Wake Up to Wealth - Unveiling Real Estate Investment Strategies with Tim Herriage

Episode Date: December 18, 2024

In episode 30 of Wake Up to Wealth, Brandon Brittingham interviews Tim Herriage, Founder and President of Ternus, as he shares invaluable insights into the importance of track records, the nuances of owner financing, and the power of adaptability in business.Tune in for a wealth of knowledge on real estate, business ethics, and the significance of reputation in achieving long-term success.TIMESTAMPS[00:01:20] Real estate investment journey.[00:05:37] Owner finance notes explained.[00:10:08] Liquidity in owner financing.[00:12:39] Note selling as a strategy.[00:19:09] Customer-focused lending solutions.[00:22:08] Asset-based loan strategies.[00:24:40] Wealth definition and perspective.QUOTES"The right time is always yesterday. The next best time is today. And if you can't do that, you need to do it tomorrow. That's not true on when to sell a property, but it's definitely true on when to buy a property. " - Tim Herriage"Velocity of money gives you the ability to just continually turn money, which is the name of the game in real estate." - Brandon Brittingham"You have to always be focused on seeing around the corner and finding solutions to your own problems. Probably the same way you find for a motivated seller or in your realtor business, a retail seller." - Tim HerriageSOCIAL MEDIA LINKSBrandon BrittinghamInstagram: https://www.instagram.com/mailboxmoneyb/Facebook: https://www.facebook.com/brandon.brittingham.1/LinkedIn: https://www.linkedin.com/in/brittingham/Tim HerriageInstagram: https://www.instagram.com/timherriage/Facebook: https://www.facebook.com/herriage/LinkedIn: https://www.linkedin.com/in/timherriage/WEBSITEBrandon Brittingham: https://www.brandonsbrain.org/homeTim Herriage: https://timherriage.com/Ternus: https://www.ternus.com/

This is Wake Up to Wealth, a podcast dedicated to helping you change the way you think about wealth. And now, here's your host, Brandon Brittingham. Hey, what's up, everybody? We are back with another episode and I got one of my homies on here. I'm super excited. My good friend, Tim Harich. How are you doing today, brother?

Good, B-Man. How are you? So before we even get started into anything, I just have to say this because I use this so much. I think probably the first time I was ever in a room with you, one of the things that you said, I actually used it on the podcast yesterday and I say it so much is in the real estate investing world, you cannot buy a track record. Yeah, man. That actually came up yesterday in a conversation with some of our buddies. It's just, I think it's an all business. I

mean, especially the fund manager business, which you and I both do a lot of. I mean, I think people just don't understand that you cannot undo what you do and you only get one shot at this thing because you can't buy a new one and you can't get rid of the one you have. So you have, for someone that's listened to this, we always bring on super interesting guests that have done all kinds of cool shit. You've seen the real estate world and been in the real estate world from a ton of different facets. So if you wouldn't mind just give our listeners a high level of who you are and kind of a quick synopsis of your journey to what you're doing today.

Yeah, you know, 20 something years ago, I got out of the Marine Corps, took a job as a project manager for a house flipper in Dallas. And within a year I was in the acquisitions role. A year after that, I went out on my own, bought a home investors franchise. Well, actually to be fair, married my wife who had a franchise. She was wholesaling houses to me at the time. And you know, we grew that to be number one in the nation,

took all our licks in 08 and 09, miraculously stayed married through all that struggle. Came out of that, kept buying houses, started a little thing called the REI Expo, sold that to Think Realty, met Blackstone at a conference, started a B2R finance, which became Finance of America, which we IPO'd in 2021,

kept buying houses, investing in multifamily, investing in commercial, really liked the lending world, executive director for RC and Capital, one of the top three lenders in the nation. I'm actually still on their board. They are more focused on broker business and correspondent lender business. I love retail.

I love working with our people. So earlier this year, I left my full-time role there and started up Ternus and just trying to be the people's lender, you know? That's a little wrestling thing for you. I know you get it, right? Oh yeah, yeah. Yeah, I got my Project Rock shirt on today because I'm talking to you.

Yeah, so, you know, having seen multiple real estate cycles, right, and you're a real estate investor yourself, one of the questions I know people always ask me, I'm sure you hear it too, is like, what is your answer to when is the right time to buy an investment property? Well, I mean, the right time is always yesterday. The next best times today. And if you can't do it, that you need to do it tomorrow. Uh, that that's not true on when to sell a property,

but it's definitely on true on when to sell a property, but it's definitely true on when to buy a property. Yeah. Now you, you know, being on multiple sides of the coin, when did you decide, and correct me if I'm wrong, the position you're in now, your focus is more, you're a lender to investors, correct? That's right. So when did you decide, you know,

I kind of really want to be on this lending side. I like the real estate investment side, but I like the lending side a lot better. 2003, actually. My first partner in the business was a hard money lender in Dallas. And we started a little wholesale operation back then. And he, we came up with a way to offer the wholesale inventory on terms. And back then, hard money was 18 and two, right? It wasn't cheap like it is now. And so we would buy a house and say, sell it for 100,000. But instead of selling it for 100,000, we'd sell it for 10,000 down, 18% interest and

2% origination. And I've always loved math. I'm not a college educated guy, but the math quickly showed you that you would double your profit just by offering the financing as well. And my partner Scott, it was also a big owner finance guy. He had about 500 owner finance notes. And he started just showing me the power of debt and owning debt and originating debt. And I've always loved it. And it's always been a part of my business. By the time I was 30, we owned over 100 owner finance mortgages in Dallas. And I don't talk about that a lot, but getting creative and understanding how to make money with money versus make money with your time

was just something that was always really appealing to me. Yeah. So if you're listening to this, what he was saying about the owner finance notes, so explain that a little bit, because I think that's a part of real estate from an investor side that a lot of people don't get or understand. Yeah, so like to use a big fancy Wall Street world where it's really arbitrage. So what you do is say you buy the house for $200,000

and you get a loan from your bank for $160,000, and then you go sell that house for $300,000. Well, instead of just taking the cash, what Scott showed me how to do was put the $200,000 on a 15-year amortization. And if we charge 12% on a 30- year amortization, it covered that payment. And you owned your asset free and clear in 10 years, and they still owed you 20 years worth of a mortgage because you're not only using the interest rate as a tool,

but the amortization. So, you know, these, I'm the mortgage company in essence for a little over 150 people right now on the owner occupied side, where I own the mortgage on their house where they're paying me 10 to 12%. And I have bank loans against it for 6%. So I'm making not only the difference in the interest, but the difference in the principal and the way the amortizations work. Many times you can pay off your loan in eight years if they have a 30 year loan against

it. So it's all always been about cashflow. It's always been about wealth accumulation, but it's also branded, I don't like to work. And you know, the name of your thing is wake up to wealth, right? And owner finance notes are one of the best income streams I've ever been exposed to. Now, the problem is it's a declining income stream with a declining asset base. So what I mean is every month, their next monthly payment is more principal than interest. So the next month, they owe you less than they did the month before and they're paying you less interest than they did the month before. So every month,

your income goes down as well as your asset base. So it was probably 12 years ago that I had another mentor of mine kind of teach me that. And since then, I've just made sure that 50% of what I do is rental property, which may not cash flow as much, but you get to keep the asset. And then I do a mix of owner finance so that I'm getting higher income in order to offset because we all have to pay bills in our home where we live some way. So it's kind of a dual strategy

that our friend Eddie's Feed teaches a lot. You're flipping and making money over here and keeping rentals, but then you're also, you have these owner finance mortgages that it's more steady too, Brandon, because you don't have maintenance on the house. You don't have vacancy on the house. And every five to eight years,

you get a big check in the mail where they pay off the mortgage and you just go redeploy the capital. Yeah. So if you're listening to this, like go back and listen to what he said and take notes on it because I'm serious, man, it was later in my career that I learned about this.

I didn't even know it existed. And it's essentially being a landlord without the headaches of being a landlord. And to Tim's point, when you do both, you get the benefits of owning real estate over here on the rental side, and you get the benefits of the cashflow on the owner finance side. it's a beautiful thing when you do both. Absolutely.

And with all things, right, you have to have a healthy mix. And if you're not good at, I would just argue that if you're not good at it, find someone that's good at it, invest with them and invest in both sides of it, right? Like if you're, if I'm a retail investor and I've got 50 K, I probably want to put half into a fund where they're buying maybe multifamily or rental properties where I get upside of the asset growth. But I would also want to get into an owner finance fund where I could make sure that the income stream was consistent.

Another thing that I learned later in my career, which is to me is fucking remarkable, and this is the world that you play in, what people don't get or understand is these notes, whether you do a fix and flip note, you do owner financing note, they are liquid, almost more liquid than a house in my opinion, right? You can tell it better than I can, but for instance,

I just took some balance sheet notes that I own and got a facility line against them, right? Which, so for those of you that are listening, I took a million dollars in owner finance that I had, and I got a line of credit against them for a million dollars using them as collateral. Not that long ago, I didn't know that was possible. We don't have to go super down the wormhole on this, but like give an overview of like there's a liquidity in this market that people don't even know or understand exists.

Yeah, I think you hear the really smart investors, which I don't claim to be talk about yield stream, right? It's this stream of yield and that's the way bankers and lenders think. And so when they see that Brandon's collecting $120,000 a year in revenue against a million dollars, it's really easy to say, well, then, yeah, he can have a million dollar line of credit at 8% because he only owes me 80,000 against that. So he's got the yield stream to pay me without, like he doesn't even have to do anything. Like he just has to move the payments

from here over to there. So, you know, some people call it hypothecating the notes. Some is a planch note. I like what you said, the line of credit against them, because then it's easier, like we're all lazy to some degree. Like you're not doing note on note financing, right? It's easier to just, look,

there's always gonna be a million there, give me a million against it, and it's easier. But then also, like we talked about, there's other note strategies where once you create that 70%, 80%, 12% value, 12% interest note, there's a ton of people out there, institutions, banks, and like IRA investors that would have loved to buy that note

and make 12% mailbox money. Yep, yep. Which is not that long ago, I did not understand the liquidity that was in the side of you can create notes and sell them, um, actually as a strategy and as a business. Uh, and there's way more people out there that will buy debt than you think. And, and almost sometimes faster than they'll actually buy real property. It's fucking wild. Well, because you've already done the hard work.

You've already found the house, fixed the house, sold the house, moved a family in, and typically you collect a couple of payments to show that the borrower's real. And yeah, because then the investor, there's no theory in it, right? They're buying something that already exists from you. And if you did your paperwork, right? And you complied with state laws, I do feel like it's very important if you wanna go down this rabbit hole,

you really understand the state and federal laws that apply to it, because you're offering consumer loans. So it's not as easy as it sounds, but there are people that do this for you as a service. But yeah, I mean, it's, it's pretty juicy. And, and you oftentimes, though, Brandon, what I love about it, and I think people need to look at it is a way to do no money down real estate investing, because you can get into the deal with private money. You can get enough of a down payment to offset your out of pocket costs, and then you can

sell that note and oftentimes either sell the whole note or part of the note or a couple years worth of payments. There's so many options that allow you to recoup your out of pocket so that you can go do it again. And that's probably the best part of it in my opinion. Yeah, velocity of money gives you the ability to just continually turn money, which is the name of the game in real estate, absolutely.

You know what I mean? Yeah, I mean, look, the hedge funds, yeah, somebody was talking about it yesterday. I mean, look, the hedge funds, as somebody who was talking about it yesterday, I think it was Will Dennis. Ultimately, the reason they wanted an 80-20 split with you is if you're investing with them is they want to turn 10 million four times a year, right? They don't want to place 10 million. They want 10 million to do 40 million. And anytime you can demonstrate, back to the track record, that you have an ability to turn money over and recycle your capital,

it makes you so much more attractive to high net worth individuals and outside investors. Yeah, kind of a, I'm gonna come out of left field on you a little bit with the next question, but just because I've sat in rooms with you and I've heard you share this and I think it's, I think it's pretty interesting. You mentioned the Marine Corps earlier. So and I've heard you say this a few times, give us one or two lessons you learned in

the Marine Corps that you've been able to use and translate into business? Yeah, honestly, the number one is adaptability. Uh, the market will move on you. A project will go bad. A bank will stop lending and investor will be unavailable. And you just cannot be stuck in your ways. You have to always be focused on seeing around the corner and finding solutions to your own problems. You know, probably the same way you find

for a motivated seller or in your real-time business, a retail seller. I think adaptability and always having a belief in a positive outcome is the number one thing that I learned in the Marine Corps. And then after that, it's got to be the power of a team because I will take four Marines over 20 civilians anytime, any day, because they've not only proven they have the mental fortitude to get the job done, they've proven that they can work together in a team,

collaborate, follow orders, and focus on getting the job done instead of how they feel. So if I had to pick two, it would be adaptability and teamwork. Got it. So let's talk a little bit about where you're at now. So you started taking all your wealth of knowledge, experience, knowledge of real estate,

knowledge of the markets, and you've now gone out and started, you know, entrepreneur, you're starting another company, right? So tell us like, give me a, hey, what I do now and kind of what my vision, this is why I went and did this and this is where I see my company going. You know, I think guys like us are always students first

and I'm always trying to learn. And I was on my way to Park City's Utah for spring break last year. And I re-listened to Simon Sinek's book Start with Why. I'm holding up an iPhone right now. I don't know what this thing costs. I know I'm getting a new one soon. I don't know what it costs, but I'm emotionally connected to it. I need it to do my job. I need it to function throughout my day. And if you look at Apple commercials, there's never a price on it. The new iPhone 16, they're advertising it like crazy, but there's no price.

And it just, Simon talks about that in his book, the emotional connection people have with Apple and Nike and Coke. And it just hit me that lending, 10 years ago, there was no institutional capital available, no Wall Street money available for us. Now, 90% of the products out there Wall Street capital. And it's gotten all the way away from what we want really as a customer. As a customer of a lender, we really just want to feed. We need you to move as fast as we do. Transparency, just tell me the truth, right?

And then dependability. And dependability is all about, like, if you say you're going to close next Friday, damn it, you need to close next Friday. Because like we just talked about in the last part, we already got plans for that money. Yeah. We're ready to go to the next thing. So Ternus, my new company is actually Latin for threefold because I really broke it down to those are the three things lenders should provide that they're not. And as my mentor, Jeff Tennyson said at our offsite this week, that's the main

thing. And I'm really focused, Brandon, on keeping the main thing the main thing, not about points and fees. Don't call me and ask me my rates because I'm going to ask you when do you need to close, right? Don't ask me about my LTV because I'm going to ask you, you know, how many times are you doing this? Like points and fees are what we've been trained to talk about because that's the, we don't understand what we really need. And so at Ternus, we're just focused on we're a balance sheet lender. We don't use banks. It's all our own money. We do have a debt fund, but we're not looking for money there. We have plenty of that. And we're really just trying to turn the industry on its head and put the customer back at the front of the desire,

instead of Wall Street's demand for the note. So, look, it's talk, we're changing things. When I tell people we don't pull credit, they laugh and say that I have a bad credit culture. When I tell people I don't get an appraisal, they laughed and think that I have a bad credit culture. For me, I bought thousands of houses. If I'm loaning you a hard money loan or an asset-based loan on the deal you bought, what do I care what your credit score is? I'm loaning to your company and I'm going to take the house if you don't pay me back. And I love houses.

And nothing against appraisers as a profession, but I think an appraisal is almost worthless. I mean, I just do. Scottie Well, you and I went around about that a couple of years ago. But look, I mean, if I can make a decision after my experience buying houses, right now, it would take me less than five minutes to decide if I wanted to buy a house by running comps and looking at pictures. Why can't I make a lending decision on that when I've got a partner in the deal, the borrower, that's putting up the money, the energy, and the effort to do it.

We're going really deep into making, we say we loan the way you buy. You buy by looking at comps and looking at pictures and making a decision. So I have to be able to do that too. And it's hard. People lie, people send you old pictures, things like that. Of course. You know, we're using technology to help with that,

but it's a noble mission. And it's something that I am going to do and we're figuring it out as we go building the car on the highway. But we're really focused on trying to become the people's lender and always putting the customer's needs ahead of our own. Got it. So if someone is out there and they're listening to this and they're an investor and they're looking for another source of capital, what's the best way for them to get to you?

Tim Herridge Yeah, our website, ternus.com or my Instagram, at Tim Herridge, where we offer 100% financing in eight states. It's Texas, Oklahoma, Arkansas, Missouri, Ohio, Georgia, Tennessee, and North Carolina. And the reason we only do those states is they're all nonjudicial foreclosure states where if you don't pay me back, I can go get the house and do what I've been doing for 20 years. We'll expand. Maryland's on the target.

There's 23 nonjudicial foreclosure states. We'll be in all those by early next year. And we offer DSCR loans. It's kind of silly. It's because two-thirds of the people that call need a DSCR loan. So it's kind of like, okay, we'll offer that. But one of our struggles and I challenge all the entrepreneurs this, man, one of our struggles is that process is out of our control. Wall Street drives that process because it's a 30-year loan. And we at the leadership level talked about ways we can change that. For now, we help the customer, but we're really clear, this is not a turn-based product. We're selling this to Wall Street. So we do have to pull credit

and get an appraisal for that. But I think I'm gonna be able to work on that too, eventually once we prove that loaning based on the asset can be and should be different than loaning based off of the person's maybe credit score or personal income. Yeah, absolutely. So great information as I knew you would provide. So I always end the show the same way we call the show Waking Up to Wealth because we wanted to create a show that people had access to people like you that get taught the things about money

and wealth that they don't teach in school. So I ask everybody the same question at the end of the show. What does waking up to wealth mean to you? And it can be whatever it is, it's your version. When I die, Brandon, I plan to be broke on the last day of the month and extremely rich on the first day of the month. And I plan to be able to do that without ever worrying about it or working at it. So to me, wealth is knowing you cannot outspend your return and your income, that's already on its way to you.

So for me, wealth is being broke on the 31st and richer than 99% of the world on the 1st without doing anything. That's a good answer. That's the first time we've heard that one. I like that. I might have to- I like to spend money, that. I might have to steal that one from you. All right, brother. Hey, listen, I appreciate you coming and chopping it up with us. I knew

you would, you would pour into the audience. That's why I wanted to have you on here. Thank you. Thanks so much for tuning into this episode of Wake Up to Wealth. We sure do appreciate it. If you haven't done so already, make sure you're subscribed to the show wherever you consume podcasts. This way we'll get updates as new episodes become available. And if you feel so inclined, please leave us a review on Apple Podcast and tell your

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