The Science of Flipping - Episode 63: Need more money for your flips? | Real Estate Investing Podcast

Episode Date: March 31, 2015

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Welcome to the Science of Flipping Podcast. I'm your host, Justin Kolbe. What's up, everybody? Welcome to another episode of the Science of Flipping Podcast. I am your host each and every week, Justin Kolbe. Thank you again for showing up to learn the systems and organization to run a very successful real estate investing program. Now, again, guys, I have an incredibly special guest. You don't want to miss it. You want to get your notepads out. A friend of mine and a special guest will be on here shortly with me.

Before I get there and bring him on, I want to remind everybody what this podcast is ultimately about. I am a full-time real estate investor and it hasn't been all puppy dogs and rainbows over the last eight or nine years. We have been able to take what we didn't know and systemize it and organize it into a way that we are now doing better than ever. This podcast is all about creating a lifestyle by design so that you can do deals without having to do every part of your business. For example, I talk about how I bought our first development project when I was in Costa

Rica. I just spent a week down in Southern California with some friends and some students. I actually have the systems in our business so that I no longer have to be in the office each and every day. I don't have to go answer the phones, meet with sellers, rehab the property, sell the property. I have systemized my business and this podcast is all about systemizing and organizing your business so you can live your life by design.

You can be traveling and spending time with families and really enjoying your life and not working in your business, but rather working on your business so that you have something for the future. That's really what I hit home about and our special guest that's coming on today knows all about that. If this is your first time here to this podcast and this happens to be the first time, go to thescienceofflipping.com. I am giving away for free my best-selling book that is currently selling each and every day on Amazon. I'm giving it to you for free,

for absolutely free. Go to thescienceofflipping.com and you can download The Science of Flipping book that is selling right now on Amazon for $13. I want you guys to have it for free. All right, now that we got all that kind of good stuff out of the way, my friend and fellow real estate investor and real estate expert, Mr. Josh Cantwell is on the line. How are you, buddy? I'm doing fantastic, Justin. Thanks so much for having me on. And I look forward to this, man. We've been trying to get this thing scheduled up for a long time. And it's been nice kind of regrouping, talking with you about everything you've been doing, investing and coaching your students all over California, really all over the country. But yeah, thanks a lot for having me on, man. I appreciate it.

Yeah, well, you know, I knew it had to be done, and I know you're busy and I'm busy, so I'm glad that we finally got to put this together. I'm very excited. You can probably tell from my energy level. Also had a lot of coffee today, so that always helps. Absolutely. So how are you?

What's going on? I know you're out in the East, and you run a very successful program, all based around 40K flips, right? That's right. That's right. So I've been a real estate investor for going on 10 years. I've been involved in over 680 real estate flips for my own account, some of those with partners, some of those without. I've also been involved in another 500 plus deals through my real estate brokerage that I used to own. I recently sold that about four months ago. So I've been involved in something like 1,000, 1,200 real estate deals. And about three years ago, my life changed dramatically. I had a massive health scare.

When I came back from recovering from that, I really started focusing on raising a significant amount of private capital. And I looked at all the real estate deals that we did using that money over the last three years or so. And our average profit per deal is about $40,000. It's almost exactly $40,100 and change. And so we've launched and sold a real estate training program as well called 40K Flips. And it's basically teaching people to model exactly what we've done, how to raise the money, how to find the best deals, how to outsource all the improvements, how to launch and sell the properties in as little as

90 minutes using our property launch formula. And then, you know, exactly how to cash the check and then go do another one. So yeah, our 40K flips program is basically just a model of exactly what we do each and every day. I know your story and the health difficulty that happened. One of the things I always like to remind people is real estate investing is not a get rich quick industry. You can get very rich and very wealthy, but part of that takes tenacity and hard work and never giving up. A, you know, a lot of people would probably look at yourself or even myself at this point and say, wow, you guys are successful and, you know, you're an overnight success. But I think it's funny because they don't always know the background stories that you've gone through or I've gone through, right? I think anyone that has reached the level of success that yourself or I have reached, there's always that story.

Yours happens to be health. Mine happened to be the market turning and losing everything and living on my buddy's couch as an adult and not even being able to afford dinner. There's always that story, right? Right. Sure. Sure. You know what's funny, Justin? It reminds me of a story. Do you remember the little old lady who was in the Wendy's commercials, Where's the Beef? Yes, of course. Do you remember those commercials back from 20 years ago? Where's the Beef? Well, they said that woman was an overnight success. She was 80 years old and she was an overnight success, but little did people know that she had been an actor in Hollywood for 55 years. And so it's much like

the story that you said and much like my story. It's not an overnight success, but once you have experienced all the ups and downs of real estate and all the ups and downs of your, you know, your, my personal life and you kind of figure things out, it can feel like an overnight success for sure. But I've been at this 10 years. We've closed and made a tremendous amount of money. But back in 2011, I was diagnosed with pancreatic cancer, which has just a 6% survival rate. I was lucky enough to have a surgeon, Dr. Matthew Walsh, who saved my life and performed a miracle surgery. The big takeaway from that though, Justin, outside of actually surviving, I suppose that's

the biggest takeaway. I think so. But outside of surviving, one thing I did was I bought a property two weeks before I went in for that surgery. I bought a property two weeks before I went in for that surgery. I bought a property. In real estate, you make money when you buy and you realize the profits when you sell. You make all the money when you buy. I bought that property right. I had the private capital lined up from a private lender. I had a crew that was ready to rehab the property and they did.

I went in for surgery. I lost 50 pounds. I took four months off of work and I finally went back to work in April, 2012. And I was, you know, my, my oncologist and my surgeon said it was okay for me to go back to work full time. And the amazing thing was, is that I had already had that property rehabbed and sold. And about April 20th, 2012, I cashed a check and made $40,200. I only went to the property twice. I was able to do a lot of just some of the work over the phone after I was released from the hospital. But that was sort of the experience, the light bulb that went off for me.

And at that moment, I stopped doing a lot of quick cash real estate. I always enjoyed the quick cash real estate, wholesaling, short sales, lease options. I've done all kinds of real estate. But for me, my passion was in raising money. My passion was in finance. And so I realized how powerful it was that if I could get access to all the capital, then I would have other people like realtors and wholesalers and other real estate investors, even family and friends refer me

to a lot of the best deals in the marketplace because they knew I could close. And so I became passionate about that. And in early 2012, I hired a really great securities lawyer. I've since hired two other securities lawyers. And we've gotten registered with the SEC six different times to raise private capital. We had six separate offerings. And we've just raised a boatload of money. And so I teach people how to do what I do as a real estate investor and flip properties for big profits. And now we fund their deals as well for those people who are in those programs. And so that's kind of the evolution of where I've come from. I certainly didn't intend when I started out 10 years ago to do what I'm doing now. And you talk about an overnight success.

You know, we had a lot of success in real estate doing short sales. The market almost caught us, but it didn't. But my health caught me. Uh, and I got stung pretty bad during 2011, 2012, both health wise and financially as well. Uh, but you know, focusing on the private money is what allowed me to kind of pick myself up, um, get my financial health back in order. Um, and now we're buying two to four homes a month and selling

two to four homes a month, primarily because we focused on the capital first. And that's all the lesson I've learned just in the past three years. Yeah. And one of the biggest reasons I wanted you on here is there's not enough experts in this area, right? And you obviously are an expert in raising private capital. I myself, that's my role in our company. I know it very, very well, but I wanted someone else to be able to come on here and not have to hear me all the time talking about my knowledge. Let's use the example, you're Johnny, rookie real estate investor. You don't have much money. You just bought a coaching program, whatever. You spent some money to learn. How would you give him his first marching orders? Where does he need to go? What does he need to do? How should he structure his money? And you offer them debt financing or equity financing.

And you offer them to pay them back their principal plus an interest rate or plus a return on their money. That is a security. That is the definition of a security according to the Securities and Exchange Commission. And so you are now regulated by both the state and federal securities and exchange commissions. So in every state, they have a securities division, whether it's the Division of Securities, the Division of Commerce, the Division of Real Estate, those kind of things. Every state has a securities division, and obviously when you crisscross state lines, you're regulated by the federal SEC. So what most people do, what Johnny Newguy raising private money does,

starts with friends and family, right? They start with people that they already have a prior existing relationship with. And so if for the best place for a real estate investor to begin raising private money is to begin with what's called an intrastate exemption. An intrastate exemption means that if you, your business, your properties, and your investors are all within the state, you are regulated by your state regulations. And there are certain state exemptions. Because if you are offering securities, and according to the Federal Securities Act of 1933 and 1934, and the Investment Act of 1940,

if you offer securities, you have to be a registered broker-dealer. Now, they allow a number of exemptions to those rules so that your average guy can go raise their own private money. And so one of the exemptions is a state exemption. So for example, in most states, you can raise up to a million dollars. You can have a certain number of private lenders or notes or deals. And you don't have to do any filing. You don't have to let anybody know. You don't have to fill out any paperwork. So in 36 out of the 50 states, there's no filing needed whatsoever. But if you get to the point where you have more private lenders than the state allows,

or you raise more than a million dollars, or you go over those thresholds, you now have to let the state know what you're doing. It's called a notice filing. So for example, in the state of Ohio, Justin, where I'm at, I can have 10 private lenders and up to 10 notes with no filing whatsoever. When I go beyond 10, when I go to 11, between 11 and 35, there's what's called a 6-2-A filing. It's only about $100. I have to send it into the state and let the state know that I'm raising private money. Now, I can be raising private money for any business. It doesn't matter if it's real estate.

It could be a manufacturing company. It could be a car dealership. It could be a car wash. Whatever. It doesn't matter. We're all regulated by the same rules, the securities rules. And so the first guy to begin would be to understand what does your state allow for the total number of private lenders or notes, and then go up to that threshold. And make sure you stay within your state. So you have to live in your state. Your LLC or your corporation

has to be registered in that state. And the rule is 80 cents. 80 cents out of every dollar that you raise and use, and 80% of your profits have to be from investors within your state. You can have up to 20 cents out of every dollar from outside of the state. Now, if you go beyond that, Justin, if you go and you go beyond the 20%, let's say 50% of your deals are out of state or 50% of your investors are out of state or your corporation is registered to a different state. A popular strategy is if you live in Ohio to get your LLC registered in Nevada or Delaware or Wyoming. These are some states that offer some additional protections.

As soon as I register my LLC in a different state, I've now crisscrossed state lines. And if you're going to crisscross state lines, you're now regulated by the federal SEC. So most investors don't understand. They think, hey, I can just go raise private money for my grandmother, my aunt, my uncle, my best friend. Even if you do that, and if you're crisscrossing state lines, you've got to be registered on a federal level. Now, the good news about registering on a federal level is that it's free. You go to a website. It's called EDGAR.

It's the Securities Exchange website where you can register for one of these exemptions. You can register for free. It doesn't cost anything. Now, what does cost money, and this is where investors really get kind of hung up, is they need to have a very important document that basically covers their butt. It's a disclosure document. And it's known as a PPM, Private Placement Memorandum. And all a Private Placement Memorandum is is a document that covers all your disclosures. You see, if you raise private money, Justin, here's the key. If you raise private money from somebody and somebody loses money and they come back after you and you can't give them back their principal and interest, they can sue you for that loss.

And you can, of course, lose and they can foreclose on you and they can come after you for the money. But here's the big part of it that most people fail to understand. If that investor says, well, you made certain what are called material representations to me or material facts. When you asked me for the money, you made a material representations to me or material facts. When you asked me for the money, you made a material representation to me, a material fact. And if there were anything that you didn't disclose, those are called material omissions. Okay. If you don't disclose certain material omissions to your private lenders. And they say, listen, I wouldn't have invested with you.

I would have never invested this money in this real estate deal with you if I had known X, Y, and Z. That's called a material omission. And if it's proven in court that you left things out, that's a fraud. That's a fraud. And you can go to jail for that. Okay. And the term fraud has such a slimy, you know, feeling to it, doesn't it? You just, you know, you hear that word and it's just kind of, it gives me the willies. Yeah. So the, the, the, the, uh, the part about raising private money that's really important is every material fact about you as a real estate investor needs to be disclosed to your investors. And the trouble is you have to disclose everything that an investor

would need to know or want to know. You have to project into the future what are all the things that an investor would need to know about me and my company, my business partners, my employees, my business model. I need to put that into a document and I need to have a professional securities lawyer review that and create that. And that's where, that's, this is where SEC lawyers earn their money is creating these PPMs because, you know, you don't want an investor to come back and say, well, I lost money. I'm going to the SEC and I'm going to rat you out. And then the SEC comes knocking on your door and says, hey, show me your disclosure documents. And if they find material omissions, things that you know about yourself that you didn't disclose, that they would have needed to know to make that investment, it could be a rough go from there. So a proper way to do it is start within your state,

raise as much money as you can within your state with people that you already know, but you still want to have a really good disclosure document telling everybody all the risks of investing with you and telling them pretty much everything about you, your significant employees, your business partners, all those different kind of things. Now, I'm really proud, Justin, of the work we've done because we've done this six different times. And because we've done this, we can really intelligently speak about it. But I know that I'm covered, right?

I know that if the SEC comes knocking on my door or an investor is upset about the return that they thought they were going to get, they didn't get. You know, if that were to ever happen, I'm not I'm not afraid to get, you know, an engagement letter from the SEC. And so I think it's just really important that people talk to a really good securities lawyer. I know a lot of good ones and really understand what they're doing because it's serious business when you're talking about raising private money. So the two takeaways that come, I'm trying to put myself into because I think everything you said is,

this is exactly why I really wanted you on this podcast. You're an expert in this field. So the two takeaways for a very rookie investor is you want to go to your state, what department to find out what the state rules would be? Where would they need to go for that first step? Yeah, great question. So every state's a little bit different. But if you call it, start with the Department of Commerce and call your State Department of Commerce and say, listen, I'm a small business and I'm looking into raising private money for my business.

Does our state have a securities division? And what department within our state oversees the laws and regulations when it comes to raising private capital and issuing securities? If you start with your Department of Commerce, they will know that department within that. Because sometimes there is a securities department or a division within a state. Sometimes it's just the Department of Commerce themselves. They have a sub-department that handles securities. That's the best place to go.

Now, what they'll tell you when you call them, I've talked to them multiple times, what they'll tell you is, we cannot give you legal advice, but we can tell you what our rules are for raising private money in our state, but we can't tell you what to do and what not to do. All we can tell you is our regulations and our rules. So for example, I'll give you some examples. I'm looking at the state exemptions right here. In California, you can have up to 35 private lenders or private notes with no filing. In Connecticut, 10, Colorado, 10, Delaware, 25, the District of Columbia, 25, Florida, 35, Georgia, 15, Hawaii, 25, Iowa, 36, Kansas, 20. So there's a number of publications out there that you can download

and you can just ask for your intra-state exemptions. You are an exemption or exempt from the state securities laws if you stay within these regulations. Just out of curiosity, what is Arizona's? Arizona. So 10. Arizona, I'll even give you the law. It's ARS44 colon 1844 in Arizona.

You can have up to 10 private lenders or notes with no filing whatsoever. When you go beyond 10, they have a separate document that they want you to sign called the notice filing. And all that notice filing is, it's probably a hundred bucks and three or four pages. And they want to know who you are. They want to know the name of your business. They want to know what you do, how you're going to use the money. They want to know your address. They just want to know what you're up to. What SEC regulators will tell you, one of my attorneys is a former SEC regulator.

He literally prosecuted people for securities fraud for five years. He says, listen, the last people they're worried about are the people who are registered. The last people. What they're worried about is all the people who are not registered. Right. And the people that are out there just flying by the seat of their pants. They're not getting good information. They're not sure what to do. So my suggestion would be, hey, call your state Department of Commerce.

Ask them some questions. Tell them what your intentions are. They're very helpful. And then I would contact a great securities lawyer in your state. I also know some securities lawyers that do operate on a federal level from coast to coast. I'd be happy to mention their names, Justin, if you think that's appropriate. You know, I can give them some kind of leads of some people that I think are really good that they can talk to.

Yeah, I think, you know, what we'll do is I know we're creeping up on some time. So, you know, towards the end, maybe if you want to mention where they can contact you, reach out to you. And that way, you know, you can get the information they need to them. That'd be totally appropriate. Awesome. Awesome. Sounds good. And then, you know, the second thing that I wanted to talk about, I think it was great to say where, you know, so for someone in, in you and I are both in the field of mentoring and coaching and there's so many people that just don't know.

They just, oh, I'm borrowing it from my grandmother who lives in Maine. What is really the rules there? Because now it's no longer intra. It's good to know that if you stick within your state, your LLC is within your state, you have friends and family in your state, for a good portion of that raising private capital, you're going to be fine. It's when you really start going after it.

Now you've got to really start protecting yourself. That's right. So if you're going to crisscross state lines, you're now regulated by the federal SEC and they just want to know what you're doing. You can register for free on their website. It's edgaredgar.com. Any good securities lawyer can register you there. It's free.

But again, where you need a securities lawyer is the executive summaries and private placement memorandums, those documents that you hand to your investors and you disclose everything to them so they know the risk. It's almost like your prospectus. If you're a mutual fund, a stock, etc., it's your prospectus. You're giving that to them so they can make an appropriate decision to invest. What we've done, Justin, is we've done what's called a 506B exemption and a 506C exemption. The 506B exemption has been around for a long, long time. It's been around

basically since the Securities Act. So, you know, you're talking, they've been around 50, 60, 80 years. It's the most common one. And what they allow you to do is have up to 35 non-accredited investors and unlimited accredited investors. Accredited is a person who has a million dollar net worth excluding their personal residence or they have a $300,000 income if they're married and then a $200,000 income if they're single. So you can have unlimited accredited investors and 35 non-accredited. And all you do is if you're going to go beyond those numbers, you just technically close out that offering

and then offer a second offering that's exactly the same. And there's a precedent that's been set for the last 30, 40, 50 years of companies doing that. So they might set up their first fund or first offering, and they're going to call that their one offering. So let's call it Justin Colby offering one with the Roman numeral one, and then Justin Colby offering two, three, four, five, six. I know guys that have 14 of those. 15 of those. Because they max out their non-accredited

and then they have unlimited accredited. All they're doing is just continuing to recruit private money and then they're just using their first PPM to create a second one and a third one and a fourth one. That first one is going to be the most expensive one, and then after that it's just copy-paste.

It's really easy. So that's your 506B. Now the 506B, Justin, what's important about that to understand is that the SEC has a ban on advertising. You, until the JOBS Act of 2012, were not allowed to take in any private money at all from what's called a general solicitation. So if your private lender was recruited by any method at all through the use of general solicitation, you were not allowed to put them into your 506B fund or your 506B company.

You couldn't do it. It was a violation. Along comes the Jobs Act of 2012 and Obama and all the different departments of government they come out with the Jobs Act. The Jobs Act now is beautiful because it allows you to advertise and do general solicitation marketing. It's called a 506B, I'm sorry, a 506C exemption. And that 506C exemption now allows you to actually do general solicitation advertising. You can take out a

billboard on Times Square if you want. You could do direct mail. You could do all kinds of stuff. But you can only take money into that fund or into that company from accredited investors. That's the hook, that's the sort of gotcha is you can have tons and tons and tons of people respond to your advertising but you can only take money into your 506 offering from accredited investors only. So that's the give and take. They want to protect the non-accredited folks and they feel like if you're going to do public advertising, general solicitation, direct mail, you're going to do any kind of billboards, television advertising, radio, whatever, they only will allow you to take money from accredited investors. So the question I always get, Justin, is what's the percentage of accredited investors versus non-accredited?

So if I get 100 people to reply to my marketing, how many are going to be accredited versus non? And the number is 14%. 14% of the investors in the United States, this is according to a recent white paper by the SEC, about 14% of the investors in the U.S. are accredited. So if you do the advertising, which is great, you're going to get a significant portion

of people that you would love to have invest in your deals or invest in your fund, but you can't take their money. Only 14% of them are accredited and you have to work with those people only. And so that's the game we're playing. We want to play by the rules. There's certainly a lot of ways to raise private money. I would start, Justin, with a state, intrastate offering and work with only people that I already know, that I already have a prior existing relationship with. That would be the first step. Second step is I would do a federal 506B exemption. I would get registered under a federal filing. I would hire a good securities lawyer, get my PPMs and executive summaries done. And then I would go again after people I already had a prior existing relationship with.

And I would recruit as much money as I could. And then when I max out those two and I don't have anybody else to talk to, let's say I've talked to every single person that I know that I have a prior existing relationship with. Then I would go to a 506C. I would get properly registered under a 506C. And then I would start doing some other forms of marketing and general solicitation. But again, the only caveat there is you can only work with accredited investors. And about 14% of those folks are going to be accredited. Right. Now, what is your offering? Meaning, if you are a rookie at this, you don't even know half of what Josh Cantwell knows, you are just saying, I need to go raise

$100,000 so I can do my first flip. How would you structure that with someone most likely that you're going to know that is obviously in state? How would you do that? What's your offering? Yeah, my offering is a note and mortgage. So you could do either what's called debt financing or equity financing. It's very simple. Debt financing is they're the bank and they have a note and mortgage or a note and a deed of trust. And that's what I do. I do debt financing. I want to buy the property. I want to own the property and I want to have them have a note and a mortgage against the property because I want to control the property. I don't want them to tell me what kind of paint to put in the property. I don't want them to tell me what color the cabinets

should be or what kind of landscaping I should put in. So they become a passive investor. And what I do, Justin, is I pay them 12% interest or 15% of my profits, whichever is greater. And I do it on a one-year balloon, meaning I don't make no payments during that period of time that I'm borrowing their money. Their interest is accruing over what could be a deal I flip in two months or three months or four months or seven or ten, whatever, however long it takes. The interest just accrues. And then when I go to sell the property, at the end what I do is I compare giving them 12% interest on their money or 15% of my profits and I give them whichever is

higher. And so if I do a deal very quickly, let's say I buy, fix and sell a property in three months or four months. And the only reason why it would typically take that long is I'm selling to retail buyers and those retail buyers need about 45 days to get a bank loan. So let's say I buy it and fix it in 30 days, and I can do that deal in three, four, five months. In that case, the 15% of my profits is almost always going to be higher than my 12% interest. So I've had deals with my investors where they've made 25, 28, 32% return because I've given them 15% of my profits. And the faster you do that deal, the higher their annualized yield is going to be. So I recommend doing it that way.

If you're going to give somebody equity in a deal, there's other ways to do it. But now you're talking about having a business partner. You're talking about having somebody that's going to have equity in that property. And they might be putting up the money, but they're also maybe going to be on the deed, or they're going to own part of the LLC with you, or they're going to own units in your company. And now you're giving up ownership. And you don't know long term, you don't know if that person's going to be a long term business partner or not, whether they're going to do one deal or 10 deals or 100 deals.

So I'm more of a fan of giving up debt or giving them a note and mortgage and paying that 12% interest or 15% of profits. That's the way I structure it. That's my offer. And their profits or their interest is right inside of the note. The note is the contract of what I'm paying them back. It's a contract between them and I of the money that I'm borrowing and my intention to repay it. And do they see the final settlement statement to figure out that you're telling the truth, that one, either the 15% of profits or 12% interest, whatever is greater, do they actually see that or do they just ultimately trust you? That's a great question, Justin. I would be happy to share it, but nobody's ever asked me for it. It's funny. Nobody's ever asked. They trust me. I put it

into an Excel spreadsheet and I show them our purchase price and all of our costs, our rehab costs and all of our soft costs, real estate taxes, realtor commissions, insurance, utilities, all that stuff. I put it into an Excel spreadsheet. And then there's a column on there that just shows them, hey, is the 12% interest, what would that be? And then right beneath that, I show them what 15% of the profits would be. And I email it to them. And then when we write the payoff letter, when the deal is going to close and sell, we just put that on the payoff letter. And it's funny. People never ask me for a rehab budget.

They never ask me for receipts. They've never asked me for how much we spent on insurance or utilities. Nobody ever asks. They just kind of trust us. I'd be happy to show it all to them if they want, but nobody ever asks. There you go. Great. And then do you have, last question that just off the top of my head, if I'm a rookie investor

and I'm thinking, yeah, Josh, you've been doing this for 10 years, that's great, awesome, but I don't even know what to say to them. Do you have almost like a presentation you give them? Do you have a script? Do you have, what do you do? How do you present it? Or is it over a cup of coffee and a handshake? Yeah, Justin, it's a great question. And it's all in a script and a presentation. I have a presentation that I use. It's only 10 slides though. It's a PowerPoint.

I also have a script that we walk through. What I like to do, Justin, is here's some actual real action items that people can start doing tomorrow. If they're using a state exemption, they should still call their state and find out if they need to do any kind of filings, any kind of notice filings, or if they're in one of the 36 states where there's no filing needed. They should know that first. Once they know that, and then they're going to go out to people they already have a prior existing relationship with, what I do is I have a list of everybody that I know, everybody I have an existing relationship with, people that I've known for years and I've talked to them. The general rule that I've heard many times is, have you known that person for at least 30 days and have you talked to them at least three times during your lifetime and it could be when you say talk to them it could be a text message it could

be a social media interaction it could be a phone call it could be face-to-face all the above that's the general rule that I've heard many times I would make a list of all the people that I have a prior existing relationship with. And what I do is I start sending them educational direct mail and educational emails about what I'm doing. It could be case studies. It could be information about the markets. It could be deals, real estate deals that are out there. Could be information about how they can self-direct their retirement assets and use one of the really good custodians out there to self-direct their money. And how they could be a passive real estate investor by just being a lender and sell them really through

education. I would start with that. And then I would follow up with a phone call and say, hey, you know, did you get my newsletter I sent you? Or did you get the piece of mail I sent you? Did you get my email? And a lot of times what people have said to me is, yeah, I got it. That's awesome. So what are you up to exactly? And then that opens up the door where I tell them, look, you know what I do is I raise private capital from private investors. And we buy foreclosures and distressed properties and we pay our investors a fixed double digit rate of return. That's the exact elevator script that I use on the phone. And typically that opens up a whole world of conversations of people saying, yeah, I've always wanted to be a real estate investor. I've always wanted to buy a rental property. I've seen the infomercials on late night TV.

I've done all these different things, but I've never jumped into it. And then this is the opportunity when I go back to them and say, well, this is a great opportunity for you to become a passive real estate investor before you become an active real estate investor. What I'd like to do is just get together with you for a couple minutes and show you what it is that I do. I'm not assuming that you'd be interested in doing this at all, but you're a friend of mine, you're a family member, you're someone that I trust. So let me just get together with you for a couple minutes,

buy you a cup of coffee, buy you a beer, buy you some loud mouth soup or whatever it is. And let me just walk you through what it is that I do in case you ever run into somebody that you know is interested in getting a fixed double digit return. So Justin, what I do is I remove all the pressure where I tell them, hey, I'm not assuming you'd be interested at all, but because you're a friend of mine, a person that I trust, a family member, etc., I just want to tell you what it is that I do in case you ever run into somebody who might want to do this. Then what I do, Justin, this is the exact process. I get together with them face-to-face.

I step them through these 10 slides. I show them what it is that I do, and I say, listen, I'm not interested. I'm not assuming you'd be interested in doing this at all, but let me just leave you some information in case you have somebody that you think might be interested in doing this in the future. So we're not making them an offer. This is a key part, Justin, of what we're doing here. We're not making them an offer because when you make them an offer, okay, you want to have your stuff buttoned up at that point and be ready to present an offer. But again, we're just educating them. And inevitably, Justin, what happens is this.

At the end of the conversation, we're sitting at Starbucks or we're sitting at a donut shop or we're sitting over a bowl of soup. And they say, well, hey, what about me? What about me? I have $50,000, $100,000. I have $200,000. I got a half a million dollars in my old 401k, my pension. I just sold a business for $5 million. What about me?

And I say, well, great. And I just kind of play dumb, right? Like, oh, wow, you're interested? I had no idea that you'd be interested in doing this. I just wanted to kind of show you because you're a friend or a family member. And now they feel like they've sold themselves. Right. Right. And now we take the appropriate steps to make the proper disclosures. And now we can go ahead and proceed forward and make them an actual offer. And when I say make them an offer, what I mean is we're asking them for a certain

amount of money or we're promising them a specific interest rate or asking them to invest in a specific deal. And up to that point, I haven't done any of those things. I haven't specifically asked them for money. I haven't promised them a specific interest rate, and I haven't asked them to invest in any specific deals. So I'm compliant up to that point. That's what my securities lawyers have educated me on over the last three years. Now, if you go to that point, Justin, and you do all those things,

and you talk to every family member and every friend, and you've exhausted all of those connections, and by then you've probably raised a ton of private money. But if you've done all that, and now you're kind of twiddling your thumbs, and you're thinking, hey, where am I going to get my next lead from? You know, I got to raise some more money. Then you want to move on to the five Oh six C, uh, exemption where you can actually begin to advertise. Right. That is the next step for sure.

Absolutely. Hey Josh, thank you so much for your time. This has been absolutely incredible information, incredible information. Before I let you go, I want to make sure that everyone on here has a chance to reach out to you or get some more knowledge.

Where is the best place for them to find you and get a hold of you? Absolutely, Justin. The best place to go is just our core website, which is strategicrealestatecoach.com. They'll find five years, eight years worth of real estate content, articles, blog posts that we've been publishing. We publish new videos, audios, and articles three or four times a week. There they can also download our latest digital book, which is How to Quit Your Job in 90 Days Flipping Real Estate. They can download that absolutely free there as well. Right on. Right on.

Well, thank you so much, Josh. I greatly appreciate you spending your time with me and these listeners. I have such amazing loyal listeners. So thank you so much for coming on and blessing them with your information. Thank you, good sir. Absolutely. Anytime, Justin. Guys, remember, Justin's podcast is killer, so make sure you give him a rating.

Hopefully, you guys will all give this interview a five-star rating and leave Justin some comments and some reviews on his podcast. It's awesome. Justin, I've listened to many episodes of your podcast with your other guests and stuff like that. Guys, give Justin some props. He works his butt off. He's an awesome coach. So leave him a five-star review and leave him some comments about this interview as

well. And if I can help you, Justin, in any way or any of your subscribers has a question, just let me know. Absolutely good, sir. I greatly appreciate it. And guys, that is all we got today. That was Mr. Josh Cantwell. He is the expert at raising money.

I know all of you guys are going to listen to this several, several times. Again, leave some reviews. Give it five stars. If you want my free book, go to thescienceofflipping.com. If you want to talk to me a little bit further about coaching and mentoring, what that would look like for you, go ahead and email me directly at info at the science of flipping.com. Guys, thanks so much for showing up again. I will see you next week. Peace.