REIA 401 Serena Holmes: Leveraging Private Lending To Invest In Real Estate Passively

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Hello, enlightened investors. Welcome back to Real Estate Investing Abundance. I'm your host, Dr. Allen. Thank you so much for being with us. It is you who make this show, and it is always a delight to be back with you. And today we have with us Serena Holmes, and she is going to show us how we can leverage private lending to invest in real estate passively. And Serena is a licensed, uh, realtor, a real estate investor, and she's the author of the book Accidental Entrepreneur. She also hosts the podcast Inspired to Invest, and she is the former CEO of Tigress Events, a multi-award-winning brand experience agency she ran for 18 years. So Serena, thank you for being with us today and take us into the show and share a memorable experience that helped you to be who you are today.

Yeah, I think, um, thinking just in line with what everyone's looking for on this show, I think for me it was really the catalyst that got me into real estate investing. You know, for me, I was always very focused on just buying my first house because I had a lot of challenges growing up and I moved a lot. And my big purpose when I started working was just to buy my own home. But I never really thought of it beyond just my primary residence. And then I hired a business coach back in 2012 and she was taking a look at, you know, our finances and our company and stuff like that. And she said, you know, you've got more money than most businesses operate on. Like the average company usually has about 3 months to operate on. And at that point in time I had 18 months and she's like, This is too much money. So it was a very good problem to have. So she really encouraged me to find some way to invest it, and I ended up buying a short-term rental in Florida back when the dollar was at par. So that was my first kind of foray into investing. But if I hadn't had that conversation, maybe that would have taken longer. Like, you know, as a young business owner, you don't know what you don't know. So I always try to just have as much money in the bank as possible so that we could always cover any business coming in, or if a client paid us late or something like that. But it helped to have that perspective of what most companies usually do.

So.

Yeah, I like that statement. We don't know what we don't know. And it's those things that we don't know, uh, that can be so huge. And just, uh, one conversation can make such a big difference in our lives there. So you just gave us a brief, uh, concept of how you got started into real estate with one, uh, short rental in Florida. Take us into the journey just a tad bit further and how it— you went from that one short-term rental to actually becoming an aware and enlightened real estate investor.

Yeah, I think for me, I hung on to the first rental for about 4 years, and then the dollar was no longer at par. And I think what I learned in that instance was, you know, the value of due diligence. Like, I had a property that didn't really cash flow, so I was able to cover the cost with money from my business and ultimately pay it off in 4 years. But when I sold it, I was like, well, what do I do now? So I hung on to the money for about a year, and I ended up staffing events with my agency for a real estate organization here. And we were staffing their events in Texas and Florida, and it kind of put me on the radar just how much I didn't know about real estate investing and how many other strategies that were out there. I think even looking back when I joined that organization, multifamily wasn't nearly then what it is now. So I wish looking back I had Got into multifamily at that point in time. I definitely had more time to figure it out than I probably do now, but I did still take a lot of action. So at that point in time, I bought 2 pre-construction properties. I invested in a land development deal and a few syndicated mortgages. And then as I was talking to a friend of mine, she's like, you know, I work with this mortgage broker. I do a lot of private lending. The money's so good. Like, I make more money doing that than I do on my own business. So she introduced me to him and I kind of started with a certain amount of money that I would play with because obviously it's considered to be a higher risk maybe compared to other types of investing. And honestly, I ended up living off of it for— I've been living off it, I should say, for the last 4 years. Like, nobody knew that the pandemic was coming. My events business pretty much couldn't operate, maybe for very limited times for the span of 2 years. And, you know, I was able to really diversify all the investing that I did at the beginning of last year just through this real estate company that I've been part of now for 5 years. So I'm coming up to about 70 deals in 5 years and, you know, obviously done quite well. In fact, I've tripled my income in the last year compared to my highest year from when I was running my own business. So it just goes to show like how powerful it can be if you're really strategic and find the right people and people that you can trust.

Yeah. I like how you said that you wished you had gotten into multifamily to start with. I don't know how many times I hear that.

Yeah, go bigger sooner.

Because most of us do start off in the single-family space and we have this conception that it's just impossible to get into multifamily. And then when that finally dawns on us that we can get in there, it's like, well, gosh, why didn't I just start there?

Yeah.

But, and But yeah, I mean, almost every multifamily investor that I talk to, they've also started in single-family homes and they all say the same thing. I wished I had started with multifamily. And it's possible. Yeah, it just takes a paradigm shift to realize that.

Yeah. And also educating yourself. Like, I think at that time, you know, I was like, I don't qualify for enough to buy anything reasonable, which is why I went down to Florida where I could buy a condo for like $125,000. So what you don't know is just with commercial financing, at least here in Canada, it's actually a lot easier to qualify as a business owner. And qualifying for anything personally was just always very challenging, and that just wasn't very clear to me at that point in time. And now even seeing how many investors leverage other people's money to obviously buy those investments, you don't even really need your own capital if you can write the right— meet the right people or investors to really get started. So that was just Not on my radar back then.

Well, it's the same way here in the United States. It's very, very challenging for people who are not on a W-2 salary to get conventional real estate financing. And I mean, it's totally different in the commercial realm because they're not even looking at your personal finances. They're looking at your business finances. And then also, commercial financing is not only looking at your business in terms of the financing, but what they're really looking at and interested in is what is the business doing that you're investing in. Yeah, so it's a whole different ball game than residential financing. So just explain in a little bit more detail what led you into the private lending space.

Yeah, so like I said, I had a girlfriend that had suggested that I explore it. And at the same time, the company that I was educated by was a big proponent of this mortgage business that has syndicated mortgages. So basically, you're one of many in kind of a group of investors. And, you know, at that time, they had offered it like a split interest. So you get half of the interest upfront, you get the other half at the back end when it eventually pays out. And it's been, you know, always very stable and consistent. I think the one challenge with that is just some of the delays. So when I went into those opportunities, they laddered them at 12 months, 18 months, and 24 months. And I'm sitting at a little over 5 years, and only 1.5 have come back. So I've still continued to get that interest over that period of time, but there's just been a lot of delays because of COVID and things like that. So I, you know, those were the only syndicated mortgages that I had done at that time. But then just through, you know, this organization, there's so many people constantly raising money for their properties, whether it's to renovate, to buy. In some instances they might offer equity and things like that, but it's very, very common just to see that people are often raising money, and what used to be 12 to 14% on a private lend is now probably 16 to 18%. So I think they're just trying to be competitive because of interest rates going up and things like that. So for me, it's not like I had like a boatload of money just sitting around, but I did have a big line of credit because we had renovated our home and kind of did an opposite Smith maneuver. So we used that just to buy the condo back then in addition to the business money I had to put up. And then when the market went a little crazy back in 2017, I had it reappraised. So a $150,000 line of credit became $655,000. So I had access to that at 3% when I started doing all the private lending. And if you're lending at, you know, 14%, then I'd be making 11% on all of those. Different opportunities.

So what kind of due diligence, uh, do you perform when you're considering a loan?

Yeah, uh, so in the beginning, a lot of the loans were just to different people. So in some instances, they might have to pay off a line of credit for their mortgage to close, or they might need it for a business. So I— in most of those cases, there was a property listed in the agreement, so I would look it up on a platform here called GeoWarehouse to make sure that they were on title. If there was anyone on title that obviously, like, above and beyond them, then I would ask that that person is added to it. I would get a copy of their identification, proof that they own the property. There are some things now that I think I've learned, like if there is more than one person on title, I think it is beneficial to have that signed at a lawyer's office just to make sure that there is no confusion regarding anything that could kind of come up from that. It's also good practice to make sure that you do credit checks, that you are on their insurance policy. it burned down and you're not on it, then they could walk away with that money and there's no asset left. So there are other things that I've learned along the way that I've kind of embedded into my practices. But in the beginning, it was really just to make sure that they owned the asset that was listed, just to make sure that if they ever defaulted, that there was a level of security, even if it wasn't like registered at the beginning.

Well, in the, uh, 4 or 5 years that you have been doing this, have you run into anything that, uh, has really gone wrong with lending?

Yeah, I would say normally it was no. And then just in the last 2 months, there's been a few things that have all come up and it's like, what's happening? So I guess one of the big things is one of the loans that I had gone into, there was some— I don't want to say confusion, but there's been some things raised around the additional people that were added to the agreement, which is to my point of having it signed at the lawyer's office. I went into a loan with a borrower I'd worked with in the past. I'd loaned to him maybe 3 times previously, and it was just a short-term bridge loan. It was supposed to be from April till August. And when I looked it up, it turned out that he didn't own the property where he lived. His parents actually owned it. So I asked that they would be added to the agreement, and obviously just doesn't hold any weight if anything ever happens. And he made the first payment, everything was fine, got the agreement of course with the parents' signature and their identifications. And I guess he defaulted on the second and third months. So my broker suggested I send out a demand letter. And I did. And he basically responded to my lawyer indicating that he did acknowledge going into this loan, but his parents were added fraudulently. And I was like, well, how would I possibly have frauded your parents? Right? So now it's kind of gone back and forth where I've been in touch with the borrower and things like that also. But it's basically going to litigation at this point in time because, yes, he acknowledges, but even acknowledged he had the same copy of the agreement that I did. So obviously it's questionable, like, where he's coming from. Like, it's more likely he did something, not me.

Right?

So we're just trying to sort through some of those situations right now. And I think the other thing is just some of the delays. Like right now there's a lot of challenges with CMHC changing their financing rules and taking longer to refinance properties. So for investors that have used this money for renovation purposes and things like that, it's just taken a little longer. So some of the borrowers have asked to extend for a period of time. So I was really expecting like most of the money that I invested to come back by the summertime, and most of it got pushed back till like end of this year into the beginning of next year. So I think that's just a good lesson that, you know, don't— if you do need it back, you need to be very clear about understanding their exit strategies and things like that so that there's no issues after the fact.

Enlightened investors, if you haven't done so already, be sure and click that like button and also click that share so others can take advantage of the content. And finally, Be sure to subscribe so you don't miss a single one of our upcoming episodes. Yeah, so even though there's delays in getting your money back, you're still getting the interest, at least on those that haven't defaulted. Now that's interesting that you had lent to this individual at least 2 to 3 other times and no problems with that.

Yeah.

And suddenly With this particular loan, you have run into issues with this lender. Yeah, I'm sure that was quite surprising. What do you think?

Very surprising. When I got that letter, I was like, what do you mean? So I think I'm not the only lender that is having an issue right now, and we have different things. Like, I think because of my real estate license and the fact that I added, you know, knew the other parents and things like that, I've got probably a little bit more leverage than some of the other lenders potentially. But I am aware that there are other lenders with this same borrower as well. So hopefully we can get it sorted out sooner than later. But at this point, a statement of claim has been issued and they have 20 days to basically respond. And then if we can't come to a resolution at that point in time, then it will continue down to litigation.

So, yeah. Wow. Well, I hope that works out in your favor. Yeah.

Well, I mean, in 70 deals, I figured I was due for something to come up.

Yes.

Cost of doing business.

Yeah, it, it's surprising you've had smooth sailing for the number of deals that you have had without, without disruptions there. So what should a borrower do to make a lender feel more comfortable? And this would be certainly a new borrower.

Yeah, I think what I've learned in some instances, it's not like they're not going to necessarily offer up everything. So I think as a lender, like, you obviously have to be extra careful. So there are certain things that you can do Like I said, I like to have their identification. I think it's important to show that they do own the asset. Things to do with insurance, credit. Of course, you want to have a lawyer review it. I think just because I was working with the same broker over and over and over again, like, it didn't feel like it was worth it to keep getting it looked over every single time because the language was pretty much the same consistently. But there are things that can be added to add more teeth to it, or if you even put something into your work with a lawyer to draft something that protects you, where I'd say in most instances the borrowers have their own agreements. So people usually just sign them off. And I think at the end of the day, if their lawyers put that together, it's probably going to sway in their favor if anything ever goes wrong, right? So I think it's always a good idea to work with a lawyer that specializes in private lending law to have things looked over. And even just asking how many lenders they're working with. So you want to know, like, are you one of 100? Are you one of 200? Are you one of 5? Obviously, that's very different in terms of where you stand if anything ever goes wrong. Understanding if they are a real estate investor, the size of their portfolio, how much equity maybe they have compared to how much debt they've leveraged, and all of those things. Just because, you know, someone could find themselves overleveraged with the market going down. Maybe they would have better equity before, and maybe they don't now. So I think just trying to look forward and see where everything stands.

So in terms of, of being a lender, Well, the last several years have been— well, just the last couple of years have started to be very challenging for commercial real estate lenders because of the increase in interest rates and the uncertainty in the markets. And it has just become more challenging to find those loans. And so have you found that there has been an increase of syndicators going to private lenders?

I mean, I would say there's definitely a lot of people, like even within the group that I'm part of, there's about 3,200 people and there's constant deal flow. So I think, I don't know if that's necessarily because they're finding it difficult to get money the traditional way. I know in some cases it's just that there's a lot of really significant delays, like commercial refinancing. If there's a pool of properties that a broker is working with or something like that is just taking longer. So I think it's a lot of them from a borrower's perspective just look at private lending as so much easier. So they could probably send something out and have money in hand within a week. But if you're going to try to go to the bank, like, you could be looking at several months, right? So it's much, much harder. So I think just depending on your circumstances, it's just— I can see why it's been favorable from a borrower's standpoint, even if it costs you more upfront. Like, you can get it in hand a lot more quickly.

And well, I—

there are certainly situations where syndicators, uh, think they have financing in place, and then in the midnight hours before the deal is set to close, suddenly the bank pulls out on that.

And, or something comes up that delays it. So I've seen, I've seen those shorter bridges as well, like if they might need a few weeks just because of something that's come up.

Yeah, and I could see how, how your source of lending could, uh, could save a deal, uh, that, uh, That, that would otherwise go up in smoke.

Yeah.

Which can be extraordinarily costly because, uh, syndicators have already put up due diligence money and, yeah, and appraisal money and so on and so forth. So, yeah, um, losing that deal would be very, very costly. So, yeah, yeah, uh, so I could see how you could come in very handy. For those last-minute kind of things.

I like to think about it that it's been mutually beneficial.

Yeah, absolutely.

You know, especially in a way that nobody could have predicted the pandemic. In my circumstances, I had a 3-month-old when it hit, so it's not like I was going to go out and get another job or something. Like, I would have done that, you know, I would have done what I had to do, but nobody could have seen that. So I'm very grateful that I started to do this beforehand so that it wasn't as stressful as it could have been if my income just disappeared completely during that time.

Absolutely. Well, you are also an author, as we mentioned in your introduction there. What was the inspiration to become an author and to write a book, which is no easy undertaking? What made you decide to do that?

Yeah, I think there's, um, it was kind of twofold. Um, so on one side, I think my childhood was just so crazy. So my whole life people would tell me like, you're gonna have to write a book about this one day. So that was like always in the back of my mind just based on the things that I'd gone through. And then on the other side of it, I kind of fell into business quite by accident. So I was a part-time brand ambassador with the agency that I later came to own. So started part-time, the founder asked me to come on board as a manager, 6 months later as a partner, and then she exited about 4 years in pretty unexpectedly. So we basically went through a buyout at that time and I ran it for another 14 years. So the book kind of talks about how those challenges that I experienced growing up really paved the path into entrepreneurship, how I you know, fell into running a business but embraced it and tried to learn along the way and all of those lessons and successes and things that kind of happen when you are a business owner. And I actually met someone that was running a writing retreat in San Diego at the first Investor Summit that I went to 5 years ago. And I wrote about 18 chapters of what became 31 chapters and finished it when I got back. And then I just hit a wall when it came to publishing. So I shelved it. for a couple of years. And then when COVID happened, I decided to do 2 things. So one was get my real estate license, the other was get my book published. So my daughter, as much as she was small, like, my husband would watch her a couple mornings a week, and I would go through, you know, one course for real estate, take a break, work on the book for a couple of weeks, and then I just kind of rotated through those. So it's been out officially for, uh, just past 2 weeks— or just past 2 years, sorry, just this past weekend.

So Well, congratulations on that. And, uh, you have an offer for our, uh, enlightened investors. Uh, so tell us how we can take advantage of that.

Yeah, absolutely. So I do have an electronic copy of the book available, so anyone that's interested can just send me an email at info@serenahomesrealtor.com. And it also outlines, you know, how I fell into the real estate investing and then how I educated myself with that and some of those opportunities that I took early on along the way as well.

Well, let's go into our last 4 questions here and share with us one of your most difficult setbacks in life. And how'd you come through that time? And what was the major lesson you took from that?

Yeah, so obviously, I did talk a little bit about COVID So I'll elaborate a little bit on that. So my business is primarily experiential marketing and event staffing. So we're very much out there. It wasn't the kind of business that we could adapt to anything virtually. So when the pandemic hit, we had about $300,000 in book business that just literally disappeared in about a week. And then we had over a million in our pipeline and just everything disappeared like overnight. So I had to make some really difficult decisions in terms of just scaling my team back. We had an office space, there was 10 of us full-time and a couple thousand who work part-time on an event-to-event basis. So I basically just let the entire team go except for one person and I kept her because again, my daughter was 3 months old and I wanted to have someone that could scale up and down. Like, at that time, like, nobody knew how long it was going to last for. And we went, you know, completely dark for 6 months. We worked for a few months, then we're back in lockdown for 8 months. So just all of the things that kind of came about with that, like, we were paying rent, like, $5,000 a month. And, you know, I was just trying to cut back as much as we could, and I just tried to take advantage of any of the grants that were available. So I think just by being, um, By working very, very quickly, like you know at the very end of COVID I think we came out actually with a little bit more money than we had going into it. So I was able to just preserve what we had. I stopped taking money out, you know, cut all those expenses and stuff like that. But just the timing of all of it, especially having an infant at home, was definitely probably the biggest setback. And I had also tried to sell the business literally three weeks before we went into lockdown, not because we knew the pandemic was coming, but because the girl that I promoted to be my mat leave coverage had. quit after 6 years with me and that was obviously very unexpected. So I kind of panicked and I hired a mergers and acquisitions company to sell the business and then good luck selling an events company in the middle of COVID So we just kind of kept it going. And then when the one full-time girl that I held on to quit, I guess 18 months ago, I knew that we were gonna, you know, get really busy very quickly and I didn't have the resources to scale up. Like I didn't have a team anymore, I didn't have an office anymore and I just had to look at it like, Did I have it in me to try to build back up to where we were before all of that started? And I just felt that I didn't. So I got the mutual release and I spoke to about a dozen agencies here in Toronto, and I had it pretty much sold within 2 weeks, and I closed 2 weeks after that. So it did have a silver lining, like I was able to, you know, come out strong on the other side. But it was definitely a setback that nobody saw coming.

Right.

Yeah.

Wow. Well, uh, what are 3, uh, good things you've experienced In the last 24 hours?

Yeah, so I am part of a mastermind group with real estate investors. There's about 70 of us, and we just had our first trip of the year. There's 3 trips, so we had our first call last night called office hours. So we're basically reviewing all of the highlights from the weekend and the speakers that they brought on board. So that was definitely great reconnecting with everybody. And, you know, my daughter's almost 4 years old, so she's brightens my day every day. So she's always kind of that ray of sunshine. And then I mentioned earlier that I launched my own podcast as well. So I've just been editing my new episodes for next month. And yeah, I just find all the stories and, you know, just hearing about how people got into real estate and how they adapted and where they are now just inspires me every single time. So I've enjoyed going through those.

Wonderful. Well, how are you putting your success As an investor and entrepreneur to create universal well-being?

Yeah, I think for me, you know, I had my own business for 18 years and, you know, I put in the 60 to 70-hour weeks and I, you know, compromised if I was on holidays or at an event. Like, there were so many times I could tell you when I was away and you'd be working and stuff like that. So I think just by investing in real estate and being able to live off that passively for over 4 years, I think is pretty significant. And I think it's just something that people don't understand what's out there. So I think it's been really fulfilling to me when I share stories like this and people reach out and they're like, how can I do this? And we have a conversation about how they could possibly, you know, improve their cash flow. I think one of the challenges a lot of people have right now even is just combating inflation. So you could have been making good money, but if you only had an incremental increase to your salary or something like that, it is getting more and more challenging for people to get by. So I think we're going to see a continued lift in people that are investing just because of necessity. Like, they're just— they have to do something over and above maybe what they're earning in their career with their paycheck.

Absolutely. Well, imagine you've come to the end of your life and you lay on your deathbed. What do you look back on with your greatest sense of joy and fulfillment?

Yeah, I think, again, probably going back to my daughter in the sense that I really at one point thought I wouldn't have kids, and I lost my brother in an accident when I was 6 years old and he was 10. So, I think just seeing how that devastated my mom in particular and my family and stuff like that. I was always very nervous about the concept of having a family and having a child, and it wasn't an easy path also conceiving and having her and things like that. So the fact that we have her and just, you know, it's really made our, our family complete in a lot of ways. So I think that would be probably the biggest thing that I'd look back on.

Well, wonderful being with you, Serena, today. Thank you for enlightening us about real estate lending. And Enlightened Investors, thank you for being with us again today. Delightful to have you with us, and I would greatly appreciate it if you would take a moment to like, share, and also comment. We'd love to hear from you. And also be sure to subscribe. And if you also would go to Apple Podcasts and leave us a rating and a review, it would mean a great deal to us. Thank you so much, Enlightened Investors. We'll see you next time.

Thank you.

In the next episode.

Enlightened investors, wait, wait, don't go just yet. I just want to remind you about our recently launched webinaire that you will not want to miss. If you're at all curious and would like to learn more about how real estate investing can diversify your investment portfolio, alleviate the anxiety associated with Wall Street swings, leverage your 401s and IRAs to substantially increase the return on your investment, and do all of this with turnkey, hands-off, passive real estate investments, then you'll want to immediately go to stevetalker.com/webinar. In the webinar, we'll also address the common dubious investment schemes that you want to avoid. To access the webinar, go to stevetalker.com/webinar. I look forward to seeing you in the webinar.

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