He Bought 50 Rentals, Then Stopped to Do This (Makes $5,000/Month Per Deal)

0:00Investor Devon Kennard started buying rentals back in 2014 and quickly scaled to 50 properties. The formula was working, but then something changed. As home prices and interest rates rose, his cash flow started shrinking. He needed a business model that worked in today's market. So he pivoted and ultimately landed on a game-changing new strategy, lending out money to other investors. They do all the legwork of pulling permits, managing rehabs, and finding tenants. He just sits back and collects passive 12 % to 14 % cash-on-cash returns back by the properties as he recycles his capital over and over.

0:43And I know what you're probably thinking. I don't have a giant pile of cash to start lending out. Well, there are ways you can get started lending and follow Devon's path with as little as$25 ,000. If you want real cash flow, as much as$5 ,000 per month per deal, Devon's giving you his exact playbook right now.

1:09What's up, everyone? I'm Dave Meyer, Chief Investment Officer at BiggerPockets. Today, we're talking private lending with Devon Kennard, so let's jump right in. Devon, welcome back to the BiggerPockets podcast. Thank you. It's been a while. Glad to be on. It has been. We got a lot to talk about, but for people who haven't heard from you before, maybe just fill us in a little bit about your background.

1:30Devon Kennard:Yeah. So my name is Devon Kennard. I was a nine-year NFL veteran. I played for the Giants, Lions, and Cardinals. I started investing in real estate in 2014. I built a portfolio of properties up to 50 properties. I also started investing in syndications and funds, and I invested in 50 different syndications and funds. So I was kind of split 50-50 between owning real estate on my own and investing as an LP in syndications and funds. And then towards the end of my career, I started kind of pivoting and doing some private lending where I was lending to investors and developers and people who are doing projects.

2:04Devon Kennard:And that's kind of my focus today. Well, we're going to focus most of the episode on lending because I think this is a strategy for real estate investors that most people overlook. Yes. But I want to sort of talk first just about your journey and how you arrived because it sounds like you've done everything. like how did you get to lending so you started first in long-term rentals you got 50 properties yeah was that all over the country or where were you building so i started out in the midwest my first property ever was in beach grove indiana i bought a large portfolio in kansas city um cleveland ohio and a little bit in tennessee and i was just scaling buying pretty much every off season was buying a bunch of properties just as many as i can get my hands on that i felt were good deal.

2:48Devon Kennard:I built the core for my core four team, which I know kind of a bigger pocket staple. That's right. So I built that team. That's how I was able to do it in those different markets. And I kind of started doing the syndications because I was getting to a point where the deal started to not look as good of deals. And I felt like things weren't cash flowing the same way that they were when I first started buying in 2014. So I was like, if the cash flow is not that much more, I'll invest passively in the syndication and do less and get an 8 % prep. I don't gotta worry about as much. I don't have to deal with as much.

3:18Devon Kennard:So I started that and I was investing in all kinds of different syndications. I was trying to diversify that way with like multifamily, single family funds, debt fund. Like, you know, I was just kind of spreading myself out diversification wise. And that was kind of like how I built my foundation. When you were doing the individual active stuff with single family? Yes. Just for comparison's sake, what were you getting cash on cash return in 2014? So I was killing the 1 % rule. So like, you know, I was buying somewhere between 80 to$100 ,000 in blue collar, I would say like B minus to B neighborhoods.

3:55Devon Kennard:So not anything great, but like good working class neighborhoods. But I was paying$100 ,000 or less and getting$1 ,200 or more in rent. So I was defeating the 1 % rule and I had the cash. So a lot of them I was buying cash. I would like refinance later, but I was locking them up cash and I was buying turnkey, which which is another huge event. Oh, really? Oh, okay. I wasn't trying to buy stuff I needed to renovate because I was worried about sacking Aaron Rodgers. Man. So with my focus being on ball, I was buying turnkey property. So to think you could buy a turnkey property for$100 ,000 and charge$1 ,200.

4:30Devon Kennard:Insane. We miss those days. We sure miss those days. But as we're going to talk about in this episode, there are ways to get great cashflow. So then syndications, you sort of evolved. like you said, 8 % preferred equity return. That's just people who invest passively into these bigger syndications, like buying a hundred unit multifamily. You, Devon, would put in money passively and someone else would run the deal. So what was your experience like there? So I loved that, but you have no control or say. So when you're buying on your own, I get to choose to refinance, to sell, you get to manipulate the deal how you see fit.

5:09Devon Kennard:and when you start to invest as an LP, you do your work up front, you underwrite the operator, the deal, and then you pretty much got to like sit back and let them do what they do. And to lose that flexibility, I started to not like that as much, especially when deals you thought were going to go good, don't go as good. You thought they were going to like pay your pref, but then they say they're suspending the preferential return. So you're expecting eight percent then they they suspend the payments yeah different things start to happen and where it's like i have no control and i just like it is a hard part of it it's like you're on a roller coaster you're just like like uh let's see what happens it really is it's like set it forget it but it's it's not even like you know you have no control on a stock but you can always sell a stock but with this indication it's not even like that no you can't really get out yeah Yeah, you can.

6:02Devon Kennard:Which isn't to shy anyone away from investing in them, because I still do and I still will. But it's definitely a feature that you have to be aware of. I think, you know, I invest in syndications too. It's been maybe the majority of the investments I've made over the last couple of years. But it's because I have an active portfolio that I can do it. It's like a balance. You can't do it with money you need. So then at what point did you discover lending? Yeah, so I kind of started to look at it. And as the years went on and now we're getting to 2022, 2023, I didn't see things cash flowing as well anymore.

6:35Devon Kennard:So I cared about cashflow. My career is coming to an end. I want to get into the position where I got enough income coming in. So with cashflow as a priority, buying single family didn't make as much sense. I think they're a great investment for appreciation and tax benefits, but for cashflow, not so much. So then I looked at syndications and I'm like, there's an 8 % prep, but you got to wait three to five to seven years, depending on the deal. And they can stop the payments at any point in time if things aren't going right. So I like them, but I'm like, it's, that's not also not as great as I like anticipated.

7:12Devon Kennard:Um, and I allocated a lot of money there and I'm like, all right, so what else? Um, and I, and I started to like pivot and look and my career was coming to an end and I'm like, you know what, I'm going to lend to a couple with people. So a few borrowers asked me for some capital if I would consider lending to them. First deal I did, I had no idea what I was doing, but I kind of learned and I'm like, you mean to tell me you're buying this property, you need capital to buy the property and renovate the property and you'll pay me a set interest rate every month. And then when you sell the property, you'll pay me all my capital back and then I can go do it again.

7:47I like that.

7:48Devon Kennard:So I tried I didn't fully know what I was doing, did it a few loans, worked out, and then I just started to build it up and I created a business based on it. Awesome, well, we're gonna talk more about the business and what you're doing, and we're also gonna talk about how more investors can get into lending than they think. I think this is something, you got 50 grand, even 25 grand, you can probably get into lending. There's all sorts of ways to do it. Let's just start with the basics. People call it lending, right? What does that mean? Like, give us the basis. So essentially, when you're lending, there are people who have deals and they're looking for capital.

8:28Devon Kennard:And they can get capital from a bank, from a hard money lender, or they can go directly to somebody who has a self-directed IRA, who has$100 ,000 just that they want to take out of the stock market. And they're like, I don't know what else I want to do with it that they'll need. And they can come to that individual or that individual can go to the person that is investing and say, I have this money. Can I lend it to you? Or on the reverse, can you lend it to me? You have$100 ,000 or you have$50 ,000. Will you lend it to me on this project? Your collateral is the property. So if I don't pay you, you can take over this property.

9:03Devon Kennard:Exactly, yeah. And I'll pay you a set interest rate. And people think that it's more complicated than it is. And it's really just a document. So it's a loan package. So you have to go through the process of getting a loan package. And so that's some upfront work there. But beyond that, it's really just you're lending them money and the collateral is the asset and they have to pay you back and they have to abide by the terms of the loan agreement. And it's a great vehicle for cash flow. So I think not only is it a great investment opportunity, I think it should be a part of more people's portfolio than people consider.

9:37I completely agree. I started doing it four or five years ago, and I've just continued to shift more and more of my capital into private lending. Because as Devon said, I just want to make sure everyone understands this. These are loans that are backed by hard assets. This is a thing where, just for example, Devon gives out a loan, the borrower puts 20 % down. If at any point that borrower does not make payments, Devon can take over that property basically for 20 % off, right? Because he's already gotten 20 % down. So he's basically paying 80 % for this property. Then you probably have to finish the project or sell it to another flipper or whatever.

10:19But it really limits your downside risk, right?

10:22Devon Kennard:Yeah, it completely limits the risk because if you're doing it right, you're only lending at 80 % or sometimes for me, I lend 70 % of what the sale prices should be. So 70 % of the ARV. So as long as I can get it to the finish line, I have 30 % of equity in the deal, which is a ton of room to where you can sell for a discount if you need to sell it for. It gives you a lot of leeway to make sure that your capital is protected and that you can make additional money on it. So I think it's a great vehicle for that, that a lot of more people who just have$25 ,000,$50 ,000,$100 ,000, you got to take some time to learn how to do it.

11:02Devon Kennard:But once you learn it, it's one of those things you like learn once and you can kind of repeat and do it over and over again. Yeah. And it's not as unique every property, you know, like once you learn how to underwrite them, you can just kind of rinse and repeat it. You still have to get deal flow and do your due diligence and stuff. Cashflow is the hardest part because you got to find operators who need the money. But if you can build the relationships, go to some real estate meetups, find out who's doing good projects, who could use some extra capital. And then you find a couple of people and you lend them the money over and over again and you build a good relationship.

11:33Devon Kennard:And they're incentivized to do right by you because they know you'll keep doing business with them. 100%. I feel like it becomes a great tug and pull relationship. So for those who need cash flow, at least for a portion of their investment portfolio, it is a great vehicle. So I think a good supplement is like I buy assets for appreciation for the tax benefits so I can 1031 into other assets down the line and play that whole game. But they're not cash flowing great. So I'm also putting some money in lending that is giving me a double digit return on my money that the borrower is doing all the work.

12:09Devon Kennard:They're showing me why the deal makes sense. All I have to do is review it and make sure they sign the documents. That's absolutely right. I think about it exactly the same way. And I want to talk more about how people can get into this because you can get into it. Even if you think you can't right now, there's a lot of ways to do this. But I want to talk about that cash flow and how much you're actually earning. because you said double digit cash flow, which you just, it's very, very difficult to find in rental properties right now. So we're gonna hear about what Devon is actually making and how you two can get into lending right after this quick break.

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15:38Welcome back to the BiggerPockets podcast. We're here with Devon Canard talking about how he's really shifted a lot of his portfolio and investing style more and more into private lending. Talked about cashflow. I agree, one of the best ways, maybe the best way to make cashflow in real estate right now. Do you mind sharing with us what the returns are for you?

15:58Devon Kennard:Yeah, so for me, I charge 12 % and one point, but I also charge a 995 processing fee and a$500 dot prep fee. So essentially, I'm making$1 ,500 from processing and dot prep. And let's say it's a$500 ,000 loan. that's$5 ,000 plus$1 ,500. So$6 ,500 when the loan is closed, plus I'm charging 1 % interest. So they're paying, you know, on a$500 ,000 loan,$5 ,000 a month. Wow. Unbelievable. And then where it gets really interesting is I don't, I have no prepayment penalty because a lot of fix and flippers, they want to get in and out of properties. You know, we're, we're both really good friends with James Danner, for instance.

16:40Devon Kennard:He doesn't want to take a full year on a project. If he can get in and out in four to six months, he's getting in and out. So if I find someone like him, I can do that same loan twice. So I get$500 ,000 and I charge 1 % origination fee and$1 ,500 in extra fees. And then I do it again a second time. So now in a year, I made 12 % interest plus two points because I did the loan twice and another$3 ,000 in fees. Yeah. So you turn it twice, basically twice. twice yeah so you get double the fees over the course of a year so essentially on five hundred thousand dollars in that example um which you can mitigate that to a hundred thousand dollars fifty thousand yeah whatever yeah but on that example you can really annualize 15 16 percent on your return return unbelievable so how many investment vehicles that are collateralized by real estate can give you that kind of that kind of return no i mean not right i find me another property.

17:39Like right now, without doing heavy value add, you're not finding that kind of cash flow anywhere. And even doing heavy value add, it's pretty hard to find that. I do want to tell everyone though, like the one caveat to this is unlike cash flow you get from a rental property, it is subject to ordinary income. Now, if you do it from a self-directed IRA, that's kind of a bonus way to do it where you can get money and put it back into your 401k. Or if you have real estate professional status. There's ways to do that, but you should know that unlike there's no depreciation offsetting that income. So you do pay tax on it.

18:13Devon Kennard:And I think that's why it's a great strategy to have in conjunction with buying real estate. Cause if you're buying assets and they're not cash flowing that well, but they have great tax benefits and the appreciation is wonderful. Offset it with some private lending that cashflow is great, but now you got tax tax penalties. And now you can, since you own, you can run cost segregation so that you can do things to wipe out that earned income and really make them work in tandem with each other. Isn't this the fun part of real estate investing? I love this part where it's like the portfolio strategy where you're sort of like, oh, this deal will check these boxes for my portfolio, the tax benefits, the appreciation, the amortization.

18:52Not every deal is going to give you all that plus cashflow. You turn to private lending, you get cashflow. Maybe you don't get the tax benefits. But when you marry these things all together, that's what gives you sort of the full complement of benefits from that you get from real estate investing. Absolutely. So let's talk a little bit about different ways people can get into this, because you've talked about doing direct loans, their debt funds. Like, what are some of the different ways our audience should think about getting into private lending if they're interested?

19:22Devon Kennard:Yeah. So first few that come to mind is one, you can learn to do it direct. And that's the one that's going to be most profitable. So that's why I've created a business around what I'm doing and why on my own dollars, I can make 15, 16 % annually, but I'm operating it as an actual business. It's more an active income for me at that point because I'm operating a full business. But if you go that route, you can use your own money. If you have line of credits, you can raise other investor money so you can turn it into a legitimate operation and do really well. That's the first way. If you want to be more passive, you can invest in private debt funds, which essentially does what I do, but they pay you a coupon.

20:01Devon Kennard:So they pay you 8 % to 10 % depending on the fund and all of that. And it's the same structure, but you just get a smaller piece because you're investing in the fund. So that's the second way a lot of people do. And then I guess kind of an in-between is a lot of people do it through self-directed IRAs and self-directed even 401ks and there's different ways to where now you can do it and do it tax-free and now you're allowing it to grow within your self-directed program so you can invest in debt funds that way you can do it direct that way so i wouldn't say it's a like a separate way to do it directs versus a fund but uh but the self-directed is just a way you can avoid taxes yeah which is do it so if you have that it's a good good way to leverage you can't use it just so everyone knows It's just like a 401k or IRA.

20:48You still have to wait till you're whatever it is, 62 or whatever it is before you pull it out without penalty. But it allows it to compound way faster. So if you can wait, that's really the way to do it in my experience. There's also one other way to do it. I've done, I don't do a lot of it, but you could actually buy individual notes that other people have originated. So, you know, if Devon, just as an example, he made a loan to a flipper and he's like, you know, I don't want this one anymore. or Dave, do you want to buy it? I could buy it from him. Usually you get somewhere between what Devon earns on his private money at 15%, the eight or 9 % of a fund, you can get like 11 % on some of those loans.

21:30Devon Kennard:And that's a great example because I have a lot of investors who want to do that. And some people will call it an assignment. So it's like, I have this loan and they understand I'm running a full business. They're like, can I buy all or a portion of your loan? You just did this billion dollar loan. Can I buy$100 ,000 of it and get payments on that? And we work it out. We do what they call an assignment agreement. And I pay them their portion of the interest on their$100 ,000. So there's a lot of people who really like doing it that way because it's kind of, it's not going full debt funds. And because a debt fund, you're kind of tied to the business overall and the fund overall.

22:07Devon Kennard:It's more direct. Like, okay, I'm connected to that one deal. When that deal's paid off, I get my capital back. And there's some investors who really like that model instead. And it's a good way to where you can, if you only have 25, if you only have 50, if you have a hundred, you can buy a portion of somebody else's loan and get a really good return on it without having to do a lot of the work and with a smaller dollar amount. Some investors say, I don't want to invest in a fund because I don't know the assets that are backing every loan in that fund, but I'll buy this loan from you, Devon, because I've seen that house.

22:41I know that operator. or I've underwritten this deal, and I know this is a good one. And so that's a really good way to do it as well. Let's talk a little bit about what does it take? What's a good deal? Tell me what you look for in a good loan.