How to Make Bigger, Faster Returns Without Buying Rentals

24:52And, 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 mentor you and know really what's going on on the deal. So it puts you in a position where everyone 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're really understanding how to underwrite deals.

25:26And, 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 six 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.

26:01And 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 when you have that mentality, you can really put yourself in a position to where, 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.

26:36Incredible advice, Devon. But that first person that you lent you that you said turned you into a private money lender, where did you meet them? And how did they approach you initially? So walk us through how that relationship came to be, because I think that's what rookies need to hear. Yeah. So I essentially met a guy at a conference. It wasn't BP Con specifically, but they go to BP Con too. We'll just cut that part out. But yeah, so I met a guy at a conference and then he connected me with the actual borrower and we became friends. And I would see him out at BP Con and other events and we just got familiar with each other.

27:18And for the first two years, we just knew each other and hung out at BP Con 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 him 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 BP Con, going to conferences, putting yourself out there, building relationships, that's a great place to, a 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.

27:53But we built some trust, some rapport. I got to see his work and got to become comfortable with him. And now I've done a lot of business with him. 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 kinds of elements that you also need to consider as a private money lender? Yeah. So there's, there's certain checklist and I actually, one, any of your followers can reach out to me at, um, Devon Kennard on social and I'd love to give them some of my, some of my stuff and so they can kind of get started.

28:33But I got a lot of my start from the Lend 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 loan package and you need to underwrite the borrower.

29:08But 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 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 fixed and flip cosmetic, then you can just do a traditional fixed 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 loss payee.

29:44So the lender needs to be listed in the insurance and that's it. So I need 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 know, and you're kind of letting your borrowers know ahead of time what they need and it goes pretty smooth. Now, Devon, you focused on your local market and how do you feel that doing so has given you an edge?

30:21And if you can just clarify for the listeners what market you're in. So I actually, I started out in other markets and I've niched down to start to focus on my market. And 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 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 vet the deal and the borrower. And location doesn't matter. But 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.

31:05And those other markets, if I were to ever deal with the default, 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 robust list of agents that I can work with. So I would be scrambling in other markets. And ways that I mitigated that was I would ask my borrowers, hey, I would like to know your agent and the contractor's contact information, just so if anything ever goes wrong, I have people to call. So I would try to mitigate that. But now with where I'm at now, I've found that I would rather lend here in Arizona because that's where I'm at locally.

31:43And 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, 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 that. Now, I don't want to deal with that headache. I'd 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.

32:14But I think either strategy can work. You just have to protect yourself. Because if you're in California and you only have$100 ,000, you're going to be like, I can never lend. But hey, you can meet somebody at BP Con and lend in another market, but you got to know how to protect yourself in that market in case you ever do have to take over a property. 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 Daynard. so ironically enough I think I could say this because he posted on Instagram but I actually didn't I just uh lent to him for the first time on a deal in Seattle hot off the press like I'm like he better give me some kind of shout out because I think the one that I lent on is gonna be on the show so I'm like you better show me some love on that um when when you know you're

33:16Yeah. 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 got to like, make like, you know, my appearance for sure. Yeah. For those of you that don't know our very own bigger pockets on the market podcast host, James Daynard has his own TV show on A &E and he has become a superstar. So it doesn't even answer our phone calls anymore. So if you see him at BP Con, make sure you guys tell him he's your favorite TV star. If you guys see around. Actually, this will be after BP Con, I guess. So whatever.

33:52Well, Devon, 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? 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 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 ARV is. I'm going to look at it.

34:30I'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 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 be the rehab. So building a good relationship with an agent will help with that. But 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.

35:04So 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 old still.

35:48So 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 a hundred percent 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, a hundred percent of the financing, I'll pay you this.

36:25And 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. 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 sponsors. Did you know you can go on vacation and actually earn money? Because while you're out exploring new horizons, your home is sitting there, dark, silent, and wildly underemployed. And it could be making you extra cash. And Airbnb makes that possible with something called the co-host network.

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40:10Now, they're the fastest, too. They just launched 10-day DSCR closing. That's right, 10 days. And they're still the only lender with a DSCR price beat guarantee. That means faster closing, the best terms, zero guesswork. That's Dominion Financial. Check them out at biggerpockets.com slash dominion. Again, that's biggerpockets.com slash dominion. All right, we're back with Devon, and we've covered how to lend safely, how to put 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 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?

40:53So let's break it down. Number one, the borrower comes to them or they go to the borrower. And 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 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.

41:28You 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. So you connect with title, you let them know that you need title insurance, which is ensuring that the property is 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.

42:03You want to have your own best interest in mind. So you let them know, hey, I need the lender's 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 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 docs. 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.

42:40And 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 that, 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 after they've kind of showed you the deal, be like, okay, I'm going to 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 in the term sheet.

43:15And 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 wire that day of title once they tell you it's good and that's it, you're done. Now from there, along the way, I do like to collect the ACH. I ask 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 pull their payments on the first of every month. So once you've done enough, you can get a software that kind of handles this for you.

43:52But 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'll be so and so's name ACH for two thousand dollars. 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 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?

44:25Now, if you have rehab draws, so, you know, sometimes I like we've gave that million dollar example. There are$200 ,000 rehab draw. I make my borrower 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 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.

45:00I 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, like, oh, do nothing. Like if you want to do absolutely nothing, even lending. You got to win the lottery. 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 very easily. Because once the loan is funded, I'm only looking on the first of the month, approved payment.

45:38and then out of the blue one day, you're gonna be on vacation with your kids and you're gonna get a email from a new title company requesting a payoff statement and you create a template payoff statement. Shout out to Linda Liv, Beth, she has some. You create that, you say what the borrower owes you, you send it to title and you send them your wire instructions and voila, the day that 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 little nuances within there, but I would say in large range, that's kind of the whole scope of what it means and what it looks like to fund a loan.

46:16I just got to say, Devon, we've talked with and I've worked with private money lenders. And I got to say, it's savage that 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 autopilot. So I've actually never heard of a lender doing that before, but I like that approach, man. I mean, I really got it from banks. I have line of credits myself, and they're pulling that money now. like that. And if it doesn't, cause I'm like, if they do it, why can't I do it? True. Like I'm, I'm pulling the, so then you don't got to like go chasing people like, Oh, you know, like, cause you know how contractors and investors can be, even if they mean well, they get like lost in the projects and don't respond.

46:59Like 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. Devon, let me, let me, let me ask, right. Because we, 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?

47:32So 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 in comparison to what's ahead. So you look at, 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.

48:11I have a large syndication portfolio. Can't wait to get out a lot of that. I have a lot of properties. Can't wait to sell those at the right times and exit those and put it into the lending because 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 % return on every dollar and I can compound that into more and more loans 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.

48:55So, 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 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'm having trouble like pouring more money into it. And then I'm going to buy more legacy assets that I really feel like I can hold for longer periods of time.

49:29That'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, heck no, but I've really been looking into this. And I'm like, when you can compound that at a high double digit number, it does make sense to just let that machine roll. Okay. I'm sold. Tony, let's sell them all. Let's do it. A &T Ventures. Here we go. 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.

50:07Can you let everyone know where they can reach out to you and where also they can buy your book? Yeah, you can reach out to me at Devon Canard on all socials. LinkedIn, Instagram are probably my two I'm most on. So reach out there. I do have YouTube. So you can find me everywhere at Devon Canard. My lending company is 42 Solutions. I only lend in Arizona right now. So don't hit me all over the country saying you want money because I'm going to be like respectfully decline. But if you are interested in getting into lending and you want to reach out, then feel free to slide into the DMs or shoot me an email.

50:41Go to my personal website, devoncanard.com. And I would love to help you out and help you get your lending business going as well. 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 someone does the lender to the market. Yeah. Yeah. If you're a potential borrower in Arizona, hit me up, slide into the DMs ASAP. 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 lend and the folks who have the deal flow, have the experience, but need the capital?

51:24How 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. I mean, we've always tailored around the idea of match.com, but for real estate investors, but instead of love, it's lender and investor. 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. At some point, your little real estate side hustle stops feeling little. Rent's coming in. Maybe you've got a couple properties now and suddenly the money part gets real.

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52:34You'll also get integrated invoicing plus seamless payroll for S-Corp owners, which can unlock thousands in self-employment tax savings. And with Collective's community and support, you can finally take the solo out of Solopreneur. Right now, Collective is giving you 50 % off your first two months when you go to collective.com slash rookie. That's 50 % off your first two months at collective.com slash rookie. Hey, rookies, if you're watching this, we want you to apply to be a guest on the Real Estate Rookie Podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our Real Estate Rookie Podcast.

53:06Now, look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener. As a rookie investor, especially if you just got your first deal, it is all fresh in your minds and you are the best person to tell your story, give your experience on how you got it done to help someone else get their first deal. So head over to biggerpockets.com slash guest if you want to be a part of our show. Again, that's biggerpockets.com slash guest. And we'd love to have you on.