Here's the stuff that no one talks about [inaudible 00:00:02] private money,
because it is a double-edged sword. There's two sides to this coin, right? Flips can go
upside down. You can flip a house and owe your lender money at the end. There's no guarantee
that says that no matter how much money I make on the flip and if the flip doesn't go too well,
you'll take a discount. Won't you Mr. Lender? You'll take a haircut. Right? Okay. Yeah.
Flips can go upside down. You need to factor in just in case money, you need to factor in
some contingency, you need to figure what you're going to do if a flip or a project doesn't quite
produce the profit you want it to and then if it maybe loses a little bit, what do you do?
You can miss projections on an equity deal. You can tell an equity investor you're going to make
them a 15% return, you might make them a 12% return, or you might make them a 0% return.
What do you do? These are all questions you just need to ask yourself. And your lender
is going to ask you this, right? They're going to come to you and say, "By the way,
what if you don't hit the return? Or what if you can't pay me back when you sell the house?"
I got this going on right now. I got an investor that's in inequities, freakin' great equity deal,
and they want their money back so I put their freakin' shares out for sale to find somebody
else who wants to buy into this great deal. But this investor wants their money back
because they have a personal matter going on. Your deal is marginal. You did some [inaudible
00:01:25] marginal speculative deal, trying to catch lightning in a bottle that could make a
big return, but it also could go under. And guess what? It went under. Well, don't do those kinds of
deals. That's what you do. What's that? For number one, there was
no contract or anything but [inaudible 00:01:40] take your money back? Aren't they-
Yes, most contracts for equity deals say that investors can ask for it back and you're not
obligated to just write them a check. But here's the way it really goes down. Let's
say 10 of you folks all invest in equity deal. You decide you want your money back,
or you decide you want to sell your shares. It's not you want your money back, this isn't
a refund. This isn't like... This is, I want to sell my shares. That's how it really goes down.
And then he steps in and says, "I'll buy your shares for X." And X can either be what you paid
for the shares, it could be less than what you paid for the shares, it could be more than what
you paid for the shares. Right now, we're looking at a buyback on another company, we're paying 10%
above what they paid for the shares. Sometimes it can be more, and you broker that you negotiate,
not through the general partner, through the deal provider, helps broker as part of your
fiduciary responsibilities. This helped broker that sale. You don't take a commission. He would
give us the money, we give it to you. You sign a disposition to sell your shares, and off you go.
Then the shares become his. Does anybody take a
loss for that? [inaudible 00:02:59]. Huh?
Does anyone take a loss for it? Nobody takes a loss. He's paying
more for her shares, because he's looking at it and saying, "Oh, okay. A company is producing
13%. I like the way it looks. I like that I'm reading the tea leaves and I see some potential
profitability for the deal for the building of the property to make more money, so I'm willing
to pay a few extra bucks to get into the deal." And most likely he's already in the deal and
he likes the return he's getting and he wants to leverage up and buy more of our shares.
You could sue. Oh, that's possible. And most likely if you get sued, your investors won't, you
will, because you're sitting at the tide, you're sitting at the front, at the front of the bus.
Who sues you? Huh?
Who sues you? Somebody that slip and falls,
a contractor, one of your investors, a tenant. Because your name's on everything.
Yeah. You're the front of the train, you're the engineer, so most likely you'll be the
one. And that can happen because people can get upset around the way these things go down,
especially if they don't make the returns they're supposed to, they can, "I'm going to talk to a
lawyer and see what they have to say." Questions. Before I get to questions,
a few different things. This is my book, Raising Private Capital. You can get it at my website,
derosagroup.com. It talks about everything I talked about today. Everything I talked about,
all of those kinds of deals, all those kinds of everything are in that book and
it's at biggerpockets.com or it's on my website derosagroup.com, one and two. If you buy it,
bring it here, I'll sign it for you, if that means anything to you or not. I mean,
it's stuff that pinch myself that I've... Freakin' published author now, but I put my heart and soul
into it, I put everything I know about real estate. I'm touching on a few things tonight,
but if you'd like, pick up a copy of it and I hope you learn from it.
If you did buy a copy of the book, go to Amazon. You can get on Amazon too, but you're better off
getting it... Because there's a bunch of free giveaways. If you buy it from my website or
from Bigger Pockets, it's like, 20, 25 bucks. Again, you're not running the back of the room.
There's no six grand, there's no nothing. It's a $25 book. If you buy it from Bigger Pockets,
you get an hour and a half interview with my SEC attorney. I interviewed him for an hour
and a half. We talked about the nuts and bolts of how real estate works with the SEC, what you do,
what you don't have to worry about. It comes with a workbook on doing your first couple of private
equity deals that you can go through. It also comes with another book that I wrote on buying
apartment buildings. You get all that stuff if you go to my website or Bigger Pockets.
If you've read the book or read most of the book and you review it on Amazon and you email
that review to info@derosagroup.com, better write that email address down,
because if you send a screenshot of your review, we'll give you an invite... Oh,
it's not September the 12th anymore because that date's already passed. We're doing one a month.
We're doing a free private money mastermind. It's a Skype thing, like a video call. We'll do a
private money mastermind with you guys one-on-one, where you at. It'd be a group of people, but
between five and 10 people on a group call. Let's talk about people's business deals and different
things and just go through the nuts and bolts of transactions, talk about what we're doing,
the struggles we've had, just more of a private session with us just as a thank you for giving
us a book review. All this is free, all you got to do is buy the book, review it and email it
to that address, info@derosagroup.com with a screenshot of your review.
When's the next mastermind? It's October the 12th.
Okay. Yeah. It's pretty much around
the 12th of every month, so send it. If you can't make October the 12th, you can do it November.
All right. Questions. We've got a YouTube questions? Questions from you guys?
How do you insulate yourself from getting sued? More insurance?
Insurance. Not more insurance, just insurance because most likely general liability insurance...
General liability insurance covers like 99% of lawsuits. And that's just because attorneys are
lazy. Forgive me if there's any attorneys in the room. Because attorneys know there's plenty of
money in that insurance policy they can get their hands on. And we've gotten letters from attorneys
that just said, "Hey, forward this letter to your insurance company so we can deal with
them directly, because we know that they'll just cut us a check to make us go away."
Insurance is nine times out of 10, the best way. It's the best way to avoid it or to mitigate
lawsuits if they show up. The other way is to be very clear with your investors and have an
operating agreement that's very clear too. Do you always use licensed and
insured contractors? Yes. It's not worth not. It's
not worth the 20% you're going to save to go with the guy who's not licensed or insured.
The team that you referred to earlier, [inaudible 00:08:15]. If you were investing
across the country, would you need that team everywhere you go or you only have one or
for each state that you want to invest in? If you're investing in Albuquerque, New Mexico,
you need your property manager, your realtor, most likely your insurance broker, they're in town,
your local legs on the ground, your team. I recommend if you guys are investing out of state,
then I just call it local boots, meaning somebody who lives in or around the property. Almost every
deal that I've done, I've got somebody I can call that lives around the corner from the
properties if something comes up. We've got stuff in North Carolina, soon to be Kentucky,
central Pennsylvania, Philly, we don't have any more. We sold it. I'm bad around here too.
We have local legs near all of our stuff. And I'm happy to have that. I'm happy to give a little bit
of equity too in exchange for running and making sure it's something... North Carolina was nice
after that hurricane came through, that was good to have somebody right there. The hurricane went
right through where our building is, so it was good to be able to have somebody to call and say,
"Hey, how did we do?" Anyway, next question. It seems like all of your properties you're
buying in the Southeast. What's going on down there that they attracted you?
Let's see, make a long list. Taxes, friendly government rule regulations. We called the local
township in North Carolina and asked them about, "Hey, when we turn over a unit, do we have to have
you guys come in and do a certificate of occupancy inspection, right?" They were like, "We have no
idea what you're talking about." Never heard of a CO?
They never heard of a CO. There's no such thing. In most other states, there is no such thing.
Which states? What? Most other states in the union
aside from New Jersey. Anyway, that's just that. Job growth. The Northeast is kind of built out
already. They've been building there since 1776, but in other parts of the world that have been
more rural up until now are building out and there's just more land. The concept in New
Jersey of having the next town over being right the next town over, like the next civilization
being just five minutes away and having eight choices for supermarkets right outside your
doorstep or something like that, that's not common elsewhere in the world. Elsewhere in the world,
there's a lot of stuff. There's a lot nothing in between things, and so people are starting to
build on that nothing, and they're starting to put jobs and factories and things like that on that,
and so there's room for expansion there. Around here, if somebody came, if Toyota wanted
to build a 50,000 square foot auto plant in New Jersey, I'm not sure where they would
put it and whatnot. But if you want to put it in North Carolina, there's plenty of places to put
it, or in Alabama or whatever. Job growth, cost of living is less, so that means the
dollars a door is less to buy. I keep going. But that's a short list of on why the Southeast.
Have you ever thought about starting a REIT? The syndication deals pretty much are REITs. It's
a privately traded REIT, it's not publicly traded. But to do a real REIT, like a REIT REIT, our
typical raise right now, we're not that big, but our typical raise is a couple of million bucks. If
we put together a big size REIT, we'd be raising at least a hundred million on the small side. And
we don't have those, and I don't have any desire to get into that sphere. It's just better to do
private raises and stuff like that. REITs also, as I understand,
have to give away 97% of their profit. They have to pay out 97% of earnings.
[inaudible 00:12:15]. Huh?
[inaudible 00:12:17] I have so many shares. I didn't even realize it was-
Yeah. They do it every quarter.
Yeah. The way I think they play the game is they retain shares for themselves. So yes,
they're paying on 90% of their shareholders, but some of that's [inaudible 00:12:31]. I think,
I don't know. I'm speculating. I'm going to be a buy and hold investor,
so how would raising the capital, how would they get their money
back? Such as flips, it seems like... Sure. I'm with you. You can do a BRRRR deal,
meaning you can buy it, renovate it, rent it out, refinance it.
Through the bank? Yes.
Okay. Through a bank. It's a private
lender comes in, loans you money. You take that money, buy the property, you renovate it,
get it all happy, put tenants in, then you refinance. And most likely around here,
it's not that simple. The way you got to do it is... The problem around here is properties are
so cheap that a bank is not going to want to talk to you at a $60,000 refinance. But you can go
buy a single family home right now in Trenton. She'll sell it to you right now for 30 grand.
She's got a wholesale deal right now. For 30 grand she'll sell it to you today, and you'll put 10,
15 grand or [inaudible 00:13:45] for 45. No bank is going to lend you 60 grand or 45 grand. It's
just not worth their time, so the way you got to play the game is you could assemble a lot
of deals. You got to go and put together four to five rental properties, and then go get a
blanket mortgage on all of them. That's the way to play the game. It's called portfolio law.
Okay. Okay? Cool.