I Cracked the Code for More Cash Flow & Less Risk

Ashley:Tony, I love when we get to talk to rookies who have jumped into not just one, but multiple strategies early on because let’s be real, most of us start with one deal and slowly branch out,

Tony:But today’s guest went from lending to flips to rentals, all while balancing a W2 and navigating some tough rookie lessons. And that’s what we’re diving into today. How to diversify as a rookie and what you learn when things don’t go according to.

Ashley:Welcome to the Real Estate Rookie podcast. I’m Ashley Kehr.

Tony:And I’m Tony j Robinson. And let’s give a big warm welcome to Shalom. Shalom. Thanks for joining us today, brother. Thank you so much for having me. I’m super excited to be here.

Ashley:So Shalom, how did you get first started in real estate and what pulled you towards real estate investing in general?

Shalom:Okay, that’s a loaded question. Let’s rewind back to COVID. I was in college. I went to brewery college, had no idea what I wanted to major in, but my friend did this internship in real estate. He’s like, Hey, if you want to learn more about it and maybe get paid while you’re sitting at home doing nothing, try it out. And so I applied. I got in and it was amazing. I learned so much about institutional real estate, what it means to underwrite a deal, look at gross rent, net rent, what does vacancy mean? What are building expenses? How do you value building with a cap rate? And OI, and I just loved that sphere. I felt that I’ve never actually applied myself in anything so hard as I did with real estate. And so I loved it so much. I changed my major to real estate finance and doubled down on learning as much as I can about real estate.After that, I’ve interned at many different companies within real estate, private equity with Mac Real Estate group. I’ve worked at different public REITs doing retail work and underwriting deals, development deals, and then couldn’t find a job at real estate no matter how good my resume looked like. When I graduated school, I was looking for a job in New York, but I couldn’t find one real estate job in New York. That’s when my first real estate deal landed in my lap. The phone rang and it was a deal I couldn’t refuse. We jump into that in a minute, but that was my first private money lending opportunity.

Ashley:So first of all, I want to get into how private money lending was actually your first insight into real estate investing, but I want to mention the fact that your major was real estate finance. I didn’t even know that was a major and I want to go take a community class now to learn about real estate finance, but I think that’s awesome, but that must have set you up for some kind of success. What did that major actually entail? Is that deal analysis? Is that how to structure the financing on a deal that set you up for becoming a lender?

Shalom:So this major essentially is getting me ready to work at an investment, think like JP Morgan, Wells Fargo on their real estate underwriting teams or at a private equity firm where I am underwriting either value add deals or development deals or managing a large portfolio of thousands and thousands of units. So it’s a very high level and once you get into these fields and you intern in these places, you get very, you’re a professional in one certain aspect. You only do asset management.

Ashley:It’s very niche.

Shalom:Yeah, very niche, yeah. You’re only doing property management or you’re only underwriting construction costs or you’re only underwriting different value add deals, not development deals. So that’s what the major prepared you for. It taught you a lot about how Fannie and Freddie Mac work. What does the national mortgage market look like and different ways that institutional real estate moves. Whenever you want to finance a skyscraper in New York City, it’s very different than when you go in and get an FHA loan and putting down 3.5% your rate on a skyscraper is probably a floating rate. It’s probably tied into a bond that several pension funds and then life insurance companies are investors of versus when you’re putting down three and a half percent FHA property, it’s a lot simpler of a deal, but it’s also okay, this loan gets lateralized with a thousand other loans and then gets sold in a bond to bond investors.So I learned kind of the theory of real estate, but never practicing the real estate. I also noticed that a lot of people who I network with back in the day that are working at these real estate companies have golden handcuffs where they don’t want to do a deal themselves because they always do an analysis paralysis, they analyze a deal to the very t and oftentimes you guys know this very well when you’re dealing with single family or 2, 3, 4 unit properties, it’s really, really tough to get every single expense underwritten to the cent value. So where your NOI is going to be. So that’s kind where I started with my college and then kind of grown into, made the transition into real estate investing myself.

Tony:Sham. It’s interesting because you started at the most advanced version of real estate investing as it exists, which is the large institutional type investing, whereas most people solely kind of graduate up to that level. So I’m curious, was that experience, what led you to think of private lending as your first deal? Because a lot of new real estate investors, I don’t even think they understand or comprehend what it means to be a private lender, let alone have the confidence to make that their first deal. So how, if at all, did your experience working in private equity lead you into becoming a lender on your first deal?

Shalom:So yes and no. It kind of gave me the idea of private lending because I saw private credit funds invest hundreds of millions of dollars into the residential space across the nation and I saw that that was an opportunity, but I didn’t think it was an opportunity for me. I don’t have a hundred million dollars. I don’t know about you, Ashley and Tony, but I don’t have a hundred million dollars just lying around the bank and I didn’t think it was an opportunity for me. Certain life circumstances came about where I couldn’t commit to a rental property and I was looking for an investment that was very similar to one with the return without the commitment to one. Because whenever you buy property, you have closing costs, you have transaction fees, you have to manage the property, you kind of getting married in this scenario and then if you want to exit out of it, it’s also a hassle you got to put on the market.You got to wait to find a willing buyer. There’s going to be concessions and negotiations. It’s just too much if you have to get in and get out With private lending, it’s a very short term investment, but it has a very similar return as to rental property. If I compare my very first rental to my very first private money deal, I think the returns of the private money deal are actually more than my first rental. But I was looking for that where I can invest my money into four or five months. I may need that chunk of change in four or five months and then that’s where private lending came about. My first deal was, I dunno if you guys want to jump into that.

Ashley:Yeah, yeah, please. I’m intrigued.

Shalom:I dunno if you guys know this. She’s a BiggerPockets author, grace Guten. Yeah,

Ashley:We know Grace.

Shalom:And she called me up, she’s like, Shalom, I’m closing on a property in Tucson, Arizona. I need 300 grand tomorrow. You in or you out? I’m like, huh, I’m a 22-year-old kid, I don’t have 300 grand lying around. I’m like, okay, send me the details. I’ll take a look at it and give me a day to figure something out and I’ll get back to you. So send me the deal and the deal penciled really well. She was buying the property at 275,000. She was putting in 60 into it, and the a RB was in the mid four hundreds, like four 20 to four 30 around there. And the deal made sense. She had a clear exit strategy of how she was going to refinance out of the deal and she was offering me an 11% interest for six months, but there was an option to pay off earlier without a penalty.And the deal really, really made sense. I would have a first lien position on the property, I wouldn’t be giving a hundred percent financing, she would put 10% down for the construction costs and I would only give her the other half the construction costs. And so it was like, well this deal really makes sense financially. Now let me see how I can figure out the money. And I was actually at BP Con listening to Matt Faircloth keynote and he was telling us how to raise private money in this challenging kind of market and I copied his method without knowing it was what he taught because after he mentioned it, I went and I researched how many people own their house outright. And over 40% of people in the USA today don’t have a loan on their primary residence according to us census. I mean that is an astonishing amount.So if 40% of people are like that, Ashley, Tony, we all know somebody probably in our lives whether we know it now or not, but we probably know somebody in our lives who has a house that’s paid off that has equity there and might be willing to invest it. For example, a lot of people follow a Dave Ramsey method of paying off debt as soon as possible and then throwing everything at your house. That’s a great pool of people in our country who could have equity to invest with you. And so my parents fell into that category. They came to America in the early nineties and they worked their butts off in order to create financial freedom for themselves. They partially is paying off their mortgage. My dad paid off our 30 year mortgage in 15 years and we had a property that had equity in it. So I approached my mom and I’m like, mom, I don’t have the full 300,000, I have 50 of it. Do you want to come in as a private money lender and give me the other two 50? And she’s like, pitch me the deal. And so I had some good experience in private equity pitching deals to MDs and directors and associates and whatnot. And so I laid it out in front of her and she’s like, this sounds like a no brainer. Let’s pull the trigger. And that was our very first private lending opportunity.

Ashley:I love this story. I have to go back to the beginning as how did you get connected with Grace where you were in a position that she gave you the phone call to say you in or you out? How does someone do that type of networking to get connected with investors who are looking for lending?

Shalom:Yeah, social media is very, very big. I mean you guys know it best and something I’m working on right now in order to get out there and more and more on social media. But I felt Grace for a long time. I don’t know how I found her, but I was into real estate and she was posting a lot about real estate and I was stalking her page 24 7 looking at her lips and I already know how many units she owns and what she does in Cedar Rapids and different kind of flips she does and whatever. And one day she was like, Hey, I’m looking for partners on this deal. She was going to do a 20 unit in Cedar Rapids and I’m like, Hey, I don’t have the money, but maybe if the opportunity is good, I could find the money. So I was like, okay, let’s get on a call and just talk about it. So I built up a story and I never say no to an opportunity ended up she never did the deal. It wasn’t for my appetite, but we got in contact and that is what now. She was able to reach out to me if she needed something and so we kept in touch and when she needed money, she knew who to call.

Tony:Shalom, I think it’s an interesting story and I love how it all came together, but I think maybe one more nuanced part of this that you partnered with family on this first deal as well and we’ve had a lot of conversations. Ash and I even wrote a book on real estate partnerships about partnering to buy real estate, but I don’t know if we’ve ever had a discussion on partnering to lend for someone else to buy real estate with that money. So how did you and your parents structure this partnership with them bringing two 50, you bringing the other 50? What did that structure look like?

Shalom:We were on the mortgage and on the promissory note and we owned a portion of that note proportion to a portion of the money we had in the deal. So my parents owned what would that be, a six six of the deal and I owned one six of the deal and we were on the note together, which meant we kind of had risk together and there I wasn’t guaranteeing them some kind of return. I showed them the deal and I said, these are the risks that could happen. Worst comes to worst, we foreclose a property that’s worth more than we have into it because they’ll be doing construction and the ARV is there or we go and we finish the business plan and then sell the property, right? There is a few exit strategies here, but on that first one, it was a true partnership. It was like we eat together or we starve together, but in one way we’re getting in and out of it together.

Ashley:Today’s show, it’s sponsored by Base Lane. They say Real estate investing is passive, but let’s get real chasing rents, drowning in receipts and getting buried in spreadsheets feels anything but passive. If you’re tired of losing valuable hours on financial busy work, I’ve found a solution that will transform your business. It’s Base Lane, a trusted BP Pro partner Base Lane is an all-in-one platform that can help you automate the day-to-day. It automates your rent collection and uses AI powered bookkeeping to auto tag transactions for instant cashflow visibility and reporting. Plus they have tons of other features like recurring payments, multi-user access and free wires to save you more time and money, spend less managing your money and more time growing your portfolio. Ready to automate the busy work and get back to investing. Base Lane is giving BiggerPockets listeners an exclusive $100 bonus when you sign up at base lane.com/biggerpockets. Okay, so I want to know how you’ve structured this deal with Grace as far as the private money lending. So we have a rookie listener that maybe wants to go out and do a private money lending as their first deal. How did you structure the actual payback of that loan? Was it monthly payments of principal and interest? What did this look like and would you do it again?

Shalom:For sure. I mean the way we did the deal was it was my very first deal, so Grace dictated a lot of the terms and in hindsight, I could have charged more if I wanted to, but I didn’t know what the market was. So it was an 11% interest annualized and she would be making monthly interest only payments throughout the period until she refinanced the property and then pay me back the lump sum. I gave her the money for the purchase of the property and then initial $30,000 in construction costs and then she would bring in the other 30,000 in construction costs to get the project finished to where it has to be. She agreed to send me monthly emails or biweekly emails on updates that are happening. So I knew when the new roof came on, when the landscaping was done, when the bathroom the kitchens were in and what kind of trouble she was having. Additionally, I knew when she was starting to refinance, it was before all the construction was done and she kept me on updated along the way. This allowed me to know what our money’s coming back. So our deal was for six months, but she really paid me off in four, so I knew my money was coming back earlier and I could probably plan to do something with that money when it comes back, whether invest into that loan or buy a property or go buy a Lamborghini. I don’t know.

Ashley:We don’t recommend that. But one follow up I have to that is was there any kind of extension, did you know what would happen if six months came and maybe she couldn’t refinance or if it was somebody doing a flip the house in itself? Was there any kind of contingency or anything put into your contract or your agreement? The promissory note that stated what would happen if the six months came due and she couldn’t pay?

Shalom:This was two years ago, so I can’t tell you exactly. I’m pretty sure we had something in there. If we go past six months as a 1% extension fee or half percent extension fee, all these things are negotiable and for those out there that want to land private money, I really recommend it and I stand by it because I’m still doing it today. So kind of goes to question would I do it again? Absolutely, I still do it today and all these things negotiable. So the interest rate is negotiable. Your origination fee if you want to charge one is negotiable. Extension and prepayment penalties are negotiable. Everything that it is your deal, it’s your money, so you should be comfortable with the terms that you’re putting out there for borrowers to use and work with.

Tony:Now shalom, this first private money lending deal sounds like it went pretty well, but have you ever had a situation where you lent money to someone and it didn’t go according to plan? I think the worst case scenario is is you’ve got to take a property back. But I guess did they all go smoothly or have you had any situations where maybe the operator didn’t execute the way that you would hope they would?

Shalom:For sure. I mean this one went really well because of the quality of the borrower. I’d want to say Grace is amazing what she does. She has a lot of experience and there’s a lot on the line for her to lose. I don’t think she would just run away with my money if she had the opportunity, but there was one time when I got a little bit naive and kind of went on a deal and it did kind of go wrong. So someone came to me, they were an experienced investor as well, but their credit wasn’t as good. That’s where they couldn’t go to typical hard. My lender, they came to me, Hey Sloan, we want financing on these two properties that they’re buying in south New Jersey. It’s my backyard. So I kind of know it pretty well and I said, Hey listen, I’ll finance these properties for you.Here are the points I want to charge. Here’s interest rate and here are my terms. They agreed to it. We signed off on it for the first three months. Everything was great. They were doing renovations, they were making payments and then payments just stopped. I called them up and I’m like, Hey, what’s going on? He’s like, I’m going through this happened and I’m a little bit of a softie, so I’m like, okay, I’ll give you a little bit of slack, won’t do anything. But two months went by, no payments, three months went by, no payments. I’m like, okay, now we have to act and do something. Me and him agreed that, Hey, you don’t want two foreclosures on your properties. It was two separate loans on two deals. I don’t want to pay 30, 40 grand to a lawyer to get these properties from you.So if you want to just hand me back the properties and I canceled the mortgages, then we can kind of do a cash for keys. But there was no key. Just give me the properties and walk away and I’ll figure out what to do these properties afterwards. What saved me was I didn’t give him all the money. So I had some equity in these properties and they were in good rental markets, so I didn’t have enough equity to go on the foreclosure auction, sell them and walk away with either my principal or some profit, but they did, they were almost done. So I finished the construction, I put them up as rentals and now they’re my rental portfolio and they cashflow pretty well. The cashflowing thing, like 200, 300 bucks a unit and there was some other stuff in there with some stop work orders and construction delays, but that’s a story for a different day.

Ashley:I think that’s a really interesting exit strategy. As a money lender, you usually think like, okay, I’m going to have to take back the property and then I’m going to have to sell it, put it up for auction, do whatever through the whole foreclosure process, but you actually finished the deals and rented them and you made it work for you. So I think anyone that’s maybe scared of that happening, here’s another aspect you could look at when you’re underwriting a deal to lend on is, okay, worst case scenario, could I use this as a rental too? And on the piece how you said you didn’t give them all the money. Were you doing draws with them for the rehab?

Shalom:That’s right. Yeah. So for the rehab they would need a complete, we did it in separate phases. So I guess phase one was demo, phase two was flooring. Phase three was some plumbing and electrical kitchen. As these things were done, we would release the money for those things. So they would say, okay, materials cost me five grand, labor costs me three grand. Okay, so give us an invoice for that and we would see release $8,000 in a wire and we also to confirm these things were done. So whenever we have larger things that require permit, say electrical and plumbing, an inspector will come out there in order to view that these things are actually done and to code. And if it’s something cosmetic doesn’t really require a permit, a simple picture or a few detailed pictures, send them over to me and then, okay, I see there’s new vinyl there I I’ll release the draw.

Tony:Shalom. Based on what you learned from this deal going sideways, what are you doing differently now as you are looking at borrowers and projects to lend for

Shalom:Fair question. Yeah, I’m looking at the borrowers as a whole and the deal as a whole in order to say, okay, worse comes to worse, do I want to own this property or what’s my exit strategy out of it if I have to foreclose on it, right, there’s an option of selling it as a non-performing loan because there’s a lot of investors out there and they were a VP that buy these non-performing loans. That’s what they do. That’s their business model. Another thing is I could charge my default interest and take it to the sheriff’s auction and sell us a foreclosure or I could take it back, keep his rental. If I would foreclose on Grace’s property in Arizona, I probably would not have kept his rental on the other side of the country for me and to manage a rehab that far away, something I wasn’t comfortable with at the time, but a property in New Jersey where it’s maybe like a two hour drive from me, it’s easy.I can go there with my brother, we can hang some drywall, we can do some paint, we can figure it out. It’s a lot easier for me to justify keeping that property as a rental. We pull credit for all of our borrowers now and we are more conservative with these deals, so we require borrowers to come with more equity as a down payment or bring us deals that are bought at a better basis. So if your A RV is, ideally we’re looking at 65% of loan to cost. So whether you buy it right or you’re really good with construction, you’re doing a lot of the work yourself and only buying materials, some kind of balance there in order to get some more equity out of the deal.

Ashley:Now shalom, besides those two rentals that you got from somebody not paying you, do you have any other investment properties in your portfolio or is it purely the private money lending?

Shalom:I do. I own three doors in New Jersey and I own six doors in Milwaukee. So we started buying, I want to say in two weeks we’ll be a year and in a year. Well, I accumulated nine doors total.

Ashley:Congratulations.

Shalom:Thank you. Thank you.

Ashley:I guess we need to pivot there because we’ve touched a lot on the private money lending, but how did you end up in Milwaukee?

Shalom:And so this kind of ties it all in together in November of 2020? Actually, no, a little before that. One of my long loyal clients who now became one of my friends, we were eating dinner together, we just closed the property and he’s like, Shalom, I’m going to stop doing business with you if you don’t own any rentals. I’m like, what? Are you crazy? He’s like, you got to diversify because as real estate investors, we have our, back then I was in my W2 job, so we have our W2 income, our active income. We also need diversify with rental income. I knew back then that I wouldn’t be financially free from just one or two duplexes, but it is diversifying my income. I’m getting money through appreciation. I’m getting some money through cashflow. I’m getting the money from my W2 and some loans. So if something were to unplug and my one source of income would just stop, I could still live from the other three or four sources of income I had.And that kind of gave me an alarm like, Hey shalom, you need to buy a rental. Let’s start figuring out where and how. I live in New York City, so I’m not touching a duplex here for 1.1, $1.2 million. That just is not feasible for me. So New York City can’t do it. New Jersey doesn’t have the best landlord tenant laws, and that didn’t make me feel too comfortable. I mean, unless I was getting these properties, I kind of didn’t have a choice, but so I’m like, okay, for now, New Jersey is not going to work out. The prices are also higher there. The places where I was finding a lot of what I liked in a market was in the Midwest, think Kansas City, Chicago, Milwaukee, a lot of cities in Oklahoma and Texas. And so I did what I think on a few podcasts ago, Tony, you flew down somewhere to the Midwest to go look at a market.So exactly what I did, I hopped on a plane, I went there, I got out of here like four o’clock in the morning. I flew to Milwaukee, I walked the area. I met with a couple agents, met with some property managers, and then I flew back the same day. I didn’t even book for a hotel. I came back at 11:00 PM but it really taught me a lot because now I knew more about Milwaukee, where the good areas, where are the bad areas and what I could do there. I looked at least 20 or 30 deals from different wholesalers and the MLS before one fell in my lap. I’m like, okay, this one makes sense. I’m buying it under market value. I have tenants who are paying market rent or slightly below market rent. There’s some value to add here. It’s nice three bed, one bath apartments.Families live here and they lease for a long time. So I was really comfortable with it. After I bought the first one, I’m like, okay, this is not so hard. I thought it was going to be this big thing where you’re going to have people calling you 24 7 is like, someone broke my window, toilet is not flushing, or I’m getting this flooded or whatever, and I’m like, oh, this isn’t too bad. I could probably do another. And so my next deal I found was on the MLS and I used the DSCR and loan to buy that. So I put down 20% and it was great because my property manager who is managing my house, that first duplex said, Hey, one of my clients looking to sell, do you want to buy it? And I’m like, okay, let’s do it. He already knows the building, he already manages it. So it’s easy kind of transition. And yeah, those was my first two first two rental deals.

Tony:Shalom, I think there’s something to be said about just hopping in a car or plane or whatever and just going to see and get a feel for it. Now obviously you can invest remotely and you’re proof of that. I’m proof of that. You can do it remotely. But the same reason I went to KC is because I just want to get a lay of the land and you can look at it on a map and I think get a decent sense of what the city looks like and how it feels. But when you’re actually there, you can really clearly identify like, okay, once I go through this underpass, the neighborhood changes a little bit. So on the map it all looks the same, but let me make sure that I’m north of this overpass. Let me make sure that I’m on the east side of the airport, not on the west side because it looks very different on both sides.So for all of our Ricky’s that are listening, when I went to OKC, I did a very similar thing. I left super early on Monday morning, stayed Monday night and then left super late on Tuesday night. So I was only there for one night, but I got two full days, met with contractors, met with agents. I aimlessly drove around town. Literally I was just driving up and down random streets just to kind of see what the neighborhoods look like and it gave me so much more confidence to say, yeah, I actually am looking at the right place. So I love that approach. But as you went into this new market, shalom, what did your buy box look like? I think you mentioned a duplex. Are you focused on small multifamily and if so, why? How did you define what your buy box looked like?

Shalom:Yeah, so right now I’m looking at one to four units and I’ll look at some small commercial, just putting my lender hat on as well. I know that small commercial is harder to finance, so it’s like I’m playing a seesaw there a little bit. I like the one to four unit space and I’m very particular about what I want to buy. For example, when I went there, I know that whenever you have a side yard or a really big front yard, people dumping garbage is a big problem. And if the city drives by and they see garbage in your front lawn, you’re getting a fine really quick. And those fines add up pretty fast too. So I said, okay, I want as minimal front yard as possible, maybe even no backyard. There’s street parking. So I don’t necessarily want a garage if I don’t have to have one.And my first property meant all those boxes where I literally have zero front yard, zero backyard, there is no lawn to cut or barely any snow to shovel just that little bit of sidewalk in the very front in the house. And if I didn’t go there, I wouldn’t know that. I also figured out that I don’t want to be in these one or two zip codes. I found that out very quickly because I personally didn’t feel safe walking on the street in those zip codes. But on the outskirts of those zip codes, beyond where the houses are really nice and trading for 300 grand versus where the houses are trading for 60 grand, there is that little sliver in between where appreciation is maybe coming in the future, you can still get cashflow, still get quality properties for a good price. And it’s the best of both worlds in a way.

Tony:Now we have to take a short break, but when we come back, we’re going to dive into some advice that Shalom has for other rookie investors looking to get started. And we’ll hear that right after a word from today’s show sponsors. Alright guys, welcome back. Now, Shalom, I want to get into some rapid fire questions that I have for you, but before we do that, I know you mentioned that you’ve almost raised a fund now for your private lending, and I think it is obviously a slightly more advanced strategy, but I do think that there are lessons to be learned in how you put this together. So what does it mean that you have a fund now for your lending? Who are the people that are inside of it and how do you structure it so that the people who are giving you the money, they get paid that you’re able to generate some revenue? What’s the structure of this fund look like?

Shalom:Yeah, so with our fund, we have a preferred return for our investors beyond preferred return. The interest rate gets split between the general partner. I mean there’s no deal there. So being the general partner of the fund and the limited partner of the fund, then origination fees have their split. Any profits on selling any loans, they have their split. And right now all of our investors are friends and family. All my family came from the Soviet Union in the early nineties and they figured out a way to become successful and financial free, but they stopped working tomorrow. They don’t have any security. They’re all maybe doctors, nurses, lawyers, architects, but they don’t have anything else besides their job. So I feel like it was my job to go ahead and figure out, okay, how can we still keep our wealth? But if we don’t work tomorrow or someone gets sick or something happens, we still can eat the fruits of our labor. And so real estate is an easy answer for me there, but also diversifying into stocks and all that kind of stuff. But you have to say more about the fund. So that’s kind of how the fund works. You have a minimal return that we’re aiming to give investors, plus the rest is split between the GP and the LP in certain ratios based on what that activity is.

Tony:Yeah, I love that concept, man, because as we talk to more and more people who are in the private lending space, it really does feel to me that it is maybe one of the best vehicles for passivity, but also outsized returns. So it just really got my head spinning on like, man, I feel like I should almost start a debt fund because worst case scenario, I can use that debt fund to fund my own deals. If there’s no pipeline, I can just fund my own deals with the money that I’m raising and the system that feeds itself. So let’s get into the rapid fire question. Shalom first one is, what’s the biggest lesson that you took away from your rookie deal?

Shalom:Low leverage is really, really good on that first rookie deal, I bought it all cash. I mean, I was getting private money from my family, so the same money that paid off Grace, that’s what we used to buy that duplex, but I didn’t have a bank weighing over me. So my agreement with my mom was, once we refinanced this property, I’ll give you your money back plus the interest. And I didn’t have a bank weighing over me. So when three months in, one of the tenants didn’t pay rent and I had to do an eviction, I wasn’t sweating and be like, okay, how am I going to pay this lender back? And so a lot of people these days, they want to do a hundred percent financing deals, whether it’s a fix and flip or a rental, and I’m like, that sounds really scary for me.I want to put down 20 or 30%. And my goal for my portfolio is to have about a 60% loan to value across all my properties. I mean, some will have higher loan to value, some will have less because of where they are in the payback period and how we bought the deal and all that kind of stuff. But my goal is I think 60% is a sweet spot. And when you compare this to what institutional prayers are doing, they’re not financing their deals at 90 or 85% loan to value. They’re pretty conservative on development deals and on value add deals, they’re closer to 50 or 60% loan to value. So if the guys who are doing hundreds of millions of dollars are borrowing less, I think I should follow in their footsteps because they know a thing or two. Right.

Ashley:What’s one piece of advice you’d give a rookie that wants to get started as a private money lender?

Shalom:I’d say do your research about the borrower and the deal. Make sure it’s something that worst case scenario, if you had to own your comfortable with it and if the deal went wrong, then you have a clear exit strategy. A good way to do that is educate yourself, learn what are non-performing loans, how does the foreclosure process looks like? What does a default interest rate and when can you charge it? In addition, I would have a lawyer do your loan docs because they put a lot of that stuff in that you wouldn’t think of. I would never think of, okay, Ashley, New York is a really bad foreclosure state, so if I’m doing a private money loan to you, I also want to have the right to your LLC. So if I have to foreclose on you, I could probably get rights to your LLC and reassign your LLC to myself pretty quickly and take control property that way versus taking you to the foreclosure court and doing it that way. So a lawyer would know that, but a typical person doing their first loan wouldn’t. So shell up to two grand and get a lawyer to do your loan docs

Tony:Shalon. Last question. When evaluating a borrower or a deal as the lender, what is the most important thing to focus on?

Shalom:That’s a tough one. I mean, we look at a lot of things. Look at experience, we look at credit, we look at the way that you communicate with me. If you send me stuff and you’re all over the place and all messed up when you send me docs, I can only imagine how you are on a construction site dealing with contractors and subs and paying invoice and all that kind of stuff. So if you communicate to me in email like, Hey, Shalom, here’s the docs you requested. Here’s LLC information, my credit information and the deal review and the appraisal and all that kind of stuff, all in one email by folders in Google Drive. I’m like, whoa, that’s pretty cool. They’re organized, they’re great. They communicate really well. When there’s a problem or something comes up in my review and I have a question about it and you’re kind of evasive about it, it makes me like, what are they hiding? So be honest and be organized because that’s a big thing that I can’t measure with a credit score or with your experience, but it does hint to me what kind of borrower you’ll be like for a second, third deal as we do it.

Ashley:Well, shalom, thank you so much for joining us today. We really appreciate having you on the podcast, sharing your journey, sharing your experience. I think this might be the first time we’ve had a rookie on that was a private money lender for their first deal right out of the gate. So where can people reach out to you and find out more information?

Shalom:Yeah, this is awesome. You can find me Instagram at Envy Investment GP. You can also find my website, envy investment grp.com, and if you want to call me or text me, feel free to do that. My number is 9 7 3 7 3 7 9 9 0 5.

Ashley:I am Ashley. He’s Tony. And thank you guys so much for joining us for this episode of Real Estate Rookie, and we’ll see you on the next one.