Welcome, welcome, welcome, YouTube. This is Matt Faircloth. Welcome to the Mentorship
Monday Show. Come on in, Justin. Hey, hey, hey. Happy Monday.
How are you? Very good. How's it going today?
Fantastic. Like this. Very good.
Justin, who we got today? Today we've got Ryan. Ryan,
come on in. How are you, man? Come on down, the next contestant.
So what can we do for you, Ryan? How can we brighten your day, brother? What do you got?
All right. So I am getting started with my first BRRRR deal in Philly. Buy, rehab,
refinance, rent, repeat. So I have most of the capital that I need to get started,
might need a small amount just so I have a little bit of a buffer. And I found a local investor who
has a lot of experience in the areas I'm looking doing the types of deals I'm looking to do,
and I would love to partner with him. And I was really just wondering the
best way to structure this deal. So I am almost finished Raising Private Capital. Great book,
really recommend. So that has some great examples of how to structure deals. And the one thing I was
really worried about was because I don't need very much capital, I don't think that the interest of
the loan might not be enough to really incentivize this investor, my partner, to be as involved as I
might him want to be. I was considering other ways to maybe sweeten the pot.
Is that all you need is five grand to do your deal?
Five to 10 grand, yeah. Yeah, you don't need a private
investor. Come on in, Justin. I'm going to show you guys ways to get between five and...
Let's list out. We'll speed around ways to get between five and 50 grand without an investor.
Did you have reasonably good credit? Any filed bankruptcy last week or nothing like that.
No. All right, cool. Where are you
getting the rest of the cash from? Just personal savings.
Okay, cool. Your own pocket. Before we move on, I just want to make
sure we hit also considering the partnership aspect of this because you are interested in
having this guy be part of your project because of his experience. Is that correct?
Yes. That is the biggest part of it, I would say.
Well, that's the other thing. All right. So he's bringing... Just a mentor kind of thing? What's
he doing for you? Is he a hands-on operator, contractor, a guy doing the actual manual
labor on the property or what's he bringing to the table? And we'll get back to five to
50 grand. I'll get back to that. But tell me more about this partner of yours and why you want them
in the deal aside from his five to 10 grand. Yes. Aside from the five to 10 grand, really the
experience. He does GC some project himself. I'm not sure that I would necessarily want to use him,
not really using him as a GC, but mainly just to help me sort of walk through properties, send them
deals and just double-check what I think of them, help me estimate rehab costs, all the stuff that
he has done before that I've never done before. And he's a fully active real estate investor?
Yeah. A realtor, investor. Got it. So he's going to spot check your work,
he's going to come and keep you out of trouble, he's going to give you his Rolodex,
he's giving you his contractors and his people and his resources and all that kind of stuff.
Undecided. Hopefully [inaudible 00:00:03:11]. You said he's a realtor too, right? So is he
saying that he needs to be the one? Is he repping you on the buy-side?
No, I actually have another realtor that I've already been working with
that I'll be working with. Okay. What percentage equity
are you looking to give him? That was the thing. I was leaning more
towards keeping the equity and just structuring it as a loan. Mainly because I was hoping to
sort of first deal, grow my portfolio, keep paperwork simple and all that. I
don't know. Is that [crosstalk 00:03:38] Oh, it's a BRRRR deal. Equity on a BRRRR deal's
going to get weird because even if you gave him 20% equity... And how many units is it?
A single family. What are you going to make? A thousand
dollars a month at the top end of the market, right? Probably not though. Probably $500 a month,
something like that. So it's like a drop in the bucket if you give them 20% on it. Yeah,
I'll give you 20%, that's awesome. And I mail you a hundred dollar check. I'll just mail you a
hundred dollar bill. I'm going to tape it to your front door of your house. At the end of the day,
equity is not going to move the needle. So if you want him to mentor you and keep you out of trouble
on this thing, I would go get your own five to 50 grand, which I'll teach you to do, I'll speed
around you all that. And I would pay him a fee. Would you say hourly or monthly flat rate, or
how do these [crosstalk 00:04:22] I don't know. What do you think?
So yes to all of the above. It depends what you want. If you want the, I will call you
when I need you and I'm going to try and figure it out myself most of the time and I want you
hanging on the wall in case of emergency break glass kind of thing that you can call him.
If that's what you want then hourly's what you want to do. If you want him at your hip the whole
time being like, "What color should I paint that wall? What nails should I use? What contractors
should I use? Did this contractor screw up?" Then you want a flat fee. So it depends on how much
you're going to do versus how much he's going to do. If you want to minimize his
involvement and try and figure it out yourself, and you think you can do it mostly yourself. A
time and material kind of thing. What do you think, Justin, so far?
The thing I like about equity is aligning of interests, but I agree that the deal is too
small to be giving away too much equity. But what you might be able to do, if the numbers
work, is to pay him a fee based on what you get at the refinance. So if you do the job the right way,
you're going to be creating enough equity that there's money coming back to you at the refinance.
Matt's look a little funny at this. No, I like that. That's a good face.
He's incentivized to make you as much as possible. So maybe there's a set: Okay, I got to pay my loan
and I refinanced. But anything on top of that, maybe we split whatever percentage. 30%, 20%,
50%, whatever it takes to make him interested in that based on your proforma means that
he's going to be working extra hard to make as much as he can by making you do a better job.
And then you both win together. I would talk to your proposed partner mentor
about it. See what structure works for them. I love Justin's idea of a success fee that goes up.
Maybe a threshold of, listen, it's got a value for at least this and so the value's for this,
and I'm able to pull out X to at least get my costs back, I can split anything above that with
you. Just an idea. Quickie quick ideas on five to 50K. You can go get a low to no interest credit
card. They do 0% interest credit cards, zero for 18 months kind of thing. Go get yourself one of
those, put it on your personal name or put it on your business, whatever. There are companies
that will sell those kinds of things to you. That'll sell you a 0 percentage as credit card,
and then there are companies that... You can just go online and Google it if you want. I don't do
the companies that sell you. There are companies out there that'll sell you low to no interest
lines of credit. All that is is a credit card. You can get a credit card and then structure it and do
a cash advance off a credit card to get five to 10K. I wouldn't do the credit card thing with
any more than 10K. And remember, a credit card is a weapon of mass destruction. Because it's like
when you get a 0% interest credit card, it's like somebody handed you a hand grenade with the pin
pulled out. Hey, just hold this for a minute. And you hold it for up to 18 months, all good.
0% interest, no big deal. And you have to make monthly payments just on the principal.
And then the rate goes to 18% after 18 months. So make sure your deal take shorter than that. The
higher amount of money... And I believe banks are still doing this. They call it different
things. Some banks call it a signature loan, some banks call it a line of credit,
a business line of credit. Not a business equity line of credit, just business line of credit.
And all that is, is like a credit card on steroids where it's like they're going to give you a
loan that's based on your credit that's anywhere between 25 to $50,000.
I have a few of those on my companies and that they're just kind of you just keep it on the
shelf in case you need some money. Here you go, here's 50K or here's 10K, whatever it is you
need to keep your business running. A lot of your mid to large sized banks have those. And it's low
interest rates like three to 7%. Somewhere in there. What do you think about that?
Nice. I like that. My first thought about the credit card was definitely
the weapon of mass destruction issue. And here's the third one. My book Raising
Private Capital talks about this, is you could approach a friend or family that has
reasonable amount of cash and get a larger line of credit from them. And say, "Okay, uncle Charlie,
I know you had that IRA sitting there." And my book tells you about how identify all these people
and how to find them. And say, "Uncle Charlie, I need to have 50K on tap when I need it."
And to have uncle Charlie agree to disperse money to you, either all at once or as you need it,
out of his IRA or out of his own cash and you agree to a healthy interest rate to pay him.
And you just pay for the money as you go, and you agree to send a monthly checks and
everything like that. And you just use the money for deltas on your deals for down money or for
bridging contractors work, stuff like that. But 25 to 50,000 is a
great asset to have sitting on the shelf, don't pay for it until you need it kind of thing.
The thing I like about talking to family and friends about that is it helps to train those
muscles of raising money from other people and for investors. So it starts you to have those
conversations, you get a little uncomfortable when uncle Frank asked you about the legality
or this or that, but you're close enough that he's okay if you go take an hour and go look it up and,
call Matt or me or whoever and get the answer and come back to it.
So that's a great way to get in the habit and in the practice. I borrowed money from
family in the past. It helps to sort of get the ball rolling. But not everyone has that
either. Not everyone has that opportunity. Not everyone has a rich uncle Frank.
Yeah. That's a great point about exercising those muscles cause
mine are nonexistent at this point. [crosstalk 00:10:36]
If you want to scale out your business and do more bigger deals like BRRRR deals, whatever,
you need to build up this muscle. Your raising private capital muscle and that could be a way
to do it. I would still do the bank and the credit card thing and all that too and maybe
try a couple of different angles of attack. I like this because real estate gives you the
option to try so many different things. So you're being creative with this success fee maybe,
or maybe it's dead, or maybe there's an equity component, borrowing money from a friend or
family member. So you're practicing the raising capital stuff. So there's different options for
you to test out and think of this just as a testing ground. You're not going to get rich
on your first deal. You're changing your life because you're stepping in the right direction,
but it's not going to make or break you. A year from now, two, three years from now, you'll be
more happy with the lessons learned and the experience than the dollars in your
bank account from deal number one. So give up what you have to give up, give fees where
you have to give fees, get the experience. The deals you do are all a training ground for
the next deal. And even like the deal Justin and I just closed. A 336 unit apartment complex, God
bless, in North Carolina. That deal was a training ground for the next deal that we're going to do.
And the next deal we're going to do is going to be a training ground for the deal after that.
And so let this deal be a training ground for your next deal after that, for Ryan to do this.
Yeah, great points. I just got to get started. There you go. You're on the right path.
And talk to the partner. Just remember the concept of win-win. Ryan, thanks for joining
the Mentorship Monday Show. Thank you, Ryan.
Great to see you. Great show today. Thank you,
Justin. Thank you everybody for watching, and have a great and profitable week.