The Science of Flipping - Episode 103: Borrowing Money With Greg Herlean

Episode Date: June 30, 2017

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Welcome to the Science of Flipping podcast. I'm your host, Justin Colby. What is up? What is up, everybody? And welcome back to the Science of Flipping. I am your loyal host, Justin Colby. And if you are watching this on YouTube or iTunes or on Facebook, as you can see, I have a very, very special guest with me. One of my good close friends, Greg Herlene. But before we get to him, if you are just listening to this for the first time, or maybe this is the first YouTube video you've seen, or maybe hearing the Science of Flipping podcast for the first time, go to the science of flipping website. I have a bunch of cool free stuff you can, uh, download. I have a real book

on Amazon called the science of flipping. Um, if you are watching this video or listening to me on iTunes right now, you can actually just go to the website and download it for free instead of buying it for $15. I sell it every day on Amazon, but for you, you can download it for free at the Science of Flipping podcast. For those of you who are interested in our mastermind or our coaching programs, fill out the application. It's absolutely free. Myself or someone from our team will get with you to figure out whether we're going to be a good fit. And then if you are looking for lending, this is why I have my man on the phone. Um, if you're part of the 50 K code, this is someone you need to know. Um, because he is an incredible

asset to you. He is, um, the owner and founder of horizon trust. He has flipped over 500 homes. He has flipped, I think nine hotels. He has lent over a billion dollars. So if that's just not enough, then maybe let's bring him on. My boy, Greg Kerlin. What's up, dude? Hey, Justin. Thanks for having me, man. I appreciate it. Right on. So man, I think one of the reasons why I wanted to make sure we had this call is A, you haven't been on my podcast yet, which is kind of crazy to me. But B, man, I think one of the biggest things these days that people are scared of doing and or just don't understand it, quite frankly, is how to raise money and what format and what do they say and where does it come from and who should they be asking? And some people even are saying, I have some money. How can I lend it? And everywhere in

between, right? And you're my guy go-to, you know, and so I wanted not only me to have access to you, but everybody, whether you're watching on YouTube or iTunes or whatnot. So let's just start there, right? I mean, you know, you've obviously lent a billion dollars. How did that even come about? By trial and error, frankly, the first like 100 homes, I was trying to scrape up money anywhere I could. Um, it did, it didn't get easier until I hit like my 40th or 50th home. Cause I was still always scraping like, okay, how do I figure out how to close this deal?

If I don't have equity or whatever the case was or any kind of down to, you know, deposit money. And, you know, look, I started at 23 years old. Yeah. Money didn't have family money, but money but um but i can tell you now like so so what i enjoy doing now and justin you and i get to work together you know every a couple times every year is telling people like how to shorten that gap so it took me a couple years to figure out like all the tricks and trades of where to find money where the best money is uh and so yeah so i enjoy that so i'll you real quick, just answering that question that you asked me about, if you want me to jump right into it, Justin. Yeah. It's two places. The two most successful places I've found money is talking to title companies. Yes. Going to title

companies and finding out in your area, which companies are closing deals every single day. Right. Everyone's like, oh, you should Google hard money or private investors. Sure, that can work. That's a little more trial by error, right? You can do like 100 emails or phone calls or sit downs. A lot of people say they lend, but they really don't lend or their terms are crazy.

Go to a title company in your city, in your area. Sure, I could lend you money, but I'm gonna charge you more probably because you might not be in the city that I specifically work in. But go build a relationship. Bring the cookies, bring the brownies, bring the lend you money, but I'm going to charge you more probably because you might not be in the city that I specifically work in. But go build a relationship. Bring the cookies. Bring the brownies.

Bring the thank yous. Bring the smile that Justin always has. And go find a relationship or two with a title company that says, hey, you know what? This company always closes deals. You should talk to them in this neighborhood or this area. That alone will save you so much time. And it doesn't require a lot of anything, frankly. So that was one. Justin, do you want to comment before I go to my second item?

Well, I have questions, but I'll let you go to the second item. Okay. Second item, which is where actually I have found and funded over 70% of my deals, which is IRAs. It's why I talk about IRAs all over the country. I have found and funded all of my deals, when I say all of them, 70% or more in the IRA space. Why? There's over 80 million IRAs in the United States. That's over $4.7 trillion. And most individuals, and many of you listeners probably don't even know,

that you can use your IRA to fund your own deal, or you can use your IRA to fund somebody else deal, or you can use your IRA to fund somebody else's deal. And so that's what was powerful to me is once I learned that 13, 14 years ago, I would always talk to individuals about lending me money, either in a first position, second position, equity position, or a JV and any kind of, you can structure it however you want. That's what's awesome about the IRA. And so therefore I just started learning about the IRA and I've really taken advantage of that, teaching people how to use their IRA. And then the beginning, helping people to move their IRA over to invest in my deals. That's how I actually started first in this space is people lent me

their IRA funds, just a portion of it. And I'd give them some kind of interest rate. And then in the beginning I gave them too much over time, I would give them less and less because they got comfortable with me and I got comfortable with them. But IRAs is one of the single most interesting and best ways of finding money and creating your own terms. So go ahead, Justin. What are some of your questions? I can go on and on about that subject. I know. Well, and that's why I actually want you on. I think one of the spaces, obviously, that you are really solving here is people's first question is, where do I find money? And between the typical, you know, your friends and your family, they go to hard money lenders and whatnot. But I think one of the subject matters that is very rarely spoke about and why you are such a sought after speaker on stage and you travel the country talking about it is because your friends and family likely have

a retirement account that may be set up correctly, likely not set up correctly. And you don't even realize you can go to them, put Greg in the middle, right? This is your business, Horizon Trust. And you, Greg, can teach this person's family member, friend, cousin, whoever, how to actually set it up as a tool for them to lend money to real estate to buy and obviously get their return. And then as the flipper, we get a loan. And we didn't even know as the flipper that my family member has this huge 401k that has a quarter million dollars in it. Well, that person can lend me money out of their 401k set up correctly by you, Greg. So let's just kind of talk about that. I'm kind of piecemealing it together. Um, but I think that, you know, the 50 K code, which is, which is the product that

I'm teaching people partially how to raise money. Um, their number one question was this subject matter, right? With my family, friends, colleagues, what I call the inner circle, how can I put this all together? So let's just talk about what you do and what your expertise is. So yeah, first and foremost, I want to tell you over 30% of the people that you know and I know have an IRA. So for those of you that's like, oh, you know what? I don't know. Like my family doesn't have an IRA. Look, 30% of the people, you know, have an IRA. So automatically just think about that. One third of people you're talking to have an IRA. Second of those individuals, over 90% of them are not happy with that, with how the IRA is performing. The rate's not very good.

They don't understand where they're investing. They, you know, it goes up and down the variables. They still understand it. And so people want to know what they can do with their IRA. So I actually provide more of a service of teaching them their options. And they're just ecstatic to kind of get out of the norm because the norm's not working. Put away money for the next 30 years and hypothetically making 10%, I can tell you, it's not working. That's what financial advisors have said for years and years and years. And then they look back and they go to retire and they don't have their million dollars or $2 million in their account. So anyways, first and foremost, I want to let you know that a third of the people you

know have an IRA. And then number two, as far as how the IRA works, our company, Horizon Trust Company, and I will do a little plug here. If you go to horizontrust.com or you can go to my name, gregherlean.com, either one, but at horizontrust.com, we are a self-directed company. So that's unique because a lot of financial companies like Charles Schwab and Fidelity, Merrill Lynch, they do not allow you to self-direct your funds. They don't allow you to. They give you your options. So you can invest in these 5 or 10 or 20 things or these 100 mutual funds, the traditional stock market.

They will not allow you to invest in the real estate market or be a lender or a flipper. And so you can actually do that. If our company were licensed, bonded, insured, I've been around for over seven years. I've been doing it for over 15 years, but our company's been around seven years. And we will hold your hand.

We'll actually, if it's for you or an individual that you've talked to that has an IRA that's gonna be your banker or your lender, if you refer them over to our staff, we'll actually fill out the application for them, help them move over a portion or all of their funds over to our trust company. And when that moves over, by the way, you don't pay taxes on it. It stays as an IRA. And once it arrives to us, then you send us your terms, your agreement, your contract.

And after you get the contract, we then will send the funds to title to close or to title to lend on that property and so it's a really simple clean process it's been around for a very long time this is actually big news back when Mitt Romney was running because when Mitt Romney was running everyone's like wow how did he amass his IRA to get you know to get so big and it's because he actually was investing in his own business. So anyways, that's kind of what we do at Horizon Trust, is we help you hold your hand through the process, teach you about it. Because everyone's account's a little bit different. You

might have an old 401k, or an IRA, or a simple, or a Roth. They all work. The only account that doesn't work is a current 401k where you're currently employed. You can't move those accounts. Once you leave or we get this, you know, fire, where the case is, or you take off, that IRA then is available to be moved. Yeah. So put yourself back in the space of real estate investor. You have your inner circle, you have your friends, you have your family, your colleagues, your neighbors, the people you work out at the gym, right? The inner circle, people you would trust to talk to saying, I want to flip this home once you do main street. Yep. How are you going to go about talking to that inner circle

about lending money and whether they have an IRA? Cause a lot of people don't, to your point, a lot of people don't even realize people have the money sitting on the sidelines. They don't realize that they have it. Right. So what would you suggest, whether you're just beginning or maybe you're like, man, I need an extra quarter million dollars to do two or three more flips at a time. How would you be trying to find those people that might have an IRA? So, so one of the first things that I do when I learned this years ago is I didn't really focus on a specific deal. I was looking for money for deals, but I just felt like everyone has a deal. Like what could separate me from everybody else who has a deal? Me, this young 24 year old, right? They're going to,

are they going to trust me? You know, like how much experience do I have? And so anyway, so I, I learned to try to introduce a concept again again, this concept, that was something new that they hadn't heard of. And so I make it a point wherever I go to teach people. This is before I owned this company. This isn't like, oh, now because I own. I started this company seven years ago. I've been in this business for over 15. And so I would start the conversation with people not about real estate investing so much as what do you do with your IRA?

Do you have an IRA? do you do with your IRA? Do you have an IRA? Are you happy with your IRA? And then I follow up by saying, did you know, or do you know that you can use your IRA in real estate? And I asked that question. I find out, did you know you can actually be a banker or a lender in real estate? Did you know you can do that with as little as $25,000? I asked those kinds of questions. And if they're interested, they start talking and I started talking about, then I love to ask them like in their IRA, like, so how's your IRA performing? I just started asking those kinds of questions and they're like, oh, well this or that, or like, well, did you know something that I can do with my IRA is something you can do as well. You can earn six, seven, eight, 10, 12% of your money fixed every

single year with collateral as real estate? Those are the kind of things that I talk. And so I would focus all on the IRA. And so they wanted to invest in real estate, but they didn't even care what, you know, which deal it was. Right. Most of us go out looking for money like this. We go out and say, Hey, look, I got this deal down. It's 1124 West Chester drive on whatever San Diego Boulevard. right? And so you're pitching a deal, a specific deal, and then someone's going to poke holes in that deal. Instead, I actually focus on the actual investment itself. Did you know you could do this? And then once they're excited about it, learn about it, and understand it, then they'll move their money over and they don't care what

deal they're on. And then what's cool about that is you can actually pick the terms. The great thing about an IRA is once I start talking to somebody, I find out what kind of rate of returns they've been getting. If their rate of return has been 7 or 8, why would I offer them 14? Yeah. Right. Offer them 10. I just say 2, 3, 4% per year.

That's a big deal when you're doing a $300,000, $400,000 deal. That's an extra 10 or 20 or $30,000 you keep in your pocket just by listening and understanding what they're currently making in their IRA. And that just goes back to this whole concept. Like you need to, I'm a big promoter of, if you're not talking about it, it's very difficult for the universe to give it to you, right? If you're not out there asking people, Hey, where do you keep your retirement? Hey, do you have a retirement account set up? What are you doing with the retirement account? If you're not just simply asking those couple questions you actually just have no idea and your uncle could have half a million dollars that you know

he was a mailman or whatever and he has all this money sitting there and it's not being utilized and to your point is simply asking the question now if i'm just getting started or if i'm less knowledgeable about this where would someone be able to find out more information, whether it's from you or your website has it? Because what I would say would be the big hurdle for someone trying to get into this or at least understand the power of this is being able to educatedly speak about it, right? Maybe the concept now is getting a little familiar. Where could they turn? Can they email someone in your office? Could they turn to someone and say, hey, my uncle is interested in speaking with you about converting his IRA to a self-directed or a Roth or whatever. How would this look? Where can they go? The best place to go really would be

our company. So if they wanted to call in and have their uncle or their investor or their friend on the call to actually hear it and let them actually talk about all the pros and cons and how it works, that's probably the best place to go. But if they just don't want to talk to him on the phone, if you go to our website, there's a ton of information. There's videos. If you go to my website, gregherlene.com, we'll all send you about 14 videos that you can read.'s something you know people pay for to me but again justin you and your crew anything that you know if you if all i gotta do is put this put in your name justin as far as the the referring person and i will make sure that they get my little video course that typically people people pay for but i'll give you those 14

videos and we'll teach you kind of all how it works and then when you're ready to figure out how to apply to you and your account awesome it's time for you to go on a call with one of my people. But again, if you reach out to us and say, Hey, look, I was on this, on this, uh, watching this video with Justin and Greg, I want to learn more. I don't want to watch all the videos. Can someone just give me a one-on-one, just call my office and say, I talked to Greg who can talk to me and we'll help you out. I mean, that's what our staff does. We hold clients hands every day to help them with this process. That's rad. By the way, Herlene, H-E-R-L-E-A-N, gregherlene.com, horizontrust.com. I don't want to just end there because at the end of the day, the next step here is maybe some of the people that are going to watch this video actually have money. They might have

their own. It's not about borrowing money, but it could potentially now turn actually have money. They might have their own and it's not about borrowing money, but it could potentially now turn into lending money. And you and I've had countless conversations about this, um, as you're kind of lining me up to figure out how I can start lending my money. Um, but yeah, let, let's talk to those people that might be on Facebook right now or listening or watching this on iTunes or wherever it may be. Um, what about those people? Right? Like how does that get set up so that they're protected? What would you advise them to do and what does it kind of look like? You know, you gotta be careful with that as well. And so look, I am partnered with a company, uh, um, nine years ago now they started, uh, 19, um, uh, 19 or 20 years ago, man, it started to, uh, starting to feel old now in this industry, but they, uh 19 um uh 19 or 20 years ago man it's starting to starting to feel old now

in this industry but they uh my partner started this company 20 years ago it's called cap source and so what we do and what other companies do again i'm not trying to before i got an ira space i just taught people this concept about lending money people that have money who want to be in the real estate business but don't want to flip, don't want to be like doing rehab and wholesale. I mean, it's a lot of work, as you know. There's a lot of reward. Totally. And so for those on this video and watching this or hearing this,

if you're interested in just being a passive real estate investor, which, by the way, is what I do now. I don't flip. I'm a passive investor. Guys bring me deals and I lend. I love making 7, 8, 9, 10, 11, 12% of my money fixed every single year. But doing it is very important. Having a company, again, I'm biased because I've done it for a long time,

like ours or someone else's that's licensed, that's audited every single year, that can walk you through it and make sure you have a title, a lien against the property, you have title insurance, that you're secured in a first position, that your terms are all outlined, there's a company that pays you monthly checks. You know, for me, it's all about passive now. I love lending. It's what I do in the real estate market. I lend every day. I get monthly checks. I get, you know, they're fixed. I know my rate of return is up front. I don't have to wonder what kind of rate of return I'm going to get.

So that's what I do. And so we can help you. Again, if you go to my website, I hate to keep saying that, but really if you go to my website and just put in your information and say, hey, look, I want to call with Greg's team. Myself or my team will call you back and kind of teach you how to lend, how to be a good lender. And I don't care if you don't have to do it with us. I'm not here. This is Justin and I are friends.

Justin called me and said, hey, can you do an informational thing for my people? That's what this is for. I hope to God that all of you go out and do these things with or without me. Go do it. Go be a lender. Go use your IRA. Go use it with my competitor. You'll come back to me, but it's okay.

Go do it with somebody else, and maybe you'll have a lot of success, and there's a good chance you will. But go do these things. Go be a banker. Be a lender with $25,000, go do these things. Go be a banker. Be a lender with 25, 50 grand. Go lend to somebody. Go make 10% fixed rate return with a lien on the property,

with title insurance, with documentation in place. That's something that we do and other companies do as well. I love it. I love it. And so all that documentation, the deed of trust,

the prom note, you have all that. It gets all set up so that the people can know how to be protected, I'm assuming, right? You'd show them how to do all that. We set it all up for you. Yep. And you send the money to Tidal. We never touch your money. Yeah. We never touch your interest even. It all goes through Tidal and through a servicing company.

And so one of the key components of understanding the value of this is this, a lot of the reason why I'm so damn interested in it, right? In lending my money in this format is because I don't need the income from lending. I want to lend and then build that, you know, wealth for that retirement fund, right? So the tax-free component is so big. So let's kind of jump into that a little bit. That's primarily why people want to do it. What we're talking about is you can lend and you can earn money and it can be tax free. So let's

jump in. Cause there's some, there's a little couple of things, you know, you have to be 65 and older to pull it out and things like that to be tax free. So let's talk a little bit about that. Yes. You can be a lender slash banker. Like we were talking about using your IRA money. You can be a flipper using your IRA money. If you're using your IRA money, obviously, it's IRA, which means you can't touch it until you're 59 1⁄2, and you also don't pay any taxes until you take it out, unless you do it inside of a Roth. Now, I've got my IRA set up into a Roth, a self-directed Roth IRA, which means it grows tax-free and comes out tax-free.

I still can't touch it until I'm 59 1⁄2, but I love that. Making a 7% rate of return in a Roth environment is like making a 12% or 13% return or 14% return outside of that kind of tax vehicle. And so it's just as important of how you invest and what kind of vehicle as necessarily in what you invest in. So you go make 7%, 8%, 6%, but do it instead of a Roth. It's like making so much more money. So what are the limitations there? You know, what would you suggest if you had to give a suggestion to someone who calls you and says, Hey Greg, my name's Fred. I just watched you and Justin live. I'm super interested in this as I have 50 grand set up in a typical IRA that's just sitting there.

I want to come to you, but how should I set it up? Because I want to lend Justin the 50 grand to do a flip, right? How would you suggest he go about that? Because there's so many, right? There's the IRA, there's a Roth IRA, there's self-directed, there's, I mean, you name it, right? 401k is got to, got to. Well, I'll tell you, there is, you know, if you're just starting out from scratch and you have a Roth IRA or you don't have a Roth IRA, you can actually put up $5,500 to $6,500 in per year. Now, it doesn't sound like a lot. You can actually open up a 401K with us, and based upon your income, you can actually put up up to fifty thousand dollars into a 401k with a roth kind of bucket we'll teach you how to do that that's complicated do that over a call like this or a video like this but you can put up anywhere from five thousand to fifty

thousand dollars into a roth environment based upon your income using a 401k we can help you do that so if you're starting from scratch you you can do it. You absolutely can. But for those in this room or listening to this that have, you know, $25,000 in your IRA, we can convert it over, rolling it to our company at Horizon Trust and then convert it to a Roth. And so your $25,000 could be a Roth. And so we do it every day. And so this is definitely something I recommend. Yeah. Yeah. Well, dude, I know, uh, I know you're a busy, busy man. You're actually traveling right now and, uh, you got some stuff to do. I think you and, uh, Kent are going to go have a couple cocktails and some food. So that's pretty awesome. So dude, I'm going to let you go as always,

brother. I appreciate you and everything you do. And you're just such a giving man, dude. He is the real deal in terms of he will give, give, give. So go to his website, gregherlene.com. Go to horizontrust.com. Where else? Anywhere else that you want to kind of plug or promote? Two great places, man. I appreciate it. Or just, you know, follow up with Justin.

Justin can always connect you with me. And so I'm always available. Wherever I'm at, I always want to make myself available. I love this. I'm passionate about it. And look, thanks for having me. I really appreciate it. Yeah.

Shoot me an email if you need to get a hold of Greg, whatever. Justin at The Science of Flipping. Again, thank you guys for the loyal listeners listening on iTunes. If you're on YouTube, peace out. We're out of here. Greg, I appreciate you, brother. All right. Thanks, Justin.