#111: Having a Direct Relationship with Money

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 your investing with The Accelerated Investor Podcast. 

So, hey, guys, welcome back to Accelerated Investor. I’m so glad to be back again with you sharing some more content and information. Obviously still in the middle of this Coronavirus business. So talking you in very real time about what’s going on in the market. And I want to give some thoughts and reflection about what’s going to happen over the next couple of months and where I think the opportunity is. This particular video we’re going to talk about single family homes, talk about investing in one to four unit rentals, flips and wholesaling. You know, talking about multifamily, we now own almost three thousand units of multifamily as a general partner. Partnered up with some good friends of mine on deals throughout the country. But this is all about residential. So a couple of things I want to just talk about for a minute. Let’s remember where we’re at, and compare the 2020 coronavirus scare to the 2006-2008 Great Recession. If you remember back then, I’m going to give you some specific statistics. OK. 

If you look at what happened in 2006 and 2007. And one reason why the Great Recession happened, OK, is because, and I’m looking at data on my screen that you’re not going to be able to see. But if, I’ve got this data from Adam Data Solutions, if you look at starting really in 2003 and 2004 and certainly it peaked in Q3 of 2005, the total amount of properties that were being flipped to total purchase volume of properties that were flipped that were bought and sold in the same year in Q3 was 14 billion dollars worth of loan value, 14 billion. Remember that number, 14 billion is the total amount, the total finance purchase dollar volume of properties that were being flipped. And also at that same exact time in Q3 of 2005, roughly sixty eight percent of all the properties that were flipped, sixty eight percent of all the properties that were flipped were flipped with financing. OK. Flipped with using, back then they were ninja loans. There were no income, no asset ninja loans. Right. So remember that number. Q3 of 2005, we had a peak of total amount of flips that were funded with financing. And the total percentage of flips that were flipped with financing was 68 percent. So 14 million, 14 billion, billion, billion with a B, 14 billion. And 68 percent. Now, if you fast forward to 2019, the latest data that we have is that roughly 40 percent of all the properties that were being flipped or flipped with financing, properties that were bought and sold in the same year or within 12 months, were flipped with financing. 40 percent. So compare that to sixty eight percent back in Q3 of 2005. 

OK. So a big drop off, big drop off roughly 40 percent drop off of properties that were flipped with financing. Also the total volume of properties that were being flipped was only about 4 million of properties were being flipped with financing. Only about 4 million in 2019 versus I’m sorry, 4 billion in 2019 versus 14 billion in 2005, OK. So a lot less properties being flipped with financing and a much smaller percentage of total flips that were being flipped with financing. So we don’t have a mortgage crisis on our hands. OK. Because most of the flips are being financed in 2005 were being financed with Fannie Mae, Freddie Mac, HUD, backed by derivatives and insurance from AIG. OK. That didn’t exist in 2019. Properties were not being financed and flipped using the government sponsored agencies like FHA, HUD, Fannie and Freddie and V.A. In 2019 where the funding was coming from for flips was actually coming from the alternate we call the alternate financing market. 

These were institutional private lenders, companies that you might have heard of like Finance of America, companies like Lending Home, companies like Ark Financial, Ricasa financial, companies like Fund that flip and Peer Street companies like that that were originating paper and then selling that paper on the secondary market to life insurance companies and pension funds and other large institutions that we’re buying and holding that paper to get a return on their portfolio. Now what’s happened differently, right, in 2006, those total dollars started to seize up. There were a lot of foreclosures happening. A lot of people couldn’t afford their interest rate adjustments. And the amount of money that was going towards properties that were being flipped dropped from 14 billion in Q3 of 2005, all the way down in Q1 of 2009, dropped under 2 billion. So it went from 14 billion of funding, down to 2 billion of funding. Dropped by nearly 90 percent. So a huge amount of liquidity evaporated from the market from 2005, ’06, ’07 down in Q1 of 2009. And honestly, Q1 of 2011 is what it was at its lowest level, less in two billion dollars of total volume that was being funded, two billion from 14 billion that was being funded for flips. So 90 percent of the financing evaporated from the market. Then you get into 2019, that 2 billion became close to 4 billion.

 So it doubled. That went from 2 billion dollars of funding for flips to about 4 billion dollars of funding for flips. But almost none of it is Fannie Mae, Freddie Mac, FHA V.A. funding, none of it are the big, large institutional funding. They’re mostly these smaller crowdfunding platforms. They’re mostly companies that were alternate financing, that were not Fannie and Freddie, that were not GSE. They were not backed by the SAFE Act and were RESTVA and a lot of these you know, a lot of these regulations that go into the Fannie, Freddie. This was all outside of the government sponsored agencies. And so what happened in March because of the Coronavirus is a lot of the institutions stopped buying paper. 

They stopped buying these fix and flip loans and rental loans and multi-family bridge loans. They basically paused all that. They don’t even want to buy the paper anymore because they were unsure what was going on with the virus. They were unsure whether the notes, the mortgages, the deeds were being recorded at the local courthouses because nobody’s working at the courthouse cause everyone’s working from home. And so they stopped buying the paper. So what does that going to mean going forward? Well, that’s going to mean going forward is that that 40 percent of all the single-family flips that were going on. People are buying them, fixing them and flipping them within twelve months. Roughly 40 percent of that, those buyers that were buying properties, using financing, they’re going to have trouble getting financing. OK. 

So the name of the game over this next 12 to 18 months, because there’s going to be more foreclosures are going to be a lot of these landlords. There’s going to be a lot of these flippers, guys that were just getting into real estate that we’re new inexperienced. They’re going to lose these properties. These properties are going to go into foreclosure and you’re going to be able to buy them for 30 to 50 to 70 cents on the dollar. Now, they’re not going to want to buy them at 30 if it is 70 cents on the dollar next week. But you’ll be able to buy them at 30, 50, 70 cents on the dollar let’s say in six to 18 months from now. So the question becomes is, what are you doing to learn about how to recruit your own private money? Because I’ve been saying for years that funding equals freedom. However, institutional private money. OK. Institutional hard money like the Lending Homes, the world finance of America’s of the world, the LEMA ones of the world like the Lending One, those companies, even my company, Freeland lending. Those companies, they’re the ones with the relationships. OK, they’re the ones with the relationships, with the money. 

So the question becomes is how close are you to the money? How close are you to the relationship with the money? How close are you to the actual private lender that controls the money? How close are you to the actual funding source? Right. Many flippers, many real estate investors over the last four to five years have been able to say, well, I’m just gonna go to Lending Home. I’m just gonna go to Fund that Flip. I’m going to go to Freeland. I’m gonna go to, you know, Lema one and I’m going to get my funding from them. I’m going get some portfolio loan. I’m gonna get fixed input financing, new construction financing from them. I don’t need to raise private money. Well, guess what’s happening now? Right now, a lot of that money is paused. It’s frozen in the marketplace. And guys are wondering like, oh, my God, how am I going to buy my next flip or how am I going to refinance the flips that I’m in the middle of?

 How am I going to get into permanent financing long term or how am I going to buy my next rental property? How am I going to buy my next rehab if all these institutional private lenders and hard money lenders are no longer in the market? Where am I going to get my funding from?

 And this goes right back to what I’ve been teaching my students and my followers and my subscribers for years, which is you’ve got to focus on understanding the securities laws and recruiting and raising your own private money, using private placement memorandums and 506B and 506C securities exemptions.

 Now, if you’re new to this podcast, I would need you to look it up. So maybe we can put it in the show notes. But if you go to AcceleratedInvestorpodcast.com, AcceleratedInvestorpodcast.com, and you go to the episodes. There you’re going to find some of our early episodes like dating back to what, I’m looking it up on my computer while we’re recording live here. But if you look back to it’s going to date all the way back to the summer of 2019. And we really got into it. There was a whole series called the Funding Equals Freedom Series. That series is an entire eight to 10 episodes of this podcast that specifically teaches the methods that I use to find and recruit and raise private money. OK.

 And so actually it was July. If you’d go back to July of 2019, you’re going to see the funding equals Freedom series. There’s it’s ten parts one through ten. And if you listen to those you’ll specifically learn the strategies that I use to recruit and raise private money. Because if I’ve got my own private money, my own private investors, relationships with private money, relationships with entrepreneurs that have self-directed IRAs and cash that I’ve sold, businesses that have money and they can invest that money with me. Well, now I have true freedom because I have the relationships directly with the money. I don’t have a relationship with a lender like Lema One or lender like Finance of America. Because they’re the ones with the relationships with the money. You just have a relationship with a broker. OK.

 So the question is, is how close are you to the money? Because what’s going to happen is over the next six to 18 months, there’s going to be new foreclosures. The market’s going to come back. I have no question that this is just a health scare, that the market’s going to come roaring back. OK. The economy, people are gonna get back to work. Companies are going to reopen. People gonna want to buy products. It might take six to 18 months for the economy to get back to where it was, but people are gonna get back to their jobs. But that’s not going to change the fact that this short term health scare, this short term, basically natural disaster is going to put some people under so much pressure that they can’t finish their rehabs. They can’t keep their rental portfolios. They’re going to lose their rentals. They’re going to lose their rehabs. Some retail owners, mom and pops, are going to lose their houses because they lost their job. There’s going to be opportunity. But there’s no guarantee that the Lema Ones that are lending homes, the Finance of America’s, the institutional private money and hard money, there is no guarantee that they come back to the market and there’s no guarantee that they come back to the market as cheap as they were, or under the same underwriting guidelines. I’ve already talked to a number of CEOs at major companies, including the CEO of Peer Street, who said when we come back to the market, we’re gonna want higher FICO scores, we’re gonna want lower loan to values, and we’re going to want more money in the deals from the borrower. And we’re gonna have higher interest rates and more points. So the finances would be way more expensive and way harder to get. But if you have direct relationships with private lenders like I do, you’re able to close a 20 million dollar apartment deal like I just did yesterday and raise three million dollars for that apartment deal like we just did yesterday because we have relationships directly with the private investors who have access to their money. It’s not through a broker. OK.

 So I just want to use this opportunity to remind you. Go back to AcceleratedInvestorPodcast. com. Go back to the July 2019 series. The funding equals Freedom series and watch and listen to those episodes. Listen to them on i-Tunes or Stitcher wherever you can find your podcasts, go back and watch that stuff on YouTube and and really pay attention to that. Because, listen, funding equals freedom, but only if you have a direct relationship with the funding. Not through some broker, not through some institutional private money or hard money and lender. You’re going to watch and see over the next three to 18 months how many properties we buy at a discount because we have true access directly to the money. All right. So take a look at that. I hope you enjoyed this episode. If you did, let me know how we did. Let me know if you enjoyed it. Let me know if you’d like the information that we’re sharing. Comparing the two thousand, really, that the crash started in 2006, the crash of 2006. That really didn’t end until 2016. OK. When really our economy really opened up and a lot of the regulation was gone.

 If you like those comparisons between two thousand six, seven and eight to the 2020vCorona virus scare and I hope all of you are staying home, you’re healthy, you’re safe. I think our economy is going to be opening up here real soon in the next maybe week to three weeks to four weeks. A lot of people are gonna get back to work. A lot of people gonna get back to school? I hope I can get back to volleyball. I love coaching my volleyball team with my daughter. I don’t know if we’re gonna have any season left, but regardless of what that is, I hope you’re staying safe. We pray for you. We think about you often and, you know, happy investing. Be daring, go out and do deals. There’s lots of you’ll still happening in the middle this virus, but you’ve got to have access directly to the funding. We’ll talk to you soon. Take care.

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.

 

While we are going to see some amazing deals coming our way in the real estate space, first I want to assure you that this is nothing like 2008. I walk you through the entirely different loan environment between 2020 and 2006, and explain how the current loan environment is being impacted by the coronavirus.

Most of the loans for the fix and flip housing market is currently coming from private crowdfunding platforms. This means that when the coronavirus hit in March, the larger insurance and pension companies stopped buying the paper from these platforms.This is entirely different from the 2006 build-up to the housing crisis, but there is a slight twist in this situation.

Roughly 40 percent of the fix-and-flippers were using financing, and they’re going to see their financing dry up as banks hold off on making loans. Many of these guys are new and inexperienced, and they’re going to go under. A lot of money is currently frozen in the marketplace and these fix-and-flippers that were relying on large institutions to loan them money are now trying to figure out how to refinance the flip they’re in the middle of.

I predict that you’re going to be able to buy a lot of their houses for 30 to 50 to 70 cents on the dollar, but not next week. Things move slow in the real estate market, so you still have some time to get ready. But if you want to invest when things are at rock bottom prices, you’ll need access to your own private money.

I’ve been saying for years that funding equals freedom. The question is: What are you doing to learn about how to recruit your own private money? While you’re waiting for these deals to hit the market, you need to check out my Funding Equals Freedom Series that teaches you how to raise private money for yourself using private placement memorandums and 506B and 506C securities exemptions.

What’s Inside:

  • Understanding the underlying problems with the previous housing crisis is key to recognizing why we don’t have a housing crisis right now.
  • My prediction for how long it will take for foreclosures to end up steeply discounted.
  • How close are you to the actual private lender with the money?
  • Funding equals freedom, but only if you have a direct relationship with the funding.

Mentioned in this episode​

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