5 Ways to Finance Deals (HA 1265)

5 Ways to Finance Deals (HA 1265)

Steven Butala:
Steve and Jill here.

Jill DeWit:
Hello.

Steven Butala:
Welcome to the House Academy Show, entertaining real estate investment talk. I’m Steven Jack Butala.

Jill DeWit:
And I’m Jill DeWit, broadcasting from sunny Southern California.

Steven Butala:
Today, Jill and I talk about five ways to finance deals. Comes up all the time. This topic is directly derived from an article I read about a kid who’s 21 years old, and has a successfully accomplished Class A apartment building syndications. Usually I don’t bite on … We get a million emails in this industry about XYZ tells you how to become rich. And this one sung to me because he said, “This is how you” … He made it very, very clear that his job in life is to raise capital. It’s not about the apartment buildings. It’s not about the real estate. It’s about finding a good deal in raising capital. So I decided to talk about capital.

Jill DeWit:
I’m good with that. This is kind of a Steven show.

Steven Butala:
So before we get into it, though, let’s take a question posted by one of our members on the houseacademy.com online community. It’s free.

Jill DeWit:
Charlie wrote, “I’ve come to realize that I need to make some moves to start taking myself out of the day-to-day operations of my business, taking myself sometime back and be able to lead my business where I actually want it to go, instead of just reacting to things that happen and calling that a business.” That’s good.

Steven Butala:
You call that a business? If I had a nickel for every time …

Jill DeWit:
Love it. That’s great. “So I’ve already started using some virtual systems for most everything that I can, not because it’s faster, but because of my volume, even though it’s not faster, but it’s scalable. So I’ve partnered on a couple of deals. So now I see the value of using someone else’s money to fund my inventory.” There you go. “My next step is I think to get a transaction coordinator.” Oh, boy. “But I want y’all’s opinion so that I’m not just making that decision because I have more inventory than anything else at the moment. Also, if I do decide to hire a transaction coordinator, my current numbers don’t really support taking on a full time employee. Has anybody had any luck using a virtual assistant or some other part time like commission only person successfully in this role? And finally, I don’t know about these VAs. I didn’t know VAs were a thing until I dug around in this forum. So what else am I missing? What other resources is everyone out there, is everybody using that’s not included in our membership that I should be using? Thanks, Charlie.”

Steven Butala:
So I’m going to-

Jill DeWit:
What was the question?

Steven Butala:
Should I hire a … How do I successfully-

Jill DeWit:
Oh, that was it. How do I find a … Okay.

Steven Butala:
Some days long after this is all done, Jill and I are sitting somewhere deep into retirement, if that’s even possible for us. Someone’s going to interview me and say, “What was the hardest part of this?” And I’m going to say, “Finding a transaction coordinator,” without batting an eyelash.

Jill DeWit:
Without it being me.

Steven Butala:
Without even thinking about it. This is hands down, staffing, and specifically that position is nearly impossible to find. I have to say we have a great one right now. And Jill and I are trying, even at this point in our career, we’re trying some creative stuff, bringing in partners to do deals. So it’s a constant frustration. It’s that position that if they’re really, really good at it, they probably should be going and making a million bucks a year themselves doing it. So you have to find that personality that has that service oriented mentality, that’s really good on the phone and has that Jill lust to get a deal done, like can’t function without the deal getting done.

Jill DeWit:
I would say and they’re really good at it, but they don’t want to assume the risk on their own. So they’re happy helping you get your deals done. And they have to be … There’s a lot of transaction coordinators that didn’t make the cut. I’ll tell you, we’ve talked about this before, and they get quickly overwhelmed. So it’s really important to find someone that can get a deal, can get more than 25 deals done at the same time, and they’re all at different points in the process. And that is a talent. You have to be super organized.

Steven Butala:
It has nothing to do with being a real estate agent. Most people think it’s that talent, but it’s not.

Jill DeWit:
Or contracts.

Steven Butala:
Yeah, it’s not a lawyer. What it is, is it’s half escrow agent, but if you’re a really successful escrow agent … See, there’s still really no responsibility for closing a deal if you’re an escrow agent either. So you just have to find the right person. What your question is, can I get a transaction coordinator halfway? Can I get it through a VA in the Philippines? Absolutely not. Do I have to do it myself? Absolutely. I was-

Jill DeWit:
Until you can hire full time. I would take him off. You’re going to spend a lot of time finding him, I think. And I think full time is the best.

Steven Butala:
Here’s how I solved it. I met Jill, and Jill was a natural transaction coordinator to the point where she became a partner after like three or four weeks of doing this with me.

Jill DeWit:
Well, it helps that we were sleeping together.

Steven Butala:
That helps everything.

Jill DeWit:
Let’s go back. Let me back up though. That’s not how we met. He didn’t hire me so that … like, “Oh, I see how you do it.”

Steven Butala:
Jill and I joined forces. Let’s say that.

Jill DeWit:
This is it. Could you imagine this is the whole … Wait a minute. Did you trick me into this whole thing? It’s all coming full circle now. He’s going to pretend to date me because he sees how bright I am. Oh, and then put me into this role.

Steven Butala:
It was all a ploy, Jill.

Jill DeWit:
That’s it.

Steven Butala:
I hate to break it to you.

Jill DeWit:
Yeah, and you’ve been just sleeping with me just to keep me interested. That’s the carrot that you dangle.

Steven Butala:
The cat’s out of the bag.

Jill DeWit:
Yeah. So I never leave and do it for myself because I want a piece of this. That’s it. All right. Got it. Wow. It only took me how many years to figure that out?

Steven Butala:
So the answer to your question is sleep with your transaction coordinator, see if she’s any good.

Jill DeWit:
That’s it. Oh, my gosh. Wow.

Steven Butala:
In fact, line up five of them, sleep with all of them. See which one’s the best.

Jill DeWit:
Oh, my gosh. That’s the one you hire. Call them partner, doesn’t matter. You’re going to live with them anyway. Give them a title. Make them feel good.

Steven Butala:
Give them a title. Give them a title.

Jill DeWit:
Oh, my gosh. Oh, that’s awful. Yeah, Charlie, that’s not the way to do it.

Steven Butala:
The first thing that you ask a transaction coordinator is how many deals have you done? And how many deals have you done last month? And they’re going to say, it’s going to be very easy for them to roll off their tongue. “I did 42 deals last month.” Especially a former escrow agent, or like a broker assistant. And they’ll bang their chest about it. “Oh, I did 38 deals. I did 22 deals.” And then the next question you ask is, have you ever prepared a deed and submitted it and gotten it recorded to yourself? And 98% of them are going to say, “What are you talking about?”

Jill DeWit:
You could do that?

Steven Butala:
Yeah. I mean, I’ve never … You mean, you submit a deed to the county? How does that work? There’s 2% of the people that you asked that question, they’ll say, “That’s what we do every single time. What are you talking about? Oh, you mean Sally over at Maricopa County recorder? Yeah, she and I have lunch every Thursday.” Now we’re getting somewhere.

Jill DeWit:
Exactly. And it’s hard to find that person because usually they’re off doing their own deals.

Steven Butala:
Right. Or they’re on their way to doing it.

Jill DeWit:
It’s tough.

Steven Butala:
Believe me, I mean, I bet I’ve had in my career, 25 transaction coordinators in house and outsourced. Once you get one, you’ve just got to keep them forever.

Jill DeWit:
Yeah. Yeah. We’ve kept them in other states and made it really worthwhile to do it. I was going to say too, the best thing you can do right now too, Charlie, to prepare is get your process down the way you like it, put some steps in place, get a good CRM in place, so when you do find that right person, it’s probably going to take you months. When you do find that right person, you can quickly hand it over and-

Steven Butala:
It’s taken me 25 years.

Jill DeWit:
… you have something solid to hand them over.

Steven Butala:
It took me 15 years to find you.

Jill DeWit:
Thank you.

Steven Butala:
Now Jill’s got an army of people. Some of them are good and some of them are not good. That’s just how it is.

Jill DeWit:
It’s true.

Steven Butala:
Today’s topic, five ways to finance deals. This is why you’re listening. There are, in my opinion, five ways … Here’s the deal. It all starts with finding a great deal, specifically in houses. There’s so much more data available when you do a house mailer or when a house deal comes back in and you assess it and you can see very literally, click around all the houses in the neighborhood or however you price it. Hopefully you’re using smart pricing before the mailer goes out. You can see what the house is worth with a very, very, very, very predictable number. And so if you’re buying a house for $50,000 or $80,000 less than what that number is, now you have something to talk about.

Steven Butala:
Then you should look at these five different ways to finance deals and how much you’re willing to give up and the risk and all of that. But it all starts with the deal. It doesn’t start the other way around. And I think that that gets very confusing for people because for those of us who have gone to buy a house and bought it and lived in it as a primary residence, we do it the other way. We find the house. We like the curtains. Your wife’s happy, great. Let’s buy it. It doesn’t seem to be exorbitantly expensive, but it’s always too expensive. Always. One of the two people involved in the relationship is going to say, “This is way too expensive,” and the other person is going to say some version of, “Yeah, but I love it.” And so everybody agrees to do the deal.

Jill DeWit:
That would be an emotional decision over a financial decision.

Steven Butala:
The real estate agent gets excited because they didn’t have to really work for their fee and they’re about to get a big check so they can buy more hairspray. So it’s all moving forward. And that’s not how we do this here. What we do is we buy on price. That’s it. We buy at a cheap price.

Jill DeWit:
It’s a line item. You’ve got to see it like a line item.

Steven Butala:
Right. So, you got a great deal. What do you do? You can partnership with somebody, like us, or anybody else in the group. “I’m buying a property. The property’s worth $200,000. I have it under contract for 120. If you, my partner, provide the $120,000, I’ll split the profit with you. It’s a pretty big deal for you.”

Jill DeWit:
And I’ll do all the work.

Steven Butala:
Yeah, that’s partnership. We’ve done deals like that, many deals. You can finance the property, we’re all familiar with that, through debt. So you can go to whether Bank of America or you can go to a hard money lender. They’re going to charge you a bunch of points upfront. You’re going to sign your life away, like a mortgage, or in the case of hard money lending, you really sign your life away. That’s number two. Number three is self-funding, which is what we prefer to do. That should be something at some point in your career you strive for. It certainly wasn’t like that in the beginning. We didn’t self-fund everything in the beginning. Here’s why. If you’re only having a meeting with yourself and making decisions with yourself, it’s going to be really, really efficient and effective and you take out all the work and the fees and all kinds of stuff.

Jill DeWit:
And you’re generally happier.

Steven Butala:
It’s a Warren Buffett quote. Warren Buffett’s famous for saying, “I only ever go to meetings where there’s one person.”

Jill DeWit:
There we go. I was going to say, that’s funny. It’d be funny if he came out of that meeting pissed off.

Steven Butala:
“Yeah, that guy sucked.”

Jill DeWit:
Yeah.

Steven Butala:
And then the fourth way is a syndication. This is what the fuel for this topic was. This 20 year old kid found two great apartment building deals, probably the way that we do. I’m sure he didn’t do it trolling the MLS. Sent out mail probably. And then he spent six months doing exactly one thing, which is finding money. And finally he found one guy and that one guy did the rest of the work for him because he loved the deal. This is not the first deal he’s done. And so he raised the capital with these other money guys.

Jill DeWit:
I’m going to back up. I’m just going to throw in there one point. If the deal’s good enough, all of these other things will happen. So that’s it. Thank you.

Steven Butala:
And the fifth way … Just mic drop. That was a short episode, Jill.

Jill DeWit:
That’s all I have to say. Just kidding.

Steven Butala:
The fifth way is, and it’s not what you expect. You can actually be the lender, and that sings to some people. That’s what deal funding is for us. Not only do we want to do our own deals, and we do tons of them, we love to be your partner. We love to be the lender on a lot of these deals, not the lender from a debt standpoint, but a partner. And so there are many, many people that started out, there are a lot of them are in our group, doing real estate deals and end up being a private equity lender. It makes a lot of sense, I think. Everybody else is doing a lot of work. You can do 50 deals at once. If you have a source of capital, whether it’s your own money, you’ve got partners or if you’ve got a debt relationship somewhere, you can make lots of money doing very, very little work as a lender.

Jill DeWit:
I find it funny that that’s the general mindset of our whole community. We’re all almost fighting over deals a little bit. Everybody in our … Seriously. The advanced group, if you really look around, they’re throwing money out like whatever. We’re all doing it. It’s really, really good.

Steven Butala:
There’s no scared money in our group. Let’s put it that way.

Jill DeWit:
Very true. Happy you could us today. Every Tuesday and Thursday, we are here on the House Academy Show. Mondays, Wednesdays and Fridays, you can find us over on the Land Academy Show.

Steven Butala:
The episode on the Land Academy Show tomorrow is called focus on being great at one part of your business. You are not alone in your real estate ambition.

Jill DeWit:
I’m curious what that’s going to be about.

Steven Butala:
What are you great at in this business?

Jill DeWit:
Oh my gosh. What aren’t I great at? Just kidding.

Steven Butala:
I’m serious. What’s the first thing that comes into your mind?

Jill DeWit:
Getting people willing to get stuff done, talking on the phone.

Steven Butala:
Getting deals done.

Jill DeWit:
Yeah.

Steven Butala:
Jill doesn’t know how to not complete a deal. One of the worst things that can happen to Jill is she gets all the way down, everybody’s agreeing to everything, and I pull the plug. And I say, “You know what? I changed my mind on this. The deal is just not good enough.” That sends her to the moon.

Jill DeWit:
Oh, it does.

Steven Butala:
And rightfully so because her inner soul, she wants to get across the finish line.

Jill DeWit:
Yep. That also ties into my Friday show, but we’ll talk about that.

Steven Butala:
Mine is data and putting these mailers together and pricing them correctly and choosing the right place.

Jill DeWit:
You’re great at it. We’ll talk more about that tomorrow. The House Academy Show remains commercial-free for you, our loyal listener. So wherever you’re watching, wherever you’re listening, please subscribe and rate us there. We are Steve and Jill.

Steven Butala:
We are Steve and Jill. Information.

Jill DeWit:
And inspiration.

Steven Butala:
To buy undervalued property.