WS1957 Invest Passively With Private Lending | Alex Breshears

In today's episode, we're excited to have Alina Trigub stepping in as our guest host. She sat down with Alex Breshears, a well-versed expert in the fields of real estate and private lending. Their conversation delved deep into the world of private lending, discussing its advantages as a passive income source, the benefits it brings, important points to ponder, and how newcomers can venture into this promising area.

Here are three essential insights from Alex to guide you in determining if private lending matches your investment goals:

1. Earning Passive Income Through Real Estate: Opting for private lending means you can enjoy a steady cash flow from real estate endeavors without the hassle of property management. It's an attractive route for those aiming for passive earnings.
2. Balancing Advantages and Drawbacks: Private lending offers perks such as minimal effort and possibly lower risks than owning properties outright. However, it's crucial to acknowledge its downsides, like fewer tax advantages and the importance of diligent research. Weigh these factors carefully.
3. Embarking With Confidence: Keen on private lending? Start by connecting with seasoned professionals, sharpening your underwriting skills, and favoring first-lien positions to safeguard your investment, especially as a newbie. Ensuring your strategy aligns with your risk appetite is key to thriving.

For more insights and to connect with Alex about her private lending expertise, visit her LinkedIn profile.

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Transcript

00:00 -  Alex Breshears (Guest)
I know so many people that get started in real estate specifically real estate because they want the cash flow, they're going to buy X number of rentals and that they're going to live off the cash flow. But they end up investing in a way that's not super cash flow heavy and then you know, five properties later, 10 properties later, you know they have property management problems. They have a roof that needs to be repaired and it constantly feels like all they're doing is pouring money into these properties. 

00:31 - Speaker 2 (Host)
This is your daily real estate syndication show. I'm your host, whitney Sewell. Thank you for listening to the show. My goal is for you to become a savvy investor by learning from some of the best operators and investors in the business. I'd like to hear from you If you have questions you'd like us to ask on the show, or if you have someone you would like me to interview. Please let us know by emailing info at lifebridgecapitalcom. Please leave us a written rating and review. I would be grateful. Do not hesitate to let us know how we can best serve you at LifeBridge Capital. And now for another amazing interview with my friend, alina Trigub. 

01:08 - Alina Trigub (Host)
Hello and welcome. This is your daily real estate syndication show and I am your host, alina Trigub. I am thrilled beyond belief to have Alex   Breshears here with us today and, as you will see in a few minutes, she is an amazing speaker. Alex is a private money lender, short term rental owner and limited partner investor in syndications. As a bigger pocket published author for private lending, she passionately believes in investing passively to live actively. Alex started an educational Facebook group called Private Lending Lessons, which offers educational lessons, daily posts for discussion and opportunities to network with other investors about private lending and various projects that may need funding. 

01:57
Tc Capital is all female-owned private lending business. It plans for fixed and flips and rental properties in Missouri, virginia and Kentucky. Alex is also a military spouse, dog, mom of four, horse owner and six to educate others about investing to fit the design of your life. She was a chemistry professor, teaching for four years, school for the past 10 years with a special focus on pharmacology. What a background, wow. That's really amazing. So, alex, what I really want to hear is how did you get into private lending in the first place? 

02:39 -  Alex Breshears (Guest)
Yeah, it was actually kind of by accident. As you mentioned, I'm a military spouse and that comes with certain lifestyle arrangements, one of them being we move a lot, with the moving over the last 20 years. It's hard to buy a house with your VA loan and then sell it when you move, because we've moved some places in three months, in six months, in nine months. Until recently, the longest we'd lived anywhere was 22 months. So when you think about trying to buy a property, renovate it, flip it, whatever you're going to do with it in a very short time frame, while you're also moving your entire family, oftentimes across the country, that was not something I was willing to sign up for, at least more than once. So we had to find a way to still be involved in real estate but not have the overhead of a mortgage or have a rental property 2,000 miles away. 

03:33 - Alina Trigub (Host)
Got it. That makes sense. So who would you say benefit the most from private lending? 

03:40 -  Alex Breshears (Guest)
I would say realistically, it's people that are cash flow investors. I know so many people that get started in real estate, specifically real estate, because they want the cash flow. But they might not say it that way. They might say they want financial freedom, they're going to buy X number of rentals and that they're going to live off the cash flow, but they end up investing in a way that's not super cash flow heavy and then, five properties later, 10 properties later, they have property management problems, they have a roof that needs to be repaired and it constantly feels like all they're doing is pouring money into these properties, as opposed to what they originally got started for was for the cash flow to be able to live off of those properties. Not to say rentals aren't a great way to do it. I just personally don't think they're super cash flow intensive, especially when you compare it to something like private lending. 

04:33 - Alina Trigub (Host)
Got it. So let's switch gears and let's talk about the advantages and disadvantages of private lending. 

04:40 -  Alex Breshears (Guest)
Yeah. So the disadvantage is going to be especially for people that are already in real estate. There's not really any tax write off. A lot of people in real estate are used to having that depreciation write off or even real estate professional status. Running a private lending business or managing your loans does not count for real estate professional status, so there's just not a lot there. 

05:03
As far as tax savings Same thing with company write offs it's just not a very expensive business to keep running. 

05:10
So if you're in it for the tax savings aspect, I would say keep your equity investments or do some sort of equity investing and then you can keep this as your cash flow play for money that's consistently coming in to pay the monthly bills. 

05:26
So I'd say the advantages for private lending are just it's set it and forget it. Make sure you do the underwriting at the get go very well, do your due diligence, ask the questions, make sure your paperwork's in line. But then after that, if you onboard it with a loan servicing company, for example, it's really just a matter of Ding. You get an email and says, hey, you have a deposit coming to your bank account and then ding, you have a request for the money to be paid back, you know, whatever the length of the loan is. So a lot of the work tends to be upfront and can usually kind of fit and accommodate in your schedule so it's not going to be something that you know some emergency you have to take care of at 2am. That's rarely an issue in private lending, so it's really set and forget it. And that's the part I really like and the consistent cash flow. 

06:19 - Alina Trigub (Host)
Got it. Thank you for that, alex. You mentioned underwriting the project. So for someone who is new to private lending, how do they know how to underwrite the project? Or, if they don't know, where can they learn about it? 

06:34 -  Alex Breshears (Guest)
It's actually really funny. So the great way to learn underwriting for private lending is one of two ways. Let's talk to other lenders, see what they're willing to lend on the types of projects, the loan to value, the interest rate, the length of time, see if any of that jives with you. And then, secondarily, a lot of private lenders like myself were once active investors. So you had to learn how to underwrite that flip. You had to learn how to underwrite that rental. It's going to be the same process. You're just looking at it from the lender's perspective of do these numbers make sense? Do I trust these numbers? Is their scope of work good for the particular project, for the area, for the house? So if you've already come from an active investor background and you have that knowledge and you have some of those skills, it's basically the same process. You're just applying that to underwriting as a lender. 

07:28 - Alina Trigub (Host)
Interesting. So as a private lender, would you say it's important for that person to be in the market where they're lending, or can they be someplace else? 

07:40 -  Alex Breshears (Guest)
So they can actually be anywhere in the world. It's one of the great things I love about it. So if you are super familiar with one market maybe where you live or where you have lived, or you have boots on the ground in a particular market, you can live anywhere you want. And as long as you have access to the internet and be able to wire funds from your bank account to the closing, that's really all it takes. So I know several people that live in California for various reasons, but they don't lend in California for even more reasons, but they'll lend elsewhere in the United States and choose to live wherever they want. So it's 100% something that can be done at a distance without a problem. 

08:19 - Alina Trigub (Host)
Got it Excellent, excellent. So what are the risks associated with private lending and how is it different than the equity investment? 

08:31 -  Alex Breshears (Guest)
Yeah. So for the risks with private lending, it really comes from that first push I was talking about the set it and then forget it. You have to make sure that your due diligence is accurate and timely and that you understand the risks that particular borrower or that particular project is bringing on. So, for example, if you're lending as a first lean holder, the first mortgage on a property, that's going to look very different than if you're coming in and providing gap funding or a second lien. Those are two completely different scenarios that need to be underwritten completely differently. So understanding where you are in the capital stack is really important and making sure your documents because the only thing you're going to get for this 100,000, 200,000, whatever you're sending out the door is going to be coming back is the promise to pay that money back, and the promise to pay that money back comes from the documents. 

09:27
So I'd say the two biggest risks. Obviously it's going to be you don't get your capital back and the way that happens is you've lent too much, you're in the second lean position and the first lean holder forecloses and wipes you out. It's potentially the borrower just goes MIA and then you have to go through a foreclosure process. In some states that could be a year or more. So, understanding kind of what the worst case scenario is and then kind of backing off from how do we avoid the worst case scenario? 

09:56
So, realistically, if you are lending conservatively, you're in the first lean position. You're 70% loan to value or less. Theoretically, it's going to be really hard to get that property to be underwater or the property is worth less than you owe on it. So it'll hopefully, if you have to do something and you have to foreclose, it'll either sell at public auction for more than your loan amount or, if you get the property back, you can have the capability to finish the renovation or get it stabilized or get it rented and now you own a house or whatever you're willing to lend on. So I think as long as you are lending conservatively, the risks are pretty minimal because the money you're laying out is actually secured against a real asset, against that real estate. 

10:45 - Alina Trigub (Host)
Sure, that makes sense. So, Alex, speaking of landing conservatively for someone who decided to start out on private landing, does it matter whether they're landing in the first position or a second position, or should they stay away from one or the other? 

11:04 -  Alex Breshears (Guest)
It would matter only if their risk tolerance was one over the other. So if someone's come in and saying I want to be as safe as I can be I understand all investments going to involve risk in some capacity, but I want to minimize that risk as much as possible then you want to be in the first lean position and that's where I advocate most new lenders start out, because there's a whole set of variables if you are lending in the second lean position that don't exist when you're lending in the first lean position. But then I have other people that are like hey, I would rather have a much higher interest rate for having a second lean, or I want to start with a smaller loan amount. I'm more comfortable starting with a smaller loan amount and I'm okay taking on the risk of a second lean. Then that's a completely different conversation, obviously, than the first person who's like I want to minimize risk as much as possible. So I think it really starts with what is your pucker factor? 

11:59
If you have a conversation about first leans and you're like, okay, yeah, I'm good with that, and then you have a conversation about second leans and you start going, ooh, you know, maybe not, then you've kind of reached your risk tolerance level. You're like, wait a minute, I'm not super comfy about that, and you can have a conversation, you know, and say, okay, what am I not comfortable with? Is it because of lack of knowledge? Is it really my perceived risk is too high for this? And then you're going in educated, going. I'm not willing to lend in the second lean, or I'm not willing to lend above this certain loan to value, or I'm not willing to lend above this certain dollar amount, whatever that barrier is where you start going. Ooh, you know, that's where you can have that conversation with yourself and go what is it that I'm feeling right now and what don't I understand or what could make it better, not necessarily to talk yourself into doing that, but at least to understand why you feel that way? 

12:49 - Alina Trigub (Host)
Got it. Yeah, no, that makes perfect sense and a lot of factors to consider. Alex, you mentioned earlier capital stack. Let's kind of go back to that and define for audience what capital stock is and why exactly do investors need to pay? Why do investors need to pay attention to that? 

13:08 -  Alex Breshears (Guest)
Yeah, that's a great question. 

13:10
So for syndication, since the audience probably familiar with some level of syndication, when that money is pulled together in a syndication to buy a real estate asset, that money is actually used for the down payment that the lender is requiring. 

13:25
Sometimes it's for renovations and then usually closing costs. So that's where we are perceived to be, at what's called the top of the capital stack, which is not necessarily a good thing, but it's the top of the capital stack. At the bottom of the capital stack is actually the lender, the first lean holder, and then if there's a second lean holder or a mezzanine debt, that would be in the middle and then the top would be the equity that the owners of the real estate have in the property. Now, the reason the top is not necessarily where you always want to be is if the deal goes south, if something happens, the market turns, the is value the lender has to foreclose because of nonpayment. Whatever the situation happens to be, the people that get the haircut first are at the top of the capital stack. So the higher you are in the capital stack, the more likely you are to lose money if the deal goes south. 

14:21
So, obviously, if you are a first lean holder, you know it's got to get real, real bad for you to take a haircut to the property Not that it hasn't happened, but it does. So having a nice mix in your real estate portfolio and understanding where you are in that capital stack, you can be in the equity position. There's a lot of great benefits to being in the equity position, but maybe you don't want to have all of your capital in an equity position because you want to be lower down on the capital stack to keep that cash flow coming in or, you know, preserve the capital that you do have. 

14:55 - Alina Trigub (Host)
Got it. Yeah, no, that makes sense. Alex, you started a female-owned company along with other women entrepreneurs. Share with our audience a little bit about that company. How did you guys start and why did you start your company? 

15:10 -  Alex Breshears (Guest)
Yeah, so it's two other military spouses, so it's three military spouses. And it kind of just came from us having a connection where we all had an interest in real estate. We all enjoyed working with each other and we all really believed in the ability to have cash flow coming into the household to be life-changing for a lot of families. As military spouses, we don't tend to have pretty steady careers because of the moving around, licensing, all kinds of problems, so entrepreneurship can sometimes be the default. Like, if I want to be able to financially contribute to my household, entrepreneurship is going to be how I have to do it. But and throw in all the moving, it's something that we can still invest in real estate and still, wherever our spouses happen to get stationed, we can still do that. We can still carry on this business. We're familiar with our markets. So, again, it doesn't matter where we live, we can still operate this business from anywhere in the world. And that's really what kind of led us to say you know what? We should do this together. We're very collaborative. Yes, we could all do it individually by ourselves, but when we have it together, we have different points of view, we have different backgrounds, we have different connections. We have different networks. So when we're able to kind of come together and say, hey, look, there's someone from my network that can, that is looking for this, or there's someone from her network that's looking for that, and it just becomes to me better You're going to go further, faster in a more collaborative approach than trying to make these other two women my competition. You know they're. You know competitive lenders. You know they. They are going to take business away from me. 

16:48
If you go in with that very limited mindset, you don't have an abundance mindset. That's what you're going to see, and to me that's just not really applicable. I would rather enjoy my time in entrepreneurship. I'd rather have people in my life I enjoy talking to and working with. And if, for some reason, I happen to be down or they happen to be down, you know somebody's sick, somebody's moving, something's going on with a kid that we can step in and kind of carry the weight for that person for a period of time and say, okay, you know, I know you're. You're down with the flu this week, or you know the kids are down with the flu this week. You're not going to be able to get much done. I'll step in and do X, Y and Z. So it just to me. I love the collaboration, I love the different points of view, I love the conversation. 

17:32 - Alina Trigub (Host)
Alex, and I couldn't agree more with you. I can definitely relate to the fact that you know when you have a team, not only you can do so much more, better and faster, but you also get the backups. Because you know we have to admit it we're all humans and we have, we'll have our up and down days. So when you have those down days, or even during your vacation time, you want to go on another cruise. I know you love cruising and enjoy it and not have to worry about phone calls, attacks from some unhappy customers, so the business not going the way it should be, because you have a backup of your two other business partners that will take care of the business while you're on your cruise. So that's that's really amazing and absolutely beautiful, and I agree with you 100% on having business partners is very crucial for the success of the business. 

18:26 -  Alex Breshears (Guest)
So that's great. I mean it also helps where we can diversify our skills. So if I'm particularly good at something, they might be particularly good at something else that I'm not good at. So I particularly enjoy that, because I know there's a lot of things I'm not good at that they excel at. 

18:42 - Alina Trigub (Host)
Excellent. So you use the advantage of having complimentary skillset to help one another to move faster and grow your company together. Excellent, love it, absolutely so. As any company, your company probably also has some sort of challenges. So talk to us about one of the biggest challenges your company is experiencing now or has undergone through in the past. 

19:10 -  Alex Breshears (Guest)
We get pinged for a lot of potential lending opportunities that just don't apply to us. You know, for example, like gap funding, somebody's looking for 20% down payment for their permanent financing. We get that a lot. Or you know they're just not in a state we lend in but they're like, hey, could you do this one off thing? And it's like no, there's a whole litany of laws and tax things we have to figure out to move into a new state, just no. So we get pinged a lot for stuff that we just really can't fund or won't fund for various reasons. So it's really about doing a lot of education, which is why I like doing this. 

19:50
The podcast is it's education for potential borrowers as much as it is education for potential new private lenders. To be able to understand, you need to narrow down what you're actually looking for. Narrow down your buy box. You're more likely to find it. You're going to be more successful than if you do one off here in Georgia and you know a land deal in Tennessee and another one in South Dakota versus like no, I, I landed Virginia, I know Virginia laws, I know Virginia's markets. We're good to go. 

20:19
I'm sorry I'm going to turn off this opportunity to focus on opportunities that actually do meet our buy box, and I think that's that's a very much a struggle for a lot of new businesses, especially because they're not comfortable with turning away potential business, and that can be, that can be a real, real sticking point. You know, that can be someone who's like we're going to grow, we're going to grow, we're going to grow, we're going to go at any cost. We're going to, we're going to learn this new state, whatever it is, and then you find out you're like, oh wait a minute, this state has state income taxes and now your potential passive investors now have to file a state income tax in this other state because you decided to do this one off loan for this one person in this one state and didn't think about downstream effects from that one decision. So I'd say, knowing what you do and then doing that really well and then sticking to it is probably a really big struggle for a lot of new businesses. 

21:17 - Alina Trigub (Host)
Excellent. Now that's a great point to niche down and stick to your niche and not deviate from it. But moving forward, your business partners and you are probably planning to grow, and with the growth come new responsibilities, new challenges, new obstacles. For you guys, do you think it's a matter of adding another state or two, or are you planning to expand your business beyond what you're doing now, which is private lending in first to second position? 

21:57 -  Alex Breshears (Guest)
I don't see us necessarily expanding to a whole bunch of states. That adds a whole other layer of complexity. Like I said, the laws are different in every single state, the licensing might be different in every single state, the paperwork's different for every single state, and then throw in the tax complications of every single state. So the idea of growth into a new state really has to be well thought out. And what are we doing this for? What are we hoping to capture by moving to another state? Because Virginia is not necessarily a small state. It's pretty well populated. Kentucky again, florida, for example, pretty well populated. So it's a matter of, if we want growth, would we grow into another state or would we focus on potentially more marketing in the states that we do lend in? 

22:45 - Alina Trigub (Host)
Makes sense. Thank you, Alex. As you know, real estate landscape has been changing and it has been somewhat frothy. In 2023. And as we see shaping up in 2024, do you foresee having more business in 2024 than in 2023? And how has the business been in 2023 for your company in particular? 

23:16 -  Alex Breshears (Guest)
I know 2023 we had very low transactions just across the country. We had historic low transactions. A lot of homeowners that, if we're talking about residential real estate, they have those super sweet 2% and 3% 30-year mortgages. You throw in the frothiness of the last couple of years. There's no incentive for them to really trade up to their next house or even trade down to another house, because they're going to be paying more on a monthly basis, just based on interest rate and purchase price together. 

23:46
So I don't see a dramatic increase in transactions on the residential real estate side. I don't see that being a big uptick. It might be a little bit more because I know some people are debating where will interest rates go? I feel like we'll probably get an interest rate cut sometime in the middle of 2024. But I don't think it's going to necessarily be enough of a bump to make those people that have those 2% and 3% mortgages go. Now is the time to buy something else. So we have to be as lenders to investors. We have to be more mindful of what the investors are able to locate, what are the purchase price they're able to locate and also where do we think the values are going. 

24:29
There's some markets in the United States that have been facing devaluation. They're losing value for various reasons. Florida is being really hard hit with insurance costs. So if your insurance costs are going way up and that potentially raises your mortgage payment and you're done with trying to rebuild every few years from a hurricane, you sell your house and you move north or you move away from the coast. 

24:54
So it's a really interesting time because I feel like any changes that do happen I don't think are going to come on the national level. I think it's going to be very market-specific, potentially state-specific, as we see the migration of people to chosen areas, like we've seen the migration out of California Last couple of years. We saw a lot of migration down in the southeast of the Sun Belt. Will they stay there? The various economic factors keep them there is yet to be seen. So I think it's really, as a lender, our biggest worry going into 2024 is really going to be keeping an eye on the value of what we're lending on, because we want to make sure we always have that buffer. So again, worst case scenario, should something happen, we are not going to be underwater with our loan. 

25:40 - Alina Trigub (Host)
Yeah, it makes perfect sense, Alex. What would you say is one habit or discipline that has contributed to your success? 

25:53 -  Alex Breshears (Guest)
I would say, always asking questions and being curious. You have to like, if you walk in the room going I know everything, you've just lost an opportunity to learn something new. And I also feel like no matter who it is or what their experience level is, you can learn something from everyone and you can offer information and teach something to anyone. So as long as you remain curious and you're like, hey, how did you do this or how did you experience this, or what would you do differently, if you can continue to go into a conversation or go into an experience, into anything, with that open mind, I think that's probably going to be the biggest determinant for success. It's the people that walk in the room going I'm the guru, I know everything that I'm like, okay, cool, you know, you might know a lot. I'm not discounting how much you know, but in in my opinion, somebody who remains curious is going to be more successful in life than someone who walks in going I know everything. 

26:49 - Alina Trigub (Host)
Yeah, alex, I couldn't agree more with you. I believe that curiosity helps you grow, and the more questions you ask, the more you learn, not only about the other person you're speaking with, but also about their business, what they're doing and, more importantly, the mistakes they made. So hopefully, when you get to that point, you do not repeat the same mistakes, because you've learned from their mistakes, rather than making these mistakes on your own. So definitely a great point about the importance of asking many questions. We always ask our guests some personal questions, and one of the important one is how do you like to give back? 

27:34 -  Alex Breshears (Guest)
I love to educate. It's just, you know, spent 10 years as a professor. You know what we do isn't rocket science, you know. I've met people that have been doing this for 40 years. I've met people that have been doing this for a couple of months. So I feel like giving back in the way of talking to people, knowledge, offering education, offering community is really important, because if people can find community, then they're more likely to take action. Like if they can see someone two steps, five steps ahead of them, they start to believe that they can do it, that they can see themselves doing whatever it is that their goal is. So I think really just giving back is really about inspiring other people to take action to whatever their goal is. 

28:21 - Alina Trigub (Host)
Absolutely love it, and how can our audience find you? 

28:27 -  Alex Breshears (Guest)
Yeah, so a couple ways. I'm on LinkedIn, so you can just look for my name on LinkedIn, and I run a private lending education group on Facebook. It's called private lending lessons. People can post questions in there. Like I said, remain curious. You can respond to other people's questions. You can network. You can meet other people that are doing private lending, meet active. You know investors that are looking for capital. It's really designed to be a community of people that have come together for this specific reason, so feel free to join the group. Reach out. You'll see me posting in there, obviously, so reach out that way too. 

29:01 - Alina Trigub (Host)
Awesome, alex. Thank you, it's been an amazing interview. We want to thank our audience for listening to the show and we'll see you guys tomorrow. Thank you, bye, everyone. 

29:18 - Speaker 2 (Host)
Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the real estate syndication show and how they can also build wealth in real estate. You can also go to lifebridgecapitalcom and start investing today.