Escaping the Drift with John Gafford - Revolutionizing Property Lending with Tim Herriage

Starting point is 00:00:00 Hey, it's John Gafford from the Escaping the Drift podcast. And big news, my new book, Escaping the Drift is coming out. November the 11th, you can pre-order it right now at thejongafford.com. There are tons of bonuses, tons of giveaways. Get the book. If you are somebody that feels like you might be drifting along, this is for you. If you know somebody that feels like they might be drifting along, this is for you. Available everywhere, all bookstores, everywhere, Amazon, Barnes & Noble's, the whole nine yards.

Starting point is 00:00:28 but pick your copy up right now at the john gaffer.com and get a bunch of the awesome bonuses I've thrown out because I promise you I put my heart and soul into this thing. I want it to help you change your life. Pick it up everywhere. So essentially if you find a deal, Tim will give you 100% financing on it regardless of kind of if you've ever done this before if the deal is right because they lend on the deal, not so much the human. And then you can hire this hedge fund that can come in and do the entire rehab very quickly at a decent price. and get you on the market and get and make money and you don't even have to handle the money if you if sign a little agreement we'll give them that are 50% down and then you don't even have to go check

Starting point is 00:01:09 the house and then they call you when it's done and let john go walk it and play mr investor and then we wire them the final payment oh my gosh wow and now escaping the drift the show designed to get you from where you are to where you want to be. I'm John Gafford, and I have a knack for getting extraordinary achievers to drop their secrets to help you on a path to greatness. So stop drifting along, escape the drift, and it's time to start right now. Back again, back again for another episode of the podcast with like it says, the opening man, gets you from where you are to where you want to be. And today, beaming into the studio live from his, I'm not sure if he's in Dallas today or in North Carolina, we'll find out in a second,

Starting point is 00:01:55 but this is a dude that I met a couple of years ago that is turning the fix and flip lending business kind of on its head because he's done something that literally no other company is doing. It's an incredibly interest in, let's just say, it's an impressive business model that I wanted you guys to hear about. I'm curious to hear how it's going. And yeah, so without further ado, welcome to the program. Ladies and gentlemen, this is the CEO and founder of Ternus Lending, Tim Harriage. Tim, welcome the show, buddy. How are you? John. I am in Charlotte, North Carolina today. Charlotte today. Thank you for letting me beam in. Because you are, you are, because the company is based in Charlotte, but you personally are based in Dallas. We know

Starting point is 00:02:36 that, yes? Yeah, man. I mean, if you, God, guys like you just get it. I mean, even though I live in Dallas, the mortgage talent is in Charlotte. And I started the company at a down market, which meant I got talent that normally wouldn't be available. So you just go the talent is. Yeah, it's much easier to hire people that are qualified where there's a lot of that stuff for sure. Now, let's talk a little bit about, obviously, for those who are listening to this, I don't want to hear this because I don't do fix and flip real estate. You probably should because this is more today about business models than it is about fix and flip stuff. Because the fix and flip lending industry, if you will, if you don't know what it is, is let's say you want

Starting point is 00:03:19 flip a house. Well, you go out and you procure a deal and there's money you have to, you have to buy the house and then you have to have money to fix the house. So you can flip the house. And a fix and flip lender provides that money on an estimate of what the house is going to be worth once it's fixed up. They put all of the money, they give you the money to kind of buy it. You've got to have some skin in the game. But then they put the money that you need to fix it into kind of their own little personal escrow account and you can draw against it as you do repairs. So they finance their repairs as well. Then when you flip it, you pay them off and you make a bunch of money. That's the idea.

Starting point is 00:03:52 And that idea has been around for a long time. I mean, there's a lot of people that have been doing that. It started as kind of a mom and pop boutique deal. Then it got very big with some larger companies. I know that Tim ran one of those companies for a while and I'll let him tell that story. But I want to go from the origins of that business to what you've decided to do now. You know, God, you go back 20 years ago, I read the e-myth and Michael Gerber always talked about entrepreneurial seizures. And ultimately, John, two and a half years ago, I had an entrepreneurial seizure and founded the company. And you know my wife pretty well and made her very uncomfortable. Because at the time, I was the executive director of this large national company doing billions a year in business.

Starting point is 00:04:35 And I was bored and unfulfilled. Right. You talk about drifting. I mean, I just, you know, made a bunch of money and did business. I reread Simon Sinek's book, Start with Why. and it was crazy dude like the first time i read it it was all about my why the second time it really connected me with the business philosophy of understanding your customers why and crafting your business around fulfilling that intrinsic need and we were just talking about you're a luxury

Starting point is 00:05:07 you have a luxury business not a everybody can sell a house business uh and you started learning about nike you know just do it because it's a seattle based running company it rains all the time and the ethos was just if you're a runner you got to be a runner and you just do it right uh apple right like innovation and and and you know god i remember when it had the ipod a lot of people don't know what that is the whole thing was a thousand songs in your pocket right before that we had the cd changer that hung on your wall you know your belt and and so i just i was listening and i got all inspired and i founded turnus and you're right the real level is in business because I've had this is my 17th startup about half have failed I've sold several

Starting point is 00:05:55 of them I took one public and I'm just a serial entrepreneur but this one I spent eight months planning from detailed financial models to variable input models to positioning statements it it really has been knock on with the best executed startup I've done yet And that's just from all the experience of the ones that weren't the best. If you could go back to any of those early startups that failed, give me a couple of key lessons you learned from those failures going forward. It's 100% capital and a plan for capital. A lot of times we're good at making money doing something.

Starting point is 00:06:39 And we think, wow, I should just start a business around this. And you don't think about all the capital needs. You don't think about all the investment requirement in future like infrastructure, technology, training, staffing, human resources. You just don't think about those things. And all of a sudden, you're still making money personally, but the business can't survive because you're undercapitalized. As you know, it takes a lot to get a business self-sufficient and growing. If you're fine where you're at, it's easy. But if you're trying to grow, so it took me 12 months to do my first 100 loans.

Starting point is 00:07:15 It took six months to do the next hundred loans. At the end of this month, we'll have done the third hundred loan in three months. And then literally, I was doing the trajectory today, we'll do 100 loans in the next 45 days. And most likely we'll do 100 loans in December or January in a month. And so that curve means, I think today in my company meeting, I've got eight new hires from the last 30 days that I'm introducing to the team. Those are people that I have to pay, but they're not really. really doing anything for me yet. They're training. They're learning. They're using the wrong freaking acronyms on reports and nobody understands what the hell they're saying. So yeah, I mean,

Starting point is 00:07:56 I think the number one thing that's made my businesses either fail or be so unfulfilling that I even shut them down was a poor capitalization strategy, not understanding how to budget for the growth capital you need. Well, let me ask you this, because not every idea is a good one. Yesterday, I was on a call literally yesterday, kind of talking about this. I was doing a consult for equity call yesterday with a guy that has, quote, quote, inherited this product. He was the attorney on the deal for like six years. It's an automotive product. And they've been working for like two years to get this thing like AutoZone and some other places like that.

Starting point is 00:08:39 And the founder that had this, there's half a million dollars in inventory of this product sitting in an Amazon warehouse. like, okay, first of all, mistake number one, but they're going through the whole thing. And the founder is just like, I'm out of capital. I can't keep going. So I'm going to relinquish 50% to you. And I'm just going to hang on to 10% as a royalty. You can have the inventory and see what you can do with it. And so, you know, this person was smart enough to reach out to a couple of us that know

Starting point is 00:09:05 kind of what we're doing, especially in the online space and do consult for equity deals that we think we can make that thing go. But for him, I think, and even that meeting yesterday, I said, I don't even know if you have a product yet because just because you have a warehouse full of something doesn't mean anybody wants to buy it. And putting it on an N-CAT or putting it on a shelf in AutoZone does not gauge customer demand. I'm like, you've got to go direct to consumer online and see what your return on spend

Starting point is 00:09:35 is and put with the real ROI on this to see if you have a product. I think that's the mistake that a lot of people make because they burn through their capital chasing a market that doesn't exist when they should have gone out and discovered the market first verified the market to make sure you've got one and then you go you go capitalize the idea that's what kick starters for right yeah i mean if you look at the so we're about 19 months old now and i think back to january last year uh formed the company brought on some equity partners and the first deals i was the loan officer the processor the underrides or the closer, the post-closer, I had to submit the wire myself.

Starting point is 00:10:19 The runner, he went to the playlist opposite. But it's because I needed to, I mean, I had this vision and mind you, it's informed by 20-something years of experience, but still, how hard's it going to be to sell? What's the process going to be like? What questions are I not thinking about that the customer is going to have? And so, like, I did that at first, and then I brought on a salesperson, because if you think about it, that, and this was all modeled out.

Starting point is 00:10:44 I had it planned because then once you sell it, then you got to focus on the fulfillment once you prove up the market. And then like next thing you know, you bring on an operations person and accounting person. And then you keep testing and you keep tweaking and testing and tweaking. And that's why it took. I mean, in the first six months, I think we did like 15, 20 loans and we were down a million bucks.

Starting point is 00:11:05 But the point was we were learning and changing and learning and changing. I think we're on our fourth or fifth set of underwriting guidelines. in 19 months because we're always listening to the customer. We're always looking at the product performance. We're looking at the profitability of the product. I mean, it's kind of one of those crazy things. Like, I do 100% financing for real estate investors, which everyone wants. But if I can just get 10% down, I can charge 2% less on the interest.

Starting point is 00:11:38 And I can make literally 5% more in profit on each loan. and because it's more marketable to the capital markets. So now we're in this weird crux of we've got a lot of revenue, we've got a lot of business, and we're going to offer additional products. I think the key is we're not going to change the core product that everyone already knows and loves. We're just going to offer additional products.

Starting point is 00:12:02 So when John Gafford calls and says, I don't want to pay 12%. I say, great, put 10% down and you can pay 10%. And then John Gaffer says, no, I want 100% finance. I'm like, you got to pay. 12%. A or B, buddy, not yes or no. But we won't abandon that core initial product that's been tested and modified and tested

Starting point is 00:12:22 and modified. And I think that's what you're saying is, I didn't just come up with it in the garage and then start a hundred person company, right? We grew into this. But I don't think your products are your products. But I think the unique selling feature of what you have is the equity piece. I want to walk back and walk me through the thought process or the discovery phase. is if maybe I could do a company with this.

Starting point is 00:12:44 Walk me through that. Like, what did you see? What sparked the idea? What sparked the interest? Walk me through that process. So I was listening to the Simon Seneca book again. And it hit me like a ton of bricks because he talks about when you have a product that's commoditized, it's just a raise to the bottom and a raise to consolidation.

Starting point is 00:13:02 And it just hit me like a ton of bricks. I mean, lending is the most commoditized product ever because the first question anyone ask is what's the rate? What's the rate, right? right and then in the hard money space the next thing they say is what are your fees and i mean it's just and when those are the first two questions with any product with any business you're not you're you're just commoditized and it's a race to the bottom and it it's a very unfulfilling business because you just feel cheap all the time uh almost like your desire to be in luxury

Starting point is 00:13:32 space so i said okay well there's all these millions and millions of customers i've met tens of thousands of them, what do they all have in common? So I was really just developing an avatar. And that's actually, I'm going to get really, I don't even know if I've ever told you this. So the word turnus is Latin for threefold. And it was based on the Simon Sinek golden triangle premise, right? And so the reason we have a triangle with three triangles is each, as our logo, each triangle stands for something different. So the first one is every customer I've ever met in this business wants to make money. They get into real estate investment. just to make money.

Starting point is 00:14:11 Maybe they're limited by their education or their background, and they see it as a way to make money. So that's kind of number one. And how does my company fulfill that promise? We make it easy to fix and flip a house and make money. And then you can also own stock in the company that, I mean, it's a dollar a share right now. And I can't say a lot of things,

Starting point is 00:14:29 but I can say I intend it to be worth more than a dollar a share. That's the plan. So that's kind of premise number one. And then the second thing that everyone that gets in this business for is everyone says it different, but it's passive income or cash flow, right? Like, those are just the reasons people get in this business. They want that mailbox money. So how do you make mailbox money with our company?

Starting point is 00:14:51 You buy rental property and we help make it easy to buy rental property. That's one way. The other way is you can invest in some of our different offerings like our cash flow fund or buy our stock because we intend to pay dividends one day. Or you can buy notes from us and we pay you monthly. We send you monthly checks. So that's kind of like premise number two. And then the third part of the Ternus threefold kind of thought thesis is everyone that gets in this business wants to leave a legacy for someone.

Starting point is 00:15:24 It's the reason I think the most quoted real estate makes more real estate investing makes more millionaires than anything else in the world. Right. And so by letting us help you build your portfolio by owning part of the company and by having a company. and by having a company dedicated to your success, we enable people to help create a legacy that's greater than they could without us. And so we really wrap the entire company. The reason we exist is the reason the customer is in the business.

Starting point is 00:15:56 Right. So is it when somebody does a loan with you guys, do they get, is it, if they bring somebody new to do you loan with you guys, how do they get stocks? Like don't you award stocks? that weight or for people to bring folks in or deals you do. How's that working? So not yet. Not yet. Currently, we have a regulation CF crowdfunding offering where they just go online and for as little as a thousand bucks, that's the minimum purchase. You can buy

Starting point is 00:16:21 a thousand shares in the company. Yeah. And you get, it's all online. It's easy to do. It takes five minutes. Eventually, some of our ideas are when you pay off a loan, we send you stock, right? when you refer someone, we send you stock. We're even looking at ways there's actually securities you can do now where you tokenize the securities. So we're looking at every application, every referral, you get a token, and then you can trade those in for stock, you can trade them in for discounts on loans.

Starting point is 00:16:56 We're really looking at every way that we can reward the customer for doing business with us with shared ownership. As you know, the legal process of some of those things is rather expensive and complicated. But the intention, and this is something most people will never do when they're into business. My partners and I currently own a little over 90% of the business. And the intention is when we're done building this, that we own less than half the business. We literally started the company with the intention to dilute by sharing ownership and sharing the success with the customer. base um which would we're already the largest uh customer own hard money company in the nation

Starting point is 00:17:39 uh and and we believe that by sharing in the upside uh we'll be able to create uh raving fans and fulfill people's real need of being in this business well i think anytime you can let people have a piece of the company they're more apt to stay a loyal be more vested and see they become your best sales force Yeah, I mean, you know, as you know, in the Facebook army that is real estate investing, people, they just refer whoever the last person was that bought him a drink. You know, it's like, oh, I was at the happy hour with Matt Stickley the other day, call Matt, right? It's like, is that a referral? They're like, no, we have no idea who he is.

Starting point is 00:18:22 But the other thing is on that is very funny. If you own a restaurant or a bar, even if I invest $5,000 in it. Every time your friends ask for somewhere to go, you're going to go to, you know, Tim's Cafe because, you know, I own part of that. Like, I'm one of the owners. I mean, and so there is part of that. It's definitely a unique selling proposition, uh, that you can build, you know, just this army of salespeople that are shared, have shared interest in your success. So beyond that, what, what do you have plan to keep turnus unique and on the cutting edge? So like the 100% financing we do is kind of. funny. When I tell people, they're like, what do you mean, 100% finance? I'm like, you know, it's like the way it was when I got in the business 20 years ago. I mean, if you buy a good deal,

Starting point is 00:19:13 I'll loan you the purchase and I'll loan you all the purchase and loan you all the rehab. And they just don't believe it because, you know, John, 10 years ago or 12 years ago, when I started B2R finance with Blackstone, there was no institutional capital in this space. And, you know, at that same time, I know you were helping sell a bunch of houses to the hedge funds. And in the last 12 years, almost all of the capital in the space is now institutional capital. And I see myself, I helped cause that problem. I mean, I kind of helped deliver Main Street to Wall Street by starting B2R with Blackstone. We were the first institutional lender.

Starting point is 00:19:53 And I see Ternus as a way to take Main Street back from Wall Street and share it with Main Street. And I think the long-term effect of that will be something that grows beyond my ability. And then the key to banish even, I mean, I'll hire a CEO soon. Yeah. The key is, do you know who invented the digital camera? Not Kodak. No, it was Kodak. Was it Kodak?

Starting point is 00:20:25 Okay, got it. But Kodak was founded originally by Eastman and Kodak to put the power. of film in everyone's hand because at that time the film industry was really just controlled by professional photographers and then they did it and then they developed and patented the digital camera but the board decided to put that thing on ice because it would take away from their film sales sales and so how do i want to keep changing the industry it's to make sure that the people on my board and the people that have voting rights in this company and the company vision stays at the heart of every decision we make, which is we have to have products and services that

Starting point is 00:21:12 serve the everyday investor. We cannot become institutional and only cater to the customers that have a lot of money because we loaned a newbies. I mean, I've got a firefighter in Georgia that it was so fun to give him his first loan on his first house and then help him get it refied as a DSCR a long-term rental loan because here's someone that is a first responder that the big company said no we're not going to work with you you're new go find your experience elsewhere and we're able to help him in the name of his company I can't remember but it had the word legacy in it like I'm telling you like he wanted to buy rental properties to change the future for his children so they don't have to run into burning buildings to make a living

Starting point is 00:21:54 And like the fact that we get to be a part of that, as long as we keep that mission at the core of the decisions we make, at the core of the leadership, at the core of the board of directors, I think we'll always innovate with products and offerings. And that's where once we become fully owned by the shareholders, I mean, it will probably be an exit to an IPO or a large private offering to where we become controlled by the shareholders. customer. And you just do your best to maintain that ethos throughout it. Well, I think if people are listening to this and they're thinking like, God, how can they do that? How can they take that risk? How can they, how can they extend that kind of terms to people that are new? It's because of this. One of the things that makes your company unique is you, you've actually flipped houses. You've actually done this job. So you can look at a valuation pretty quick and be like, that's accurate. That's not. Because of course, as investors, you get after repaired values flung

Starting point is 00:22:52 at you that are a little crazy sometimes. And you can be like, nope, no, no, no, no, no, no. This is what the comps actually say and this is what it's actually going to be. So I think that's what makes you different as you guys understand these deals. Yeah, when we say four investors by investors, I've done a couple thousand flips. My wife, Jennifer and I still actively acquire real estate investment properties in Texas. And most importantly, Kiyavi, who's the largest lender in the space, they don't do appraisals. their internal valuations have actually been proven to be more accurate than appraisals,

Starting point is 00:23:26 which is why, by the way, I didn't even tell you the best part. Not only do we do 100% of purchase, 100% of rehab, we don't pull your credit or order appraisals because it's asset-based lending. The deal is what we're looking at. And, you know, thanks for pointing that out. I mean, we are really good deal people. And it's a family business. I brought my brother in because he used to work for me in my flipping business.

Starting point is 00:23:50 and I needed a way to skip because I can't look at every loan, right? Like, I mean, I could at the beginning, but now you asked me, hey, what about this address? I'm like, I don't know. I mean, who knows? We got $20 million in assets under management. So, yeah, and now the challenge, John, is how do I scale it? And we're working on building technology. We're spending a lot of money on technology right now.

Starting point is 00:24:18 We're working on building training manuals. um you know how do i duplicate my knowledge and make sure that it's ingrained in every department how do i duplicate my brother's knowledge and because now in the valuations team i was texting him before this i said hey dude people are complaining about your responses what's up and he said man i've never been this busy in my life we're going to have to hire bring someone else on and then as you know being a founder yourself shit how am i going to train that person how am i going to count on them like i count on jaman right And I'm fairly certain that we'll figure it out.

Starting point is 00:24:53 We've got a plan in place and it comes down to appraisal management software and valuation management software and workflows and reviews. But yeah, I mean, it's being asset first is definitely a differentiating point of view. And it brings its own challenges because, as you know, sometimes we close these loans and they're great loans with great customers. And we perform really well, but the banks don't want a loan. us money against the loans. And so you start running out of capital. And that's where I come in. No, no, for full disclosure, if you're listening to this, Tim's got a, Tim has a, we'll just call it a big chunk of money of mine. And, and yeah, and I love it because here's why. You know, there's levels to the game and there's levels to this, to this game that we call real estate.

Starting point is 00:25:39 And yes, there's flipping and there's wholesaling and there's buying rentals and that stuff. And luckily, you know, you get to a place where sometimes, you just want the return. You don't necessarily get the right-offs, but you want the returns without the headaches. And if that's where, that's kind of where I am in a lot of places. So when Tim runs out of capital or these guys, you know, you can buy these first position notes from him. And the risk is pretty low, your first position. There's normally 70% LTV on them. And the return is massive because the, the velocity of the money is very quick. The money goes out. The money comes back. And it's something that I,

Starting point is 00:26:18 I have been very happy with it since we started doing it. And I love that. But that's one of your triangles, though, is you're taking it away from Wall Street, the institutional money, and allowing your Main Street investor like me to be the wholesale line that you need. Yeah, I mean, we put you in the position of Wells Fargo, right?

Starting point is 00:26:40 Yeah. I mean, you're able to obtain capital at a certain price and then buy revenue at a higher price. and strip the difference. And, you know, that's, it's honestly, it's the reason I love the money game. So, like, the Bankers Code is a book I love. Richest Man in Babylon is like, was one of the first ones I read. I was like, okay, there's levels to this game.

Starting point is 00:27:05 And, you know, I was raised in a family where you trade your time and energy for money. And money is a reward. And I've been blessed to transition to where I now view money as a tool. And money is a tool to buy time and a tool to make more money. And that's how I teach my children. And you know them. You've met them. It's all about like, no, I know dad didn't go to college, but you're going to college.

Starting point is 00:27:34 And you're going to learn about finance. And you're going to learn that money is the language of business. And money is a tool that you can leverage. and eventually you have more money than you ever thought you would and you have more time than you ever thought you would. And that's the amazing power of what you're doing and what we hope to enable more and more people like you to do. Yeah, I was telling an agent that works for us yesterday, they were talking about commissions or something. I said, commissions aren't the gold. That's not the gold. Commissions are fuel to run the engine for what you should be taking that money and putting it

Starting point is 00:28:07 into. It's like, it's like, yeah, you got to pay your bills and stuff. But before you go buy a handbag, maybe go buy an investment or make some make a return on that money that buys the handbag and then you never lose the money it's the game here it was cool the other day and so we offer really great benefits it's something i'm proud of uh because some people just don't know how to invest right so we do 5% matching and all that for the 401ks and give them great health insurance and all that the other day and an employee of ours was taking a loan out against their 401k and i always get worried Like, am I paying them enough? Are they okay?

Starting point is 00:28:45 So we approved the loan. And then I went to that employee later and I said, hey, you know, is there anything you need? And it was so cool. They were like, no, I'm starting a business. You've encouraged me to be an entrepreneur and I want to create other revenue streams. And it was just like, you want to jump up and down and cheer because that's, that's, that's, you know, the salary in the 401k is not that. the goal like getting to a position where you know you're making money and passively and you're building a legacy like it's just i just love entrepreneur so i get excited about anyone that gets into

Starting point is 00:29:23 business well it's it's one of the themes in my book that if you don't get busy planning your life somebody else is going to plan it for you and it's not going to be a plan that you like it might be a plan to tolerate but it's not a plan that you like yeah and i think you know sometimes you know you do have to tolerate things but you need to be working on your exit strategy. I mean, it's, my personality is I'm a builder. I'm a creator.

Starting point is 00:29:48 I'm not a manager. And so I've been really clear with everyone here that, you know, there's a time in the next 12 to 18 months where I'm no longer the CEO. And I step up to the board and I stay in that visionary genius zone and let someone else run the day to day. We're still in the infancy, right? Like our kids is still learning to walk.

Starting point is 00:30:11 So I still have to be here every day. But, you know, the hope is sometime in 2026 to bring on a CEO that will be so much better at so many things than I am. And then I can go back to the board and just be the strategy guy, the visionary guy, and keep the company on mission. Well, let me ask you, it's funny you talked about mission yesterday. I think you saw my post about it yesterday, but an experience with a company that had obviously been purchased by. I rolled up into a larger pool, my pool got retired, right? After like three years, my pool guy just said, I'm going to retire. Okay, cool. So I need to do pool guy. So I just jump on Google and I see a place with like 50, you know, five star reviews. I'm like, cool. I fill out their online

Starting point is 00:30:58 form and there you go. And it takes them like two days to get back to me. They get back to me. We got to, and you got to go into their calendar link and schedule an appointment. And then the guy comes over and I'm like, well, how much is going to be? And he's like, well, they're going to send you a bid to approve and I'm like for pool service and he's like yeah and so so I get this bid that's got all these extras put on I'm like no dude I just need the pool click just get rid of that that that I just seem a pool clean right and then it takes them like four days to get back to the just adjusted bid and now I'm like day eight or whatever and I'm like what what the world and then finally send me your bid is approved and on day nine they send me a link to okay now you got to set

Starting point is 00:31:34 a calendar link for an onboarding call I'm like we're cleaning my pool And I called a guy, I just call the company and I go, guys, I don't have time for this, right? I'm terrified if there's a problem. Now I'm going to have to set a county league to do this. I just, do you want to clean my pool or do you not want to clean it? And the guy would, I mean, pissed off about it. He goes, well, if you don't want to go through with our procedures, we can just cancel the order. And I instantly knew what happened, right?

Starting point is 00:32:02 I've been around long enough and I've scaled enough businesses to understand that this is where SOPs have now gone too far. they spent all this time and energy to develop this standard operating procedure to make them more streamlined and more efficient and more transparent to the customer and all the stuff and at the end of the day all it's done is make it harder for me to do business with them so as you are that that's coming to a question i just didn't want to i didn't want to bitch about that pool company notice i didn't give their name because it's not that guy but i am but no no no the only company all ever disparage is chilies chilies Suck it, Chili's. Suck it. You suck it. I'd rather starve the need at your restaurant. But anyway, as you're building your company, man, how do you, how do you craft the SOPs to a place where you don't lose that ease of people doing business with you?

Starting point is 00:32:54 How do you, how do you make sure that doesn't happen? So for one, not only am I the founder, I'm also a customer. And I have this amazing, amazing wife named Jennifer. that goes through the loan process about once a quarter. And John, I know you have this amazing wife named Gidgett, but she doesn't really hold back her feedback to make you happy, does she? No. Yeah.

Starting point is 00:33:21 So that's one way is Jennifer and I do loans with the company. And when they're doing something stupid that we never agreed on, I get an email. I get a text. I get a screenshot. It's like, why are you making me do this? And it's like, I'm not. It's an SOP going off the rails.

Starting point is 00:33:36 let me get involved and then you know i i believe every business owner should secret shop their company consistently amen uh at least once a week i'll call from a mass number and just go through the phone tree right and i get stuck on hold sometimes and i'm like what the and by the way then you know how much salary you're paying by the hour and you're kind of like i can't even get my phone answered and so and then i'll call after hours and i'll test the uh the the answering service that we use on the weekend and and they won't be able to answer my questions and I'll turn that into hey marketing team we need to we need to go back over the scripts with the answering service so I think it's a I call myself a Velociraptor uh which means I kind of run around

Starting point is 00:34:22 and test the fences as much as possible to find out where the vulnerabilities are uh it's good it's a good way to picture me actually that's great now yeah yeah I mean it's I think you have to you have to be obsessed with customer experience and customer service. Otherwise, you will become just like everyone else. And then you lose your strategic advantages. So, I mean, before this call, I was in there with our loan officer team going over what their problems are. Like, why is this file in processing for seven days? Why?

Starting point is 00:34:57 Why? Why aren't you, fire the customer. Because, by the way, if my process is John Gafford has to click this link, if John Gaffer doesn't click it in three or four days, I need to call John, say, hey, John, maybe we're not the right fit for you. Like, let's just move on. I don't want you to have a bad experience. You just want your fucking pool cleaned.

Starting point is 00:35:14 I'm not the guy for you. Like, we are, you know, whatever. And so we do that. And then out of that meeting, here's a fun one for you. I know you have a ton of mortgage experience. Legal review of entities is complicated. We get people with series LLCs and with limited partnerships and everybody wants to form a damn Wyoming.

Starting point is 00:35:33 LLC now that owns an LLC in the state and we pay an attorney to give us a to review the entities to make sure that we're protected before we close yeah so we tend to let that ride till the end of the process so that we're not burning legal review fees well then what's it become a hold up at the last minute and so we had a I pulled my chief revenue officer aside after that say, hey, we need to find out, I feel like one entity should be included for free, but maybe we increase the application fee by 240 bucks since it's 120 per entity and half are going to fall out. And, which by the way, we credit the application fee to you at closing. Sure. Sure. Right. And I said, and then we can do it in parallel. And then we don't

Starting point is 00:36:28 run the risk of, you know, burning that cash. And or we need to figure out the exact number that fall out, which I think it's right now around 43% that fall out after processing, and just it's a sunk cost and it goes into your loan level economics. But bottom line is, you can't wait to review entities until the day before closing because you're going to have unhappy people and you're going to miss deadlines. And I'm going to fix that next week. Yeah, I think what did I read? I remember I read it the other day. It was saying the only real job of a CEO is to increase revenue and remove bottlenecks. That's it. Yeah. I believe that. Increasing revenue is, you know, you were talking about the model and the plan earlier.

Starting point is 00:37:11 We believe we'll be break-even around 72 to 73 loans a month, which should be sometime in the fourth quarter, which will basically mean for the first 24 months we ran in the negative. But it's been very intentional. You know, you have to build the platform in order to scale the platform, but we are looking at ways to increase revenue without impacting the customer, right? You know, it's, or at least the customers that close. I'm not, I'm not that worried about the dipshits that, uh, went to one real estate guru class and can't read or write or don't have a bank account.

Starting point is 00:37:53 Like, I mean, we're not that worried about that person, but the customer that has good intentions and is willing to listen and follow instructions, uh, we, we, want to make sure that we're providing rapid service and an amazing customer experience. Let me ask this. Let me ask this. How can you, have you looked at other verticals to try to snap onto this to increase revenue? Yes.

Starting point is 00:38:14 One is obviously loan sales and capital markets is a big one. We've got, I mean, through a lot of hard work, we've got a group that's literally about to give us nine to one leverage. So with a million bucks, I can do 10 million in loans. and they're going to loan us the money at eight and a half. So, I mean, we turn a 12% interest mortgage into a 39% return. So that works. In other ways, insurance relationships, because every file needs insurance,

Starting point is 00:38:49 and, and, and this actually goes exactly what you said, half the files are delayed because insurance agents are lazy. Yeah. And someone just called their stupid state farm person that doesn't understand how to insure one of these. So we have actually already formed Ternish Insurance LLC. That was I was going to ask. That's the move.

Starting point is 00:39:08 That's the easiest bolt out of the world. Yeah. I mean, and so we're working on that. Technology, we believe that some of the technology we're creating can be licensed out. We've taken some strategic investments in a couple different technology companies. And there's some lead generation revenue we can generate there. Our fund management business, you know, we, take management fees. So that's, we raise capital from accredited investors. So that's a way we add

Starting point is 00:39:37 revenue. Servicing, we service all of our own loans. So that adds revenue. Eventually we could service for others. I don't really want to, but it's, it is an option. And then, you know, look, there's this space of events that can add revenue and lead to sales and lead to capital raising and lead to reputation that could make a lot of sense. Well, I know you're working on something with Justin Colby, our friend coming up soon. Yes? You want to talk about that? Yeah, yeah.

Starting point is 00:40:13 So, I mean, tomorrow, actually, in Dallas, I'm working with Justin Colby and Bobby Triplett to do our first event. And we're going to call it to find fund and fix event. So Justin's great at finding off market deals. I'm obviously great at funding them. And Bobby Triplett, he ran all of the construction for Blackstone in the state of Florida during the ramp up. And now at OfferPad, they did tens of thousands of renovations,

Starting point is 00:40:42 and now they're doing renovations for normal people. And when I first heard it, I wrote it off. I thought it's going to be way too expensive for me or my customers. It is amazingly affordable. And most importantly, they hold themselves to complete. This is through OfferPad? This is through OfferPad? Yeah.

Starting point is 00:41:01 Yeah. Okay. And so they, they now, we did a partnership with them. We'll pay them directly for our customers. So if our customer will use them, I'll give them their half down and I'll give them the rest when it's complete and the customer says it's complete. Did I, hang on, did I ever tell you, I'm going to sidebar because it's my podcast, I could do this.

Starting point is 00:41:19 Did I ever tell you that I personally believe this, right? I don't know if it's true, but I personally believe this. The idea for offer pad was stolen from me. me. I don't know if it was stolen. It was just improved upon. Let's leave it at that. So I'll tell you the story real quick. So and again, if it was stolen and improved upon, God bless you for doing it, Brian. God bless, whatever. So we were, when we were buying for the hedge funds in Vegas, right? I was buying for Blackstone. I was also buying for an entity backed by Goldman Sachs out of Arizona called Frio, F-R-E-O-L-C was their front. Goldman Sachs backed hedge fund. And I was their biggest buyer here in Vegas. Their biggest buyer in Arizona was a guy named Brian Bear, all right? So Brian, we also bought some stuff in Vegas so could see what I was doing. So we invented a platform and I built it out called listing dealer. And my idea for listing dealer was agents could come and put their pre-marketed listings

Starting point is 00:42:20 directly on our platform and then get multiple offers because I was representing multiple hedge funds, multiple offers directly one from Blackstone, one from Frio, and then they could double in their listing, right? It essentially worked exactly the same way offer fat does just for agents, and then he just cut the agents out. He just essentially took my idea and cut the agents out and then just did it straight to consumer. And I was like, but wait, no.

Starting point is 00:42:46 Oh, man, geez. So anyway, God bless him for taking my idea and improving upon it, which I think is the magic of the free market. So good for you, but yeah, at the end of the day, I'm responsible for that. Well, I mean, look, that entire I buyer thing, I mean, they were one of the few that did it right. Yeah. They actually made money and didn't get loose in their criteria. And then now you talk about adding revenue, they decided we've got all these crews.

Starting point is 00:43:13 We've been doing this for five or six years. Why not do it for the normal customer? And Bobby and I were talking about it, it's going great for them. They love it. They love working with the normal customers. and like what an amazing thing. You get a hedge fund quality renovation where they're completing the work,

Starting point is 00:43:31 literally they have an SLA service level agreement where they will complete at least $1,000 of work per day. So we're seeing $30,000, $40,000 rehabs market ready in 30, 40 days. Wow. And so for a new investor where that's where you're probably going to lose your money, you know, you're going to screw up on the rehab or have a contractor, Yankee around, it's just one heck of, of a deal. So we're doing that fine fund and fix event this week in Dallas, but then.

Starting point is 00:43:58 So let me put that together for those who just missed kind of what you said. So essentially, if you find a deal, Tim will give you 100% financing on it, regardless of kind of if you've ever done this before, if the deal is right, because they lend on the deal, not so much the human. And then you can hire this hedge fund that can come in and do the entire rehab very quickly at a decent price and get you on the market and get and make money. And you don't even have to handle the money if you if you sign a little agreement we'll give them that are 50% down and then you don't even have to go check the house and then they call you when it's done and let john go walk it and play mr investor and then we wire them the final payment oh my gosh wow yeah that's a great deal right

Starting point is 00:44:41 that's a great deal what states did they do in that in uh Nevada which i don't loan there yet I'm trying to ask John Gaffer for help. Colorado, Arizona. I'll help you whatever you want. You always get my up. Texas, Tennessee, Florida, Ohio. They've got a pretty good footprint and they're going to grow. So it's basically everywhere they were doing their own houses.

Starting point is 00:45:05 And the coolest thing is their crew has no idea if it's a corporate home or an independent customer home. So you get literally the exact same treatment as if. you were the big hedge phone wow yeah that's good that's great that's very cool very cool stuff all right um what else man well we got big event coming up in dallas not to distant future so well real quick how do they come to the event tomorrow if they want to do that uh lord i don't know um no uh just find me on social uh and click the link in my bio uh it's on event bright and it's on like all of our social channels i don't even we should have like a turnus events web page uh I definitely talk to the B-D guys over in the corner, shaking his head, like,

Starting point is 00:45:51 yeah, yeah, I know this is now a task for me. How do they, well, how do they find you? Where do they find you? Yeah, I just, I'm at Tim Harridge on every platform. Tim Harri's on every platform. Yeah, H-E-R-R-I-A-G-E. If they wanted to business with Ternus, how do they find Ternus? T-E-R-N-U-S at Turnus.com.

Starting point is 00:46:09 Fun story. I've only got 11 minutes left, but it was actually some dude's last name. And before I even registered the company, I went and bought the, URL had to hire a domain broker. I paid $15,000 for the URL and Jennifer gets the AMX text at GoDaddy for $15,000. Yeah. And I get the call. What are you doing? You know, and I'm like, it's that idea I told you about. She's like, oh, my God, I cannot believe I married this man. But yeah, so that's how I get struck. You know, that's a good lesson in itself. You got the URL first. I mean, I was Chad GPT and like threefold trying.

Starting point is 00:46:47 golden triangle three-way capital there were some weird names there don't go there john but like it was like uh but i found it and it worked and i wanted a short URL i wanted something that was really super short and had meaning uh because the whole company's about a vision but then we just bought a couple hundred of your books uh i think i've already bought like 200 now uh to i don't even know uh you put the first link out and i think i did the max order on amazon but no so we're doing a big event as part of the five-star conference, which is near and dear to my heart. I got my start there. That's where I met Blackstone, and that's where the five-star conference is in Dallas, September 28 through October 1st. It's all about defaulted servicing, the real estate,

Starting point is 00:47:31 the foreclosure business, REOs. And as part of that, they invite me to do a workshop all day, Wednesday, October 1st. So it's all day, Wednesday, October 1st. If you register for the workshop, you actually get to go to the entire five-star conference for free. So that's like an $1,100 ticket. And just all day, what I've done is ask my friends to come in and I've crafted an agenda where we're going to go through the current state of the market. The real estate market is struggling right now. 73% of metropolitan areas are down year over year.

Starting point is 00:48:08 And that's in value and in transactions. And I've invited a bunch of people that have done this before. John Gafford's going to speak and, you know, we're going to be really raw and real about how do you make money in a down market? Don't let it scare you, but don't be dumb, right? Justin's acquired for the hedge funds. He's going to be there. Bobby obviously does the work for the hedge funds.

Starting point is 00:48:29 He's going to be there. I've got Greg Harleen coming in and talk about self-directed IRAs. And obviously, he's got enough experience that he's been through this rodeo before. Yeah. My partner, Ron Sedio is coming in. And he's just, I mean, he's got several big. contract and he's going to talk but no i just said it's so funny man because you don't realize it but when you've been doing this as long as we have right it's like you i you know i see the

Starting point is 00:48:58 reports i watch the data i see the stuff and and i'm just like i'm like the old grisly vet in the corner you know just like what nothing you know call wake me up when it craters you know it's like who care and like these agents that have been the business since like 2017 or flippers or investors when, you know, it's just been a hockey sick straight up. They're all run around like the hair's on fire. It's like, calm down. All will be well. As a matter of fact, you know, it's like I tell people all the time, you know, yes, it's terrible because I'm a residential broker room and we do so much business and we have so many clients that own homes, but dude, if the market was to crash, I get rich when that happens. Like, that's like nobody's

Starting point is 00:49:40 secretly kind of rooting for that more than me. And that's why when I say, I just don't see it happening. I just don't see it happening. Hey, it's John Gafford from the Escaping the Drift podcast. And big news, my new book, Escaping the Drift is coming out. November the 11th, you can pre-order it right now at thejohngafford.com. There are tons of bonuses, tons of giveaways. Get the book. If you are somebody that feels like you might be drifting along, this is for you. If you know somebody that feels like they might be drifting along, this is for you. Available everywhere, all bookstores, everywhere. Amazon, Barnes and Nobles, the whole nine yards.

Starting point is 00:50:17 But pick your copy up right now at thejohn Gaffer.com and get a bunch of the awesome bonuses I've thrown out because I promise you, I put my heart and soul into this thing. I want it to help you change your life. Pick it up everywhere. I don't see a crash, John, but, you know, people need to adjust the way they're doing business, right? And, I mean, there's certain parts of Florida that are down 13% year over year. And if you're still out there expecting to buy it 80 cents on the dollar and flip a house and make money, you're wrong. And so as a lender, I have to really pay attention to that.

Starting point is 00:50:53 And there's some areas that we won't loan in right now because they're so unstable. Or if we do, you're looking at, you know, 60% leverage instead of 70, which is why we're doing these events because people like me and you and you and Justin and the crew I'm bringing in, that's what you do in a down market. you can still make money, you just have to adjust the way you're buying houses. You can't still pay full price. Your risk analysis has to change is what it is. You can't, you know, there's been so much speculation in the marketplace. And dude, I got burned. I mean, I took a seven figure loss when rates shot up to seven percent because we just

Starting point is 00:51:31 happened to be sitting on, you know, $20 million worth the houses that were all, you know, luxury homes that we were flipping. and just unfortunately the carry of the carry cost on the on the notes ate us alive and you know you just get caught with too many cards in your hand you get too many cards in your hand when the when the music stops sometimes that's what happens but again you just have to be smart about what you're doing and I think the fact that you know you and I both have taken some of those lumps over the years makes us really qualified to talk about how to evaluate risk in markets like this yeah and and it's just it's all on who you listen to because I'm a big consumer of information, but everybody's like,

Starting point is 00:52:15 oh, I can't wait. The person that's saying, I'm glad the market's going down or, you know, you don't wait to buy real estate. You buy real estate and wait. It's, it's just don't follow people that just repeat clitchy little headlines. I mean, it's maybe you do wait to buy real estate. I mean, you know, I mean, at least in certain areas. I mean, why catch the falling night? or if you're not going to wait, you need to make sure that you're adjusting your strategy because paying full price and hoping for future appreciation, hope is not a strategy. Yeah, it's not. You know, for me, just going forward, just tell you what my thoughts are on the market,

Starting point is 00:52:54 when I'm telling everybody is, it's 100%. Our market is being driven right now, less by economic factors and more by public sentiment. And the public sentiment is wrapped around the rate. It's the mental thought of that rate because somebody people, got those rates in the threes back when they could in the early, you know, 2021, and they're married to them. And so what's going to happen is when you see that rate, they're projecting now, Fannie was said, what, 6.1 by the end of the year, I think it's going to be lower. I think you're going to see, I mean, now that the jobs report are coming in, nice. I mean, I saw the best jobs report

Starting point is 00:53:28 tweet ever that it said after the Gators, the Florida Gators lost the Bulls, saw Florida Bulls, that said, yeah, the jobs report, Trump said they weren't going to get adjusted anymore, but they are because it did say 25,000 jobs were created. Now it says 25,001 because I guess Billing Day Pierce is going to get fired. But now that you're seeing that data come in right, I think you're going to see us tipping the fives before the end of the year. And I think the psychological effect of that rate hitting the fives, I think you're going to see people that have been, God, I'm so sick of living in this house, but I got this great payment, you're going to see them, okay, maybe I'll swallow all right there now. And when it gets to five, five, it's going to be

Starting point is 00:54:07 an absolute onslaught. It's going to be just a waterfall. I completely agree. That's why we're building Ternus for a DSCR refi boom in Q1. Because, you know, same thing in the investment property space. Rates have, they went from, I was locking at three and a half to, you were lucky to lock at eight. And some people did because they had vacant inventory. They had to get refied. And so I think next year is going to be a great use. for all real estate industries, but there's certain markets that are going to have to come down a little bit. I mean, they just agreed. Just going to happen. Doesn't mean they won't one day recover, but again, hope is just not a strategy. Well, I think some of it, some of it's been

Starting point is 00:54:54 driven by such heavy speculation, parts of Florida, parts of Texas, I think are, I've been overvaluated. I think Austin is in for a reckoning at some point. It is. But I think if you look at Vegas in particular, our market here, you know, you look at what's happened to this city in the last 10 years versus any other market in the country. I mean, what other city within 10 years got every major pro sport to come there? I mean, they just green let that NBA arena, so we're getting the NBA when they come. So that's going to happen. But you've got that. You've got Marky Mark, even though, you know, there's some problems of the tax stuff that, I think you're going to see the legislation come back in and push through those tax credits that

Starting point is 00:55:34 Marky Mark wants to build the studios here. I mean, everybody, we're talking about gaming down and the casinos down on the strip and in visit visitorship is down 13 percent yes Vegas will always depend on on the on the tourism on the industry here on gaming but less and less every day we're getting more and more industry here we're getting more more different things that can drive an economy here and so yeah i mean i'm always bullish about Vegas i'm always bullish about it look it's going to it's going to be up it's going to be down it's going to be up, it's going to be down, but it's getting more and more diversified. If you think back in the 80s, Texas was oil.

Starting point is 00:56:12 That was our entire economy, and now, like less than 20% of the Texas economy revolves around oil. So these things change and the people that are willing to be pro-business and attract businesses and diversify their job base is they're the ones that are always win. Yep. Cool. All right, buddy. Well, I know you got to go because you got a meeting. you got to get to. Any last thoughts for the folks at home? No, just to mean, I think the way you started this thing was perfect. It's no matter what business you're in, you have to understand the language

Starting point is 00:56:46 of business is money, and you have to know where your money comes from and where it's going, and you need to make sure you're well capitalized. Other than that, October 1st, five-star conference, come see me, find me on socials, and check the link of my bio. You can register and buy tickets there. Love it. Thanks, buddy. I'll see you soon. Thanks, John. Man, well, that was a fascinating talk. And like Tim said, if you're going to start a business, it's one thing to have an idea. It's another thing to have a product.

Starting point is 00:57:15 But if you don't have the capital, I mean, you're going to talk about they're not even profitable yet. And they're going to be profitable at the end of this quarter. So give your, understand what the runway is, understand what your burn rate is, how much capital it's going to cost to get you from A to where you want to be. And don't go into it with the, I'm just going to figure it out because it's a recipe for disaster. we'll see you next week what's up everybody thanks for joining us for another episode

Starting point is 00:57:43 of Escaping the Drift hope you got a bunch out of it or at least as much as I did out of it anyway if you want to learn more about the show you can always go over to escapingthrift.com you can join our mailing list but do me a favor if you wouldn't mind throw up that five-star review

Starting point is 00:57:57 give us a share do something man we're here for you hopefully you'll be here for us but anyway in the meantime we will see you at the next episode Thank you.

Escaping the Drift with John Gafford - Revolutionizing Property Lending with Tim Herriage

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