment of the show, which is going to fit in well with you because you are so active in the forums. And that is our fire round. It's time for the fire round. All right. The fire round, these questions come direct out of the Bigger Pockets forums.

And there's a very good chance that Jay has even answered these. Well, actually, so Mindy pulled these questions for us. And I told her to try and pull questions that Jay has not already. answered, which proved to be a challenge. So here's four that you haven't quite gotten to, and I'll let Brandon take it away. Number one, I just inherited six vacant lots. Now what do I do? Okay. Well, the first six vacant lots. Well, again, regionalize. You have to go look at them and see what part of the country they're in. If they're in a hot market, inner city that's regentrifying, you just hit the mother load. If they're stuck out in some high desert town or some

little town in the middle of the United States that's surrounded by cornfields, they're probably not worth much. But the first thing you would do is go into the county, go to the planning department, go to the building department, and just figure out what they're zoned. You could also just contact a good realtor in the area and ask them what they know about it. Cool. Awesome. All right. Next question. I know it's a broad one. How do I get started in private money lending? Well, that's a good one. Private money lending, well, first off, a lot of folks need to realize in certain states you have to be licensed.

It isn't just, hey, I'm doing private money lending and I'm exempt. So first thing you need to do is establish what state you're in and are you exempt or not. Like in Oregon, you're not. You can do three a year and that's it. California, you can't do any. you have to be a real estate broker or NMLS license. And I see people on the forums arguing the fact that you don't, but they're wrong. And so one, first you want to figure out if you need licensing or not.

And if you don't, then what you do is you have to, I think the easiest way to start is actually at the meetups and the RIA deals. And then you, you know, you get with somebody that you trust. you want to always, as you're starting out, you want to drive your collateral. You want to get your, you know, you want to get your title report. If you're unfamiliar with lending, then this is a case where I do think you do need an attorney if you're not versed in real estate. Or out here on the West Coast, you just need a really good escrow officer. Attorneys don't usually handle smaller vanilla type stuff.

And then so it really, really bottom line comes down to how long does it take to foreclose? You need to understand what your foreclosure rules are. And then do I want to own this house if whoever I'm lending the money fails? And then if it's construction lending or rehab lending, then you really need to, you know,

you've got to be out there. You know, you've got to do inspections. I mean, I do inspections. And, you know, you have to give them their money and draws and you want to personally witness that these draws have been done. The other thing you want to do is set up controls for lien releases and subcontractor payments. But that's pretty detailed, probably a little more detailed.

That was not as fiery, but the details are awesome. Yeah, people like that stuff. All right, number three, this is kind of a longer question, but I really like it, so I'm going to read the whole thing, actually. The question is from Philip Nitz said, the title was, are buying holds really making money? here's a thing. I'm wondering if we're really actually making money.

It's not a rhetorical question, but I would like genuine feedback. Here's a scenario. Let's say I want to live off cash flow, so I buy a lot of single-family houses. I currently make $500, if I make $500 a month in cash flow, but you figure repairs, maintenance, they're probably getting $300 a month per unit, $3,600 a year. The longer you hold the property, though, the more things break. More expensive is like the roof, which we estimate it at $10,000,

and every time the roof needs to be replaced, it wipes out years of cash flow. Then there's water heaters, AC units, etc. As a result, living off cash flow seems like a distant dream. Sure, my rents will increase over time, but so will property taxes and other expenses. So it seems like I'll make money from appreciation if the property is paid off. So is basically everyone's plan to pay off their houses and then live off cash flow? Or is everyone buying houses at such a steep discount that they can live off the cash flow immediately? But what do you think? Good question. Yeah, that is a,

that's a fabulous question. And I'm going through that right now selling off some of my A-class rentals that I bought for go zone tax benefits in Mississippi. And a lot of people don't understand the cost at exit. I think if you're going to go into the rental game, it's a long game. It's a very long game. You're buying that and you're going to be married to these for a long time. If you have to exit out of them, it's usually not a happy day. So, you know, when you make a commitment to go into the rental game, you got to go long term. I do believe the quicker you can get them paid off, the better you are. Now, I, you know, I I know that's totally contrary to a lot of other people that, you know, want to have max leverage always.

The more wealthy, successful entrepreneurs I know in real estate have quite a bit of it paid for. And when you get, especially if you're out in the Midwest and the lower value asset stuff, the quicker you can get those paid off, the quicker you're going to have a happy day. Because now they're bringing in $800 a month and your expenses are $200, and now you're $600 instead of $200. and you have no debt. And if you have to exit, you have a myriad of ways to do that. You can owner finance. You know, if you have to take a little discount,

you're not coming up with cash to part with your property. So, and then I think also you need to buy in neighborhoods that are appropriate for your investing skill, your landlording skill. And the biggest mistake I see a lot of the newbies make, is they buy just strictly by price and strictly by pro forma, which usually leads them into super low value assets and pretty rough neighborhoods. And those generally there's no return from over time.

And I was one of those guys. It's a terrible direction to go. It's not fun. It's definitely not fun. All right. Last question of the fire round. Can someone please advise me who would be the right person to hire? to do a land inspection before purchase.

Like a contractor would be hired to inspect a home, who inspects land and deems it okay to build on? Oh, okay. Well, that's a great question. Yeah. It depends on where you're at. I mean, if you're in a city with city, sewer, water, all your utilities right at the curb,

that's as simple as walking into the one, the planning department to make sure your use is approved, over to the public works department, to see what your sewer tap or water tap would be. If the power lines are overhead, that's pretty much a given. So that's pretty easy. If we're talking about rural properties now, those are very good points. Normally you have to do on-site septic systems.

So the first place you've got to go is that health department. Some places in the country, it's no problem. Other places, Washington being one, Sonoma County, California being one. Putting a septic system in can be hard, time-consuming, and very expensive and or can be not possible. You can have a lot of property that you simply can't build on. And then for wells, that's the best thing to do there is call a local well driller. And, you know, they're like well drilling savants, most of them.

Oh, yeah, I know that property over there. I drilled a well over two lots over. It was 460 feet. You know, we'll hit water, you know, 400 feet there, no problem. Or they'll go, man, you just bought a dry hole. I can pump some dry holes down here, but I've been pretty lucky over the years. I've drilled a couple dry holes, but usually we've hit water. And then I do believe in witching.

You know, you can get the guy that's really good with the witching sticks. Really? Is that still a thing? I did not know what it was still thing. Oh, you're not joking. You're not joking. No, no. Wow, I did not know that.

You're talking the guy with the little fork, the little Y-shaped stick? Well, the Indians use the stick. the, you know, the past the Indians, they use little metal rods. And when they come up to the water, the rods will just separate like that. Really? So they're called water dowsers. I got to see this for real, man. I thought this was BS my whole life.

No, no. My dad was very superstitious. And he had an Indian water dowser when we were building a water system up at Clear Lake, California, town called Nice. He's up on this ridge line, way up. above and you normally would pull wells down in a low area where the water runs and the Indians there no you need to put the well there and you need to go you know 600 feet sure's that he gets it he gets the well we had one of those vicious california droughts all the wells down in town go dry and the only well running is the one my dad put up in 1969 and a big old water tank

wow the whole town wow so yeah i believe i believe in that but that's out of peaciness uh Native Americans we're talking about here. Yep. Yeah. Is that PC now? I never know. Yeah. Everything's PC. All right. Now, that's fascinating.

And great, great story. Thank you for sharing that, Jay. Yep, my pleasure. All right. So why don't we shift away from the Fire Round and head over to the last segment of the show, which we lovingly call our... Famous Four.

All right, these are the same four questions we ask every guest every week. We want to see what you got to say. Jay, do you have a... Do you have one, and if so, what is your favorite real estate-related book? Well, I don't, the one book my dad bought for me, and I read early on, and I've kind of gone as just the, you know, think and grow rich by Napoleon Hill. Okay. I'm not a big reader of business books, frankly. I find them pretty dry and hard to get through. And then one book I got turned on by the dingo, give him a plug here, is rocket fuel. I like that.

One of the reasons I like it, it was by, oh, oh, shoot, I can't remember. I'm forgetting to. I read it. I don't remember, sadly. Well, his dad was one of the big motivators for real estate people back in the, Floyd Wickman. So Floyd Wickman's son, Gino wrote it. Yeah. And my wife worked for Floyd as a, you know, would go out and train real estate people how to be better real estate people.

And I kind of like that book. All right. So you answered my first question, which is business book. And how about hobbies? You were talking about, you know, the different websites that you visit. I assume those coincide with your hobbies as well. My hobbies are, you know, I have a love of aviation. I've been flying since I was in my early 20s and continued today. And then we like to, we fish. We like to fly fish. We go from Alaska to Montana fly fishing. And then we like to travel. We travel. extensively kind of all over the world, actually. That's awesome. Well, if you ever fly out to Colorado, obviously, let me know. I can watch you in your plastic airplane from far away. That's a long flight for my plane. Where Brandon's at is a little better.

Yeah, you can make it up here. All right. My last question of the day, Jay, what do you think sets apart successful real estate investors from those who give up, they fail, or they never get started? Well, you know, there's a certain amount of stick to it in this. And then there's also just a reality check. You know, what market are you in? Every market is different.

You have to play to the market. And so you just can't take a broad stroke and say, this is going to work in this area. So I think that that's important. And then, you know, as much as anything, real estate's a capital intensive business. What I see a lot of people do is they just jump ahead. oh, I have $1,200 in the bank, and I'm going to start, I'm going to spend it all sending out, you know, direct mail when they have no ability to close anything, really. And so I see a lot of those people are just not going to get anywhere. So real estate just, you just have to realize you got to get some capital together so you have some staying power, regardless of where you're going to be.

And then you can let it grow on itself. Awesome. Awesome. So Jay, before we let you go, where can people find out more about you? Where can they connect with you? And, you know, anything else you might want to share about reaching out or promoting? Yeah, they can connect with me on bigger pockets if they like. And I didn't have my, so they can, you know, send me one of those, what do you call those requests, those friends requests.

Yeah, yeah, yeah. So they can do that. I don't have a website or anything, so I'm not actively marketing. One thing I am working on, and if I'm allowed to say this, I am coming out with a product. I've got a lot of hits for a lot of people that are in between deals, they're on the sidelines. They don't know what to do. And, you know, they don't have, most of the people that I deal with on my end are, it's more hedge fund type money, you know, large, large amounts. So I'm going to come out with a product for smaller amounts and shorter time, time periods.

And that's your hard money lending, right? Yeah, where they can come in and revolve in basically like a one-year commitment with a 90-day call. So they'll have a place to park money. If they want their money back in 90 days, they just have to give me a notice. And then, you know, I just don't fund the next deals. And then they get paid off. I've brought in a little bit of that capital in the last six or seven. months just because I got tired of telling people, no, I don't have something for $100,000.

And I'm reluctant to make referrals with people with cash because there's just not a lot of people I know that well that, you know, I don't know what will happen to them if they get with the wrong person. Awesome. Awesome. Well, Jay, thank you so much, really. Honestly, it's great to chat with you. Your story is fascinating, like we said, and really do appreciate all the time that you put in to help the community. And I don't mean the community by just bigger pockets. I mean, the community at large, you know, everyone who's out there in the real estate investing space. I mean, your wisdom is truly appreciated. So thank you for sharing it. Oh, it's totally my pleasure. And you guys

have, you know, the number one site on the on the planet. And I think a lot of people, you get a lot of kudos. And I want to give you kudos as well. I mean, it's, it's incredible what you guys have created here. Thank you. I appreciate it. Yep, you bet. Awesome. All right. Okay, take care. Thanks, Jay. Aloha, knowing and Loa. All right, guys, that was Jay Heinrichs. Wow, this guy has seriously done it all.

Yeah, you know, there's that famous phrase that says, like, success leaves clues. So, like, you know, obviously, like, look at people who are successful and have done big things. I like looking at guys like Jay because I'm like, this guy's been around for 40 years. I mean, he was investing in real estate when I was in diapers. So, like, I like to learn, you know, last week. So I like to learn about, like, kind of what's worked for them, what hasn't worked for them, what mistakes they've made, all that good stuff. Awesome, awesome.

Well, big thanks again to Jay for coming on the show. Guys, this was show 222 of the Bigger Pockets podcast. Please, if you haven't already, leave us a rating and review on whatever format that you're listening to the show. We really would appreciate it. If you have not yet subscribed to the show, you should definitely do that.

And, you know, as per our quick tip and really as per the conversation with Jay, there is so much value in, connecting and interacting on bigger pockets, just by getting in there and helping other people out, or by getting in there and asking questions and being curious, you start to build a name for yourself and you start to connect with guys like this. And, you know, I mean, Jay was out paying for some guys real estate license. I mean, that's awesome. And the cool thing is he's not the only one who does that stuff. There's so many people who are so giving. And it's such a great community. So I definitely

encourage people to do that. But I don't know, that's all I really got, Brandon. That's all I got. I'm going to get out there, try to keep your shirt on, not scare anybody away. I will attempt not to scare anyone away. I'll keep the white contained. Yes, yes, you should do that. All right, guys, show 222 in the books.

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 height, you're in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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