#030: Funding Equals Freedom Series – Part 1

Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and you’re investing with The Accelerated Investor Podcast.

So hey, welcome back to Accelerated Investor, excited to be with you and we are starting a brand new series. This is going to be a 10 part series specifically for real estate investors, real estate entrepreneurs who are doing, you know, big rehabs, big rental portfolios, big apartment buildings, could even be residential assisted living. And what we’re going to talk in this next series is how we’ve been so successful at raising over $30 or $35 million of true private money.

And when I say private money and private investors, private capital, I’m not talking about any banks, no institutional private lenders, no hard money lenders, none of that stuff. Just true private money, private capital from regular folks, guys that have, you know, regular jobs, regular careers, owned businesses who want to invest in real estate on a passive basis and became a private lender or a private investor to me.

So this should resonate with all of my real estate entrepreneur, clients, friends, students, and everybody who is listening to Accelerated Investor who needs more capital. And I would say, look, if you’ve already raised more money than me, then you probably don’t need this. If you’ve raised any less than $35 million of private money, then you need this episode. You need these 10, this 10 part series. And what I’m going to do is I’m just going to peel back the onion on my exact process on how I raise private money. I’ve successfully launched multiple funds, how I’ve invested in and gained equity ownership in over 1,500 units of apartments. How we’ve underwritten and originated millions, tens of millions of dollars in loans to crowd funding platforms that are basically private investors. And also how I raised my very, very first piece of private money, my first piece of private capital.

And so what I want to do first is just talk a little bit about why you need this money. So if you think about it, funding equals freedom and the only way that you’re ever going to really truly have passive income and legacy wealth in real estate is by owning the asset. Whether it’s a single family, whether it’s a multifamily, whether it’s a large apartment building a residential assisted living, you know self storage an office building, a huge rental portfolio, whatever it is, you’re going to need some capital to get started to buy the asset, rehab it rent it out and then refinance it into long term permanent financing. Now if you’re already a self-made millionaire and you’ve got millions of dollars in cash sitting on the sidelines, you probably don’t need this episode. But if you’re growing your company and you don’t have a lot of free cash and you need more private money, this next 10 part series is for you.

So let’s talk real quickly about what is a private lender? Just real high level, 50,000 foot view. What is a private investor, what is a private lender, well, a private investor, private lender is really anyone who has free cash, whether it’s cash in their bank account, savings account, money market, whether it’s in a mutual fund account or a stock account or a brokerage account, whether it’s in a retirement account, like a 401k, a pension or 403b, a self directed IRA. They have some free cash and they simply want to invest it, lend it joint venture with an active real estate investor. And they basically want to be a passive private investor, a passive private lender, a passive private money partner, whatever you want to call it. They just want to provide the capital and they want to get a good return back to them.

So the money could come from nearly anywhere. I’ve had investors that have invested from self-directed IRA’s, 401ks mutual fund accounts. They’ve even taken a line of credit against their business or a line of credit against their house, let’s say at four, four and a half percent, and they’ve lent it to me and got a 10%, 12%, 15% return. Now the reason why a private lender is really important is that because right now, and really at any time, if you can pay cash for a real estate deal, whether it’s a large apartment building, whether it’s a small multifamily, whether it’s a single family fix and flip, whatever it is, if you can pay all cash, you’re going to get the best price, you’re going to get the best deal. Because sellers know if you’re paying all cash, there’s no financing contingency. You can do a quick closing and your position, you’re postured up to be a stronger borrowers, stronger, you know, buyer in their eyes.

So they might be willing to sell the property for less because you, you can close quick and maybe you can close in two weeks instead of the guy that needs a bank loan, it’s going to close in 60 days. So the reason why you need private money is because, first of all, if you don’t have private money, banks are not going to fund your real estate investments, okay. If you look at typical banks, Wells Fargo, Quicken Loans, JP Morgan, etc. etc. They’re all underwriting for Fannie Mae and Freddie Mac. So Freddie Mac allow you to have four loans in your name, and Fannie Mae will allow you to have up to 10 in your name. Now, those banks, they obviously require that the property be in great condition. They do not lend on properties that need rehab. They do not lend on properties that even have peeling paint, okay? They want you to have a great, what’s called debt to income ratio.

You make a big income and your total debt payments is close to about 40%, 43% of your total income. That way you have room to pay your other debts and your bills. So they look at what’s called a debt to income ratio. You’re going to lose the best deals without a private lender because sellers are going to say, well, I’ve got this deal with an all cash buyer and I’ve got this deal that’s financed and sellers are not going to wait for your loan to fund, okay? Even if you’re a really strong buyer, they’d rather sell to a cash buyer. So you need cash to close, but it doesn’t have to be your cash, okay. Also, if you buy with a Fannie Mae or Freddie Mac loan or you know, even a hard money loan or institutional private money loan, they often require 20% down.

And so if you’re going to be doing multiple deals, multiple rentals, multiple rehabs, even, you know, big apartment buildings, they require 20% down, and where’s that 20% going to come from? Are you going to put that 20% down from your cash or are you going to maybe recruit that capital from a private investor? So obviously everybody eventually runs out of money. It doesn’t matter how much money you have, how much money you manage, if you deploy that money, you’re eventually going to run out of money. So without private capital, it’s going to cripple your cashflow, okay? Because you’re going to be limited to the number of properties you can buy. You’re going to be limited by how many down payments that you can make. And without private capital, you can only grow so fast, right? Also, your cash flow is going to be wiped out by monthly payments, right?

With private lenders you can defer all the interest till later. Also, you’re going to be charged excessive points and excessive fees, underwriting fees, points, you’re going to be charged underwriting fees. And banks typically won’t finance unusual deals. So if you’ve got a mixed use apartment building with a couple floors of retail on the front, or if you’ve got a property that’s got some functional obsolescence or a property that’s on a lot of land, you know, banks don’t like to fund that stuff until it’s stabilized. Where as a private lender, they’re going to look at the deal, how much money they can make, they’ll look at you and they can finance that deal when a bank otherwise may be very picky about, you know, funding that deal for you. Also, you’re never going to be able to buy large multifamily commercial apartment buildings without private investors because commercial lenders are going to fund about 75%. What’s called loan to cost 75% loan to cost.

So let’s just take a $10 million building and you’re going to need to be all in for $10 million. You’re purchasing your rehab, let’s say your purchase is $8 million, your rehab, your soft costs, and your interest reserve account is $10 million bucks for everything. While the banks only going to fund about $7.5 million of that, all right, $7.5 million. You got $2.5 million that you’re going to have to come out of pocket with unless you have private investors or joint venture partners that can bring the $2.5 million to the closing table, okay. Ask me how I know because well, we’ve only invested in 1,500 units of apartments that way. Now when you have a private lender, when you have private investors that will fund your deals, you can now pay cash for every deal that you buy.

You can close with confidence. You don’t need bank loans, you don’t need monthly payments, you don’t have points fees. You don’t have to worry about somebody underwriting your deal in declining it. You can pay all cash, but it can be somebody else’s money, all right? All very important things, and when you have private investors, what you’re going to learn over this 10 part series is that you can get funding with none of your own money in a deal because you’re finding and sourcing the deal. You’re structuring the deal, you’re lining up the contractors, you’re going to own the asset for the long term. Private investors will fund the deal based on the after repaired, fixed up value, okay? Meaning, hey, I’m going to buy this asset for $200,000 it’s going to be worth $300,000 and they look at that potential equity, that $100,000 of equity or profit.

They look at that and say, okay, great. You know, there’s a lot of cushion there, there’s a lot of protection there, so I’ll come in and fund the whole $200,000. In addition, when you have access to private investors like we do, you don’t have to go through some exotic approval process. There’s no credit check, no tax returns, no bank statements, no pay stubs, no debt to income ratio, okay. And I’ll talk more about that later, right? You can borrow with no monthly payments, which is really important and let the interest accrue all until the end, all right? In addition, when you have access to private money, you can posture up with the seller, whether it’s a bank, whether it’s an REO property, whether it’s a motivated seller. You know, the market right now is pretty competitive, and if you’re a wholesaler, okay, and you go to the property, you’re essentially paying cash, but you’re paying with someone else’s cash when you wholesale the property.

Well, if I show up and I’m going to truly paying all cash, I’m going to point out in the purchase agreement, I’m going to point out to say, look right here in the top paragraph of the purchase agreement. Notice how I’m signing this purchase agreement and giving it to you and it says you’re the seller and I’m the buyer. Let’s say I’m buying the property in my company name, Freeland Properties. Well, I’m going to tell them I’m literally paying all cash. If we agree to a contract here, I’m going to pay all cash. I’m going to close in two weeks. All the other contracts that you’re going to get on this property, you’re going to say that Freeland Properties is the buyer or somebody else that’s making the offer that’s a wholesaler is going to say their company name and then it’s going to have the words and or assigns, which means they’re not paying cash for your property.

There are simply getting it under contract and trying to wholesale that property to someone else, okay. So I can posture and position myself that I am a true cash buyer, but I’m paying with somebody else’s cash. I can also quickly screen out other people like when I have cash, when I have private money deals, find me. I don’t have to go find deals. I get calls every single week from people saying, Hey, can you fund this? Hey, can you fund that? Hey, can you joint venture on this deal? Hey, I have a deal can I wholesale it to you? And eliminates by focusing on funding, it eliminates my need to do a lot of heavy marketing to motivated sellers. I simply go out to the marketplace and I wave my flag around and my flag is, you know, in the color and the print of money, a $100 bill.

I wave my virtual flag around and say, Hey, I’ve got all this cash. I need to buy properties. I need to close on some properties. Bring me what you got, let’s joint venture. Let me buy a property from you and you can earn a wholesale fee. Now, in addition, on top of that, over the next 10 parts in this series, you’re going to learn about the SEC regulations. You’re going to learn about what’s going on with the stock market and why I absolutely hate the stock market. You’re going to learn how I’ve raised capital. You’re going to learn my five step process for raising private money. You’re also going to be able to execute more exit strategies. So when you have access to private money, you can buy the property and then sell with no time pressure, okay? Because your interest is just accruing with your private lender.

You can buy the property, sell it and get the best offer. You can wait. You can also buy it cheap and then close on it and then quickly wholesale it like maybe a week later, two weeks later. You can also buy cheap and then repair the property, keep it as a rental or you can pay cash, buy the property, keep it as a rental, but sell it on rent to own and do a lease option. You could also renovate the property and then sell it with owner financing because you don’t have a conventional bank mortgage or a hard money loan on the property. You could even sell the property immediately buy the property, sell it immediately and then tell the buyer, hey, you do the fix ups. I’m going to owner finance you this property. You do the fix up. You fix up the property, you earn some sweat equity, okay?

And I can also buy apartment deals and commercial deals all cash and then stabilize them and then refinance into longterm permanent non-recourse funding, okay? You’re going to learn about non-recourse funding. Non-recourse simply means that there is no personal guarantee, okay? All these things are really, really important. And so as you learn about private money over these next 9 or 10 solo casts, you’re going to learn that you can make offers with confidence, that you can get 100% funding every single time, that you can buy assets and hold those assets longterm, which is truly why we all got into real estate is buy the asset, own the asset and become rich, right? When I first heard about real estate, I didn’t think like I was going to wholesale my way to becoming a millionaire, okay? I wasn’t going to wholesale and do rehabs on my way to becoming a multimillionaire.

It’s all about owning the asset, okay? And that’s what you’re going to learn over the next 9 episodes. So again, if you’ve never raised a nickel of private money, this is going to be awesome for you. If you have only raised a little bit of private money, this is going to be awesome for you. If you raised a ton of private money, I’m going to give you a couple of tips and strategies that I use to add to your game your private money game that’s going to take it absolutely to the next level. You’re just going to love this over the next 9 episodes and I look forward to delivering that to you. And I want to end up in wrap up with this, which is, you know, when I was meeting with Kevin Harrington, Kevin Harrington was the one of the original sharks on Shark Tank.

He was on the first season of that show. And he spoke at my live event. He endorsed my book, The Flip System book. There’s a couple of quotes from him in the book and Kevin and I have had multiple conversations about raising money and he gave a cool tip, which he said, tease, please and seize. So he’s obviously raised tens of millions, hundreds of millions of dollars for his various businesses, but he said, you know, Josh, when I raise money for my businesses or for real estate transactions, I use my system of tease, please and seize, and I’m going to talk about that in the upcoming episodes. Thanks for being here. We’ll see you in episode number two.

You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five star rating and make sure to subscribe so you can be the first to hear new episodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up to date on new training and investment opportunities to start your journey toward the lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.

Are you ready to get your career started as a real estate investor? Or are you currently a real estate entrepreneur who wants to take your business to the next level? Then this “Funding Equals Freedom” solocast series is for you.

Unless you have a good chunk of change in the bank already, every investor needs to get their start by raising capital to buy their first asset (property).

If you’ve never raised a single nickel for your real estate investments, or if you’ve raised some private money but would like to learn new strategies for doing so, you’ll benefit from the info that Josh Cantwell shares in this series.

In his career, Josh has successfully raised more than $35 million of private money (which means working with private individuals – NO institutional lenders, banks, or hard money lenders).

And he’s here to divulge his techniques and tips for finding, approaching, and working with private money lenders to finance your property deals. He’ll share his step-by-step process for building connections with private investors, plus the benefits of securing private money for your investments.

Even if you feel like you have a pretty good grasp on raising private money, Josh’s advice will provide you with a few additional strategies to add to your arsenal.

What’s Inside:

  • Definition of a passive private investor/private lender
  • Why all-cash offers will make you a stronger buyer
  • How Fannie Mae/Freddie Mac loans work for investors – the process and timeline
  • How interest works with private money/private capital
  • Why private money is essential if you want to invest in apartments
  • How private money gives you freedom to do what you want with your properties

Mentioned in this episode​