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Is Private Lending Right For Me?

Episode 055

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 whether private money lending is right for you. After a visit from Keith Weinhold of Get Rich Education this week, John walks through some FAQs.

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. Hello everyone. This is your host, John Larson with another edition of the Real Estate Cowboys podcast. This week we will be discussing private lending. Again, as you may know, or may not know, private lending has become a big part of our business here at American Real Estate Investments for a variety of reasons. One, there’s just such great opportunities to do larger deals out here in the DFW area. You’re talking about a city that’s growing about 150,000 people each year and is sitting at about 7.2 million people and by 2038 it’s projected and predicted that the population will reach 9 million, which will pretty much make DFW; it will solidify it as the third largest metro in America. And we talk about this on the show quite often. All the great things going on in Dallas-Fort Worth, all the companies that are moving here. 

Obviously, we know Dallas-Fort Worth is home to the most corporate headquarters in America. Another thing that just stood out to me today. I was reading some articles and I believe we shared this article on social media, but more than 30 million square feet of warehouse space is being built in North Texas currently. That’s more than any other metro in America and you can thank companies like Amazon, Wayfair, Walmart, and other companies that provide consumer products. And when you think about it just makes so much sense to be building this fulfillment, uh, centers and warehouses to store products in Dallas- Fort Worth because it’s central to the entire U.S. Very easy to ship out of DFW and get to California or New York, right? There’s also a ton of land, right? North Texas is booming. You’re talking about McKinney and now Prosper and even further north, Sherman. These cities are growing and growing and growing to the point where it’s, I feel like how much further can it go? 

It’s pretty much up to the state line where Texas and Oklahoma meet. I just feel like so much growth has been going north and with private lending, it gives us the ability to raise money from our investors. Let our investors take the role of the bank, hold first lien on an asset that’s in a great market like DFW. I just had my buddy Keith Weinhold in town this week. We went and toured around all the private lending projects that we currently have going; two buildings in South Lake, the office building that we raised for in Carrollton and the 4 four-plexes, the quads that we’re raising for currently in Irving, Texas, which is also home to seven Fortune 500 companies and many other corporate headquarters. So Keith was just very, very impressed with what he saw. We shot a bunch of great video footage that we’ll be sharing with our list here shortly and he’ll also be sharing with his list and his listeners on Get Rich Education. 

So we’re excited about that video to come out. But this just made me want to touch on private lending again and kind of go over some of the frequently asked questions that I was even getting from Keith on the tour. So you know with private money lending, it’s one of the most, if not the most passive forms of real estate investing. Okay. You’re just playing the role of the bank. You find a good sponsor, a project manager, which is us, that is in a good market that has access to good deals. You loan money to go purchase those deals, renovate those deals, build those deals, whatever it may be when the project is completed. And in many cases I’m looking for value add proposition, so it’d be a building that is over 50% occupied, but I can tell the leases are undervalued, there’s room to bump up the leases, or like the case with the Carrollton building, the leases were definitely undervalued, but also there was no common area maintenance charge, a CAM, there was also no triple net leases in place. The owner was paying all the expenses. We’re going to restructure the leases to where the tenants are responsible for at least some common area maintenance, if not go all the way to triple net, where now the tenants are paying the expenses, they’re paying for the insurance, they’re paying for the property tax, they’re paying for all the stuff basically that goes into maintaining that building. And at that point your cap rate really goes up and uh, you know, we’re, we’re doing that by, just fixed the whole HVAC system in the building, that was quite a bit of money that we needed to invest. Now we’re just renovating. 

We just finished up renovating the vacant units that we have tenants already lining up to move into because we’re in a market like DFW. Now we’re about to start on the main entranceway. So right when you walk in, we’re modernizing that whole area, the whole common area there. So the tenants feel like, wow, you know, this building hasn’t been renovated since 2005. We’re going to bring it up to today’s standards. Our guests come in, or our customers that come in to meet with us, the building just looks so much better, which helps with negotiation on pushing rents up and adding things in like a triple net lease or a cam common area maintenance charge to your lease. So that’s the plan with that one. But with that, you are holding first lien on these assets where they’re already cash flowing as we speak. 

So let’s say if something happened, worst case scenario, we could not sell the property or refinance the property, which I can’t see in a market like Dallas-Fort Worth with all the movement that we’re seeing out here with the real estate market and all the people moving in and businesses moving in. But let’s just say we couldn’t, well, just like any other bank, you foreclose on that property and take ownership of that property and we always have to remember this isn’t like gambling with the stock market. This isn’t like traditional investments. Real estate never goes to zero, especially in a strong market like DFW. So even if you did have to foreclose on a property, you’re at least going to be able to recoup some of your money, if not all of your money back through that foreclosure and then taking on the project yourself, maybe finishing it out yourself with the other group of lenders. 

Maybe you decide to hold it and cash flow off of it with the other group of investors or you know you could refinance the property as well and hold it. There’s a lot of different options that you could do as the bank. But that is the way that we minimize your risk with our private lending program. So obviously always there’s risks with investing, but I believe that your risks are very minimal on the private lending side due to the fact that you hold first lien position and due to the fact that we have such a strong market here in DFW and pretty much all my projects are right here in Dallas-Fort Worth because I feel so confident in this market and I feel competent in this market moving forward. Really that is due to the fact that there is such a diverse economy here is what I would say. And a lot of white collar jobs which is going to continue to drive people into the market and as long as there’s people, there’s always going to be demand for real estate. You know, private money lending I think is desirable because it doesn’t require a lot of time for you as the investor. Most of our offerings are going to be Reg D filings, so they’re filed with the SEC. So you need to be an accredited investor to jump in on those deals. But really all you’re going to have to do is review a private placement memorandum. We make it pretty easy as well by putting a simple, easy to read marketing package in place for you to browse through and make sure that this is the right deal for you. And obviously what we want to do is we want to earn your trust and perform on the first couple of deals. 

So then next time we send you over a PPM, of course, always read what is presented to you, but I’m sure you’ll feel more and more comfortable continuing to invest funds, enrolling funds from one project to another as you continue to work with us. As with anything, it takes a good team and I think we have a solid team here that’s had a very, you know, good proven track record, especially on the single-family rental side. We own a property management company in Dallas- Fort Worth. So we’ve been doing tons of single family homes, thousands of them across the entire country, really. But you know, it’s become a situation where the cap rate, the cash flow that you can get on a single family property in the Dallas- Fort Worth area is just so compressed that you know, it doesn’t really make sense for you. And we all know, most of us know, I like to educate this a lot, that there’s up to six ways that real estate pays you through appreciation, um, through equity capture, buying a property below market value through, um, having tenants in your property, they’re actually paying down your principal and interest payment, through locking in 30-year, fixed that at a low rate today, whereas the rate could continue to rise in years to come. You’re kind of hedging your bet on inflation. Also through obviously the cash flow from the rental income. And then all the great tax benefits that it’s associated with it. But you do want to see, uh, at least a little bit of cash flow each month because you know, you’re going to have things like vacancy and maintenance, so you’d like to keep that money aside for a rainy day or for when something goes wrong. But, uh, it’s become that to the point in, in Dallas where that’s just not working for our investors. So we pivoted doing more of a private money lending program, which has been taking off like crazy. We’ve now hit, I think about 13 million or more invested in now a year of just starting this, uh, this program we have, we have raised over $13 million from our investors in various projects here throughout the DFW area. 

And so if you get a chance to check out the video that we’ll be sending out to the list soon, it’s going to be about a half an hour video. So grab some popcorn. But it’s me and Keith going around, checking out all the projects and giving updates on where we’re at with the project. So really, really good content and I’m excited to get it out to the list. But uh, you know, Keith brought up a lot of good points as well when I was hanging out with him this week. You know, he’s like, he just said, John, this is such a great model for someone that’s just really just cash flow driven; someone that’s trying to supplement income, replace income, grow their retirement savings. Um, because as, as you know, if you’ve been listening to this show, if you self-direct your retirement account, you take that money out of Wall Street and bring it Main Street, these monthly dividends that we’re paying you instead of paying the bank can go back into your IRA or 401k. 

They can go in their tax-free or tax-deferred. And so I’m excited. I’m going to have another guest coming on shortly. His name’s Damian Lupo, he’s been on the Real Estate Guys podcast as well. If you pay attention to our email blasts, we have a, we send out his book quite a bit, which is basically the, um, the financial guide for QRP. And he’s the guy that can set you up with a self-directed account and also gets you checkbook control. So you don’t have to deal with your custodian every time you want to go do a real estate deal or whatever it is or lend money. Um, you know, you have checkbook control over that self-directed IRA or 401k so you can just write a check and start seeing returns. But our investors have been super, super happy with the program thus far. 

They’re getting their payments on time, monthly. The payment is the same amount to at, down to the penny each month. So you know what you’re getting. And I think there’s a lot of comfort with the investors, uh, knowing that they’re getting that check and they know what it’s gonna look like. There’s no, you know, unexpected maintenance or something that popped up on the property management statement that you weren’t expecting, and your draw this month is less than what you thought or the tenant’s paying rent late, whatever it may be. With private lending you lend some money, you get a monthly dividend check or wire sent to you, ACH payments sent to you each month. And so it’s been really great. It’s been more passive on us. I can really just now focus on projects and seeing these projects through and looking for new projects and getting on the podcast and discussing all the great things that we have going on at American Real Estate Investments and Real Estate Cowboys. You know, and then you can just sit back and collect your money each month with really no headache as well. 

You know, you just, payment sent, you ask for a statement, we get you a statement with the payment, shows up in your account; you’re getting on down the road, right? If you never done private lending, money lending and investment before or a debt syndication or any type of syndication, I’m sure that there’s a lot of questions. So the first one we get a lot is can anyone be a private money lender? And the answer is, it’s yes, but it’s also no. If you’re doing like what I’m doing, publicly soliciting our opportunities, publicly soliciting our program, then you know, we need to file a Reg D with the SEC and we need to, um, you know, fly under the 506 (c) rule, which is, if you’re going to publicly solicit these opportunities, then you need to only allow accredited investors to participate. 

Okay. Most of the private lending opportunities that you’re going to see are probably going to require that you are accredited. This is to satisfy government regulations and to protect the less sophisticated investors who might not fully understand certain investment types. Some people might just be listening to the show and say wow, John’s in Dallas-Fort Worth. I know that’s such a great market and wow John really knows what he’s talking about, let me give him $100,000. But not, you’ve never done this before. Right? You don’t know exactly what you’re getting yourself into. I don’t want to take that person’s money. I want to make sure that our people are accredited. They understand these types of deals. They’ve done these deals before. That’s why we structure our deals this way. But another question would be, do I need a retirement account to be a private money lender? No, you do not have to do that. 

We have a lot of investors that actually invest with cash and a lot of wealthy investors that are in that 40% tax bracket where, you know, you can be taxed quite heavily on interest payments. So let’s say you’re getting taxed 40% on the income that you made. Here’s, let’s just do some numbers that, uh, that just can make sense for you pretty easily. Let’s say the deal is at 12% return, you invest $100,000. That means you’re going to collect $1,000 each month and collect $12,000 for the year at 12% return on that investment. Right? Now it comes time to pay Uncle Sam. $12,000, shave 40% off that. You pay that in tax. You’re still making a pretty solid return in a very, very passive manner. Still making 8% on your money. Pretty much. Okay? Really, really good opportunity even to invest with cash. Um, if you’re really looking for just strictly cash flow; money, mailbox money that you know it’s going to be the same amount each month. 

And then like I said, something that’s very passive that you don’t have to worry about too much. We always send out update videos, update emails on the projects so our investors can kind of stay in the know with where the project’s at. And I’m lucky to say that all of our projects are ahead of schedule right now and there might be cases where we might have to pay the investors back before the term is up and that’s fine. We’ll have other deals lined up so you can just simply roll that money that will be paying back from a previous project into a new project and keep it working for you at that 10 and a half to 12%, whatever it may be. Okay. But I will say, you know, the model kind of goes on uh, you know, steroids, something just trying to think. But you know a model like with private lending through an IRA or 401k, it actually enhances the positives because like I said, depending on what type of account it is, if it’s a self-directed Roth, those interest payments are going back to you tax-free. 

If it’s just a regular self-directed account, they’re still deferring the taxes out; you’re not paying taxes on that income immediately. And then let’s say you don’t want to draw until you’re 59 and a half, you don’t have any penalty drawing from the account. And then also you go down into a lower tax bracket. So those taxes are deferred out and when you draw that money out of the account, you’re not going to have to pay as much as you maybe would have on taxes today. So I recommend doing private lending through an IRA, 401k, self-directing and doing that. But you don’t have to. But that’s obviously a way that you can really capture some tax benefits also. 

So the next thing is, you know, risk. What type of risks is private money lending risky? Well, there are risks in any kind of investment and so private lending is going to carry some risks depending on the circumstances of the project, but you can mitigate many of the risks with private lending by just doing some simple due diligence. Right. But we’re going to take a quick break. When we come back, I’m going to go over some of those things that you can do with from a due diligence standpoint to mitigate your risk and minimize your risk on a private money lending opportunities. So stay tuned. We’ll be right back. 

Okay, and welcome back from that commercial break. This is John Larson. This week we are talking about frequently asked questions when it comes to private money lending. As everybody, you know, most people know, listening to the show, private money lending has been a big part of our business and it’s been a big success and we’re obviously always looking for new investors to jump on with our private money lending program because hey, double-digit returns fixed. That’s backed by an asset in a market like Dallas-Fort worth, multifamily projects, small apartment building, commercial office building. These are the types of options that we’re putting our investors in right now for our private money lending program. That stuff is all in super high demand out here in the DFW area. So I really feel like we’re minimizing risk quite a bit by, one, giving you first lien just like a bank. And what I say to most investors all the time is like, look, in any deal out there, who has the least amount of risk in any deal? It’s the bank, obviously, because they hold first lien. And if you don’t make your payment, they’re coming in foreclosing on you and taking the product, the property back. And like I said, real estate never goes to zero. It’s not like the stock market dropped 600 points in one day and you’re just sitting there like, what? No real estate never goes to zero. Okay, so that’s one way that we’re really minimizing risk here. 

Some other ways, just before we took the commercial break, I want to talk about, you know, what some due diligence that you can do to minimize risk with a private money lending opportunity. And the number one thing would be; request references. Who else is doing private lending with you guys? Can I speak with them? Can I speak about their experience, or they receive their payments on time? Is it as passive as they say it is? Have you been getting updates on the projects? Have the projects been moving ahead of schedule? Are they lagging behind? This is all stuff that current investors with us can give you or with anyone; can give you some solid insight on whether or not you should work with this team, right? So definitely ask for references and I would take at least two or three references and give them a call. 

And all of our investors are pretty cool and easy going and laid back and don’t mind taking these calls. We try to give other references. So the same people aren’t getting called over and over again. We all have lives, you know, and I want to make this passive on my investors as possible and if they’re constantly taking calls with people, asking questions about our company and things of that nature, so we kind of put them on a rotation. But, um, I think that this will give you a great idea if the team that you’re potentially looking to invest with has a good track record, right? 

You also want to understand your rights. So in the event that a borrower defaults on the loan for any reason, you’ll want to know what your rights are to reclaim your investment. So when you have multiple lenders on a deed and people are giving, some guys will give a hundred k, some guys will come in for the minimum of 50. Some guys will come in for 200 or more. I’ve had people put in $300,000 in the deal. So everyone will be listed on the deed of trust when the project closes with a certain perfect percentage of beneficial interest. And that’s going to be based on how much you invested in the project. Okay. But at the end of the day, if the foreclosure proceedings need to take place, you have a trustee that’s listed on the documents. When you sign the PPM and the promissory note from us to pay you a certain rate and also the deed of trust to where you know that is what’s collateralizing your loan. That is what’s getting you the first lien on the project and then when the project closes you’ll receive a copy of that deed of trust. You’ll see yourself with the other lenders listed on there with your beneficial interest. But basically, that trustee can help facilitate any sort of foreclosure. It’s simply just hiring an attorney to kind of coordinate the foreclosure. It’s not as difficult as people might think. It might be a little bit of a pain at first and it might be a little bit of a pain getting in touch with all the lenders to decide what you guys want to do with the project. You know, if the project’s not finished, do you want to carry it through then put it on the market and sell it? Do you want to carry the project through and then possibly, hey, maybe some of the lenders within there might say, hey yeah, I might be interested in the project. I’ll refinance it and get you guys paid out. There’s a lot of different directions you can go, but the fact is, and what should make you like sleep well at night is you do hold first lien on that property. It is your property if the sponsor if the person that you’re dealing with that presented the project to you defaults. 

So don’t worry about losing all your money with this model is all I’m saying. The best private money lending scenarios are going to give you first lien. There’s going to be other opportunities out there where there might be some bank finance that you’re coming behind. So the bank will hold first lien and then you’d come in at second lien. It’s still a way to kind of minimize risk, right? Because you have that bank loan on the front end and you’re maybe only loaning 20% of value on that project. But most investors that I can tell like to have first lien and that’s okay. Um, but its just depends on the way that the deal is structured. If someone’s raising all the money and needs you to come in on first lien because they already have, you know, somebody on the note in front of you, I would be cautious of that. But if it’s some bank finance, there’s some good deals that can be structured that way as well. 

Always review the loan terms. Um, be knowledgeable about the loan terms, read over your loan documents and have your attorney read through them, if applicable. I definitely recommend that, too, we have a lot of our investors who will have their attorney review the PPM. I’ve never had an attorney shoot anything down that we have. Like I said, I hire attorneys on the front end to put these documents together and it’s not cheap. So always have your attorney look things over though until you start to, you know, maybe get some comfort with the group that you’re working with or maybe you’re very sophisticated where you can just read a PPM and know, hey, this is a good deal or this isn’t a good deal, but definitely have an attorney review them if you don’t feel comfortable. And you want to understand how much you’ll stand to gain in interest payments each month, what is the payment, what is the monthly dividend coming to me? So whether it’s a 10 and a half percent annual deal or a 12% annual deal, you know how much is going to be sent to each month. And that’s always listed in the documents. 

Um, how long the loan period is for. Me, my comfortability, I really don’t like to have my money out longer than two years. I would look at stuff with two-year terms. That’s another reason why I haven’t done an equity syndication just yet, but I’m still open to it because of the tax benefits that are available. But, uh, most of my investors are looking for immediate payouts, immediate returns, immediate cash flow. And that’s why the debt syndication is really good for our group. 

But, uh, I am also looking at potential equity syndications down the line because I’m also, I also have a lot of high net worth investors that, you know, yes they like cash flow, but they also like, you know, tax benefits and tax savings and things like that. So there’s a lot of write-offs with being associated with the equity syndication, depreciation being one of them, all those sorts of things. But you know, know how much you’re going to be receiving each month. Know how long the term is. Some people, like I said, start to get uncomfortable after two years. Hey, that’s a long time for my $100,000 to be hanging out there, which is why my, I can tell my, uh, my list, my group of investors, um, my investor community I should say because it’s reached a pretty vast number at this point. They like that year to 18-month term. Anything below two years, they’re pretty happy with. They do understand that you’re going to have to continuously roll that money, you know, so after a year, you’re going to be looking at a new deal. But you always have the option to pull out. You don’t have to reinvest in another deal with us. But obviously, we will give you first right of refusal on new deals that are coming, coming through and uh, getting you the documentation over to you so you can review those materials before you decide that you want to move your money over to another deal. But that’s what most people do. I would say 90% of the time, um, investors are re-rolling the money into other projects and just kind of recycling it and keeping it earning interest for them. And so, like I said, I mean if you’re doing this out of a self-directed retirement account and you’re working with a good solid team and a good solid market, I don’t know why you would ever want to pull your money out of a good private money lending program because it can just, the returns and the profit can be so substantial. 

Um, and, and like I said, very, very passive for you. So a lot of investors too will ask, you know, how do I find good private money lending opportunities? Well, if you listen to my show and you follow what we do at American Real Estate and Real Estate Cowboys, this is where you would find deals. I know there’s a lot of other guys out that are doing deals like this. There’s also a very large online platform called Crowd Street, uh, where you can go and look at various deals there. And I think invest right through the website. Um, with the advancements in technology and things like that, it’s actually making it easier and easier to do crowdfunding online. So it’s becoming more and more popular and myself, and if you listen to the Real Estate Guys podcasts, you know, Russell Gray and them; they are very, very dedicated and very, very passionate about pulling as much money from Wall Street and taking it Main Street. 

So I don’t mind plugging other groups that are doing this because I’m a firm believer in getting that money into Main Street as well. Letting you take control of your retirement funds and doing what you want with them. Because there’s just so many better opportunities out there than what you‘re going to get with traditional investments. It’s just, it’s a proven fact. Real estate has made more people wealthy in this country than any other investment option out there. So if you have not self- directed your retirement account yet and you have your money tied up in traditional investments, I’m not saying pull it all out, but take some out and diversify and look into opportunities like this for sure. You know, you can go online, look up crowdfunding, look up private lending opportunities, debt syndication opportunities, equity syndication opportunities, whatever it may be. But you can find them. They are there. And, uh, you know, Grant Cardone does that sort of stuff as well, and he’s really big with it. Um, so there’s a lot of guys out there where you can get in their network, start syndicating funds, start loaning on projects, and then, you know, what if this sounds like something, if you have a little bit of real estate knowledge or a hunger to learn more about doing deals; you know, through doing some private money lending deals yourself, you can start to learn how it works and how to raise money and you can start syndicating money for deals. So, you know, there’s a lot of opportunity out there, but first and foremost, you’ve got to take a step in the right direction. You gotta, you gotta open your checkbook and you got to take action at first, of course, do some due diligence, give us a call or visit our websites, or go to 

Or if you’re kind of listening to this episode and you really don’t know what type of investor you are yet, we have a quiz on our, on our Real Estate Cowboys page. I think it’s right there on the front homepage under quizzes where you can learn what type of investor you are. You know, after taking the quiz you might think you’re a single family investor and you know, I just like buying property. But then after taking the quiz, you find out, wow, private money lending actually might be the better option for me based on what my goals are based on, you know, myself wanting a very, very passive experience because private lending does bring so much passivity, I guess, to your experience. So that’s pretty much all we have for this week. If you want more information, if you want to listen back to past episodes, go to; we house all of our past episodes there. 

If you haven’t yet subscribed to us on iTunes or any of the, you know, podcast outlets that are out there, you can pretty much find us anywhere. Um, whether it’s iTunes, whether it’s Spotify, iHeart radio, whatever it may be, you can find us pretty much anywhere. You know, also if you want to pick up our Passive Income Guide that I wrote last year, uh, it’s a very easy to read book, 50 pages, not much more than that. The foreword was written by Keith Weinhold from Get Rich Education. That’s a really great book to just read through in one day, you know, a couple of hours, and give you some good tips on how to get started in investing in real estate and building passive income through real estate. There’s a lot of great info there. You can get that on Amazon. It’s The Passive Income Guide: What’s Your Return on Life by John Larson? There’s an e-book you can download that’s less expensive. If you want the actual paperback, you pay a little bit more and have that shipped to your house. But that’s all we have this week. Hope you found the content to be beneficial, informative. And like I said, if you want to learn more, go to our websites,, Put your information in and a member of our team will reach out with more info on what we have going on. And, uh, so that’s all we have for this week. I hope you enjoyed the episode and remember everybody, What’s your return on life? This is John Larson. I will 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.