Hard Money Lending and Bridge Loans: How to Co-Lend With Your IRA | Real Estate Notes Show Ep 163

Welcome back to the Real Estate Notes Show. I'm your host, Dave Putz from JKP Holdings. Alongside me, as always, Mr. Nathan Turner. What's up, man? Hey, good. How are you doing? Good, man. Hopefully, all is well. It's been a while since we actually did a recording. It has been a while. Well, I'm glad things are going okay for you. I did want to catch the audience up. I heard you're making some headway in Chicago. Oh, my goodness. We finally sold that house. It's finally finished. I think the reason we didn't make a huge deal of it is because at the very end, of course, this thing came up, that thing came up, and all the rest.

And so, we ended up making less money on it than we hoped. So, I wasn't quite as excited as I wanted to be. But at the same time, it's done. It's done and it's over. They're still dodging in the court. They were supposed to have a sentencing from back in May when they were convicted of a criminal charge. And they just keep trying to dodge the sentencing. And so, they're pushing that out. And then, they're trying to come back at me and trying to put a mechanics lien, which has completely been shut down three times already. Oh, my gosh. I keep trying to come back. It's just ridiculous. So, it's not over, over.

But the house is gone. It's done. And then, that's a huge relief. So, it's been good. That's awesome. And on our other side of things, I know people have been interested to learn the DME is coming up in November. Yeah. And this is really for people that are newer to our channel, the note creators, the realtors who are having trouble selling the property or these note creators who are just new and want to learn. Tell a little bit about those who haven't heard about this yet. What's Diversified Mortgage Expo in between? Yeah. Calling it DME between because it's in between the in-person events. The next one, of course, is still coming up at the end of April in Nashville.

Tell a little bit about those who haven't heard about this yet. What's Diversified Mortgage Expo in between? Yeah. Calling it DME between because it's in between the in-person events. The next one, of course, is still coming up at the end of April in Nashville. But, yeah, this one, it's kind of fun doing a virtual one where we can dive into some other topics that we don't normally get to in the in-person version because we've got many other things we want to talk about. But, yeah, it's targeted the morning. We're calling it Mentoring Morning. So, we're hoping that a bunch of the note people still join in there.

And then, in the chat rooms, they can chime in and help bring those people up to speed. What I'm hoping is that what I found out is that a lot of the real estate people and the note creators, they're not going to be able to do that. The note people, A, they don't know about each other. And then, B, we don't speak each other's language. That's true. So, I'm trying to kind of make that happen so that we can understand what each other is talking about. So, that's the morning. And then, in the afternoon, we get into some heavier note-specific topics, which will be for anybody and everybody who's already in notes and wants to learn a little bit more.

So, guys, make sure you get over to diversifiedmortgageexpo.com. Get your tickets today. It will be virtual, so you don't have to leave. I would tell you it is a disservice to be virtual, but the information is great. So, get your spoon filled there and then switch over to the in-person in the April, which we'll all see each other out there. Yeah, it's a way to stay connected in between the in-person ones for sure. But, yeah, coming up November 13th. So, make sure you grab your ticket and then be there. And then, the videos will be available up until the next six months. So, Nathan, we talk a lot about this new world.

Okay. Creative financing. We bought a ton of paper in the old bank world. We bought some creative finance paper. You created it. I've created it. And this world is a lot of nuances. We thought notes had a lot of nuances. This creative finance world, every day, is something different, right? It's interesting. And it seems like the spin on it is something that we constantly go, oh, that makes sense. But we never thought about it from that position. Right? And I think we learn as we go along of the different way people adapt. But we never thought about it from that position. Right? And I think we learn as we go along of the different way people adapt.

Yeah. Yeah. And it's what a great world to be in because it's constantly moving and changing and adapting. And that's, I think, one of the most fun parts about it. You and I both used to be non-performing only. That's all we would do. And then now, since then, now we're looking at, you know what? For me, I'm only looking at performing. I don't even want to look at the non-performing for now. Not to say I wouldn't do it again. But it's been a shift. And I'm looking at different kinds of notes. I'm buying different kinds of notes than I've ever looked at before. And I think that's great because there's so many different ways to make money in this business.

So, adapt. So, one of the worlds we got into is this idea of there's bridge lending. There's hard money lending. There is rehab money. There's creative finance. There's seller finance. You know, rap notes. All these kinds of different worlds. So, what we found was that there's people doing. There's little nuggets of those sub-worlds, which is ridiculously awesome. So, what we wanted to do is get into this topic. And oddly enough, I got this message on LinkedIn, right? From someone that I didn't know. And I get these quite often, to be honest with you. They either want to be on the podcast or the VAA and stuff like that.

And I believe I was traveling at the time. And I said, send me an email and see what it looks like. And they said, this sounds really interesting. Yeah. It's a different nuance. So, what the world we think we know. And then we say, wait a minute. I didn't know about that, right? Yeah. Yeah. And just a different spin on it. Because, I mean, one of the things, and we've talked about this, is creative financing is great. And that in itself, no problem. But sometimes you can out-create yourself. Yes. Where you've created this thing that is fantastic for you. But it's like having left-handed scissors.

They're only good for a very... Very small segment of the population. But sometimes you can out-create yourself. Yes. Where you've created this thing that is fantastic for you. But it's like having left-handed scissors. They're only good for a very... Very small segment of the population. And so, it's not a marketable, sellable note. So, that has been a lot of the conversation. Yes. Yes, be creative. Understanding that there's a back-end, potentially, if you want. Yep. So, what we want to do is get into a topic that we've not talked about, right? And people in our show, we're learning as much as you guys are.

So, please feel free to give us feedback. If you have an idea or suggestion, let us know. We're open ears. So, today we're joined. Welcome to the show, Harley. I'm glad to have you on here. I'm glad to have you, your perspective, your view, and your experience in this crazy world that we call real estate investing. Welcome, man. Appreciate you joining us. Thank you, David. And thank you, Nathan, for having me on. Yeah. Pleasure. So, tell us about how did... Who are you? How did you get into real estate? Did you go to ARIA? Like, what was your story? Yeah. So, my background is actually technical.

I was... I was a computer engineer in the defense industry for about 15 years. And my wife and I were just kind of looking at our finances and realized, like, we were very heavily invested in stocks just due to the 401k that we had a generous 401k at my job and couldn't really get outside of stocks there. And so, we wanted to just diversify a little bit. So, we started researching real estate. We kind of fell into it because we had bought a home and had a lot of extra space and we realized our basement could be rented out. So, we fell into landlording by just doing, at the time, we didn't know it was called house hacking.

Renting out a basement and like, hey, this is pretty easy and it's some extra cash flow. There's, oh, all these great tax benefits. So, we started buying some rent-ready condos, doing a little bit of light rehab ourselves on the weekends, kind of things like that, and just fell in love with the asset and just started digging in and learning more and more about it. Got into short-term rentals. And then we moved to Chattanooga, Tennessee back in 2020, in late 2020. And that was a beautiful time to buy real estate. You could pay over asking price on MLS and rent it out and it would cash flow. It was just magical.

Yeah. And so, we were doing that and my wife had to start over as a real estate agent and she And that was a beautiful time to buy real estate. You could pay over asking price on MLS and rent it out and it would cash flow. It was just magical. Yeah. And so, we were doing that and my wife had to start over as a real estate agent and she focused on creating a team to help outside of out-of-state investors buy properties in Chattanooga because it's such a great market compared to other markets. Well, we saw time and time again that she would make referrals for her buyers to help them get connected with lenders, hard money lenders, other banks, traditional financing, and they would have poor service.

They would drop the ball on communication. They would have terms change at the last minute and they would spike. And so, we got a lot of good deals that we had to work on that were not necessarily However, we had some very wise good deals that us as local investors could underwrite quickly and say, hey, I'd have no problem owning this if something happened. And so, that's where we became lenders. We started jumping in and using my old 401K and a self-directed IRA and became a bank. Wow. Very cool. Nice. That's awesome. I love the fact that this came out of, oh, oh, oh, you constantly came across it.

You had no mission to do this. no i'm gonna go do this it's just you're solving a problem right we all want to try solving a problem and that's where money and happiness comes in because you're solving a problem people are thanking you while making great lifestyle for yourself and the family of course right um did your wife have experience in what she was creating before this was she this this negotiations this world that she was doing did she have any experience in this stuff or it just came out of like i gotta do it it was again just kind of necessity her background's finance and then taught high school math for many years and it was one another situation where when we were really active buying those rentals back in northern virginia we felt we were missing out on some opportunities because of the poor performance of other real estate agents so she's like i can do better than that and so she got her license and became a full-time agent awesome so let's fast forward what are you guys doing today in this world because you've transformed from being we call them landlords, right? To lean lords.

What have you transformed now? What does Fast Forward today look like for you? One of the most important things that lending has enabled for us is a location independent lifestyle. So for the last two plus years, our family of three young Forward today look like for you? One of the most important things that lending has enabled for us is a location independent lifestyle. So for the last two plus years, our family of three young children under age 10 have been full-time digital nomads. We've been to over 20 different countries, gone all around the world, six different continents. And it's because we can underwrite deals and we can wire money from anywhere in the world.

And so we've transitioned really to focus on the lending business, scaling it up. And we've scaled it up in a large part to help our borrowers. Our borrowers were capital limited because we were just using our retirement accounts and eventually it was all deployed. And they were like, hey, I've got another good deal. I want to scale. How can you help? And so we found some ways to get additional capital. We sold some of our underperforming rental properties. And then we also found a way where we can have co-investors come in and co-lend with us on deals after we originated them. So now we can continue to grow and serve our growing buyers.

That's very cool. That's very cool. And then are you turning around and selling these short-term loans? Yeah. So the model that we're using right now, and we're always open to new ideas and doing things differently to find better ways to do it, is what we call a co-lending or co-investment model. So I get the deal, I underwrite it, and I fund it with my own capital as if I'm going to hold it for the life of the loan. And if we end up doing that, that's great. That's where a large portion of our family's wealth is growing and secured. After it's been originated, we put it up in an online portal, and then other investors can go review it.

They can look at the underwriting. If they like it, then they can participate in it as a co-lender with us. And then they don't have to have necessarily the cash for the whole amount. So they can be like a fractional co-lender. And then we continue to do the servicing and maintenance for it. And these are short-term fix and flip loans. That's something that I should clarify is that we really focus on those residential transition lending. So RTL, or sometimes people call them bridge loans, we really just are helping the buyers get the cash they need. To buy the house quickly, with certainty and speed, and the capital to renovate it.

So then they can get out into like a DSCR investor loan or just sell it as a flip. So let's slow down there, right? We use a lot of acronyms there, right? Are you doing bridge loans and rehab loans? Is the rehab loan part of a bridge loan? And would you define what a bridge loan is for those who have right? We use a lot of acronyms there, right? Are you doing bridge loans and rehab loans? Is the rehab loan part of a bridge loan? And would you define what a bridge loan is for those who have no clue what we're talking about? So there's a lot of overlap in the terms, and someone with more understanding might disagree with me on my definitions.

My understanding and the way I talk about it is, you know, a bridge is anything that is just, you know, getting from point A to point B. And if point A is doing that purchase, and then getting it to where it can be sold as a flip, that can be a bridge. Or if they're just looking to get in there, buy it, because they got a really good deal. And then they want to just need it to refinance into cheaper debt later. That's also something we do where they don't need, maybe they just need like to sweep it out. We have a borrower who's got this great deal where he finds like $20,000 houses. And he's able to just go and basically just clean it out, fill up a dumpster, doesn't have to do any work on it.

And then get a like rent to own situation in there where he's cash flowing, even at our higher interest rate, short term loans. And then he just needs some time for it to season, then he can get really cheap debt to put on there, because he's got that lease with the income shown for six months, and get much cheaper debt and cash flow even better. How long is a typical bridge loan? Is it a day? Is it a month? Is it six months? The vary? So the loans that we originate, they vary. Our borrowers can actually choose from four up to nine months. And so there's some reasons why we have those kind of shorter terms than a lot of hard money lenders, just like everything's 12 months, everything's 12 months.

There's actually some like securities regulation that has basically ruled that if the loan is nine months or less, it's not considered a security for like co-lending on it. So that's something that we try to focus on. And then we also know that a lot of times, if they have more time, the borrowers don't prioritize it. We've kind of seen this where like, hey, they get this 12 month loan. And maybe. It's like cheaper debt. They've got other, usually they've got a W2 job or something else that renovation sits there and doesn't progress quickly. And then problems happen. When we put the pressure on, say you've got four months to finish this, we give them better rates.

So it's kind of enticing them. Like, hey, you get a lower interest rate. If you choose the four month option, we've got to focus on it and get it done quickly. And then the flip side of that is about half of our loans extend. And that's another really great money-making part for us, kind of enticing them. Like, hey, you get a lower interest rate. If you choose the four month option, we've got to focus on it and get it done quickly. And then the flip side of that is about half of our loans extend. And that's another really great money-making part for us, as well as our co-lenders. When that loan extends, that extension fee passes on to our co-lenders as a form of a 1% capital bonus.

If they've got a hundred K in the deal, they get another thousand dollars added to their position. That's also earning that 12 to 14% interest for the rest of the loan. Gotcha. So rehabs are, some people love rehabbing. Some people hate rehabbing. I'm a hater of, I just can't stand it. I've run into too many problems and floods and stuff like that, right? What do you do to protect yourself from that and the draw problem? Awesome. And then those two things are huge for what you're doing, right? How do you do that? It's critical. So my background is engineering. I mentioned that we're huge on SOPs and leveraging technology.

So we actually have a AI agent backend for our lending platform. So whenever we get an application and all those details go through this AI agent and it is doing analysis, it's pulling from third-party websites, checking if it's rural, is it in a flood zone? What's the owner history on the property based on public records? It's checking all the photos, making sure we have detailed photos of every room, every outside corner of it so that we can do our underwriting. Because one of the things is that we do very fast closings. We can close a deal in three business days. In order to do that though, we need good photos of the property.

We need to make sure they're not been doctored. We need to get the background for the borrower. So we have a full detailed SOP. Every single loan goes through the exact same process. We really want to make sure that the borrower has got a good plan. So we're looking a lot and scrutinizing their stuff and making sure that the business is open for it to the public. And then we need to statement of work, making sure they've got line items and budgets that make sense. And we're good at it. And we actually developed the agent and the skills, because we were doing this ourselves. And so we were just kind of using our unique background of having been doing it ourselves.

And also my wife's team who's focused exclusively on real estate investors. So she was always seeing what her borrow, her buyers were doing, and seeing their numbers. And so we had a really good data set to kind of help train this AI agent on like what is reasonable, what is not what needs some wife's team who's focused exclusively on real estate investors. So she was always seeing what her borrow, her buyers were doing, and seeing their numbers. And so we had a really good data set to kind of help train this AI agent on like what is reasonable, what is not what needs some more questions answered.

And then the other thing is that we want to see skin in the game. So when we get a new borrower, and this may sound kind of like not much skin in the end to some people, but for these like smaller houses, it makes sense is that we require a 5% down payment on the purchase price. So what I like doing is if they've got a reasonable plan, they've got a contractor who's working with them, who has experience with like that type of house and that project, whether it's a 5% or like a 15% down payment, we don't, we have not seen any like difference in performance there. And it was, this has actually enabled us to be able to open up real estate investing to population of people that have been traditionally kind of locked out of it.

So traditional banks or other hard money lenders that have strict like credit requirements. Let's put some numbers to this, right? So most people, when you say 5% down, are you funding the entire project plus rehab? Yeah. So the borrower just needs to bring 5% of the purchase price. That's really low, right? And most people would say that's very risky because they don't have any money to start anything up. So you're funding the entire project up to a hundred percent or 95% of ARV included over the purchase price plus the rehab cost. Yeah. So the max loan is going to be capped at 75% of the ARV.

And what we found is that day one, the as-is value changes because they get in there with a dumpster and rip everything out. So a lot of people that spend time like worrying about what is the loan to value on as-is, it goes out the window on day one. So we don't worry about it. Okay. Interesting. Very cool. We talked about pictures. What is your ways and without giving private information out, we've had people on top of drones. How do you get pictures of the house besides Google photos? Are you using Google photos? How are you getting that picture of that property to know what the condition of that property is? So the borrowers submitted themselves and if they're remote or they can't get photos that satisfy our requirements, then they can pay an extra fee.

And we've got like $10,000 worth of property service that will send out someone that's independent and do the detailed condition of that property is? So the borrowers submitted themselves and if they're remote or they can't get photos that satisfy our requirements, then they can pay an extra fee. And we've got like $10,000 worth of property service that will send out someone that's independent and do the detailed photos for us. Awesome. That's good. Drawers. That's very cool. How do you handle drawers? I mean, are you saying Nathan out there to go check out that property for you or how are you doing that? Yeah.

So it's a very important part of the rehab process. So we only reimburse completed work that's been paid for. So they can't just go and go to Home Depot and buy $1,000 worth of paint and then show us the receipt. It's got to be on the walls and done. And demonstrated photos of that. So they got to show the photos that like, Hey, this is the work I'm asking for reimbursement. Here's all the invoices showing that I paid. And if the invoice and this happens a lot, so like they've got some workers maybe that don't have traditional banking and they're paying them cash or things like that. That's okay.

I understand that it's like legitimate way to do business. We just need to see then like a paper trail from their bank of, Hey, they went and did this ATM withdrawal for two grand or whatever it was that they paid their worker doing the floors there to see that like, Hey, they've actually paid $1,000 worth of paint. So they're going to pay this person. Cause that's also, that's protecting us. It's also protecting our borrower from something we talked about before the show, those mechanics lanes. Cause we want to make sure they've paid everybody so that they don't have a problem getting out of the deal.

Yeah. So I don't, I see here, you say you don't sell these loans, right? But what makes these loans valuable to you? That if you were going to buy your own loans and someone wanted to create notes, like you are, what are some of the key pieces that makes that note valuable to you? For us it's first position. So before anything happens, we got, we get paid. They're high, they're relatively high interest rates. So our average note rate is about 14 and a half percent. It goes up to 16%. And then with extension fees, the average return that our co-lenders have is over 15 and a half percent. So it's relatively high yield.

And the other thing I like is that it's short term. So we have liquidity events quite frequently. The average loan length is about six and a half months. And so if you were to get in right at the beginning, you have a liquidity event for all your capital right around six and a half months. So it's relatively high yield. And the other thing I like is that it's short term. So we have liquidity events quite frequently. The average loan length is about six and a half months. And so if you were to get in right at the beginning, you have a liquidity event for all your capital right around six and a half months.

The other nice thing I like is that there are multiple exit opportunities to have that liquidity event for our borrowers. They can fur it. They can get a rent. They can get a tenant in there. Maybe the market softens. They couldn't sell it for the price they wanted. Just rent it out. They can do creative financing. They can, you know, do a rent to own. There's just so many ways that they can get out of that deal successfully, which means I get paid. And are you collecting monthly payments on these or is it just everything's due at the end of their term? So it depends. It's actually an option that we offer our borrowers.

We can either do an interest reserve option. And that's a lesson that we learned. We actually started out offering deferred interest and we realized that that was actually putting our ratios at risk because if we lent up to 75 percent and then it sat there, everything was drawn and they just couldn't sell. Now we're actually getting over leveraged because the deferred interest gets over that 75 percent of the loan to value that we don't want to get over that. So we changed it recently and we do interest reserves so that we bake in what we estimate the monthly interest payments will be. And it changes every month because of like the draws.

And so we just do an estimate based on a linear draw process. And then we just take it out of the loan and the loan pays for it. Got it. And are you are the borrowers paying like month one, month two? Are they paying? When is their first payment due for these people who are looking to create these notes? What would you tell them to do? Would you tell them they have interest only payments? How would you structure someone who wants to do something very similar to what you're doing? Now? So for me, I would rather take a higher yield and then have that kind of delayed gratification, but have lots of different notes.

And so we create kind of a waterfall or like a ladder. And so instead of just having all your eggs in one loan and you have to wait six and a half months before it pays off, you just spread that capital across multiple different loans of staggered maturity dates. So you get liquidity events monthly or quarterly, depending on what your cash flow needs are. And then you're not getting monthly payments necessarily on each individual loan, but you are getting a monthly payment. So that's a much higher interest rate for your capital. of staggered maturity dates. So you get liquidity events monthly or quarterly, depending on what your cash flow needs are.

And then you're not getting monthly payments necessarily on each individual loan, but you are getting a monthly payment. So that's a much higher interest rate for your capital. Gotcha. Okay. I know a lot of the people out there do interest only loans for the course of time where you're they're making a payment, they're constantly making an interest only payment for that period of time with a balloon at the end it'll be 12 month balloon. I know before we call you, you haven't had too many defaults. Hearing more and more of these are my lending question in Florida where they're just defaulting where.

And it's not due to the. borrower really it's the market changing how are you kind of keeping yourself safe because i know it's not perfection you can't protect yourself from everything but how do you protect yourself from that default where the market switched in that five six months and it went cold nothing sells and then no falls a borrower they're sitting on a property that it was great value at one point but now they can't sell it yeah so the monthly payments actually i think helps with the fact helps our track record of not having to do a foreclosure and for me coming back from the experience of being a borrower and being on the other side doing swinging the hammer and being a flipper having to not make monthly payments keeps me more liquid so that i can accommodate situations that are unforeseen it was like oh i needed a few grand for this issue that i couldn't tell and so by not requiring our borrowers to make monthly payments they're not going to be able to make monthly payments interest payments we're actually helping them be more successful and having options to exit successfully so that's one i would say the other thing is because these are short-term loans we can change our underwriting criteria we can change what markets we're focused on we are totally virtual there's no like boots on the ground anywhere in our business so we're not like invested and we must do this market because i've got this guy in this on the payroll and he's generating loans there we will go where the market is good and so we really focus on markets that are still growing they've got great sales to list ratio and have that kind of um the other thing is i really like the entry-level homes there's a lot more exit opportunities again i keep talking about exit opportunities there's more buyers for the still growing they've got great sales to list ratio and have that kind of um the other thing is i really like the entry-level homes there's a lot more exit opportunities again i keep talking about exit opportunities there's more buyers for the entry-level home because you first you can sell it to first-time home buyers you can burr it and just rent it out it's a much more affordable price point for rents and so again you know we do have a few loans that are at higher end but those are more experienced borrowers that have a proven track record with this and they've got a niche strategy like maybe they're an airbnb expert or they really do like these great deals you know really a lot of money and they're not going to be able to make high-end homes like that but then we typically see with those a much lower loan-to-value ratio yeah so how are you doing servicing and also like with your how are you doing servicing and how you find your borrowers for the most time because that's one of the biggest people who do want to get into this have a hard time finding that borrower but are you servicing these loans yourself are you hiring a third party how are you structuring that yep so our business invest away we service everything uh we've got loan management software called lender it's very like ai agent enabled so we actually have an ai agent that just runs the back end and then i've got a team of virtual assistants who are basically tagged by that agent of tasks they have to do so they're still the ones communicating with our borrowers with the title company doing the emails making the phone calls answering the phone they're real humans but then they just feed it into the ai agent they all are trained to use claude and that ai agent and just tell them everything that's happened it's all synced to our phone system and emails so it knows everything that's going on and keeps the ball rolling so that's how we do the servicing and then as far as the um find the borrowers the borrows yeah so as far as following the borrowers so we started out like i said because my wife had the real estate team so we had a natural network right there of active real estate investors who needed fast and reliable funds and then they tell their friends and they tell their friends the way we've expanded beyond that though is by networking with loan brokers and i really like brokers a lot of people are kind of like oh you're like why would you work with a broker they just add their fee on top of our pricing so i'm not taking a pricing hit their friends and they tell their friends the way we've expanded beyond that though is by networking with loan brokers and i really like brokers a lot of people are kind of like oh you're like why would you work with a broker they just add their fee on top of our pricing so i'm not taking a pricing hit they're independent contractors i don't have to pay them anything they're the boots on the ground in the markets that i choose to be in and then they have a financial interest in making sure that borrower gets out of our loan because they make more money on the dscr loan on the exit so they can coach them to say hey these are the finishes you want to do this is the budget you should have here's how to get the max appraised value interesting so i'll go back to the virtual thing for a second just just you being virtual to everything you're doing um i'll just comment first and then a question but i i've actually found that that because everything i do is virtual uh i'm i went into this business with no preconceived notions of a market uh and so and if something else comes up in the market that i'm not familiar with that doesn't faze me in the least because it's just as virtual as the last one was and so i in many ways i feel like that's been an advantage for me versus somebody who is in this city and they only want to invest in their own backyard and they they can't get their head out of where they live but it is there's the market is huge and i say that all the time i i do invest my backyard i just have a really big backyard and that's how i view it it's all my backyard and so that i can go ahead and do that so have you had doing things virtually like that have you had any instances where you being not present has been an issue for you no i think it actually is forced us to create better systems it makes us like hey and we did the same thing with our rental portfolio of like before we even started traveling full-time we treated all the properties even if they were just down the street from us as if we're you know a thousand miles away so we had to put systems in place where we were not the bottleneck and it was not reliant on us having boots on the ground anywhere yeah it's funny people ask you my 16 years buying notes how many properties have i physically seen i i want to say three ground anywhere yeah it's funny people ask you my 16 years buying notes how many properties have i physically seen i i want to say three want to say three and it was just because weird reasons but yeah same yeah one we did for fun because we happened to be close by as a family i'm like hey you guys want to go see like it was like on a whim we didn't joke about like hey we want to lend in some vacation destinations so we can write off our trip to go just check on our loan that we've got there right yeah yeah i think it's it's these people this fantasy world of of doing that is reality and i think people get caught up on that so you know what harley's often doing is the fact that you could passively do this kind of stuff and lend your own money it could be ira money solo 401k money or capital and be passive right so the idea here is that talk to harley about this thing is if you have money sitting on the sideline that you that's just not working for you and you're looking for a good operator and that's why harley really is a good operator you see i'm going to co-lend with this opportunity right talk to your attorney talk to your cda and see if it's facile for you because this idea of hard money lending hams are still happening they're happening there are some markets out there that i say are getting really kind of difficult but doesn't mean all markets right you look at texas one of the states that's really going to get hard before closures in florida however you go to georgia you go to tennessee go outside areas or some parts of florida are going great so your part here is still involved if you're creating notes this is an angle you can say listen i want to learn this maybe you can learn by getting involved watching the operation go and get started the biggest thing don't do is get started so we want to encourage you to try it out listen i want to learn this maybe you can learn by getting involved watching the operation go and get started the biggest thing don't do is get started so we want to encourage you to try it out now maybe they get into a co-investment just to see how it goes and they get a flavor for what it looks like uh and that's the springboard network network network network right that's a big thing for us so we're going to try to push something through here and we'll see how it goes here nathan if we want to buy one of the notes you're reading and i know that's not your angle what we would look for is something jury said your ltv less than 75 want to be 70 75 right we want a high interest note right we want a borrower that is profitable has a track record right we want good documentation because we expect because of our history that loans default and we have to foreclose um that part of no buying is actually us performing thing is what we're doing now but it's kind of boring to be honest with you right we're not used to it right i i feel bad i don't talk to my attorneys as much right i feel really bad like yeah goodness right um know when i need them right but every note you're talking about if i'm gonna buy a rehab note i'm gonna tell everyone out there what i look for i want that high interest i want that repeating bar i would go to harley and go hey how many times does this person buy well he's i've done eight loans for him this is what the track record's been blah blah blah great i can go to harley and say listen harley i'm going to buy this note at a nine percent yield because i want to own it harley would you sell me a note at nine percent when you're collecting 50 and i'm gonna buy the whole thing at nine percent and make a fortune because you're getting negative input from a five-year You're buying it at 6% of the spread.

And then all I want you to do is hold the draws and drop them off and handle the servicing part of it, right? Maybe we do 9% in one point or something like that. You're buying it at 6% of the spread. And then all I want you to do is hold the draws and drop them off and handle the servicing part of it, right? Maybe we do 9% in one point or something like that. How would that work for you? And for note buyers, would that work for you? If you're looking for that opportunity to say, Hey, I got 500 grand. Now I want to get 9% of my money right down. Nine, 10% is a great number. Market's kind of crazy.

But Carly, would something like that present to you be interesting at 9% if they don't want to co-lend with you? I would say yes, with the caveat of one of the big reasons that I got into this was to really serve our borrowers well. And one of the things I've found is when you start taking outside capital and giving up decision-making power, there can be situations where your borrowers are not servable because maybe someone who's really passive is not going to pick up the phone as fast as I do or my VAs do and be able to answer questions. Or make decisions about, Hey, this loan might get into distress unless we do something right now, like add some more funds to the loan, as long as the LTV matches up or give them some more time.

And so that's one of the things I really pride myself on and why our borrowers come to us repeatedly and pay a premium is because of that ability that they know I can have that relationship with them and make the right call as a fellow real estate investor. So if that control is given up, I would say no. I tried, Nathan, right? Is the idea- This is the key. We're trying to buy it, right? Yeah, we are trying to buy it. I don't mind the co-lending model. I'm mostly buying through my fund right now. So the monthly payments is important to me because I got people I got to pay. So as long as I can have those distributions, and quite frankly, it could be quarterly, but I need to be able to pay my investors when I need to pay them.

But what I like about short-term loans, and I've done a few of these, is it takes away part of the things I have to keep track of. If I know that I'm going to get paid back in full in six months, 12 months, whatever it is, that takes off a whole piece of my business. I don't have to think about reselling that loan at some point. If I know that I'm going to get paid back in full in six months, 12 months, whatever it is, that takes off a whole piece of my business. I don't have to think about reselling that loan at some point. I know I'm going to just get paid out in full. So I'm not calculating when do I need to sell this loan so that I can recoup all my capital and trying to pinpoint the exact month.

I don't know. I don't know. I need to sell that. So I'm attracted in that way. Yeah, it's an interesting model for sure. And we can set up loan ladders too. So we do have people that like, hey, they had a windfall from selling a business. They've got maybe a seven-figure number they need to deploy. We're not going to put it all in one loan. And most of our loans average about 250K. That's average size. So they're small. So we spread it out. And because of our volume versus like an individual, just, you know, this is a kind of a side gig for a note investor. They may not have the volume available to them of the notes.

And so they can... And... All of our loans go through the exact same process. So they like one loan is... If they like one loan, they're going to like all the loans. They're all underwritten the same way. And so we can just spread it out and you get a liquidity event monthly or quarterly, almost guaranteed. Obviously, like some can extend. But if you have enough distribution diversity within our portfolio, you have that opportunity. Wonderful. Wonderful. Well, Harley, I really enjoy having you come on and present this perspective of the short-term because most rehab loans are long-term, right? Yeah.

And this idea of co-lending is unique. Most of the time, it's either it's our own funds or it's a fund of funds and you have to be a credit investor. Where they're... You don't have to be a credit investor. It's a different scenario than most people think about. And for those who are thinking credit investor, that just means you have a certain income per household or individual outside your primary resident. And there's some people out there who just don't have that where their capital is restrained. Right. They're newer into this bus. Maybe they just retire at 50 years old in kind of special market.

That kind of thing is possible. And there's some people out there who just don't have that where their capital is restrained. Right. They're newer into this bus. Maybe they just retire at 50 years old in kind of special market. That kind of thing is possible. But so, Harley, now for the... Really interesting. Now for the side ball here that most people aren't ready for. Nathan's last question. Yeah. So I actually got two for you. First one, where are you in the world right now? So we are visiting a couple of our beach houses in Garden City Beach, South Carolina. We're doing a little end of summer spruce up on them and get new listing photos.

And refreshments and things like that. Very cool. Very cool. What's your next trip plan? So we are in the process of buying a house and an investment property in Antigua, Guatemala. And so I've got a conference I'm going to out in LA, but then I'll be going back down to Antigua and we'll be waiting for that house to get finished and cracking the whip on the laborers there to get the house done. Yeah. Very cool. Very cool. That's fantastic. All right. And then the real question is, I mean, you're heavily invested in this and you've built a lifestyle around this. So, you believe in it for sure. Where do you see the market heading in the next 12 months, 24 months? Is this sustainable for you? Is this something you can continue to do? Our business is blowing up.

We have over 1.5 million of loans in our pipeline right now that we're actively underwriting, set to close anywhere in the next week to three weeks. Our borrowers are mostly experienced operators and they really have an in. In fact, we just had a loan payoff in 60 days because they, on one of those cool exits, like they didn't have to do the full rehab. I had another borrower just had a loan payoff. They bought it for $30,000. They put 70K of rehab in there. So, their payoff to me was 100K and they sold it for 215 just outside Chattanooga, Tennessee. So, the deals are out there. You just have to have like the right connections and be in the right market.

And so, we're flexible to follow those deals. That's awesome. Very cool. They put 70K of rehab in there. So, their payoff to me was 100K and they sold it for 215 just outside Chattanooga, Tennessee. So, the deals are out there. You just have to have like the right connections and be in the right market. And so, we're flexible to follow those deals. That's awesome. Very cool. Well, Harley, I appreciate you coming on, spending some time opening the books that you have and sharing your knowledge, experience, and this wild world of real estate investing we have going on. Hold on for a little bit after hours.

For everyone else, Nate and I will see you soon. We have some great things coming up and stay tuned for the next episode. Thank you for joining us, everyone. Take care. Be well, be safe. Thanks, everyone..