Hey guys. Welcome to Mentorship Monday. This is Matt Faircloth. If you guys like what we
do here on this YouTube channel, take a minute right now and subscribe to our
channel and like this video. You're going to love this Mentorship Monday series.
Justin, what do we got coming up today? On this video, we're going to tell you how
to find a market, what trends do you need to be looking at to figure out where you should
be investing. Also, it's a big double episode. So in our second question today, we go into how to
cross collateralize loans, how to find equity for your deals, how to talk to people, and get them
partnered with you so that you can find your next deal and fund it. Those are the most important.
Who do we have first up for Mentorship Monday? First up, Jersey guy, Mr. Nag Reddy. Nag, thanks
for joining us today, man. How are you? Thank you. I'm good. How are you?
What can we do for you today? How can Justin and I brighten your day, man?
I was a newbie actually into this field let's say. So I'm just trying to gather some inputs
on the better markets. Okay. So you want to
know the markets in New Jersey. Yeah. Like a two family, two to four families.
Are you looking to do more high end sort of rental, or are you looking to do probably what
I would suggest is multiple purchases of like a smaller house? Or what's your thought?
My plan was to start as initial in the medium skill.
Good. And then from there to grow up.
Okay. So Matt, what we have here is Nag is approved for up to $700,000 purchase price.
He's looking for a BRRR type property. He is just getting started, and he wants cashflow and
appreciation. And he's trying to figure out which markets he should be looking at or how to evaluate
the markets that he should be looking at. Sure.
I think, Nag, the first thing that we sort of said is even though you're approved for 700,
most likely you should not be going after a $700,000 property in the very first go around,
especially if you're looking for cashflow and appreciation.
Nag, are you looking to live in the property too?
No. Just for the investment right now. Okay. Good. So here's a few tips,
and this goes to everybody, you got to go where the bubble is moving, and in North Jersey, what
we're seeing is, and Derosa does not invest in North Jersey. But I know a lot of people that do,
and I read a lot of articles in New Jersey because we do own a lot in South Jersey. And I'm seeing
what's happening in North Jersey be, because of COVID, it's being expedited, but this is something
that was happening before, which is migration of families out of New York City into North Jersey.
And we're also seeing people want to commute, want to live near commutable areas like rail stations
and things like that because they might still have to get into the city every here and again.
You're in Central Jersey near Freehold, huh? Yeah.
Okay. Great. I think if I can build on what Matt was saying is to look at the population growth,
the trends here in New Jersey. Are you more comfortable with a property that you can drive by,
manage, be near, close enough to or are you comfortable investing out of state, far away?
What are your thought processes on that? So initially I just want to understand what
tenant issues and all that stuff like a drivable distance. So once I get in and out at this near,
so watching the tenants. From there, I just want to move out of state. So to start with how to be
a comfortable distance to understand it. Start the process. That's exactly what I did.
I didn't even have any inclination about out of state or whatever, but I did want something
that was close enough that I could drive by and sort of self manage and learn the ropes,
learn the process. So I picked a market. Frankly, I picked a market my first time based on
the price, something that I could afford because I just didn't have... I wasn't approved for 700.
So there was not as much room for a deal as I thought, and I think Matt's back. So Matt,
if you want to continue your thought process there on following the population as you were saying.
Yeah, man. The only thing I would add to you said before about the access to rail stations because
the New Jersey Transit and New York Authority are going to eventually open up another tunnel to get
into Manhattan, and that's going to increase a lot more rail traffic going into the city. They're not
going to add any rail stations that I understand. They're going to just add a lot more trains going
into the city from the North Jersey area. So I would do my investment if I were investing in
North Jersey in or around those train stations and the cities that maybe have reasonably good school
systems. So I would cross reference school system ratings and access to New York City by rail.
And if you can build that out into a matrix, you should be able to pick a few cities to target.
That's great. And Nag actually is in the Freehold area. So he's actually
a bit closer to us down in Central Jersey. Do you recommend a Plainsboro or a Princeton,
those kind of areas? That's what you mean to say?
And North too. Personally I'd look at New Brunswick, Perth Amboy. New Brunswick we can
get a good deal because you can lease to college students or lease to professionals that work
at the hospital, and New Brunswick is already a commuter city to Manhattan. It will continue to
be so. So I would look where you are in Freehold north. You could also look at the areas over by
the Shore, like the Red Banks and things like that that you can get on a boat to get to...
through the fairy system to get to Manhattan. Mm-hmm (affirmative).
Yeah, so I love that. Really what Matt's saying is thinking about the demand in the future. We
know people are going to be commuting. What we're seeing with COVID is that people are moving out
of Manhattan, and they're moving into Jersey and North Jersey. And what's going to happen is the
closer you are to Jersey, the prices are going to get higher and higher. So people start moving down
that train station. They go station by station by station. Their commute gets a little bit longer,
but they sort of cluster around that. And then you cross reference that in with the school districts,
and now you've got a winning town that your appreciation. There's going to be a strong
rental market. In an upturn, a downturn, people are always going to want to be living there. Good
schools and easy access into the major city. So hopefully that helps you figure out how to
find... That's very Jersey specific for anyone else watching this, but outside of your town
is probably the same thing. I expect people are probably moving out of the major cities
and check those lines, check the subway lines or the train lines coming in and out of your cities
and start to match that over with the towns. Yeah, and you can also just transpose that
to any market, follow the growth, and transpose because of COVID and because
of growth and things like that. Where are jobs and people moving to? In New Jersey,
Manhattan's going to continue to be the center of employment in New Jersey,
but it's not going to no longer be the center of residential as well. People don't
have to live there to work there anymore. And by the way, if you're more comfortable
in South Jersey, do the same thing with Philadelphia.
Yeah. I'm comfortable in South Jersey too because my wife has a clinic in Cherry Hill.
Perfect. So she can [crosstalk 00:07:02]-
Know a lot of investors. We know a lot of investors down there crushing it. Same thing,
look at the stations, look at the growth, look at the schools. And I'll do a plug, join the
SJREIA group. Your local REIA is a great resource, and in New Jersey, specifically,
SJREIA is the group to be with in South Jersey. They are a great connection for you.
Thank you so much for coming on the show. Justin, double header. Who's up next?
We got Jonathan coming in next. Jonathan, how are you today?
I'm doing well. Thank you. Jonathan, you're coming to us
from Georgia, correct? Yeah. Lookout Mountain, Georgia.
Excellent, excellent. Well, Jon, go ahead. Let us hear your question.
Sweet. So a little bit of background. My wife and I, we have a couple of duplexes and a couple
single family homes, and we've saved up a little bit to be able to probably purchase one or two
more. But at this point, I'm really looking to get down into the details of how to structure deals.
I think I've got a big 30,000 foot view. So one of my big questions is is it possible to get a
private loan from a cash provider where they give 25% where I'm doing a loan deal with them, like to
pay them 8-10%. And then for me to be able to get a mortgage, the other 75% underneath my name or an
LLC. Is that even possible is my big question. Sure. So yes because all you have is someone
lending you money. The problem you have is collateral.
Correct. Right. So let's address that. So to say
it in layman's terms, the bank is going to put a first position lean on the property, and a lender
is going to step in and say, "Great. Love to lend you the money, but what do I do if you don't pay
me back?" "Well, I'll say I'm sorry." I don't know. Because you can't put a second mortgage lien
behind that bank's lean without them accepting you doing that and being okay with you putting
that second position mortgage behind them on title. So the problem you have is collateral.
Now what we did, we did this very thing. We built a bunch of townhouses in Philadelphia
where we had a bank come in and give us first mortgage position and a private investor
come and do the second round of money behind. What we did was we agreed to pay the investor
a flat rate of return. In that case, it was 8% on their money plus a percentage of profit. So
my guess is this is a rental deal or a flip? I'm hoping to rent it. It could go either way,
but I am looking towards the rental piece of like [crosstalk 00:09:38]-
BRRR strategy. You going to buy it, renovate, refinance, and then repeat.
Potentially. I am looking to maybe find that's already got renters in it.
Okay, got it. All right. That'd be hard to BRRR. All right. So at the end of the day,
whether you were going to do the collateral thing or whether you were doing to do the percentage
of equity thing or not, you need to invest for this one to stay in the deal long term. The cash
for buying is one and not. This isn't like a six month offer. This is a three to five year deal.
Correct. Okay. So this is a straight equity deal. This is a
security, an FCC registered security unless you're willing to do something
as part of the company. So this is fairly simple. You're going to give them... Just set up an LLC,
and this is Jonathan is Awesome LLC. And then you're going to give that investor a silent...
You're going to sell them shares of the LLC or sell any percentage of the LLC. Have a
local attorney set it up for you. My book Raising Private Capital talks a bit about how to do it,
and then at the end of the day, that's it. So you're going to just do a straight syndication.
My first syndication was one two single family homes with the investment being $50,000.
So doesn't matter how big the deal is. So before you talk me out of it and say, "Hey Matt,
I'm not buying an apartment building," well, I get that. But it doesn't have to be that big
to be a syndication. You are selling a security unless that investor has an active role in the
investment. So if they are keeping the books, if they are cosigning the mortgage for you, if they
are doing something to add value and doing some of their own efforts, then it's a partnership.
But if they're doing nothing, if Jonathan's doing all the work, then it is a security because they
are making their money... They're making a return on their money from your efforts.
Got it. Now that's the thing,
equity in the company or equity in the project. What about debt, Matt? Is there a way that we
could do this with debt even though they're keeping second position on the mortgage
You can, but the investor's not going to like it and that's with an unsecured line of credit.
That's to say, "Hey, I'm Jonathan and I'm awesome. And I promise I'll pay you back."
And they give you $50,000 or whatever on your word and on your personal credit and on their rights to
sue you if you don't pay them. If you own other real estate, Jonathan, with some equity in it,
you could collateralize that other real estate. Got it.
Okay. Yeah, got it. Yes.
Let's say you got your primary resident or another rental property.
Mm-hmm (affirmative). Okay. You could put a lien
on that property, and then take that money and put it in your next deal.
Yeah, got it. Brilliant. Are you in that situation? Do you have-
I do. Yes, so we have a couple of properties that I could do that. I was even thinking
to like take their money and replace my money that was in one of those properties.
Does that make sense? So to put it in there. Then when I get my money back out, then put it
in somewhere. Find somebody to replace that deal, pull money out. Does that seem legitimate?
That's fine. So refinance.
You're just using private lenders for it. Right, correct.
Well, here's the thing, Jonathan, is that I would consider this. If
you've got significant equity, the cheapest money you're going to get is a HELOC.
Right. A home equity line of credit. So I would
invest in it. And banks will give you a HELOC on rental properties if it's the right bank.
Right. Yup. So considering
HELOC first because the HELOC's going to be way cheaper than any investor
rate of returns going to want. Investors are going to want eight, nine, 10%, if not more.
I would look into a home equity line of credit, and then look at investor blend-ins.
So you've got a lot of options here. Equity partner, joint venture, putting together a
mini-syndication, cross collateralizing your loan, a HELOC. There's definitely some options
here to get you in the right direction. Here's the lesson, guys. If you have equity,
then it's certainly you want to tap that equity to use it to borrow against it. If
you don't have equity, you're going to have to give equity away in your new deal.
Yeah, brilliant. Thank you so much for your time. I'm very appreciative.
You're welcome. I won't let it go to my head, Justin. You hear he called us brilliant,
Justin? You hear that? Thanks, Jonathan.
Awesome. Another great episode of Mentorship Monday, guys. Thanks for watching, guys,
and have a great and profitable week. ... great and profitable week.