SPEAKER_00 0:08

What's up, real estate development family? Uh I will apologize in advance for uh if you hear a little bit of sound in the in the background, they're cutting grass today, but all good. I wanted to come to you and bring you valuable information. So uh again, welcome and hello. Uh welcome to our Facebook group. This group is specifically for real estate investors that are struggling with um knowledge and experience and they want to become a real estate developer. Um, and I'm Sam, your host, and I wanted to bring this group to you because I went through the same challenges, right? So I'll just tell you a little bit about my story. I know there's new people jumping into in the group uh each and every week. But uh my wife was going to med school in the islands, and one of the things that I told her is if we got into med school, well, if you get if you got into med school, we'll get engaged. And she did. She got into med school, but right before she was supposed to go, she said, Hey Sam, I don't want to go. I don't foresee us having the family life that we envision, and um, and then that kind of started my journey through um uh to real estate investing, right? I started out as a a a wholesaler, then a rehabber, then a contractor, then developer. That's just how the process is has gone. And for me, I've seen all aspects of the transaction to be able to kind of help guide you um to the promised land, so to speak, right? So I'm imparting my knowledge that I've gained through the last um few years, last 14 years, uh, to be able to help you transition into this uh business, which is uh real estate development, and you really have to look at it through that lens, right? If you ever want to be a developer, it's a business move, right? You're you're launching a brand new business, it's not dabbling, it's not let me see if I can get one done. You it's a full-throated, full investment into real estate development. There's just so many moving parts, there's just such a big learning curve, there's also an added level of risk that it is gonna take take your focus uh to be successful in this particular industry, but you're also gonna get rewarded where you're looking at six and sometimes seven-figure you know returns based on the transaction. But uh that that doesn't come without definitely gaining your knowledge and experience and focusing it in on whatever the task is that you are launching. So um, that's a little bit about me and how I got I got started. I got into the business of contracting as a design build general contractor because I hired a contractor and then I fired a contractor. I hired a second contractor and then I fired him. I hired a third contractor and I got through the project, and I quickly realized this business has contractor problems. So we hone in on making sure that you hire the right team because the the whole thing about being a real estate developer is you're you're managing a team of professionals. That's how I coach it up, right? You're managing a contractor that is a professional, you're managing an attorney that is a professional, you're managing an architect that is a professional, and he has the engineer, you're managing a designer that's a professional. That's how you equip your team, and that's kind of how I coach it up so you can get successfully off the ground. And you are just being the uh the conductor or the architect, so to speak. But today I'm gonna be discussing uh with you uh creative ways to fund your development project without using your own money, right? And we're gonna go through a bunch of different aspects of uh private monies, uh using equity, using debt, etc. And you need to get more familiarized with some of these concepts that I'm going to be sharing with you today if you're going to be successful as a real estate developer, right? Not all of them are you're gonna use, um, primarily uh development projects, especially one to four units, is done with a construction loan, and we'll kind of discuss some of that uh a little bit later in in the uh in the live. So let's let's dive right in. I want this group to be interactive, and I I know it's not a lot of people in there too. I ask people quite often if I can catch them on Messenger. What are your challenges? What do you need to work on? Right, and I'm asking that for a specific reason because it's gonna tell me what do I need to make my life my next live stream on to be able to answer those questions for you, and then also too, uh, I need to know exactly what your challenges are so I can move the action in your direction, right? One of the biggest things is people learn and learn and learn, and then they get stuck and they never do anything with the knowledge. I'm an action guy, all right. So my job is to push you towards the action to next to take the next steps, to take messy action and get your dreams off the ground. So today we're gonna be talking about creative ways to fund your development project. All right, so um, let's let's start with um private money, right? And and how how does that work? And I'll and I'll talk about a few examples of each particular topic as it as it applies. All right, so uh you build a relationship with a high net worth individual looking for good returns, uh offer attractive interest rates, or share uh a part of the profits, uh great uh share a part of the profits. All right, so you gotta think if if you are approaching a high net worth individual, they're gonna be very savvy, right? And savvy people like to do business with other savvy people. So you really have to know and understand and speak their language when it comes to returns, when it comes to timing of a project, when it comes to expectations, when it comes to communication, when it comes to deal structure, uh in a way that's going to speak their language and also make them feel comfortable handing over a check to you, right? A lot of times, the way some certain deals might be structured, it's it's structured as uh as debt, right? You might take it on as debt and there's a mortgage on it, and then it is a you know deed of trust, right? So now you'll lock in your certain percentage um for that investor for that capital exchange. It might be eight, it might be ten, it might be twelve percent, but it's flexible because it's it's private, right? Are they beating the market returns? Are they beating the market average by parking this money with you? And and the answer typically should be yes, especially in a in a real estate development project where we are looking to make around 25 to 30 percent on that transaction. So, you know, you want to make sure that that private money is getting a solid return back, and we'll talk about different ways to structure deals to make sure that investor uh retains a return, right? And you also got to think about it like this, too. If someone's investing in your project, they are the primary, right? There's nothing more important than that investor making the return. It's not about you making your money, right? That's that's secondary, and we'll talk about that, right? You get your money based on your level of performance, right? And but your job is to get that return, that initial principal um from the investor back to him and bring some friends, right? That's that's profit, right? Bring a return with it. Those those are the friends that people like, and then once you bring some friends, then you know, um, they enjoy you a lot more and they're willing to lend to you again. So the most important thing is establishing a relationship where you bring friends back in a way of return, and in that way you have a repeat customer. It's the most important thing in any uh transaction, right? Other ways to to structure uh deals is uh a hard money loan. All right, so short-term asset based on loans, uh based loans secured by the property, uh easier to qualify than traditional uh loans, but interest rates are higher. So uh hard money lender is just a few steps ahead of you. What he has done is pull together private money, right? He he secures it with a note, locking in a specific interest, you know, it could be one year, three year, five year, right? And then what they do is they turn around and they lend the money to active operators, right? Um, like like us as developers, and they'll charge us a a higher rate, right? Whether it's 12% APR plus points, you know, or 10% plus points, etc. And they make their money in the spread, right? But their job is to um get private money, create their fund, and then deploy it to other real estate investors, right? So that's how they make their money, all right. It does come with higher fees, um, but it's a great source for capital. If you can get in and out of a project within a year, this is a great opportunity for you as a developer to get inside of a deal. But depending on how the deal is structured, some deals go longer than a year, and I would say I would expect you to to um expect the deal to go longer than a year. Um but this is a great way to secure um private private funds as well for your deal. All right, another way that you could secure uh financing for your project is seller financing, all right. So negotiate terms with the property owner to finance the deal. Um can be structured with no money down or low down payment. So there's a couple different ways that you'll you'll have to structure a deal uh like this. All right. For example, if the deal is just on the land, then you will have to secure the capital for the construction. The land cost could be significant, so having a seller finance deal on just the land portion so that way you don't have to close on it is a big advantage. But the disadvantage that happens here is um the disadvantage uh that that happens here is you you may not be able to secure the financing in the way that you want um for the uh for the construction loan. So that's a a consideration. But I highly recommend you closing on it. All right, taking taking the reason why it's harder to close uh and get the construction financing there is because the construction loan wants to be the primary uh or the senior debt on that particular uh property. So they they prefer to just give you the funds for the construction and the land and get that person removed off of uh off of the title, and in that way, if anything ever goes wrong, then they become the primary. And that that is a little bit you know of your challenge, but there are ways to structure uh seller financing deals when it comes to land that allows you to secure the property and get the construction loan, and that but that's for another day, another training. So we'll kind of go into that uh partnership and joint ventures, right? Uh partner with investors who have capital but lack experience or time, offer them a percentage of the profit in exchange for funding your project. So if you if you have a relationship with with a well and you want to partner with them, right? So one of your biggest challenges is going to be this experience piece, right? Getting that first one off the ground is more important than anything else, right? Now you have a track record. Now someone could use that as a barometer to say, hey, he's successfully got that deal done, so now let's let's go ahead and fund him uh uh uh for another deal, right? But joint venturing with somebody, whether they have the more experience or they have the the time or they have the capital could be a big advantage of um for you. Joint venturing with somebody that definitely has experience, so you can piggyback off of that experience to gain your experience and successfully walk through a project will be definitely helpful to you. So joint ventures could be uh a tremendous value to you uh in many different ways. All right. Uh okay, okay, let's talk about gap funding. All right, so gap funding is bigger investors use gap funding. It's highly unlikely that you'll use any gap funding uh initially when you're beginning to get your first one to four units off the ground, and I'll explain that to you. So combine private funds and hard money with a smaller investor to cover the the gaps in funding. Gap funding res um gap funders receives interest or a share of the profit for their contribution. So there's there's a thing that I will explain to you when you when you're in the private equity space, it's called a a uh capital stack. And what a capital stack uh really defines is who are all of the partners, who are all of the the uh who's all of the debt involved in structuring this particular deal, and and developers, especially bigger ones, structure their deals in a number of different ways. And I'll explain to you what a capital stack typically looks like so you understand um what deal structure looks like. And like I said, this is not something that you will uh typically do, especially in your first one to four four units. Um, but you should be exposed to it and have this understanding, you know, moving forward. So the way most debt is set up is um at the bottom. Let's let's pretend this is a triangle, right? At the bottom is going to be senior debt. All right, senior debt is secured by the property or asset uh first to be repaid in case of a default, typically includes loan uh from banks and financial institutions, often the lowest cost uh of capital, um, but the strictest repayment terms. All right, so that's gonna be your construction loan. That's gonna be your your your financial institution, that's gonna be your bank, right? They want to secure their position. Uh and so they they are gonna be the senior debt and they have the most invested in there, right? So what happens from from there is uh we call it uh mezzanine, mezzanine debt or mez mezx is uh it's how it's called in the private equity space. It's a hybrid debt of equity uh sitting in between senior debt and equity, uh, often unsecured and uh subordinate to senior debt. Uh returns are higher than senior debt, typically structured in interest payments and sometimes warranty uh or equity kicker. So this is how you should look at mezzanine. Mezzanine debt might be um IRA IRA funds that are looking for additional opportunity, right? So you have your initial um bank debt, then you have your IRA uh investment in there, right? You can structure that in a couple of different ways. They could piggyback on the actual profit, or you could also structure it in a way where they get uh a percentage of if it's a buy and hold percentage of the rent and a percentage of the profit, right? So now that makes it very enticing to them because you got to think about it. If you default, the senior debt takes the position first, the mes debt goes away. Nothing is more senior than the senior debt. So there is a risk element involved in uh in the mezzanine debt, but you just perform your job, so then that's a way to secure that additional uh additional funding, right? And then there's two other positions, all right. There's preferred equity, which is a higher risk, high return, provides a fixed return preferred on the dividends uh before common equity, um priority in cash flow distribution, right? They take the priority there, and then there's common equity, right? Which is this is this is you as the as the ownership. Uh presents the ownership stake in the project, last to get paid after all of the other obligations are met, carries the highest risk because repayment is contingent on the success of the project, offers the greatest potential for upside if the project performs well, right? So you're sitting at the very top, right? You have the lowest level of risk because you have the the least amount of capital contribution, right? But you have the highest risk because this is your project, you're structuring it, and it's based on the success of the project. If if you're going to even get paid, and how are all of the partners going to get paid? It does get high pressured if you're not performing or uh you're not preparing well in a way that you know all the market conditions uh are changing. So um having a uh capital reserve is always, always, always, should always be in your mind to have having that capital reserve will put you in the best position possible when you're looking at doing uh transactions, so plan for that. Um equity sharing agreement. This is what I typically use the most, all right. So partner with investors who take uh an equity stake in the property instead of uh earning interest, profits are split upon the sale of the property. So here's how I structure certain deals with my capital partners, all right. So there's a couple different ways that I've done it. If it's like a fix and flip and I do all of the work, it's 50-50, right? So that means I need you to come to closing on the front side, I need you to come to closing on the back side. I've always been a full service type of guy, so I handle the uh realtor, I handle the material ordering, I handle the design, I handle the planning, I handle the construction, and then you just come there, right? Another way that I've done it where is you provide the capital on the front side, I'll provide the construction costs and run the construction projects, and then we'll split it 50-50. All right, that's that's another way that I've done it as well. All right, and then a couple other ways that you could structure your deals once you know and understand how to uh put together a development project is a 60-40 split or a 70-30 split. You got to think about it like this, all right? The capital is what is taking on the biggest risk, right? So they get the line share, they get the 60 and they get the 70, right? But if they are doing if the capital is doing the lion's share of the work in the investment, then you it's it's only appropriate that you take a the smaller half, right? But you don't have any any uh money invested. So uh my job would be to coordinate all of the elements, right? From from the the acquisition to the site planning to the architect to the designer to the engineer to the to the architect to the construction to uh material ordering to the permitting to all of that, all of those things. That have to happen to get a successful project off the ground would be where my value is truly, you know, uh on the table, right? And for me, because my advantage has always been because I have my construction design build background. Um, I've done this for the last eight years, you know, every every day, you know, for the last eight years of my life. So uh I really truly know the process inside and out, and that's where I bring tremendous value, not just to my uh investor partners, but to you guys as um uh as future uh developers. All right, so you know, equity sharing is is how I choose to um structure most most of my deals uh now. So and then there's also a couple different ways that I would highly, highly, highly recommend. Um is a home equity line of credit. The best way to get in the game, because you cannot get in the game with no money, it's just it's just not one of those things. You have to be able to structure deals with other people's money, right? And also structure deals with you know uh things like HELOC as well, which accessing a HELOC is a is a great way to get yourself uh going in a real estate development project. If you already uh own a property, you can tap into the equity and fund uh this project acts as a revolving line of credit. Uh also there there is credit card uh options as well. I do not recommend that uh just because of the time span of uh of certain projects. Uh I wouldn't recommend um ever using a credit card, but sometimes that is necessary to be able to do a transaction, right? Also, too, great opportunity in self-directed IRAs. We talked about MES funding, right? That's that self-directed IRA. If someone has a big self-directed IRA or or um funds in the stock market, they're not sure where to park it, they can move that to a self-directed IRA, which can do the investment on their behalf, right? And the way that would work is there's specific rules about self- IRA, self-directed IRAs, and how the owner is not allowed to participate in the transaction. So the self-directed IRA will will act on its behalf, and then they will make the investment, and then once that investment is completed, then all those funds would go back, including the profit, will go back in the self-directed IRA. Uh, and depending on how it's set up, it it would be untaxed. So that's the the advantage of a self-directed IRA and why it's so appealing to so many different um investors to to utilize that that that engine. All right, so those are some of the ways that you could get deals funded and and deals structured. Um, hopefully, you got tremendous value out of this particular um topic. Um, and if you ever have any questions, feel free to DM me uh and I'll be able to help you out. We are going to be rolling out a program soon. So I wanted to make sure that I added so much value to you guys before I I rolled this program out. We are we have something that we're working on up our sleeve, and I'll let you know when it's ready. I'll be taking a handful of people through our process, through our program, and and kind of coaching them up so they can get their first deal off the ground. So if you have interest in that, type type uh let's build in the chat, and then we'll kind of go from there. All right. Outside of that, have a great day.