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PODCAST EDUCATION

17 Ways to Fund Your Next Real Estate Deal

Episode 062

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about 17 ways to help fund your next real estate deal.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Keith Weinhold: Hey, this is Keith Weinhold from the Get Rich Education podcast. You are listening to my friend John Larson and the Real Estate Cowboys. Don’t quit your daydream.

Robert Helms: Hey everybody, it’s Robert Helms, host of the Real Estate Guys radio show, and you are listening to the Real Estate Cowboys.

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.

John Larson: Hello and welcome back to another week’s episode of The Real Estate Cowboys this is your host John Larson. I hope everyone had a great Fourth of July weekend. I know I did. I enjoyed some time down in Austin Texas checking out some real estate opportunities down there while also having a little bit of fun keeping up with the Real Estate Cowboys mantra. Sticking with Texas looking for good deals out here in the Lone Star State and there was some pretty good opportunities for some new construction office spaces. Basically, retail spots as well that I’ve been checking out so could be on the horizon for a private lending opportunity through American Real Estate Investments. But we will see. So this week I wanted to talk about how to fund your first real estate deal or just potentially another real estate deal.

And I have 17 ways that I basically identified where you could have access to funding for a real estate deal. OK. Well before we jump into that I want to kind of talk and elaborate a little bit more on our private money lending program and what we’ve been doing over here at the Real Estate Cowboys and American Real Estate Investments and just kind of educate people a little bit on you know there’s other things that you can loan money on aside from real estate. I think everybody kind of thinks of real estate first when they think of private lending or loans or giving out loans to somebody. But in fact there’s a lot of other ways that you can participate in private lending or in private lending opportunities. As some of you may know some you may not know that we’re also in the CBD space which is a space that’s just growing by leaps and bounds. It’s becoming a multibillion-dollar industry.

There’s opportunities for farmers to grow and opportunities for companies to come in and set up extraction facilities to extract the crude oil from hand.

And then there’s an opportunity as well for refinement companies, companies that take that crude oil to an isolate or a distillate or THC-free, free distillates or you can also separate the other cannabinoids that are in the plant CBN CVG. There’s a lot of different medical benefits for all these different cannabinoids that are in the plants and CBN and CVG This is stuff that’s trading for seventy thousand dollars a liter, thirty-five thousand dollars a liter so there’s big, big money in this space especially if you have the equipment that can do the extraction through the refinements, separate the cannabinoids all that sort of stuff.

There’s just a lot a lot of money to be made and so if you’re an investor that’s sitting there looking at wow there’s so many great opportunities with CBD, how do I get involved. Well if you have an IRA or 401k and it’s not self-directed or maybe it is self-directed you can loan money from your self directed IRA or 401k to a company, a CBD company or to a company who needs more equipment like we went and did a raise for two extractors, two large extractors that are showing up here in Colorado any day now. We can’t wait to get those setup and turn those on. We already have opportunities to start processing hemp and get our investors paid back. The $3.5 Million dollar loan that we’ve raised for that investment opportunity.

And so now we’re gonna be positioned as a very strong option in the CBD space for extraction and the extraction side and there’s just, like I said, so much money to be made in that space because we don’t know exactly what the going rate is yet but I believe it’s going to be somewhere north of 20 dollars in input pound to process other people’s biomass or hemp or other farmers biomass or hemp and we’re going to be in position to actually extract a lot of hemp biomass in this upcoming harvest so we’re very very excited about that. But that leads me in to the fact that you know, it’s not just real estate that is the only option for, you know, for private lending opportunities and as a matter of fact I went on the Real Estate Guys radio show a couple of weeks ago and that will be that episode we’ll be airing probably here in the next week or two but we talked about the fact that there’s other things that you can loan money on; business equipment, real estate of course, or you could even loan money to yourself in some circumstances through a solo 401k or self-directed IRA. You can loan money to yourself and pay it back to yourself at a very low-interest rate. So that’s a great tool to pay off credit card debt or whatever it may be.

So for those of you that are listening and thinking, wow I didn’t even know I could potentially do a private money loan to myself and pay it back. Think about that.

But you know what we got to discussing on the Real Estate Guys show is just how I felt so good about the opportunity to raise for this CBD equipment because it makes so much money right now.

Now I don’t know how much it’s going to make. You know two, three years from now when the government I know is going to get more involved in the space and might start regulating space more. But for right now there is an opportunity for entrepreneurs to get into this space; buy this sort of equipment, hire people to run this equipment and make a lot of money off this equipment. So if you’re a lender who’s looking to get double-digit returns fixed on your money don’t shy away from loaning money on equipment, which is also liened up and you hold first lien position on that equipment in the form of a UCC-1 filing which will be filed in whatever state that equipment is being held in. So you do hold claim to that machinery if your loan does not get paid back. Right. Same thing as you would on real estate. Your loan is collateralized by deed of trust while your loan is collateralized by a UCC-1 in an equipment race or an equipment loan.

And so in my opinion when you look at the numbers that these machines spin-off and the revenue that these machines spin-off. It’s just it really is a no brainer. A $3.5 million dollar loan could be paid back in as early as two months after this equipment is plugged in and operating and is turned on and you start signing contracts for people to run their biomass through your extraction equipment. And so in my opinion as a lender, I would feel really really confident in loaning money on equipment that produces that type of income because it would make me feel I guess more sure that I would get paid back. With real estate, although you do hold first lien on the real estate and we know that real estate never goes to zero, you know the cash flow isn’t as predictable on real estate. There’s estimates, there’s comps there’s things that make you believe that you can get a certain rate on the rent. But we know with real estate nothing is ever for certain. With this equipment, we have historical data. We have contracts that are coming in for, you know, tolling purposes for extraction where that figure is north of 20 dollars an input pound.

When you start doing the math and, you know, just a hundred thousand pounds of biomass which with two of my machines that each to five thousand pounds on a low end, OK, that’s on the low end, that means it’s like the biomass of the hemp isn’t even, you know, very potent. Right. In terms of CBD content. You’re still able to process ten thousand pounds a day with those two machines you could knock that out in 10 days. Right. One hundred thousand pounds. Well at let’s just call it 20 dollars an input pound, that’s 2 million dollars that that that those machines just made you, right? Now you have expenses I get it.

But when you think about that 10 days to generate 2 million dollars and a loan on the equipment is $3.5. That should make you feel pretty good that you’re going to get that money back and then also think as the actual borrower. Don’t you want to get that debt paid off because you know in the back of your mind those lenders hold first lien position on your equipment? And if you’re not paying that loan back the sheriff could come in and tell you to shut that equipment down. Now you’re losing millions of dollars. Right. Money is just walking out the door. So you got to think these borrowers aren’t going to want to stop payment and pay off the loan off this equipment because once they do that thing on that equipment free and clear and it’s making in a tremendous amount of revenue for them.

So I believe that this equipment in the CBD space right now, it provides the investor with more predictable cash flow. Right. Which should make you feel more confident, comfortable and confident that you’re going to have your loan paid back. OK. But that’s just what I wanted to touch on there.

Let’s go into the topic of this week which is 17 ways to fund your real estate deal. And number one would be equity in your home. The HELOC. The home equity line of credit. Or possibly refinancing your current mortgage and pulling money out which would then be tax-free. OK. If you roll it into another investment. So that’s a, that’s a great way. That was number one that I had on my list.

Number two would be to temporarily tap into your retirement funds such as an IRA or 401k, depending on your plan. You can sometimes borrow against the fund for up to 90 days. All right. Just like I talked about doing private lending for yourself; loaning yourself money and paying it back to the account at a very low-interest rate.

Number three would be going to friends or relatives and the options could include debt or equity with that situation. OK. You could have a friend or relative loan you money and you pay an interest payment back. Kind of like what we do with our private money lending program at American Real Estate Investments. Or you could say, hey I’ll cut you in on the equity. Hey, I’m gonna go buy this house. I’ll do the renovation. I’ll handle the whole project and when it sells I’ll cut you in 50/50 on any equity or 20 percent on the equity. Whatever you decide. But that could be a good way to raise money as well for a real estate opportunity.

And obviously, there’s conventional mortgages. FHA loans with the 203k program allow you extra money, you could borrow extra money for rehab.

Number five is kind of goes back to number three. But equity investors, right, there are equity investors out there that like to loan money on equity because then they can take advantage of the tax benefits of technically owning real estate. Right. So you have a lot of equity investors out here. And the advantage of this is you don’t have to make excuse me the monthly payments because there is no loan. It’s just when the deal is done you have some sort of profit split on the back end. Right. And it’s equity.

Uh, number six. I don’t love this one but I threw it out here because it definitely is an option and that would be a credit card advance. And you know but this could be a very expensive route to go and really should only be undertaken when you’re very sure of positive short term outcomes like you know that that deal is going to generate big profits or quick profits. Because you know credit card companies are going to charge you several points and up to twenty-nine percent, some of these guys are charging on the interest rate. So just be very careful if you’re considering this option.

Number seven would be a joint venture. Basically, you bring the deal, you find someone to bring the money and you split the profits at the end. And this is just kind of like a variation of an equity type of investment or an equity type of loan. Right.

Number eight would be a personal loan from your bank or credit union. And so but this is going to mean that you have a pretty successful track record with your bank. No bank’s just going to kind of just be like oh hey I’ll give you a personal loan. Right. But if you do have a successful track record with your bank then this could be potentially a good option for you.

Number nine on here I have construction loan and that’s assuming your profit projections hold up on paper and that you already own the land on which your construction or development will take place. Right. Because a lot of times you get a construction loan based on the collateral of the land.

Number 10 would be seller financing. So the truth here is that not every seller is going to need a thousand percent cash out from the sale of the property they are selling to you, right. They probably just owe, maybe, taxes or whatever it may be on the property you need to pay that off. And so they may actually be open to carrying back some of the paper. And this could potentially be a win-win for both of you. Right. And there was a lot of seller finance going on with, remember the Big Short right the Great Recession, the collapse of the housing market. You saw a lot of this. So that’s an option as well.

Number Eleven would be a cross-collateralized loan and with this, you would use the equity from one property you own to secure a loan for a second property. And that’s kind of what we’re doing here at American Real Estate Investments at this time. We’re doing private lending opportunities for our investors, we’re letting our investors come in and take the role of the bank. We take down assets we then go to the banks and ask them to refinance the properties after we go in and renovate them and bring up the rents and bring up the cap rate. We’ll go in for a refi, we take the proceeds of the refi, we pay off the lenders, the lenders have an opportunity to lend to us again on another building. But once we start establishing more and more of a larger rental portfolio when it comes to commercial properties, right, then it starts to become easier to secure loans through this cross collateralization method. So this is another reason why we’re doing the private lending opportunities here at American Real Estate. So we’re trying to grow our commercial real estate portfolio, our multifamily real estate portfolio. We already have a very large single-family portfolio but we’re graduating into multifamily and commercial at this point.

Number 12, what you could do is you get hypothecate a note that you have. So basically you take out a loan by pledging the note thereby using it as collateral to secure the loan. All right. That’s something that not everybody knows that you could do but that is an option.

Number 13 would be personal asset loans. You’d pawn some jewelry. Get a car title loan etc.. Payday loan. They’re expensive but you know it’s an opportunity. It’s, it’s an, it’s an option for you if you could get you see a really good real estate deal you just don’t have the capital sitting in the bank, but you know it’s gonna make money. I mean it is risky, especially when you have more and more of these high-interest loans but it’s a way to get money to fund a real estate deal. So I’m just trying to give all the options out there.

14 would be earnest money deposit funding used to initially give properties under contract in the first place. OK. All right.

Number 15 would be transactional funding. And this is often referred to as back to back or double S close escrows. If you have a buyer already lined up but lack the money to buy the property in the first place. Transactional funding may be your answer. TF deals basically involve three different parties; a seller or a wholesaler and an investor and two separate escrow closings. Seller A sells to wholesaler B, A B do a closing. Wholesaler B sells to investor C. BC also do a closing. It’s basically called a double close and this transactional funding, it could be expensive but worth it if you have a sufficient profit built into the back end. OK. That’s basically wholesaling and double closing. That is another option. And a lot of, a lot of people do that that are in the wholesale game and big companies that wholesale a lot of properties. That’s what they do.

Basically, 16 would be hard money loans. These are usually asset based loans. They’re relatively short durations. The majority that people are using them are rehabbers who buy rundown property, fix it up and flip it for a profit. And so yeah. Also with hard money loans, you know you see that it’s just more of an alternative financing it’s yeah definitely for fixing and flippers but also for people who want to take advantage of financing through their IRA or 401k. Typically you’re going to want to do that through a solo 401k to avoid the UBIT tax, the unidentified business income tax. But with that. Hard money loans, let’s say you don’t have enough in your retirement account to purchase a property. There are lenders out there that would give you basically a lower loan to value but and it would be a higher interest rate and probably have to pay some points on the front end but it’d be a way for you to leverage your retirement funds to buy a more expensive property.

So that’s where hard money lenders come in as well. Not just with rehabbers but also with, you know, the IRA, 401k purchase. Hard money loans are attractive for that.

And then the final number 17 would basically be delayed real estate commissions. So sometimes in some cases, a Realtor will agree to wait for their commission on a previous deal, the current deal or the future deal until after you’ve completed the rehab on a property and successfully sold it for a profit. So your Realtor, if it’s a friend or something like that maybe they’ll wait to take their real estate commissions. In most cases, it’s probably going to have to be a broker because I can’t see many brokers letting their agents do this. But if you know a real estate broker and he found the deal for you he may be willing to take his commissions at a later date after you sell the property for a profit.

So that’s 17 total ways I had to really really think about you know and gather as many ideas you know and opportunities and options out there to fund a real estate deal so I hope you found this information insightful and if you are interested in learning more about passive income opportunities at American Real Estate Investments and the Real Estate Cowboys. Feel free to go to our Web sites AREIUSA.com and RealEstateCowboysDFW.com, put in your information. A member of our team will reach out and kind of go over your goals and your strategy and fit them in with the different programs we have in American Real Estate Investments or if you’re just an information seeker and don’t really know what type of investment route you want to go just yet you go to RealEstateCowboysDFW.com and take our investor quiz find out what type of investor you are. You’re just going to answer basically 10 simple questions and it’s going to give you an opinion on what investment opportunity might be best for you or what investment program might be best for you. At that point, you can make your own educational decision on which route you want to go with, but it kind of gives you a nudge or an idea of what type of investor you are basically based on your risk profile. If you’d like to learn more about what we talk about on the show there’s past episodes housed on RealEstateCowboysDFW.com website. You could also subscribe to us on iTunes or any of the other basically media platforms that are out there.

You can find our podcast and you can also get our book The Passive Income Guide: What’s Your Return on Life. I was the author of that book and Keith Weinhold from Get Rich Education wrote the foreword. It’s a very short read. It’s a great read though and it gives you a basis for how to start earning passive income through real estate and through private money lending. So if you’re interested in learning more you could download that book as well from Amazon. The e-book is more affordable. It’s not a very expensive book at all but you buy the paperback off Amazon or you could just get the e-book. So go to Amazon and Amazon.com and check out that book if you’re interested in learning more. But for now, that’s all we have for this week. Like I said I hope everyone had a great safe Fourth of July weekend and we’ll be back next week with another great episode of The Real Estate Cowboys. But in the meantime, always remember what’s your return on life and have a great week everyone. We’ll see you next week.

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.