The Science of Flipping - Episode 146: How to Raise Money – Real Estate Investing with Chris Naugle

Episode Date: July 5, 2019

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Welcome to the Science of Flipping Podcast. I'm your host, Justin Colby. Yo, yo, welcome back to the Science of Flipping Podcast. I am your host, Justin Colby. And if you're watching this on YouTube, you see I have a guest, Mr. Chris Noggle. But before I get to you, bro, before I get to you, let me do my introduction. This is all about systems, tools, strategies to build a business that you want to be building. And so if you have not listened to any of the other episodes, and this happened to be your first episode, I really encourage you go back, start listening to the episodes. Watch me on YouTube. Go to, you know, Justin Colby VP on YouTube. Follow me on Instagram, the Justin Colby. Follow me on Facebook. I put my podcast up there. I give away a bunch of content on all my platforms because there's a lot of tools. There's a lot of systems. There's a lot of strategy to this business, but it's not difficult. And our guest, as you see here, really is a master in this business. He's been on the HGTV show, Risky Builders. He has flipped

240 plus homes. I mean, his resume speaks for himself. Best known for the money school. And a good friend of mine, Mr. Chris Noggle. What's up, dude? Hey, man. How are you? Glad to be on here. Yeah. No, thank you for finding time, dude. I know you are slammed. We were just talking before recording, you know, you're traveling to this city and that city and these masterminds and speaking at these events and you have your own education system. I mean, you're busy, bro. So for you to take your time, give it to me and my tribe, dude, I'm greatly appreciative. That's absolutely my pleasure. If you give, you get. It's a golden rule.

Amen, brother. Amen. So listen, I think it's about time that I re-talk about this subject. It's a subject that is very, very important, as you and I both know. And for those of you who have followed my history and my path, I started rehab flipping and about five years ago, I really got into wholesaling. And so this podcast has really kind of followed that, meaning a lot of the first, I don't know, call it 50, 60 shows are rehab oriented. And then probably the last hundred have been wholesale oriented, but still the systems of

business come to play in this subject, which is money. Both of our favorite subjects is really important in both. And obviously having the money school is part of synonymous with Chris novel. I wanted to kind of bring up how, whether they're mom and pop investors or people that are flipping, buying properties, raising money, how to do it right. I think it's so important because if you do it wrong, it can go really south very quick. And I've had a couple instances where I've done it wrong and it goes south and it's not fun and it's hard on both parties and lawyers get involved in all this other stuff, right? And so, let's just kind of start there with the general subject of how to raise money. Let's start with privately because I think

most listeners are going to think, oh, if I can go buy a property and flip it, but who's got, you know, my uncle has 20 grand, my aunt has a hundred grand, so-and-so has this grand. Let's start there. Let's just kind of start with your general thoughts on raising private money. I love it because it always starts with money and it ends with money. So it's always a very easy topic to talk about. And it's something I've sort of mastered and wrote the book on. But so here's the thing. So first thing you do, you know, you watch a TV show like Risky Builders on HGTV or you're doing something else and you're like, I want to flip a house. And you're like, you go out there, you learn how to find the deal. Once you've got the deal, you got to find the money. And money is everywhere. And that's the

first and the most important thing is everybody needs to understand that money is the easy part. It's really everywhere and it's very easy to get, but there are some serious, very serious rules of engagement to going about that. And the first rule I always tell people is before you're going to go out and start trying to find private money, learn how to find private money. Start with where all that money is. And there's a lot of places it is. I mean, there's a lot of people out there teaching, you know, all the sources of money, and they usually start with hard money lenders. Hard money lenders are abundant. Just Google hard money lenders, and you'll see how many of these institutions there are. It is what I would

call easy money, but it's not always the most advantageous money. It's very expensive. The expectation of how much you're going to get, you're probably going to be upset when you get the number that they're actually going to lend you and you're going to have to come out of pocket. These are just rules that I've learned and things that I've been disappointed with over hundreds of deals and hundreds of times trying to get money from them. I don't think I've ever once had the appraisal come back that matched my comps. Have you, Justin, ever? No. It's like saying, have you ever had the easiest deal of all time? Right. It's like, I came up with $200,000 in comps and you guys are over here at $100,000. So,

there's some disconnect. So, just the best thing if you're going to deal with hard money lenders, go in with the expectation that they're not going to give you the amount of money that you think they're going to give you. Secondly, understand that it's going to be very expensive. Understand that if you don't pay them back in the amount of time that you set up, so if you do a 12-month loan and you want it and it just goes, you know, things happen and it goes 13 months, there's going to be an expense to that, a big one, a couple points sometimes. So hard money is usually an easy place and that's where everybody's pointing people to. But I specialize in private money, finding where all those other dollars are with

the people that you surround yourself with. And here's the thing, don't look too far. The people that have the money you need for the deal are the people that are the closest to you. They just don't know how to use their money. They don't know how to make their money work for them. And most of that money sits in simple places. It can sit in things like 401ks, right? Employer sponsored retirement plans. How many people do you know that have a job that put money to a 401k? Well, a lot. There's tens of trillions of dollars sitting in 401ks. But every time I say that, people are just like, oh, well, hold on, Chris. Hold on. 401ks, if I take money out of the 401k, I got to pay taxes and penalties. And I'm like, you're absolutely correct. You do. That's why we're not going to take money out of the 401k. Most 401ks are employer sponsored plans, 403bs, 457s.

They come in a various amount of names and titles, but they almost all have a loan provision. And when you take a loan from that 401k, you have to pay that loan back. So here's how I always tell people, let's just start with 401ks and how to go after that. And then we'll transition it down the line because it's really all the same thing. Instead of going and asking people for money, well actually one step back from that, who are you going to start with? Start with your primary circle. Your primary circle are the people you know best. Okay. Your neighbors, your coworkers, your friends, your family, that's who you're going to start with. And you have to understand the first and foremost thing, you have to solve their problem. That's who you're going to start with. And you have to understand the first and foremost thing, you have to solve their problem. That's it. You have to solve their problem. And I know you're probably sitting there thinking, well, what is their problem? I don't know what their problem is.

It's simple. Everybody has the exact same problem. They all want to make more money. And that's all you need to do. So if they've got a 401k and you're just having a conversation, here's how you go about the conversation. Stop asking for money. Stop asking them if they'll lend you money. Stop asking if you can borrow money. The second you ask, you're in a weak power, you're in a zero power position. They hold all the power, they hold all the control. But here's how I've learned to do it and here's how I've trained people to do it is instead of asking, go and present an opportunity. And it's very simple. Go to your neighbor, okay? Set up a day to take them out for coffee or go over and have a pop with them, whatever. You're out mowing the lawn just like, hey man, I got to show you

something. You want to see this? I got this crazy opportunity. You heard maybe or seen that I've been in real estate and I've been kind of dabbling in it and really learning the trade. I got to, can I show you this opportunity because I want your opinion. I want to see what you think of this because I think it's ridiculously good. You show them your flip, you show them your wholesale deal, whatever it is you're raising money for, you show it to them, you run them through the deal, be excited. Don't talk about, you know, you so much. Just talk about the opportunity and then pretty much drop them on their ass. Like just flat out drop them. Like be like, yeah, this is awesome. And then just wait for their comment. And if they say, yeah, that looks amazing. I got

to get into that. Be like, man, you know, you should do this deal. You should do this deal with me. Like, why not? Oh, I don't have any money. That's always the answer. I don't have any money. And then you say, well, yeah, I know. That's kind of what I'm struggling with a little bit, but don't, you have a 401k, right? You're still working for the factory. You got a 401k over there. Oh yeah, but I can't touch it. Well, no, no, no. Can you take loans? I'm not sure. Have them ask HR if they can take a loan, but then you have to explain to them how the loans work. And here's how they work. If that neighbor takes a loan from their 401k, they just have to pay that loan back and they're going to have to pay it back with interest and usually inside of five years. But when they're paying that interest back, the thing that they

probably don't know is every penny of the interest that they pay back to themselves is their money. The 401k company doesn't keep that money. That money doesn't vanish or go to the bank or go to the institution. That's their money. So they take a loan from their 401k. They give it to you, who has the opportunity that you're sharing in. And you in turn say, all right, let's just call it 10%. I'm going to pay you 10%. Your loan interest on your 401k is five. I'm going to pay you 10. Essentially, you literally just showed them how to double the return on their 401k. But you actually did way better than that. You showed them how to double their return with a fixed return, not that up and down crap you see in the stock market with a fixed return. But then every penny

that they pay back with interest, that's going back, that money goes back to them. So they really make money on top of money. That's just a 401k. That same strategy works with everything. Present an opportunity to solve someone's problem. Then if they don't have a 401k, a lot of people have IRAs. And I'll tell you something right now for anything that you want to talk about stock market related is the best time. We're at the top of the market. I mean, would you agree, Justin? Are we close to the top? We are at the freaking top and I don't need to get into my whole market patterns thing in today, but if you want more information, you can find it. I talk a lot about market patterns and how to really become an expert without being an expert. We are at the top

of and the end of a market cycle, meaning where's it going to go? Flat, then down or just down. So if you just get them to agree to you that the markets are high and there should be a little concern about their stocks, this provides an amazing opportunity because now you're presenting an opportunity with a tangible piece of property, a piece of property that can't go to zero. And I can tell you the one thing I will guarantee you that stocks, bonds, mutual funds, and ETFs can do or cannot do. Let me just tell you what they can't do. They can never go below zero. So if they're okay with that, not that, that risk, never go below zero, then they should stay in stocks. But if they don't

want their account to ever go below zero or go to zero, then real estate's a great opportunity and you hold the key to that. So present an opportunity to solve their problems and that's a 401k. IRAs are even easier. You just go to them. They probably got old 401ks that they've moved into IRAs that their advisor said was the greatest thing and they're probably not happy with the returns. And even if they are happy with the returns, just give it a few months, give it six months or a year. When the market goes down, you need to learn this stuff and get really good at this because when the market goes down, the floodgates are going to open. All the money in the system, all of it in stocks is going to flow to the safest place. What is the safest place going to be? You. It's going to be your

deals, your opportunities. That's going to be one of the safest places outside of cash. You just need to present those opportunities. 401ks, IRAs, individual retirement accounts. And then my favorite, Justin, is I think everybody knows that real estate's been going up five years, 10 years. It's safe to say that real estate's gone nothing but up, right? So if real estate's done nothing but gone up and everybody that has a house is sitting there really excited because they're sitting there saying, wow, I've got all this equity built in my house. So you got all this equity, but that money is just sitting there. So, so many people I love, I love it when someone comes to me and they say, you know, I'm having a big party. I just paid my house off. I'm going to have a house payoff party. Sweet. The first thing you should do is be like, yeah, I'm going to go. I'm going to go and have

free drinks. And you should pat them on the back and then you should have the hard discussion with them of how did this change your life? How did paying your house off actually change your life? And their answer is going to be, oh, I don't have a mortgage payment. It doesn't mean anything. That house is still a liability until someone decides or learns how to turn it into an asset. And the only way to turn a house into an asset is to have it start paying you. So the best way I've found to do it is to talk to people about how their house, their primary residence can pay for their car. Now, if they've got a Tesla, a Porsche, or any car in the driveway, show them how their house will pay for that car. And it's very simple.

Tap into the equity. Five, 10 years of growth in real estate, a lot of people have a lot of equity sitting there and it's doing nothing. I always like to say to people, I'm like, you know, we are so good. We're taught so well on how to go out and hustle, how to work hard, how to work long hours to get ahead and to get the life we want. But we have never been taught how to actually send our money to work. So our money literally sits home on the couch all day when we're out working. It watches our TV. It eats our potato chips. It drinks our soda. That's what our money's doing every day. And that's what their money is doing when it's sitting in that house. And all you need to do is show them how to tap the equity. So home equity

line of credit, piece of cake, have them take it out. Usually doesn't cost them anything. And if they don't use the money, zero cost. But now they have access to an opportunity. And that opportunity is the money that they have access to. Present your opportunity. Same thing I just told you with the 401k. They're going to have to pay interest on that home equity line of credit. If it's 5%, show them how to double it. If that doesn't do it, add two points to it. Give them 12%. Look, the one thing I've learned, and Justin, I know you and I have talked about this, is it doesn't matter what you pay in interest for that opportunity. If you build that interest cost into your deal, it doesn't matter

what you pay. What matters is you not getting that deal done. That's what really matters because that's when the opportunity is gone. So if 12% is their number, great. If 15 is their number, great. Build it in. And if your deal supports it, do that. But there's so much money and I just showed you three different places. I didn't even get into talking about like permanent life insurance. That's like the hidden gem. But I think we should talk a little bit about how to be safe with it and how to actually, so once you get them interested in the opportunity, then you're like, I got it oh now what so you want to go should we just go right into that because now you've kind of said where it'd be let's just say someone says okay I have 200 grand or whatever number I don't care because then we start to play with this idea of like well if someone has enough money

but doesn't have enough money to buy it and rehab. Like, how do you handle that? How do you protect it? What are the legalities? Cause the SEC absolutely scrutinizes this stuff. But let's, let's give a general idea of how to protect them, protect yourself, um, with one lender. And maybe if you have multiple lenders in the deal. Yeah. So there's a lot of ways that you have to, well, you really have to learn how this is done. And it's very simple because you don't have to write the book. You literally just have to mimic exactly what you did do. You wrote the book. I did write the book. Yeah. But, uh, and it's all in there literally step by step, but I'm just going to outline it really quickly. All you do is you mimic what banks do, what they've been doing for 200 plus years, because you know who the smartest person in the room is when it comes to money? It's the banks. They're genius. If you don't believe me, look at your mortgage statement

every month when you get it and look at how much. So you got a mortgage and it's 3%, right? And you're all super pumped. My mortgage is only 3%. It's not about the interest charge. It's not about what they're charging. It's about the volume of interest. You are probably paying in the first seven years, 80% of your mortgage payment is going directly to the bank for interest. How does that make you feel that 20% of that money is going to the principal, but you thought you were only paying three or 5%. Anyway, not to get off into that one. Just think about what banks do and think about how smart they are and mimic them. So here's what a bank would do. If you were a flipper going into a bank and you wanted to

borrow money, the bank would require you to lay out your opportunity, to lay out your deal. They would look at you on paper. They would scrutinize you, look at your credit. You don't need to go into all that. Your buddy, your neighbor, who's going to loan you money from his 401k for this opportunity, you're going to pay him 10%. The first thing you need to do, and he may not know this, you need to be the expert in the room. He is going to loan money, not to you individually. If he does loan to you individually, you are putting yourself in hot water. That's all I'm going to tell you. And you're putting him in hot water. He has to loan money to your entity, to your LLC, your S-corp, whatever entity. And if you don't have one, well, folks go out and get one because that's not the hard part. Get an entity. He's

going to loan the money to the entity. Now there's some paperwork that has to be done. When you fill out all the paperwork, that big packet of paperwork for the banks, all that is, it's two things really. It's a note and all the note is, it's a promissory note. That note spells out the terms. So, what are the terms? Well, you know, neighbor is going to lend me $200,000 at 10%. Those are terms for 12 months. If I don't pay, this is how long I'm going to go before I foreclose. All that stuff is in that note. It's a simple document. Any attorney can write a promissory note.

Just make sure that that promissory note is what you want and what your neighbor wants. So you both negotiate the terms on that. Secondly, you got the note. Then that neighbor is going to go. They're going to take the loan from the 401k. And then he's got the money, right? He's got the money ready to give it to you. He's super pumped about your opportunity.

The first and last thing, the first thing you don't ever do and the last thing you ever want to do is take the money. That money goes directly to escrow. If you're in a title state, it goes to the title company. If you're in a state like New York where it's an attorney state, the money goes to the attorney's escrow. Don't touch the money. Don't ever touch it. Okay, it's toxic. The money goes into escrow and it sits there until the deal closes. Now, from the point where that money entered escrow, there's a couple things you need to do now. First off, you need to go out and get yourself a nice insurance policy. Okay, an insurance policy that protects your neighbor and lists them as additionally insured. Because hey, worst case scenario, let's say in California, let's just say there's a fire and it burns your house down and you had insurance on the house, but you forgot to list your neighbor as additionally insured. The insurance company is only going to write the check to your entity. They're not going to pay your neighbor. And if

you're, well, I'm not saying anyone on here is going to be out to get anybody. But if you were that guy and you decided to hightail it east, well, your neighbor's got to chase you down because the money doesn't go to them. List your neighbor or whoever your lender is as additionally insured. Simple. So you got the insurance document. You got the signed note. The money's in escrow. The deal closes.

When the deal closes, the title company needs to be instructed by you, your neighbor won't know this, by you to file a mortgage or record a, they basically need to put a lien on the property. And it goes by a lot of things. We call it mortgages here. So just go with that. They have to file a lien because you want your neighbor to be in a first position. Now, that's pretty much the extent of it. I'm gonna give you one other tidbit of info that will protect you so that when you do this a lot, you're never gonna get in trouble.

Once that deal closes and the title company or the attorney releases those funds to you so you can go out and renovate that property, right? Because you probably borrowed money for the purchase and the renovation. That renovation money, don't just go putting that in any old general account. Put that money in a segregated account that's earmarked just for that property so that if

anything ever happens and you have to prove to your neighbor where all the money went, you have one bank account that shows the entire transaction log. It just keeps you safe. I mean, you don't have to do that and some people have scrutinized me for saying to do that. I just like being completely transparent. So, here's the other thing. Now, let's just say your neighbor didn't have enough money to fund your deal and you're like, oh crap, I'm short. Well, the neighbor next to him and the neighbor next to him and your co-worker and your family and friends, you can piece all of them together. You can literally take all of these people. You can take as many really as you want, pull them together on, you can do one note or multiple notes. I would probably suggest multiple notes, okay? Because it just keeps it transparent and nobody likes to be on

the same one. But when you go to that title company, you have to instruct them that all of these people are going to be in a first position. Or, you know, if you structure it different, one can be in a first and one can be in second. But it's like Ricky Bobby said, you know, you're either first or you're last. So nobody really wants to be in a last position. So try to keep everybody in a first position and just take the deal down. And that's how we do it. You just structure the deal to do that. That sounds complicated, but it's really simple. And if you just write it down on paper, it's just a flow. And if you don't want to learn this, guess what? Get an attorney that knows how

to do this and they will do it properly for you. Yeah. Or listen to yourself. I mean, you know, I know a lot of people are going to have a bunch of questions. Where would you like me to point them to find more about you? Download your stuff, get your book. Where would you like that? Super easy. I mean, I'm all over social media. So just look for Chris Noggle or on Instagram, Chris underscore Noggle. Send me a DM. I answer all my DMs and I'll answer any questions you have. The book is a great resource. So grab the private money guide. It's on Amazon. Just Google it. You can grab a copy of that. That'll explain it all. And there's so much more. I mean, I could go all day long on this stuff because we're just touching the main

stuff, but it gets so much more fun when you really start talking about structuring deals and using bank funding with private money and you get crazy. It gets fun. I mean, it's great because we only have so much bandwidth for people to listen to this. And so you could spend four days teaching this. I mean, the reality is money is a fun topic. The way it moves, the way it works, how you can structure it. There's so many great safe ways to do it so that you're SEC compliant. The biggest hurdle here is if you're quote unquote selling securities. And if you're not familiar with that, then look that up, what that means. You don't want to be doing that unless you were licensed to sell securities. What Chris is talking

about is a great way to protect yourself. So you're never in question of whether you're selling security, you're simply just getting a loan, and you're deeding it to the house. And so I myself have a lot of information as I've done this a lot. Chris is the master. He has, you know, the private money school. I mean, he get his book. I mean, genuinely get his book on Amazon, uh, the private money guide. This would be, this is, you got to read that to start. If you want to lend money and listen, at the end of the day, Chris and I, uh, are newly business partners together. Um, there's a big, great, awesome announcement that we will be making here shortly. Um, so if you're interested in lending money, there's a whole

other side where you can lend without any of the risk, right? And you just get a distribution or dividend every single month at a great return on your investment. And so that's a whole other side of this. We do not have time to go into, but maybe we just do another episode and talk about that because that's a very real opportunity. People love that because it's just mailbox money. Like there is no more passive way to invest in real estate than this thing that we're talking about that we're not talking about, if that makes sense. So if you had money and that you wanted to have your money go to work for you, right? And you wanted to do it in a safe way where you're not worried about the ups and downs in the markets and you just want a steady paycheck. Well, there's only a couple of places you can go where you get that mailbox money every month.

And we have that solution. And literally that's all it is. I like this. I want to be in real estate. I want a tangible asset securing it. Boom. Here's the answer. Every month the check shows up or every month the money's deposited in your retirement account. That's it. That's it. Just go to sleep and you get up in the next month. There's more money in your account. That's it. That's it. Just go to sleep and you get up in the next month, there's more money in your account. How nice would that be, right? What if life just worked like that? What if everything we did in life, every month we woke up and there was just more money in our account and we didn't have to work any harder, any longer, lose control of our money or do anything stupid like that. Man, that's awesome. I think that would be awesome. Sign me up. Where do I go? Where do I

sign? I'd have a line out the door if everybody, but here's the thing. We don't go out talking about it. And that's why you've probably never heard of it because people that know what they know about money, they don't talk about it. Well, I'm changing that. I'm the disruptor. What's talking about it? And that's what I like doing. No doubt. No doubt. Well, definitely look up Chris. Get his book. Look him up. Ask him messages. Ask me questions. Dude, again, I couldn't be more appreciative of you being on here. Absolutely.

Very excited to do this next episode where maybe we can disclose a little bit more super exciting stuff that we're going to be able to announce here very shortly. But dude, thank you again. I really appreciate your time. You're welcome. Thank you. I appreciate it. And thank you to every one of you.

And I hope you go out there and you just kill it. Yep. Peace. I appreciate it. And thank you to every one of you. And I hope you go out there and you just kill it. Yep. Peace. Later. Thanks.