← Real Estate Rookie
Loading summary
Transcript73 lines
- [00:00]
A
Most rookies think you need to buy properties to make money in real estate. Not today. Today's guest, Devon Kennard, went from NFL linebacker to running a private lending company. And before you start telling yourself private lending isn't for you, the truth is you don't even need NFL money to do this. You can start small and still get paid like the bank.
- [00:22]
B
By the end of this episode, you'll know exactly how to structure, protect, and launch your first private loan in even if you've never bought a property.
- [00:34]
A
This is the Real Estate Rookie Podcast. I'm Ashley Kerr.
- [00:38]
B
And I'm Tony J. Robinson. And with that, let's give a big warm welcome to Devon. Devon, thanks for joining us today, brother.
- [00:43]
C
Thanks for having me, guys. I'm excited to be here.
- [00:44]
A
So, Devon, can you tell us what is private lending and kind of explain it in plain English for us rookies?
- [00:51]
C
Yeah. So essentially, private lending is there are people who are real estate investors and they're buying properties and they're buying them, they're buying them distressed, so they need a lot of work. They're either buying them to fix and flip and sell, or they're buying them to renovate them and then what they like to call brrrr, which I'm sure you guys have talked about on this podcast at some point where, you know, they renovated and they refinance and get out of it. Well, there are people and there are companies who are funding those loans in that in between. So when they're buying the property for $50,000 in Kentucky and putting $30,000 into it, and now it's worth 150, there's somebody who's helping fund that and get them to whether it's selling it or refinancing it. And that's the gap that I think a lot of people can fill. And I'm excited to talk about it on this podcast for beginners because it's something a lot of people should consider who are like, oh, I want to get into real estate. Well, this is a way you can get in and make pretty good money, but not have to actually do hammer to nail when you have a 9 to 5 job or are you busy raising your kids? So it's an alternative that I don't think a lot of people know when they, when they get started. And I know when I started out, I didn't know about it either.
- [02:01]
B
Devon, there, there are different types of quote unquote, like true passive investing. And you know, when we talk about passive income through real estate, we should always put the asterisk that it's semi passive.
- [02:11]
D
Right.
- [02:11]
B
Because even if I own a long term rental and even if I have a property manager, once the deal starts, I still have to manage that property manager and make sure that they're doing what all they need to do. There's still active work involved on my side. But it feels like passive lending is, or private lending is truly one of the only passive routes. But I want to clarify the difference between someone who's a private lender, a hard money lender, or maybe even being like an LP in a larger syndication. So how would you explain the differences between those three buckets?
- [02:42]
C
Yeah, so a true private lender is somebody like you and I who has a friend or someone who's fix and flipping in a market that ideally you're familiar with, you're comfortable with, and they come to you or you come to them vice versa, and you essentially provide them the funds, you get the correct documents. So that's a part of the work where even though it's passive, it's still not completely passive. You still got to do some work, but you get the correct documents and you have them sign and your collateral is the asset and you're doing it as a person, as an individual or, you know, I started a company doing exactly that. So that's true. Private lending, hard money lending is essentially the same thing, but they're doing it at scale. And the biggest difference is they're getting their capital from institutional banks. So it's somebody, it could still be me, but instead of me lending out my own money or money that I've raised from family and friends and stuff, stuff, I'm going to a bank or I'm going to a bigger lender than myself and saying, hey, if I bring this deal, will you fund it for me? And I'd be the in between guy. So a lot of hard money lenders are actually really like brokers where they're, you know, they're getting the fees and they're sending the loan off to someone else. There's nothing wrong with that model. But the, but the difference is when you're a private lender, you get to keep the, the interest you charge up front, the points for the, for the loan, as well as the interest along the entire to loan cycle. So for me, I charge 12% annualized in one. As a private lender, I'm keeping all of that. As opposed to a hard money lender. When they're a huge company, they're really selling off the interest that they're charging and they might be collecting, you know, some of the fees up front and maybe if they're, if they're structuring it, right, a small percentage. So that's hard money. And then when you can do it as a truly private person, you're essentially going to these bigger funds and bigger companies and saying hey, can I give you my money? You, you can lend it out under your criteria, you do your thing and I'm going to make an 8% coupon off of your money. So that's typically how it works in the different sectors and there's, there's reason and rationale for each, but you just got to understand the different nuances.
- [04:46]
A
Now why would somebody choose private lending over real estate? Real estate has the wonderful tax benefits that come alongside with it. What are the benefits of private lending.
- [04:57]
C
If you're a cash flow investor? So if you're somebody listening to the rookie show and you want to get into real estate to make good returns, double digit returns, let me tell you, you can do that through private lending without owning a property. The downside is there's not tax benefits. So yes, you're crunch there but I think people chase after tax benefits and go get into investments that returns aren't nearly as good just for the tax benefits. And I don't, I think that's not the right mentality to have. If you're someone who wants cash flow and you're trying to get to $5,000 extra a month so you can leave your job or whatever that number is for you then buying a property where you're going to get good tax benefits but it's only going to cash flow 4% when you factor in capex and, and maintenance and all of these things, it's just not that great. So a good alternative is hey lens, get mid teen returns on your money and yes, you have to pay some taxes on that but, but overall that money's able to compound if you don't need it or it gives you the cash flow to spend. So I think people need to determine if you're really somebody who's trying to start out and you're looking for just passive income income to come in. Can you get into lending in some capacity and make that $5,000 a month so you can leave your job or whatever that number is. Can you build to that through income in lending without having to own 20 doors? Because each door only cash flows 150 when everything's set, you know, I think, I think it's an easier way.
- [06:24]
B
So Devon, I love what you're saying, and I guess my question is private lending is a much more passive way to earn active income through real estate. I think that much makes sense and we kind of glossed over. But you said you're charging 12% and you're getting a point up front. To be able to do that consistently with a traditional rental is somewhat difficult. But you know every single time you sign docs that you're going to get that back. But just talk to me about the difference between, I guess with a traditional rental you have tenants, right. And they're the ones that are responsible for making their, their rent payments every single month and they're the ones that are producing your income. But with private lending you have, I guess like a promissory note would be the, the other end of that. What is the benefit of a promissory note versus a tenant?
- [07:14]
C
Yeah, so it depends. In most states you either have a true loan agreement or you have a deed of trust. So I'm in Arizona, for instance, and every time I lend my, I have a recorded deed of trust. So I'm listed as the lender on that loan. So if they ever go to sell it, you know, the title company is going to be reaching out to me as the lender and I'm going to have to provide a payoff statement saying, hey, this is how much they owe of me, owe me to the sell from the sale of the property. So that puts me in a position where I know I'm always tied to this property. And now once you know that, now you can really just upfront, you need to underwrite the borrower and you need to underwrite the deal. But what I love is I don't have to come up with the numbers myself myself. I'm asking the borrower, hey, why does this deal make sense to you? Show me why it makes sense to you. And, and I can potentially lend to lend to you on it. So I'm asking the borrower for their ARV comps, their after repair value. Like what do you think you're going to sell it for? What are the comps that support that? So if you think you're going to sell it for $200,000, do you have comps that support that $200,000 value? What's the rehab budget that you plan on doing? You're, you're, you're doing, it's a $50,000 rehab. And then you tell me you're, you know, redoing the entire house. I might have questions like, can you really do it for 50,000. But if you're only rehabbing, you know, certain areas of the house, it's like, okay, that makes sense. So you can use a little bit of common sense and allow the borrower to do a lot of the work. And for me, it's like if you, if you build to develop a basic understanding of real estate investing, it puts you in a position where you get to skip the line on like having to do a lot of due diligence and finding deals. All you have to do is find competent borrowers and, and make them show you why the deal makes sense. And if it does, you lend to them and the upside is not as great, but your downside is very much protected if you're lending correctly.
- [09:05]
B
Devon, I think one important thing that you said right at the end there is that your downside is protected and it's literally in the name. You get a promissory note when you're doing this, which is a promise to repay. And with your tenant, sure, you have your lease agreement, but if things go wrong with the tenant, you've got to evict, you've got to go through that whole process of getting them out of the unit. If it's a contract, who runs off with your money, you've got to take them to small claims court. But with a promissory note, it doesn't matter how good or bad the deal goes, they still owe you that money. Right. And hopefully if you're working with someone who's, who's of high integrity, they'll do what they can even if the deal goes wrong, to make sure you still get repaid. And I've been in situations where I've had to come out of pocket on deals that didn't pan out or, but I still have to make that payment, right to the private money lender. In a worst case scenario, you're just taking the property back and then you can go do with it what you want. But I love the idea that your downside is protected in a way that's maybe a little bit more difficult with a traditional rental.
- [10:01]
C
Well, you know, to give people in your audience something to think about. If you're making the borrower put some money down on the property upfront, the chances of them defaulting right off the bat are low. Is it possible? Yes, but it's very low. They just put a down payment, they just paid your fees and, and then two weeks later they're just going to not pay you and default on the loan. Can something crazy happen? Can they die? Can like, yes, but for the most part, they're going to, they're going to, you know, start the rehab and get the project done. So once they get the project done, if they are having trouble selling it or they're like, now it's finished. So you know, if they default, they pay payments. They paid the fees up front and have made payments every month for the life of that loan and now they're going to default and not pay. So everything that they have into the deal personally, they, they're, they're, it's gone. So, you know, I feel like if you're dealing with highly integrity, integrous people and you're making a good judgment there, it doesn't make a whole lot of financial sense for people to walk away up front because they just got into it and they, and the deal makes sense. There's opportunity to make money and on the back end because they're walking away from all the capital that they put into it at this point. So that promissory and the deed of trust are the two strongest documents that, that you can make them sign and, and how you structure the loan that you provide them puts you in a position, in an advantageous position where it's like it's going to be hard for them to walk away. And if they do, I'm in a position where I can take over this project and probably make more money if I have to sell it myself. I don't want that to ever have to happen, but there's a good chance I'm going to make more money by, you know, taking it over and selling it myself. So when people realize and you understand the downside, it's like, okay, you know, that's manageable risk and now I can really kind of lean into it.
- [11:48]
A
It. Now, how much money do you actually need to be a private money lender? What, you know, size are these amounts that you're actually lending out?
- [11:59]
C
I'm so glad you asked that because I feel like there might be some listeners out there. It's like, oh, good, easy for you to say. You're an NFL player, former NFL player, and you started your lending company. But there are people that I know personally who started out with $20,000, $50,000, $100,000, and you can lend on projects and that means maybe you're taking a little more risk on those loans because you're not the first position lender. The first position lender is the person who's bringing all the funds for the project for the most part. And it takes a larger amount on the loan. But if you're the second position lender, you're taking a little more risk, but you also get to charge more for that risk. So if you're somebody out there who's been saving up and you have $50,000, let's just call it that, and there's somebody in your city who can use those funds to, for the re. The remodel portion of the project that they're working on, and they're willing to charge you. Like for my, for anytime I do a Second, I charge 14% annualized and 2 to 3 points. So I'm risk adjusted because I'm in second position. So now I can go and lend out $50,000 and make, you know, anywhere from 16 to 18% return on that money. And it makes sense for them because they don't have to bring the money out of pocket. Now they have another lender. And it makes sense for you because you're making a really good return on your money. And, and that can start to compound on itself. And all of a sudden that $50,000 turns into 70 and then to a hundred, and now you, you build it up and, you know, it starts to create some real revenue. So you compare that to a down payment on one house, and I feel like there's argument there of, you know, if you're building it, if you're trying to build wealth and you want tax benefits, sure, buy it, buy a property. But if you want to maximize the dollars you can generate, you know, to be able to make an 18% return on a second position loan with a qualified borrower in, in the area you lend on, it's a compelling thing to consider.
- [13:51]
B
Devon, what was the moment that you realized that private lending could potentially outperform traditional real estate investing? Was it a single deal? Did a deal go bad where you were trying to invest? Like, what was that moment that made you say, okay, this actually makes way more sense?
- [14:06]
C
So it was actually while I was still in the NFL, I bought up a ton of single family properties in the Midwest. So I was in Ohio, Kans City, Tennessee, and I bought up, I got up to 50 units. And as I started, it was like 2019, 2020. As I started looking in those markets, trying to buy more, the numbers weren't making sense like they did before when I was buying in 2014, 2015, 2016. And I'm like, the cash flow is not there like it used to be. And for me to reach the financial metrics that I wanted to reach the income I wanted to, once I was done playing 6% return on my money and real estate wasn't going to cut it. So I'm like, how do I increase that? And I ended up doing a couple of loans from people I actually met through, you know, the BiggerPockets community and built good relationships with. And at the time I had no idea what I was doing. So I did some second position unsecured loans. We can get into that where it's like way riskier. But I didn't know what I was doing at the time. But one thing I did do is the deal made sense and I vetted the borrowers, you know, credibility, track record and you know, who, who they were as a person. So luckily I made a really good amount of money on those, on those loans and that kind of got the ball rolling. I'm like, this return is really good. And it took like upfront work and then literally just making sure payments went in every month. And I was like, okay. So as soon as I retired in 2022, I was, I've done a few loans like that at that point and I'm like, you know what, I'm going to streamline this and make it an actual business. And I read a bigger pockets book called Lend to Live that kind of gave me the framework of my business model and I just took off and, and it's just been growing and scaling since.
- [15:45]
A
If you don't structure and underwrite correctly, you could lose everything. Next, Devon breaks down how to lend safely. We'll be right back.
- [15:53]
E
Let's talk about a real estate backed investment with major tax advantages. Car washes. PBR's Opportunity Fund offers accredited investors access to a high margin recession resistant industry with passive income tax efficiency, significant upside potential with operations in prime locations using best in class technology. Managed via a vertically integrated team, this fund is designed to deliver strong, stable returns. Backed by over $1 billion in assets under management. PPR has provided passive returns to thousands of investors since 2007. Don't miss out. Learn more today@biggerpockets.com PPRCAR that's biggerpockets.com PPARCAR My assistant's great.
- [16:33]
D
He's also terrible because he's me. Turns out multitasking isn't a great business model. Belay knows real estate investors grow faster when they spend time closing deals not buried in admin work. That's why they built the executive Assistant task calculator, a free tool that reveals how much valuable time and money you're losing every week. Once you know your number, Belay can match you with a US based executive assistant to take those tasks off your plate so you can get back to building wealth. You're just one assistant away from doubling your deal flow. Text bigger pockets. No space to 55123 to download the free calculator today. You know, a lot of us work hard to build savings and start investing, but let's be honest, trading can feel like a full time job. The charts, the timing, the constant second guessing, it's stressful, right? You're always wondering, am I making the right move? Now you can eliminate all of that with True Trade. True Trade takes the emotion out of trading with an automated system that does the work for you. No staring at screens all day, no overthinking every move. Just smart automated trading strategies that can run while you sleep. And what really sets them up on top. When you sign up and download the True Trade app, they'll fund your trading account with $50,000 or more in trading capital and cover your service fees for an entire year. That means you can start earning without risking your own money. So if you're ready to trade smarter, not harder, download the True Trade app today on iOS and Android or go to TrueTrade IE to get started. That's T R U T R a d e.IO true trade where technology earns for you.
- [17:59]
A
We've seen why lending can be so powerful. Now let's talk about how to do it without losing your shirt. So what exactly does it take to underwrite a deal as a lender?
- [18:13]
C
So the first thing, there's a few things I would say you have to do is one, be a good judge of character, but trust, but verify with that. So obviously, like, get to know the people you're going to be lending to. But also, do they have a good track record? Have they done it before? If you're dealing with a limited amount of capital, you don't have to lend to a hundred different people. So it's like, you know, you get to build relationships with the people within your community who are doing projects and reach out to them and say, you know, hey, can I see some of your projects? So me personally, I go out and vet some of their projects that they've worked on. So that's a huge piece is underwrite the borrower, make sure they have the track record, the reputation and everything that lines up. Then it's the deal. And, you know, if everyone's a beginner listening to this podcast, maybe you're not great at underwriting deals yet, but lean on the borrower for that, like, show me that any good borrower has some type of Excel spread spreadsheet that they've drawn up. Like, show me the stuff that you've done to where it's like, you got you excited about this deal. I want to see it all. And I asked of that for my borrowers. So now it still helps you start to understand. Okay, you're expected to make $60,000 on this. Yeah, I see why you like this deal. I see why you're willing to pay me 12%, you know, over the next six months to, to do this deal. So that's. Number two is look at the, look at the deal after you look at the borrower. And then number three is make sure you have the correct loan documents. And that's where I, I mentioned earlier, but that's where I messed up early on, is I had no idea I let my borrower dictate the loan package. Essentially. Like, he was like, oh, I've had a couple other lenders that I've worked with. Here's what I. What? And again, I highly, highly. Do not let someone do that to you. Spend a little bit of the money up front. If you have $50,000, spend the first two or three to get an attorney in your area and actually get a correct promissory note, deed of trust, personal guarantee, and the create loan package you need for that. And that is a huge, you know, huge advantage that you can do. And one thing that I've done is there's a website called lightningdocs AI and it has loan packages across all states. So, you know, I think it's like $500 up front and then $500 per loan file. So pretty much all 50 states, you can create a full expanded loan package for $500. So if you can't find an attorney in your local area, go to Lightningdocs AI and you can sign up for a membership $500 upfront and you can get a full loan package in your market. And, and you know, now you're, now you know that you're in a safe position. The loan package, it's so good they make you sign every page. So that's when I knew I was like, okay, this is. And then I had it reviewed by one of my attorneys and, and it was good. So that's why I wanted to recommend it on this podcast, because that's a huge hurdle for some people. It's like, oh, how do I find an attorney? It's good to have a local attorney you can work with, but if not use lightning docs, AI. I use them all the time and they create my loan package package. So bet the borrower vet the deal, get the correct loan loan package and now you're in a position where you can really lend and do as much business as you want.
- [21:21]
A
Tony just signed up and you know, the two minutes we're talking about that.
- [21:24]
B
I'm on the website right now.
- [21:26]
A
He is. I feel like the king of. And I've actually never told you this Tony, but I feel like anytime we talk about software, you'd be like, oh yeah, I have the premium platinum plan, so I can use the AI. And he's also going down these AI rabbit holes of everything AI. So this is right up his.
- [21:45]
B
I'm already looking through their customer testimonials. I. That's so funny. I've never heard of that website before, but it seems super crazy.
- [21:50]
C
But it's. It's kind of lender based. So that's why, you know, you being an investor, there's no reason why you guys would ever know about it. But you would be surprised. Some big lenders that I bet you guys have lent to use them because it's not like they're powered by Drossi Law, which is the biggest private lending and hard money lending attorney attorneys in the country based out of California. So they created the loan package for each state and they update them, you know, quarterly if there. If there's ever any changes. So you know, it's made me feel really comfortable and it's allowed me to. Sometimes I might lend in a different state that I usually wouldn't, but now I can trust the loan package still because I can just use lightning docs. So it's been a big help.
- [22:32]
A
That's super cool. I mean, a lot of times we talk about the lease agreements like bigger pockets. They have state by state lease agreement that you can pull up that was done by attorneys. Also like Turbo Tenant has their, their AI leasing where you can upload your lease and they'll tell you what actually complies. Doesn't comply. But this takes it to a whole nother level. Like they're updating it quarterly. You can get it specific to you, specific to your state. That's super awesome.
- [22:58]
B
Devon. We're talking a lot and obviously the purpose of this episode is to help rookies get a better sense of how they can become private lenders. But obviously there's a percentage of our audience that maybe just wants to be the person borrowing those funds. And you talked about how you're underwriting deals. But I, I think where a lot of rookies can use some guidance is how do they build relationships with people like Devon. Like are, are you, when you're at places like bigger, you know, like bpcon or are you just wearing a shirt that says I'm a private lender, come talk to me? Like how, how can people know who are the folks in the spaces they're in that might be private lenders and how do they open up that dialogue to eventually get to a point where they can start presenting you with deals?
- [23:40]
C
Well, I hope every listener who's more on the borrower side and maybe they don't want a private lend but like it interests them. Working with private lenders you can create like essentially somebody made me a private lender and then I just liked it and now turned it into a business. So I recommend the listeners out here to go and make themselves. If there are high net worth individuals or maybe it's somebody who's been in the real estate game a long time and you can see they're winding down, would they mind taking you under their wing and letting you do some projects and they lend you the capital and you know, I found real estate investors that's been doing it 10, 15, 20 years. They all love to lend to the new up and comer who wants to really get things rocking and rolling and, and they get to, you know, mentor you and know really what's going on on the deal. So it puts you in a position where everyone with who has capital potentially can become your private lender. So when you have that perspective, what are the things that you should be doing? Well one, obviously build the correct track record. So if you have no experience, come correct and make sure you really understanding how to underwrite deals and, and you're, you know, you're presenting them like one of my first borrowers, she had a full package that she would send me where it like broke down the deal and all she did, she used the same thing every time but she would change the address and the specifics of that deal. But I freaking like almost every question I could potentially ask and some stuff that I didn't even think of asking she had in like a 6 page PDF breaking down why the deal makes sense and stuff. So that's something that borrowers could do. You know, if you go into a potential lender and you know, you bring them, hey, here's a packet of this deal that I'm about to do and it says it has your comps, it has, you know, the bed and bath and what you plan on doing. So I say that's a huge, huge tip. And I would say private lenders are everywhere. So many people don't know about this. So you have to look at anyone who potentially has capital sitting to lend could become one of your private lenders. And it's educating them and kind of showing them the way and why they should trust you with their funds. And, and when you have that mentality, you can really put yourself in a position to where, you know you're getting capital and you don't have to go to banks anymore because you have a pool of investors that you can go to.
- [25:56]
B
Incredible advice, Devon. But that first person that you lend to that you said turned you into a private money lender, where did you meet them and who, like, how did they approach you initially? So walk us through how that relationship came to be, because I think that's what Rickies need to hear.
- [26:12]
C
Yeah, so I essentially met a guy at a conference. It wasn't bpcon specific specifically, but they.
- [26:19]
A
Go to people just cut that part out.
- [26:24]
C
But yeah, so I met. I met a guy at a conference and then he connected me with, with the actual borrower and we became friends and I would see him out at bpcon and other events and we just got familiar with each other and it, you know, for the first two years we just knew each other and hung out at bpcon and other conferences that I would meet or see him at. And then eventually I was like, oh, you know, it seems like you do some pretty cool projects. You know, I would love to check them out. And. And he called me out of the blue and was like, you know, would you be interested? And I did it. So I would say going to bpcon, going to conferences, putting yourself out there, building relationships, that's a great place to place to start and seeing where people are, what, what they might do. I never knew two years before I met, you know, my borrower that I was going to end up lending to him two years down the line. But we built some trust, some rapport. I got to see his work and got to become comfortable with them. And, you know, now I've done a lot of business with him.
- [27:21]
A
So what about. You've talked about the contracts that you need, the promissory notes, the deed of trust, but what about anything else like insurance? When I go to the bank and I get a mortgage, I need to get insurance. I'm usually a personal guarantor. What are those kind of elements that you also need to consider as a private Money lender.
- [27:40]
C
Yeah. So there's, there's certain checklists, and I actually 1. Any of your followers can reach out to me at Devon Kenard on social, and I'd love to give them some of my, some of my stuff and so they can kind of get started. But I got a lot of my start from the Lynn to Live book by Beth Johnson, which is a BP book. Highly recommend it because it kind of gives you the checklist of things you want to make sure you do within the book. And I kind of took her list and kind of created my own over time. So, you know, I tell her every time I see her, like, I pretty much stole everything you said in the book and then created my business off of it. And I'm not afraid to say that. So I would say that's a good start. But with insurance, for instance, that is something that you need and knowing what kind of insurance, so it seems daunting at first, like, oh, you got to get the, the loan package and you need to underwrite the borrower. But I, I legitimately just have a checklist of things that I need to do before closing, and I just make sure I get everything knocked off the list. And once it is, we're cleared to close. So once you have, have a list like that and you put it together, the insurance is like, oh, if it's a huge renovation, you want something called a builder's risk because they're adding square footage or they're doing something. If it's just a traditional fix and flip cosmetic, then you can just do a traditional fix and flip policy or a vacant policy. You're good. So it's like, you know, now you're just saying, hey, make sure that you list me as the mortgage law payee. So the lender needs to be listed in the insurance, and that's. That's it. So I needed proof of insurance with my name listed as the mortgage loss payee. And once I have that, we're good to go. So that was something I used to feel like was super over daunting. But when you start to learn the steps, it's just like, hey, I can't fund this till you give me your insurance with my name listed. So this is what I need. And once you kind of get in a rhythm of that, you, you know, and you're kind of letting your borrowers know ahead of time what they need. And it goes pretty smooth.
- [29:34]
B
Now, Devon, you focused on your local market, and how do you feel that doing so has given you an edge and if you can just clarify for the listeners what market you're in.
- [29:45]
C
So I actually, I started out in other markets and I've niched down to start to focus on my market. And I started, I started in other markets because my first borrower was in Seattle and then I had another borrower in Arkansas. Then I had another borrower in like in a few different markets. And my mentality when I first started lending was like, I don't really care where they're at. I'm going to bet the deal and the borrower and location doesn't matter. But if I, if I'm really good at identifying the borrower and the deal and I think that's a fine strategy but I have a bigger moat which is just like, you know, Warren Buffett calls it like you know, your strategic advantage essentially in Arizona because I am local in those other markets, if I were to ever deal with the default, I, I don't really know what I would, I would have to fire, sell the property. What am I going to do in Seattle? I don't have contractors there I don't like. I don't have a robot robust list of agents that I can work with. So I would be scrambling in, in, in other markets and ways that I mitigated that was I would ask my borrowers, hey, I would like to know your, your agent and the contractor's contact information just so if anything ever goes wrong I have people to come call. So I would try to mitigate that. But now with where I'm at now I found that I would rather lend here because I in Arizona because that's where I'm at locally. And if I ever had to take over a property, I have a strategic advantage if I know contractors. My wife's an agent here locally. So if I have to take over a property, that's where I mentioned earlier, like I don't want it to happen. But I'll probably make way more money if one of my borrowers ever defaults in Arizona because now I can take over the project, finish the rehab and my wife can sell it and we're going to make more money that way than, than that. Now I don't want to deal with that headache. I rather just lend it. But that's kind of why I've kind of consolidated down and I've gone deep instead of wide now. But I think either strategy can work. You just have to protect yourself because if you're in California and you only have a hundred thousand dollars, you're going to be like, I Can never lend. But hey, you can meet somebody at bpcon and lend in another market, but you got to know how to protect yourself in that market in case you ever do have to, you know, take over a property.
- [31:51]
A
Now, Devon, America's number one hit TV reality show, Million Dollar Zombie Flips will be coming to Arizona next season. So we're just dying to know if you're going to be lending money to TV star and personality James Dainard.
- [32:09]
C
So, ironically enough, I think I could say this because he posted on Instagram, but I actually didn't. I just linked to him for the first time on a deal in Seattle, hot off the press, like. So I'm like, you better give me some kind of shout out because I think it's the one that I lint on is going to be on the show. So I'm like, you better show me some love on that when. When you know, you're the last name.
- [32:31]
A
In the credits of the show.
- [32:36]
C
Yeah, he. Once he starts doing it in, in Arizona, I can't wait. I'm definitely going to pop up somehow. I'm like, let me lend to it or let me be involved somehow. I gotta, like, make like, you know, my appearance for sure.
- [32:48]
A
Yeah. For those of you that don't know, our very own biggerpockets on the market, podcast host James Dainard has his own TV show on A and E and he has become a superstar, so doesn't even answer our phone calls anymore. So if you see him at bpcon, make sure you guys tell him he's your favorite TV star if you, you guys see around. Actually, this will be after bpcon. I guess so.
- [33:13]
B
Well, Devon, you. You talked a little bit about the documents that folks need to have if they want to be a private lender. I guess. What are some of the other biggest risks that you've seen rookie lenders overlook, aside from the right documentation in place?
- [33:26]
C
Yeah, documentation is number one, but after that, it's lending at too high of an ltv. And like, my kind of strategy is I will lend based off of the arv because that's what matters to me most. What, what can we end up selling the property for? And how I structure it is like, all right, show me your comps and tell me what you believe your ARB is. I'm going to look at it. I'm going to review your comps, kind of come up with my own comps, especially in Arizona. I have access to the MLS through my wife, so she does a cma, which is a comparative analysis. But you Know, if you, if you don't have that, it's just asking an agent, hey, can you tell me what you believe the ARV is? This is what's going to going to be the rehab. So building a good relationship with an agent will help with that. But, like, doing that puts me in a position where I can get really confident in what I believe the ARV is. And I won't lend beyond 70% of what I believe the ARV is going to be. And that's purchase and rehab included. So for simple math, if I'm really confident that the property is going to be worth a million dollars, then I am comfortable with a $500 purchase price and a $200,000 rehab all in 700,000. You know, they still got to put skin in the game and all that. But just generally speaking, you know, that's the most I will do because that 30%, that gives me leeway on selling if I had to, and still recapturing making sure I get my principal and ideally all the interest owed back. So, you know, number one is I want to make sure I would get all my principal back. Number two, if I'm in a default and foreclosure situation, I really want to capture all my interest that's owed still. So I want to lend in a range that I'm still comfortable. If that were to happen, I would be able to get that. And I found that basing it off of 70% of the ARV is my comfort zone of being able to do that. So I've seen some lenders that will fund 100% of purchase and rehab, which is not bad if it's 70% or lower of the ARV. But that number could end up being like 90%. And it's like if they don't pay, you're going to lose principal. So I think that's too risky. And a lot of people don't, they. They get kind of looped in from borrowers that is just like, let me, you know, 100% of the financing, I'll pay you this. And they're not realizing how risky what they're doing is, because if that borrower fails to pay, you're not going to get your money back.
- [35:53]
B
So once you know how to protect yourself, how do you actually get that first deal done as a private lender? That's what we're going to cover right after a word from today's show.
- [36:01]
E
Sponsors want to earn passive income every month without the hassle of property management. If you're an accredited or high net worth investor, PBR Capital Management offers a proven solution. Since 2007, PPR has helped nearly 2,000 investors earn over $100 million in consistent, predictable, passive returns. Headquartered just outside Philadelphia, PPR manages a $1.1 billion diversified portfolio designed to provide steady income and long term growth. With decades of in house expertise, their team strategically mitigates risk to help investors achieve their financial goals. See how a PPR fund could fit into your portfolio. Visit biggerpockets.com ppr today. That's biggerpockets.com ppr you know you're in.
- [36:41]
D
Trouble when your assistant is also you Imagine getting hours back each week so you can focus on growing your portfolio, not managing busy work. That's the reality with Belay. They match real estate investors like you with remote staffing solutions that save time and help you scale faster. Because the truth is, you're just one assistant away from spending your time where it matters, finding deals, funding opportunities, and closing contracts. Belay even created a free tool that shows you how much time and money you're leaving on the table by not delegating. Want to see Your number? Text BiggerPockets to 55123 to get Belay's free executive assistant task calculator. You know, a lot of us work hard to build savings and start investing, but let's be honest, trading can feel like a full time job. The charts, the timing, the constant second guessing. It's stressful, right? You're always wondering, am I making the right move? Now you can eliminate all of that with true trade. TrueTrade takes the emotion out of trading with an automated system that does the work for you. No staring at screens all day, no overthinking every move. Just smart automated trading strategies that can run while you sleep. And what really sets them up on top. When you sign up and download the True Trade app, they'll fund your trading account with $50,000 or more in trading capital and cover your service fees for an entire year. That means you can start earning without risking your own money. So if you're ready to trade SM smarter, not harder. Download the True Trade app today on iOS and Android or go to TrueTrade IE to get started. That's T R U T R a D E IO TrueTrade, where technology earns for you.
- [38:09]
B
All right, we're back with Devon and we've covered how to lend safely, how to put some some safeguards in place to make sure you're protecting your capital. But let's map out how to actually get that first deal done. So Devon, if, if some of the rookies that are listening, if they wanted to make their first private loan in say the next 90 days, what exact steps should they follow to get that done?
- [38:31]
C
So let's break it down. Number one, the borrower comes to them or they go to the borrower and they've already. Let's assume this is a vetted borrower experience. Everything's checked out with the borrower. They send them all the deal information. So borrower deal. Okay, you like the deal. Generally we're good to go. First thing you want to do is let them know that you need insurance and you need to be listed. If it's just a cosmetic fix and flip, hey, I just need either a vacant policy or you know, a traditional fix and flip loan policy. Temporary. I need proof of insurance with my company or my personal name listed as the mortgage loss payee. You also want to reach out to title company and they, the borrower should let you know who the title company is. They've already, whoever they're buying from, they're already associated with the title company company. So you connect with title, you let them know that you need title insurance which is ensuring that the property is pre free and clear. So all you have to do is request from the title company, hey, can you please provide me my lender's alta policy which is a title insurance policy. And then you let them know that you're going to provide the loan package. You don't necessarily want the title company to provide it because they have their best interest in mind. You want to have your own best, best interest in mind. So you let them know, hey, I need the lenders alta title policy. I'm going to be providing you with the closing instructions and the loan package. You then go to your attorney or you go to Lightning, LightningDocs AI and you plug in all of your information and the borrower information and the property information and you generate your full loan package. This whole thing could take first time. It's kind of confusing on the website if you're using lightning document. So let's say it takes 15 minutes your first time to really kind of figure it out. You generate the loan package and you turn it, you convert it, make sure, you know, read through it, make sure it looks good and you turn it into a PDF document and you send to the title company. From there you ask the title company to send you the settlement statement. And within there I kind of skipped a step. You do need to provide a term sheet which is like, hey, these are all my fees and the borrower has to sign off. So, so after they've kind of showed you the deal, be like, okay, I'm gonna charge 12% and 1.2, you know, whatever you're charging and here's all the fees of the loan and you get them to sign off on that. You show that to the title company as well and they create a settlement statement based off of your loan package and the term sheet. And you make sure the settlement statement makes sense and you approve to close. Now closing comes up, you confirm with title of the exact loan amount that you need to wire to title and you, you wire that day of title. Once they tell you it's good and that's it, you're, you're done. Now from there, along the way, I do like to collect the ach. I asked my borrowers for a void check or ACH instructions. So if they can't provide a void check, just get their ACH instructions and I auto pool their payments on the 1st of every month. So, you know, I, once you've done enough, you can get a software that kind of handles this for you.
- [41:30]
D
You.
- [41:30]
C
But when I was starting out, I just set up an auto pay and I had to approve it because I wanted to every month. But I would have it to where it popped up in my, on my, my banking and just like approve this ACH and it would be so and so's name ACH for $2,000, you pull the payment. Now once you pull the payment, you're going to be automatically notified by your bank if it gets pulled back because they didn't have enough fund. So it's instant, it's nearly instantaneous if they don't, if it doesn't go through. And then that's when you're reaching out to the borrower. Hey, what's going on? What have you. Now if you have rehab draws. So you know, sometimes I like we gave that million dollar example, there are $200,000 rehab draw. I make my borrowers send me pictures of the property invoice, invoices to show that they made all the payments to their lenders or to their vendors. And if I'm comfortable with that, I send off. If I have any questions, I might go see the property myself if it's local and then approve it. So you, you approve the draws as they come and that's it. So it's, you know, we kind of come in full circle. You talk about passive and I think passive. You have to define what passive is. I think for Me knowing the amount of work that is in it compared to any other job, I would say it's significantly less work. But I don't really believe in the notion of passive. What people used to say, passive, passive, like, oh, do nothing. Like if you want to do absolutely.
- [42:53]
A
Nothing, even you got to win the lottery.
- [42:56]
C
Yeah, even. Lending is not the right answer. But I would say you can create a checklist and have a really clean structure of what you need to do on every loan. And you could handle this, you know, very easily because once the loan is funded, I'm only looking on the first of the month approved payment. And then, you know, and then out of the blue, one day you're going to be on vacation with your kids and you're gonna get email from a new title company requesting a payoff statement. And you create a template payoff statement. Shout out to Linda, live Beth, there, there. She has some. You create that. You say what the, what the borrower owes you, you send it to title and you send them your wire instructions and voila, the day that the loan is or the property is sold, all of a sudden your funds are back and you're looking to fund your next deal. So, you know, there's, there's little nuances within there, but I would say say in large, in, in large range, that's kind of the whole scope of what it means and what it looks like to fund alone.
- [43:54]
B
I just gotta say, Devon, like it's, I've, you know, we've talked with, and I've worked with private money lenders and I gotta say it's, it's savage that you're, you're, you're taking their ach details so you can pull those funds as opposed to waiting for them. But I love that because it's a way for you to protect yourself and make sure it's on, it's on autopilot. So I've actually never heard of a lender doing that before. But I like that approach, man.
- [44:15]
C
I mean, I really got it from banks that like when I, I have like line of credits myself and they pull, they pull in that money now like that. And if it doesn't. Because I'm like, if they do it, why can't I do it? Like I'm, I'm pulling the. So then you don't got to like go chasing people like, oh, you know, like, because you know how contractors and investors can be. Even if they mean well, they get like lost in the projects and don't respond. Like, I don't play about my money. So then now I'm upset, like, hey, you two days late. What's going on? Like, I just know on the first is coming.
- [44:46]
B
Devon, let me, let me, let me ask, right, because you said earlier that lending is a great way to produce active income, right? That's essentially what this is. It's another way to produce active income in the same way that flipping homes or wholesaling or even being an agent is. But how does this fit within your long term plan of actually building wealth? Because you're producing a lot of active income. But how are you if you are funneling this active income back into building wealth long term?
- [45:10]
C
So right now I'm in a place where I'm in builder mode and allocating money into my lending company is my best return on investment or return on equity right now. So I'm actually in the process of selling a lot of my assets that I've owned a really long time because I pretty much sucked out all the equity that I'm going to get like in comparison to what's ahead. So you look at like, is it the best case for my money today? And some of my properties that I've owned, I've made a lot of money over the last decade or so, but I'm not going to make nearly as much in comparison to my lending company. So I'm actually liquidating a lot of my portfolio. I have a large syndication portfolio, can't wait to get out a lot of that. I have, you know, a lot of properties. Can't, can't wait to sell those at the right times and exit those and put it into the lending because you know that the appreciation and the tax benefits are great, but people forget about a good business, the compounding of it when it's an investment vehicle. So if I can, for simple math, let's say I can gross 15, 15 return on, on every dollar and I can compound that into more and more loans. Every time, every time payments come in, people forget about the compounding factor. So I'm not going to have the tax benefits within my lending company, but I'm going to be compounding at a 15% return. So you know my mindset and I've been reading a lot on like Warren Buffett and stuff and he's like, pay your fair share of taxes. So am I going to go to a lesser return, that's tax benefits, that gives me tax benefits or am I going to lean into my, my business where I can compound at 15 or greater, pay my share of taxes, but compound Every other dollar into more and more. So I'm actually going to let that scale until the point where like I, I'm more having trouble like pouring more money into it. And then I'm gonna buy more legacy assets that I really feel like I can hold for longer periods of time. That's more for my kids. I have two daughters. So I think at that point that's when I'll start to acquire again. But really I've been running a lot of numbers and it's kind of a different way of thinking than I've ever. Like, if you asked me this two years ago, I would have been like, no, heck no. But I've really been looking into this and I'm like, like when you can compound at a, at a high double digit number, it does make sense to just let that machine roll.
- [47:30]
A
Okay, I'm sold. Tony, let's sell them all.
- [47:33]
B
Let's do it. A and T Ventures, here we go.
- [47:36]
A
Devon, thank you so much for joining us today. We really appreciate you coming on and sharing your story and teaching us all about private money lending. Can you let everyone know where they can reach out to you and where also they can buy your book?
- [47:48]
C
Yeah, you can reach out to me at Devon Kennard on all socials. LinkedIn, Instagram are probably my two, I'm most, I'm most on. So reach out there. I do have YouTube so you can find me everywhere at Devon Kennard. My lending company is 42 Solutions. I only, I only lend in Arizona right now. So don't hit me all over the country saying you want money because I'm gonna be like respectfully decline. But if you, if you are interested in getting into lending and you want to reach out, then feel free to, to slide into the DMs or, or shoot me an email. Go to my, my personal website, devoncanard.com and I would love to help you out and help you get your lending business going as well.
- [48:26]
A
You know, it'd be really interesting is if we get a rookie on the show and says that they picked a market in Arizona so they could use you as a private money lender. Usually the market comes first, then the lender, but we can see if. So it does. The lender does the market. Yeah.
- [48:41]
D
Yeah.
- [48:41]
C
If you're, if you're a potential borrower in Arizona, hit me up. Slide into the DMs ASAP.
- [48:47]
B
But Ash, on that point, I feel like it would, I feel like that's one part of the puzzle that BP hasn't quite figured out yet. Is how do we do a better job of facilitating the connections between the folks like Devon who are looking to Lynn and the folks who have the deal flow, have the experience. But beneath the capital, how do we marry those two people together? So we got to think about that. So BP audience, if you guys have some ideas, let us know and we'll see if we can solve that issue for you.
- [49:10]
A
I mean we've always, you know, tailored around the idea of match.com but for real estate investors, but instead of love, it's, you know, lender and investors. So. Yeah. Well, I'm Ashley, he's Tony. Thank you guys so much for joining us today on this episode of Real Estate Rookie. We'll see you guys on the next episode.
- [49:30]
E
Let's talk about a real estate backed investment with major tax advantages. Car washes. PBR's Opportunity Fund offers accredited investors access to a high margin, recession resistant industry with passive income tax efficiency and significant upside potential. With operations in prime locations using best in class technology. Managed via a vertically integrated team, this fund is designed to deliver strong, stable returns backed by over $1 billion in assets under management. PPR has provided passive returns to thousands of investors since 2007. Don't miss out. Learn more today@biggerpockets.com PPRCAR that's biggerpockets.com PPRCAR.
- [50:08]
D
You know, a lot of us work hard to build savings and start investing, but let's be honest, trading can feel like a full time job. The charts, the timing, the constant second guessing. It's stressful, right? You're always wondering, am I making the right move? Now you can eliminate all of that with TrueTrade. TrueTrade takes the emotion out of trading with an automated system that does the work for you. No staring at screens all day, no overthinking every move. Just smart automated trading strategies that can run while you sleep. And what really sets them up on top. When you sign up and download the True Trade app, they'll fund your trading account with $50,000 or more in trad capital and cover your service fees for an entire year. That means you can start earning without risking your own money. So if you're ready to trade smarter, not harder, download the TrueTrade app today on iOS and Android or go to TrueTrade IE to get started. That's T R U T R a D E IO TrueTrade where technology earns for you.