Best Real Estate Investing Advice Ever Show Podcast

JF1124: Nick Beveridge Made Over $40K On His First Flip!

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Have you ever used Craigslist to find private money? That is exactly what Nick Beveridge did for his first flip, and it worked out well. Now a seasoned investor and agent, Nick holds a monthly meetup and helps others with their investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Nick Beveridge Real Estate Background:
-Involved in real estate for 8 years and successfully investing for about 3 years
-30 year old investor and agent with Keller Williams Realty
-Hosts an REI group that meets monthly for a little over 2 years in North Idaho
-Based in Coeur D Alene, Idaho
-Say hi to him at nickbeveridge17 at gmail dot com
-Best Ever Book: Millionaire Real Estate Investor

 


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house flipping advice

 

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Nick Beveridge. How are you doing, Nick?

Nick Beveridge: I’m doing awesome, how are you today?

Joe Fairless: I’m doing awesome as well, nice to have you on the show. A little bit about Nick – he has been involved in real estate for eight years and has been investing for three of those eight. He’s a 30-year-old investor and agent with Keller Williams. He hosts a real estate investing group that meets monthly, and he’s been doing it for a little over two years in Northern Idaho. Specifically, he’s based in Coeur d’Alene, Idaho.

With that being said, Nick, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Nick Beveridge: Yes. I’m 30 years old, I wish I would have got started right when I started selling real estate in investing – that would have been a great time to get going, but I really had no idea what I was doing. Lately, I’ve been focusing on buy and holds, but I first started off flipping homes with my brother. We made a ton of mistakes, we had to learn almost everything we were doing on YouTube. We started off with very little cash, and the first house we sold, we made 44k on, and then it’s just been a snowball ever since.

Joe Fairless: Wow, 44k on your first place, and you learned it from YouTube… Any particular YouTube channel that you were watching?

Nick Beveridge: I was listening to a lot of Phil Pustejovsky, but what I mean by YouTube I mean how to actually do the repairs on our house that we bought. We had no idea how to renovate a house, so every little step came to what screws to use, how to do drywall – all that kind of stuff. We had to teach ourselves online.

Joe Fairless: Wow. Was there a particular channel that taught you, or was it just “I search on YouTube and whatever video pops up…”?

Nick Beveridge: We were just simply at the house, we didn’t know how to do something, like how to wire an outlet, we’d just type into YouTube “how to wire an outlet” and we’d just hope for the best. [laughter] And it worked out.

Joe Fairless: What type of experiences did you have with that first flip? I’m sure there were a lot of curveballs.

Nick Beveridge: Yeah, so that first flip — it was referred to me as a potential listing, and I had met this lady that referred it to me at a real estate investing seminar. Her cousin got it in probate, and after I checked out the house to give my opinion of it, he said “Hey, I heard you’re an investor. Do you wanna make me an offer?” At this time I’d never made an offer on a property before, I’ve only work with buyers and seller, so I was a little nervous, but I made him a lowball offer, I told him I can sell it for more on the market, but he just said “Okay.” [laughter]

Joe Fairless: Game time.

Nick Beveridge: And I had no idea how I was gonna get the money or anything like that, but we just figured it out step by step. I think the most important part was we got a really good deal. I think once you have a really good deal under contract, you’re able to make things happen from there.

Joe Fairless: Take us back in time – you made an offer, he accepted it… What happened after that?

Nick Beveridge: Then I got nervous and almost peed myself because I didn’t know what to do next…

Joe Fairless: Then you went to YouTube.

Nick Beveridge: Yeah, I know… Fortunately, I work in an office with a lot of investors and I was able to get help. I have some mentors here that just kind of walked me through it.

Joe Fairless: So what specifically did you do though?

Nick Beveridge: Specifically, the best advice I got was “Lock it up”, so I immediately sent him a contract and got it under contract. Then from there I started calling private money lenders, and due to the lack of experience, almost everybody said no. Fortunately, this property was in probate still, so we had a few months to close on it. It took us about three months to find somebody that would actually lend to us, because we didn’t have much down. [unintelligible [00:04:46].15] and it wasn’t much, it was like $2,000. So we were just barely scraping by, but we were able to close just on time, and we put most of the renovations on a credit card. That was about four years ago now, and we’ve learned a lot since then. It’s a lot easier for us to get money now.

Joe Fairless: Oh, I bet. Let’s still stay on this first deal. You had a lot of calls with money lenders, they all turned you down; did one finally say yes?

Nick Beveridge: Yeah, after a lot of convincing. The guy that actually said yes, at this time we had already had an appraisal done, we paid for an inspection, we had a TMA of what it could sell for, he went and actually visited the house… So at least he went that far to actually check it out, and he knew that if for some reason we couldn’t perform, he would have a good deal if he took the property back.

Joe Fairless: How did you find him?

Nick Beveridge: Craigslist.

Joe Fairless: You found the private lender on Craigslist?

Nick Beveridge: Yeah. It wasn’t too hard. It was actually the first time I — I was that desperate, I went to Craigslist, because I didn’t wanna lose out on the deal, because we had to close in just about a week and I still hadn’t found the money… So I just went to Craigslist and called the first guy that said “I lend money”, and he lent us the money.

I actually still refer him to this day. He’s a little expensive, I don’t use him as much as I would like to, but he helped us out on that first deal, so I still send his name to new investors.

Joe Fairless: What were the terms?

Nick Beveridge: Boy, I think we paid almost 10% in points and 30% interest anually, interest only.

Joe Fairless: 10% in points – so what was the loan that you got?

Nick Beveridge: It was kind of small. If I remember right, I think it was around 60k or so.

Joe Fairless: Okay, so you paid $6,000 – up front? Or rolled into the loan, I guess.

Nick Beveridge: Yeah, a lot of it was kind of rolled in. The points were rolled in, the renovations – he had an extra $5,000 in there, inside the loan and the whole back, but I believe the actual total finance amount was around $60,000.

Joe Fairless: Okay.

Nick Beveridge: I think we put about $6,500 on the credit card and we did all the work ourselves, we couldn’t really outsource anything.

Joe Fairless: Wow, you got the loan for the acquisition, plus $5,000 for some rehab, but you had to then use your credit cards for the remaining amount of rehab materials and you did the rehab yourself. Who did you do this with?

Nick Beveridge: Who did we get the loan with?

Joe Fairless: No, did you partner with someone? Did you say your brother, or am I making that up?

Nick Beveridge: Yeah, my brother and I… And we had to have something down. I think he just needed $1,000, and [unintelligible  [00:07:27].15] we were actually buying another property at the exact same time, and that we got seller finance and we just had to pay off her realtor, so that’s where I needed to sell [unintelligible [00:07:39].23] pay off her realtor, and then we got that one finance directly. We were closing on that one actually just before we got this house, but we didn’t have any renovation costs to work on the one that we seller-financed… We were kind of going after two at the same time.

Joe Fairless: So that was your first one… That was three years ago?

Nick Beveridge: Yeah, that was three years ago.

Joe Fairless: And how have you evolved your business since then?

Nick Beveridge: It’s a little bit more leveraged down. We have a great contractor, we have great private money lenders and then we also have people that bring us the good deals. I think about six months or so after we did that first deal, I wanted to start kind of a local networking group here in North Idaho. There really wasn’t one; there was one in Spokane, Washington that we visited, and we wanted to network with more investors, private money lenders and contractors, so we just started our own meetup, our REIA group, whatever you wanna call it… And to this day, we still get about 30 or so people that show up every month. Out of that, we’ve been able to have a lot of partnerships that came out of it, and a lot of deals that got referred to us from there.

Over time, we’ve learned that the best strategy possible si to try to keep your properties and not flip them. If we would have kept each one and just refinanced it and kept some of the equity as profit and just rented them out, I think we’d be sitting a little bit better than we are today.

Joe Fairless: Is that the approach now – you don’t flip, you refinance?

Nick Beveridge: Yeah, that’s what we’ve been doing for about a year or so now.

Joe Fairless: How do you run the meetup? What’s the flow of when we arrive, what do we experience?

Nick Beveridge: Typically, I just wait for everybody to kind of get settled. We usually start 15 minutes late or so, and then I like everybody to stand up one at a time, introduce themselves, what they wanna get out of this. When we’re done there, I go over a little bit of like a market update in this local market, and then I’ll go over the inventory levels, current pending ratios and all that.

I’ll do that monthly with everybody, and then we might have a guest speaker, we might not… I’ll probably go over a topic if we don’t have a guest speaker, or a case study, and then I’ll try to leave it open for networking for a good hour or so.

Joe Fairless: Where do you host it?

Nick Beveridge: Right at my office, at [unintelligible [00:09:51].25] Coeur d’Alene.

Joe Fairless: And you said it’s monthly?

Nick Beveridge: Yes. We have one tonight. It’s the first Thursday of each month.

Joe Fairless: Very cool. And do you charge?

Nick Beveridge: No, it’s absolutely free.

Joe Fairless: What’s been your experience? With my meetup, I had it free, and then I’d have 50 RSVPs and negative three people would attend, so I started charging $2,50 just so people had some skin in the game, and now I have like a 95% rate of people who RSVP actually show up.

Nick Beveridge: I know that the other guy here locally in Spokane he charges for his meetup annually, and he mentioned to me he did it free at first, and then almost the same kind of thing – he felt like people would respect it a little bit more if they had to pay for it… But I’m just not interested in trying to account for money at the door. I get plenty of business from it, and I’m not really doing it for a great attendance every time.

I truly like to just network with people that are interested enough to come out on a nice day, when they could be doing other things, and learn more about real estate. Those are the people I wanna engage in. I don’t wanna feel like I have to tempt them to come here.

Joe Fairless: What’s the last deal that you did? Can you give us the numbers and the breakdown of it?

Nick Beveridge: Do you want the one that we’re just about to put on the market?

Joe Fairless: Sure.

Nick Beveridge: Okay, this property – it was interesting, I got the lead from another investor… It was like a wholesale deal, but at first he just referred me buyers to go look for a house. So I took these new buyers, I showed them the house, I got it under contract, and then in order to close on it, their lender came back and said “Sorry, but we can’t count your wife’s income. You have to pay off $38,000 worth of debt in order for us to close on this deal.”

So the investor that was purchasing their house, that referred me to those people, that he asked if I wanted to buy the property for him – he had it under contract at $60,000, and he offered it to me for $80,000, which in this market is insanely low. So I jumped on it, I made sure that the buyers/sellers were okay with me getting involved – they were totally fine with it as long as they closed on their new house… So I went and got a private loan from another private money lender for $80,000, I told him I’d bring 20k, and he would put 16k into [unintelligible [00:12:13].27] so for 4k in fees total.

The other 20k I got from other private investors. 12k from one and 8k from somebody else, and I promised to pay them back 10% once we closed on the deal.

So that one I didn’t have any of my own money into it. We got that one back in April, and we’ve had some hang-ups because we’re building a shop. We still have yet to put any of our own money into it. We’ve been using some credit lines with Lowe’s, because of course, we went over budget a little bit, but right now I think we are in at about 110k, with all fees included, and we should be able to resell it for about 179k, maybe 175k on the low side.

Joe Fairless: What’s been the biggest challenge of this deal?

Nick Beveridge: Working with the city of Coeur d’Alene, trying to get the permits for the shop, or just getting the inspection process done.

Joe Fairless: What are you referring to when you say ‘permits for the shop’?

Nick Beveridge: This house did no have a garage. In North Idaho everybody wants a garage or a shop, and this property had enough room for one, so we decided to build a basic pole building type shop, so somebody can park their car in there. So we’ve just been having issues with the city, and we finally got it resolved last week, but it held us up about a month. They wanted to make sure that the soil could handle the compactness, or something like that.

I had to get third-party inspections to make sure that the soil could handle the shop.

Joe Fairless: If you were presented with the same situation again, what would you do differently in this process?

Nick Beveridge: I would have started getting the permits a lot earlier, like right from the start, or even before we closed on the house. I think that would have sped things up a little bit quicker. I think we kind of got our systems nailed down so that the renovation (the interior and the exterior) of the house went along just fine and on schedule, so next time if I was doing the same thing, I would just start the permit process a lot quicker.

Joe Fairless: What is your best real estate investing advice ever?

Nick Beveridge: Best real estate investing advice ever?

Joe Fairless: Yup.

Nick Beveridge: I would keep the properties. On this particular one I would love to keep it, but it’s a partnership on this one, so we’ve gotta retail it, but the last few properties I kept – I love them. They pay me every month, I was able to refinance them, get some equity out; that was my tax-free profit, and then I still get to keep the house and have the tenants paying down.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Nick Beveridge: Yeah, bring it!

Joe Fairless: Great. First, a quick word from our Best Ever partners.

Break: [[00:14:47].15] to [[00:15:46].12]

Joe Fairless: Best ever book you’ve read?

Nick Beveridge: I’d say The Millionaire Real Estate Investor.

Joe Fairless: Best ever deal you’ve done?

Nick Beveridge: The best ever deal I’ve ever done – I bought this little house in a rural town at a very cheap price ($29,000), I put a few thousand into it, I refinance it, it appraised at 84k, I got to pay off a bunch of debt, I got to keep 25k, and it still cash-flows $300/month. I only put about a few thousand of my own into it and I got much more back just after about a year.

Joe Fairless: How did you find it?

Nick Beveridge: On the MLS. It was on the MLS and nobody wanted it, because it was too far away.

Joe Fairless: What’s a mistake you’ve made on a transaction you haven’t talked about?

Nick Beveridge: Oh, I’ve made so many… Let me see. [laughter] I didn’t really get a well or a septic inspected before I bought a property. That was probably one of my biggest mistakes.

Joe Fairless: What are the consequences of that?

Nick Beveridge: A good $5,000. It was scarier more than anything. It could have been a lot worse.

Joe Fairless: Best ever way you like to give back?

Nick Beveridge: I like to donate to this little rescue pet shelter out in Shoshone county. It’s actually not really a shelter, but it’s a rescue organization that they have and they house pets. They don’t have an actual building, but people take turns.

Joe Fairless: What’s the best place the Best Ever listeners can reach you?

Nick Beveridge: They can go to our website, NorthIdahoREI.com.

Joe Fairless: Well, thank you for being on the show, Nick, and thanks for sharing your best ever advice, as well as that first flip – holy cow, what a way to be scrappy and put it all together and just not take no for an answer and making it  happen, and ultimately $44,000 in your pocket.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Nick Beveridge: Alright, thanks, Joe. Have a good day!

Best Real Estate Investing Advice Ever Show Podcast

JF1009: Need Money for Your Deals? Talk to This Guy!

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He connects investors to the big money, and he is on track to fund $1 BILLION in private equity! Hear where he sources his capital and what deals he funds!

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Lee Arnold Real Estate Background:

– CEO at Secured Investment Corp & Manager of the Secured Investment High Yield Fund
– Secured Investment Corp is one of the fastest growing companies in the private money marketplaces in the United States
– Lee connects investors to lenders from all over the United States and Canada
– Featured as an investment strategy expert by Forbes, the Boston Globe, Market Watch, Reuters and Business Week & taught for Donald Trump Companies
– Based in Coeur D Alene, Idaho
– Say hi to him at: http://www.securedinvestmentcorp.com
– Best Book Ever: How to Win Friends and Influence People

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Financing Real Estate Deals

 

Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Lee Arnold. How are you doing, Lee?

Lee Arnold: I’m doing fantastic, thanks for having me, Joe.

Joe Fairless: Well, my pleasure, and looking forward to diving in. A little bit about Lee – he is the CEO at Secured Investment Corporation, and manager of the Secured Investment High Yield Fund. He connects investors to lenders from all over the U.S. and Canada. He’s been featured as an investment strategy expert by Forbes, The Boston Globe and a whole bunch of other publications. He is based in Coeur d’Alene, Idaho. With that being said, Lee, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?

Lee Arnold: Yeah, I started investing in real estate about 22 years ago. At that time I was a penniless broke grocery store bag boy making $3,90/hour, and finding deals was easy, but for an investor it’s always about “Where do I get the cash?” So as I had success finding and fixing and flipping houses, I quickly moved into the lender role where I was doing private money loans. From there I started traveling and doing seminars across the country, meeting a lot of real estate investors that we kind of in the same boat as I was, which is I’m finding all these great deals but I don’t have any money. That’s why, Joe, we put together our Secured Investment High Yield Fund 1 and High Yield Fund 2, so that we could lend directly to real estate investors nationwide, so that they could get their start in investing or maybe take their business to the next level. Even those that are utilizing some of their own cash reserves to invest with could be leveraging that cash through our private equity fund, which would allow them to double, triple or quadruple their current volume.

Joe Fairless: Okay, so you are a lender and real estate investors come to you, they get loans and you on the backside make profits from the loan origination, and then whatever interest you make and your investors do as well who invested in the fund?

Lee Arnold: Correct.

Joe Fairless: Cool. So how large is the fund?

Lee Arnold: To date, the fund has done over 100 million dollars in deployed capital for our investors, and we’re on track to do a billion dollars in private money loans.

Joe Fairless: Holy cow! Alright, 100 million dollars in deployed capital in what? What did you say?

Lee Arnold: And we’re on track to do over a billion dollars in private equity loans in the next 36 months.

Joe Fairless: One billion in private equity loans… But as far as the hundred million, how did you define the hundred million? A hundred million in deployed capital?

Lee Arnold: 100 million dollars in deployed – so we have lent out over 100 million dollars to real estate investors across the country.

Joe Fairless: And then a billion in private loans?

Lee Arnold: They’re all private loans, so we’ve lent out over 100 million dollars so that investors could buy a house, fix it up, and sell it for a profit.

Joe Fairless: Got it! So the second number, the billion, is the valuation of the properties in total, but you’ve lent out of pocket 100 million to get to that billion, right?

Lee Arnold: Well, we’ve lent out 100 million and we’re on track to lend an additional one billion dollars.

Joe Fairless: Got it, I’m with you. So it’s the same thing, but you’re just increasing it. I’m with you. So you’re at 100 million, you’re gonna get to a billion… Where is this money coming from?

Lee Arnold: That’s the best part, it’s coming from private investors, or other people across the country that maybe at one point were real estate investors themselves, did very well, and are now looking for more of a passive income. Private money creates a great vehicle for them, because they can deploy 50k, 100k or 200k either into a private one-off note where they are the lean holder lender and they’re getting a check every month and we service that for them, or if they are an accredited investor, they can come into one of our private equity funds where we essentially do all the work, it’s hands off, and they get a check every 90 days.

So what we do, Joe – we actually have a process within our company that we call “The Circle Of Wealth”, and “The Circle Of Wealth” is this – we will take anybody… Anybody who’s listening right now – we can literally take that listener, teach them how to find great deals, give them the money to buy those great deals, give them the money to fix up those properties so that they can sell them for a profit, do that a couple of times a year or ten times a year… It’s really how motivated they are to get to that next level, but our first tier, the first goal we have for every listener is to help them achieve $250,000 in liquid capital. I believe that most investors are missing the mark because they continually have to go back and borrow again and again, and let’s be honest, private money, though great, it’s not cheap; it’s not a bank financing at 4,5%-5%; these notes are gonna run 9%-12% interest. So as quickly as we can, we wanna get our clients off of private money, so that they can retain and keep more of those profits for themselves.

Once they get to that quarter million dollars, now our next goal is to get them to a million, and once they have a million dollars in liquid investable assets, now they become an accredited investor. Now they can start diversifying – they can be buying real estate, they can be buying private equity loans, or they can be investing in one of our private equity funds. So that’s our process or our plan for each one of our clients.

Joe Fairless: 100 million dollars in deployed capital so far – roughly how many accredited investors does that comprise of?

Lee Arnold: Hundreds.

Joe Fairless: Hundreds… So 500-ish?

Lee Arnold: Our minimum investment amount is $50,000. People can invest as little as $50,000; there’s no limit. We have some investors that are coming in at $50,000, some that are coming in at a quarter million, some that are coming in at a million… There’s no limit. There’s a minimum, but there’s no maximum.

Joe Fairless: So 100 million dollars… I know with my investors — my average investor, when I remove one investor who’s invested 20 million, because that would influence the numbers greatly… If I remove him, then my average investor invests about $126,000, I believe. So let’s just say you’re right around there… That means you’ve got 800 or so investors, and these are just rough numbers. How do you find 800 investors?

Lee Arnold: Predominantly through our education. So as we’re outputting on real estate investment seminars across the country, teaching people how to buy these types of investments and how to do it properly, inevitably in every room 5% of the room is somebody that’s recently retired, has a 401k, a self-directed IRA… They’re looking to get better returns that what they’ve been getting in their CD or even what the stock market’s been producing – which has been pretty good lately, but now there’s a fear that it’s gonna turn and go the other direction, so they’re trying to get their profits out so they can get in something safer.

But in every room, there’s at least 5% of that audience that’s going to want a more passive investment experience, so for them we have our one-off loans where they can invest and lend directly, or our private equity fund.

We’ve been in the education space for 15 years and we speak to tens of thousands of people every year. Over the years, the accumulation of those relationships is to where now our database is in excess of over 500,000 people.

Joe Fairless: That makes sense. The education piece, if you’ve been doing it for 15 years, what did it start out with and how has that education piece evolved, either content-wise or structurally, with logistics, like maybe from meeting in a hotel conference room to something else now?

Lee Arnold: In 2002 I was doing a lot of short sales. Now, short sales really didn’t become in vogue until 2009-2010 post-crash, where home owners were literally upside down on their homes – they owed $300,000 on a house that was now worth $180,000. So short sales became household terminology in 2008-2010.

In 2002 my office was located in Salt Lake City, and we saw the Olympics come in. The Olympics came in in 2002, and when they left, they sucked out about 30% of the value of that market, because it’d been overheated in anticipation of this three-week event. So when the Olympics left, we had a lot of properties that were overvalued, and I was doing a lot of short sales. I literally had 400-500 clients at a time that I was in the process of negotiating short sales for them.

Of course, in doing this, we were the largest short sale [unintelligible [00:10:42].01] in the entire state of Utah; I was approached by a marketing company and I said “Hey, we put on seminars. Can you write a book and a tape for us on the right way to short sale?”, which I did. And we took that concept and started putting on events around the country. That then led to short sales, to foreclosures. As the market heated up, foreclosure options were a great opportunity. Then we went into tax lien sales, and then we went into rehabbing, teaching people the proper way to rehab; now we have seminars on the proper way to retail sale, how to market your homes, to sell them in 48 hours or less every time… So there’s so much involved in the process of buying, fixing and flipping a house successfully that there’s all of these niche concepts that come up around it, and we create seminars and training programs around those niches, because as you and I both know, “There are riches in niches.”

Our ultimate goal is to teach our clients the strategy that will allow them to find these really good deals, because ultimately we want to be their preferred lender. So our education feeds our lending arm.

Joe Fairless: Yeah, it all comes full cycle. You do that education, you educate people on how to do these things, then they find deals and they borrow from you, which helps your backend investors make money, and then eventually if they do it long enough and they’re successful, then they become accredited investors and they start investing passively, and it just goes full cycle.

Lee Arnold: You got it. That’s exactly right. That’s what we call our Circle of Wealth.

Joe Fairless: What has been the most recent challenge that you’ve had as the CEO?

Lee Arnold: The most recent challenge has been the market itself. When we started doing a lot of lending — in the 2002-2008 it was me and some investors and we were doing a couple million bucks a year. In 2010, most areas had really hit rock bottom. That’s when we started seeing a lot of investors coming into the marketplace, buying this real estate, and there was such a demand for private equity that we couldn’t raise money fast enough. Now, fast forward seven years, there’s an abundance of money. The stock market continues to close above 20,000, and investors are rich with liquidity, and they are yield-starved. And when investors and hedge funds and private equity is yield-starved, it becomes desperate money, and desperate money will do things for 5%, 6% and 7% margin. So our greatest challenge as a CEO is getting our money deployed and still being able to retain earnings North of 12%.

With all of this available capital, we’re seeing substantial yield compression, where it wasn’t uncommon to get a 14%-15% yield; now we’re excited if we get anything above 9%. So that’s a good message for the listeners to know – if you have an opportunity that an investor could put money into, it’s not longer you being beholdened to the lender; I really believe that the market has flip-flopped to where now the lender is beholdened to the borrower, and that’s an unpopular message for Wall-Street to hear, but that’s true. Wall-Street needs investment opportunities more than borrowers need capital.

It’s a great time to be out looking for capital for larger projects, for commercial construction, for large development opportunities… Capital is cheap, and it’s readily available.

Joe Fairless: And on the “capital is cheap” part, what type of expectations do you set with the accredited investors before they’ve done a deal, in terms of projected returns?

Lee Arnold: Well, our fund is structured in that we give our investors a 9% preferred return, and then we split any upside. We as fund managers are motivated to produce a greater than 9% yield because it’s the only way we’re going to be able to participate in any of that upside.

Joe Fairless: What’s the upside split?

Lee Arnold: The upside split is 50/50.

Joe Fairless: Okay.

Lee Arnold: So we just finished Q1 and our investor payout was 11.3%. The fund produced 13,5% annualized return, investors get 9%, and then we split 4%, so they get 11% and we keep 2%.

Joe Fairless: And then everything above that is 50/50. Is there some sort of provision later down the road when you exit that they get paid their money back that they originally put in and there there’s a split above that?

Lee Arnold: No, because we pay out quarterly, so we’re not sitting on any retained earnings. All earnings are paid out quarterly, based on investor participation… Which is really nice for a lot of people, because we have a lot of investors that are literally living off of their earnings from participation in our fund. Where other funds are growth or accumulation funds where they get a letter every quarter that says “Hey, your account went from 100k to 112k”, our letter is “Your account is still 100k and here’s 12k… Great job last quarter.”

Joe Fairless: What would you say is your number one talent as a business person?

Lee Arnold: You know, in all my years I don’t know that I’ve ever been asked that question. I always turn it into a core competency, and I think it’s the same question. But my core competency is the ability to communicate to the least common denominator and make it understandable. I think that that’s a core competency because I started investing in real estate when I was 18 years old, while attending community college. Once I flipped my first house and got that first check and I was hooked, I decided “I don’t even need college. I’m just gonna be a full-time real estate investor for the rest of my life”, and that’s what I did. So I don’t have the four-year degrees, the BAs, I don’t have the pedigree the Wall-Street wants to see, with the Yales and the Harvards on the wall. I am a community college dropout turned hedge fund manager. Because of that, I can make complex things easy to understand. I would say that’s probably one of my greatest strengths.

Joe Fairless: Lee, what would you say is your best real estate investing advice ever?

Lee Arnold: Don’t be in a hurry to buy anything. The way that you avoid getting yourself into that situation — a lot of people do this; they say “I wanna invest in real estate, I’m gonna become a full-time investor, so I’m quitting my job and I’m just gonna do this. That’s the worst thing anybody could ever do.

You hear it in a similar fashion where somebody quits the job because they wanna go be a real estate agent, so they get their license, and 86% of all new agents will be out of the business within six months. So to be in a situation where you have to make money is a very bad spot to be as an investor of anything, whether it’s real estate, stocks, bonds or mutual fund. You can’t be in a situation where you have to make money tomorrow. So my recommendation to anybody that’s interested in investing is to keep your day job. Do this on the side. Begin to amass a small sum of capital that will continue to feed your investments. And I don’t recommend anybody quitting job to do this full-time until they’ve got at least two years of their current salary saved in some type of an account where they can continue to draw down whatever their current income is, so that as they leave job to go do this business, there’s still that consistency of income. That’s how you avoid getting into a desperate situation where you just negotiate bad deals.

Joe Fairless: For a Best Ever listener who has some deals that they’re putting together and they want to raise money from accredited investors, what would you recommend their approach be when trying to find the investors?

Lee Arnold: Well, there’s so many crowdfunding places now you can go… There’s Kickstarter and some others where you can go and in a short period of time you can raise money. Those platforms have made the process of raising money relatively easy. The problem is raising money is not the challenge. The challenge is taking raised money and getting it to produce returns. I’ve seen a lot of investors that are like “You know what? I’ve gotta put a million dollar fund together” and they can do it pretty quickly. I’ve seen people raise a million bucks in a week, first [unintelligible [00:19:01].24] Kickstarter or some of these other crowdfunding platforms. But now you’ve got this million dollars and the clock’s ticking, because your investors are now waiting for returns and they’re looking to you as “How are you going to manage my money and how are you going to manage and lead the team that you have assembled to develop and deliver returns?” and that’s the part that’s missed.

The first time I put a fund together, I formed a simple LLC – this was back in the late ’90s. I formed a simple LLC and I allowed people to come in at a minimum of $5,000. I spent more time managing investor expectations than I did actually investing investor capital. What’s fascinating is the lower the amount of contributed capital, the bigger the pain in the rear the investor is… Which is why your minimum is $50,000.

Anybody where $5,000 is literally a lot of money, that investor is gonna be a problem. That’s one of the reasons that we’ve never gone the crowdfunding route. We didn’t want to make it available to those that were not accredited, simply because they need to go cut their teeth on buying, fixing and flipping houses successfully, and buying a couple of notes and making a profit successfully. I believe that the ability to make money is learned. It is not a skill that you are born with or you inherit, it’s learned, and you only learn it through doing it.

Joe Fairless: Great points. You mentioned earlier the education piece has been the primary component – in addition, I’m sure, to referrals… But as far as outside people, who aren’t within your sphere of influence yet, the education piece, doing these courses has been the primary component to help you bring in investors. How many courses do you have in this calendar year, roughly?

Lee Arnold: By courses do you mean event dates?

Joe Fairless: Help me define that question.

Lee Arnold: Okay, so to us an event is either a Friday, Saturday, Sunday event at an event city throughout the country and we hold them all over the nation. An event can also be specialty classes where people fly into our corporate office here in Coeur d’Alene, Idaho, and we will put on a three or four-day event here, Monday-Wednesday or Monday-Thursday. Either of those will be referred to as an event, and we have 47 event dates booked this year.

Joe Fairless: What is the cost involved to putting on a three-day event in a city? I know it varies, but just generally what number are you looking at?

Lee Arnold: Our average cost for an event runs somewhere between $35,000-$60,000… Per event, per weekend, per location.

Joe Fairless: $60,000 for a three-day event?

Lee Arnold: Yup.

Joe Fairless: Huh… Do you charge tickets?

Lee Arnold: No, those are free.

Joe Fairless: Those are free… Wow. And clearly, you have a lifetime value of a customer identified… What is your conversion rate roughly for a three-day event where you’re investing $60,000 in putting in together?

Lee Arnold: We look for a 4:1 conversion.

Joe Fairless: So 25% of the people to attend do something with your company?

Lee Arnold: Yeah, that’s about accurate. But when I say 4:1 I’m referring to if we invest 60k, we want to at least generate a quarter of a million dollars from that audience.

Joe Fairless: Oh, okay.

Lee Arnold: And $60,000, a lot of that is gonna be on marketing spend. We’re spending a lot of money on radio, television, direct mail, to bring awareness to that market that “Hey, we are a private equity fund that wants to lend you money. Come and see us and we’ll teach you how for free.” So from a unique selling proposition, I know of other groups out there that are putting on a very similar event and they’re charging $25,000. We’re doing it for free.

Joe Fairless: So $250,000 is your goal for dollars invested in either on the frontend to loan them the money, or on the backend for accredited investors actually passively invested, right?

Lee Arnold: Correct.

Joe Fairless: Okay. Are you ready for the Best Ever Lightning Round?

Lee Arnold: Let’s do it.

Joe Fairless: Alright, first a quick word from our Best Ever partners.

Break: [[00:23:19].08] to [[00:24:20].19]

Joe Fairless: Best ever book you’ve read?

Lee Arnold: How To Win Friends And Influence People.

Joe Fairless: Best ever deal you’ve done?

Lee Arnold: Converted 20 duplex lots into 40 single-family homes and made $480,000 in three weeks.

Joe Fairless: Will you elaborate?

Lee Arnold: Sure. I had a builder that was selling lots; he’d developed in these duplex lots. Duplex lots are worth less money than a single-family lot, because single-family homes typically bring a higher marginal return. So I bought them, went into the city, got them rezoned to be single-family and sold them to another builder as 40 single-family home lots.

Joe Fairless: [laughs] When did you have the a-ha moment that you could switch them over? Do you remember having that idea?

Lee Arnold: I put them under contract thinking I could do it, but I made the contract subject to inspection, and my inspection was not inspecting the dirt, because that was pretty obvious; my inspection was going to the county and seeing if the zoning would allow it, and they were voting on a blanket rezone the next week I knew that the builder didn’t.

Joe Fairless: Best ever way you like to give back?

Lee Arnold: My wife and I had a nonprofit ministry called HesTheSolution.com. It’s a non-denominational Christian organization, and we have a church at all of our events. So if there is an event over a Friday, Saturday, Sunday, we will have church services at our event.

Joe Fairless: What’s a mistake you can think of on a deal that you’ve done?

Lee Arnold: Moving too quickly, always.

Joe Fairless: Can you elaborate on how you got burned in a specific instance?

Lee Arnold: You make money when you buy, you realize your investment when you sell. It was 2006, the market was crazy hot, and I swung for the fences. I started developing three 15,000 square-foot homes that were gonna be [unintelligible [00:26:04].23] on the backside of a ski resort in Utah. My post-construction appraisal was 21 million, my construction cost was 7 million, and [unintelligible [00:26:15].06] and came to market July of 2008. [laughs] I should have read the market better, and I didn’t. I got caught up in the same euphoria as everybody else, going “Okay, what’s driving this thing?” And I don’t think we have the same bubble presently that we did then. I know that there’s a lot of talk that there’s a bubble – that might be true on the stock market, but I’m not a stock guy so I can’t speak to that. But on the real estate side, I believe this thing that’s driving value and why the market remains hot is there’s such a shortage of inventory because we had five years where nothing was getting built. I believe that that trend is gonna continue.

So where I got burned was not looking at common sense indicators that would have told me immediately that this is the bubble that can’t sustain itself.

Joe Fairless: Where can the Best Ever listeners get in touch with you or your company?

Lee Arnold: CogoCapital.com is our lending arm. If you need some capital, let us know. If you’d like to look at being one of our investors, you can enquire there. That’s the best place for them to go.

Joe Fairless: Lee, I really enjoyed our conversation. Thank you for being on the show. Thanks for talking about the business model that you all have and the cyclical nature of it, where you teach people how to get deal, then they go get deals, they lend from you, and then eventually (hopefully), assuming things go well, they end up being investors in other people’s deals down the line, and it just keeps on perpetuating itself.

Then also talking about the number one talent that you mentioned, the ability to communicate to the least common denominator and make it understandable. It’s important to ask that question, because your team is achieving at a high level, so we’ll wanna know what’s the CEO’s strength to help propel that business and the team – that’s why I asked that question.
Then also the deal that didn’t go too well, the one you just shared, and the one that did, with the builder developing the duplex lots, then you got it rezoned to single-family and you made I think a little over $400,000 in three or so weeks. So thanks so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Lee Arnold: Thanks, Joe.

 

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