Creative Financing with Kevin Amolsch

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis and Young's Tri State Investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host.

Welcome to episode number 170 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. Thank you as always for joining and really appreciate those of you who have already connected with me at James Nelson nyc. And if I haven't mentioned before, please send suggestions for for guests who you'd like me to interview. One thing that's really great about this show, about half the guests I've known I've dealt with in the past. And once you start listening to the episode, you typically get a sense of if we have that background together. But I always love learning from new investors who have different styles who are investing throughout the country. Obviously my focus throughout my 25 year career has almost exclusively been in New York City. So it's always interesting to hear what people are doing elsewhere across the country or frankly for that matter, around the world. If you didn't check out that episode with Matt Blesso, he talked about his investments in Costa Rica. And so that's worth a listen if you haven't heard it yet. But if you have a guest in mind, please, you can always email annamesnelson.com that's a n n eamesnelson.com Ann is fantastic. She helps promote all the great work we're doing. She also books the guests and does a whole lot more. So feel free to reach out to her guest requests. And you know, if you do that and we have someone on the show, we're gonna go ahead and send you a book while we're at it. So today's show, and this is an interesting one, Kevin Emuls. And I think what Kevin is someone who I had not dealt with before, although when I saw and he's written some books and the 45 day investor. But he talks about investing with no money down. Now I don't know if you're like me, but I remember on some of the late night TV shows and infomercials a gentleman by the name of Carlton Sheets and his whole thing was investing.

With no money down.

And when you hear something like that, usually it gives you a little bit of pause.

You know, is this for real?

This doesn't sound right? So we really did dig in here and Kevin kind of explains how he goes about doing this, which makes a lot more sense once once you hear it. But you're gonna learn about financing deals and how to get involved on the debt side of real estate. In this episode you Kevin is a real estate investor and private money lender at Pine Financial Group. You're going to gather insight on how to be creative with financing and get into properties with no money down. Kevin earned his degree in financing after serving four years in the US army, so we're very grateful for his service. After college he spent two years working with Wall street as a mortgage bond analyst. He stepped away to get involved in real estate financing for investors full time and he and his companies have closed on more than 2,400 transactions as a buyer, seller or private money lender. So you can find out more about Kevin@thepinereport.com also check out his book the 45 Day Investor. And you can always find all these show notes and places to connect@james nelson.com so we're going to have a brief word from our sponsor and we'll get right into that interview with Kevin Imola.

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Welcome everyone. Today, thrilled to have with us Kevin Amalsh who is President of the Pine Financial Group. Kevin, really excited to hear your story. I know it's a great one having served in the military, serving on or serving being on Wall street and now an author of a book as well which we're going to get into. So Kevin, thank you so much for joining us today.

James, I'm so excited to be here.

Perfect. So Kevin, tell us a little bit about your journey that started in the US army and how you became a seasoned expert in the real estate investment and maybe talk a little bit about how your diverse Background and experience has shaped your approach to real estate investing.

Yeah. I'm curious if any of the listeners have some similar experience. But like, I was in, in high school and senior year, you know, getting close to graduation, you're getting excited. And I was like, done with school. I don't want to take one more test. I don't want to study on one more subject. So I. That's when I decided I was going into the military. They. They got me, James, they got me on laser tag. So they said, if you, if you join the military, you're gonna play laser tag for a living. And I was like, I am in. Where do I sign? So I went into the army. And the great thing about that is I was saving money because you don't spend a lot of money when you're in the service. Very different than college experience, probably. So I was saving money and decided, like, how am I going to invest this? Where can I make the highest return? So I just read books, you know, the rich dads, the poor dads, those. Those types of things that we all hear about. And all of the experts that I was drawn to or attracted to were telling me real estate is the way to go. So I really just started focusing on. On real estate as an investment. And I bought my first house before I got out of the military. I was just turning 21 at the time, Moved into it, filled it up with. With roommates that pay my bills for me. Two years later, I moved out of it and I had my first rental property. It's really a cool, kind of fun story that how I bought that second house because, you know, I had access to the va, which is no money down, but I didn't use that loan. I actually borrowed money from a student, student loan money. And I use that as my down payment on my second house. So that was kind of a creative way to. To get into a property with no money down. And. And it helped me, you know, pick up my first official rental property. So, 23 years old, there I was. I was a landlord.

Amazing. Well, first of all, thank you for your service and wanted to talk a little bit more about that military training, maybe talk about the discipline, the work ethic. I'm sure that stayed with you today and in your career.

Yeah. And I quickly realized that I didn't want the military to be my career. I loved it. I'm not regretting anything about my experience there, but I just couldn't make enough money. And I really had big dreams and goals, and I want to accomplish a Lot I wasn't, I was being restricted there. So I knew rather early that I was going to be exiting when my term was up. So I did finally start going to school and I, I worked on, got about a year of credits in before I got out and then I went into college full time. I don't know that I could say I got a ton of skills honestly from the military and that experience that help me today, I got that from my father, um, growing up. He, he worked, he worked hard, really hard and he was a single father and raised me and my brother and my sister and I just saw his struggles and his effort that he put into, to his success and that's where I learned it from. But in, in the military for me it was just like, hey, hanging out with my buddies, let's, let's work hard, clearly. But it was, it was a lot more fun and not necessarily driving towards a goal, if that makes sense.

Got it. So, yes. Surprised with the answer because you think we've actually had recently on the show, we've had two different pilots and they've talked about the checklist and how they have a system for what they're doing. So I was thinking maybe with the regimented program that maybe that's instilled in you some type of process for how you go about investing, but it sounds like maybe you pick some of that up on Wall street. So. But before we get to that, so you end up buying your first house and then renting it out. So most 21, 22, 23 year olds are not thinking about how do you buy a home, let alone rent it out to friends. So what inspired you at that point to jump in and take that risk? I mean, I'm sure, and it sounds like you had read some books, but I'm sure there was a leap of faith at the time and maybe a little bit of trepidation as far as what you were getting into.

Oh, for sure. And, and I, I got a FHA loan on that very first one. So I had, I did have to save that three and a half percent down payment, but that's what I was doing while I was in. Right. Cause I was eating at the mess hall, I was living in the barracks. And I'm going to get back to your, your question here. But I, I wanted to back up to the two pilots because what I did was very, very different than flying a plane. Right. I was a grunt, so I was like the low man enlisted 18 year old kid fresh out of high school. So it was pretty much. You do what you're told and that's it. So there wasn't really much, like, risk. Right. So I wasn't like flying a plane. Um, but so back to, back to your question about the inspiration or the motivation that. I get that question a lot, James, and I gotta tell you, that's a really tough one to answer because I think everybody's different where they get their, their goals and their whys from. But I really wanted, I really wanted to be successful. I wanted to feel what it was like to have financial freedom. I, I saw the struggle growing up. Right. So I wanted to, and I didn't share this, but we were lower middle class at best. But I didn't know that because he, he hid that from us. So he was working really late at night and, and he was at all my soccer games. He was at all the practices. And I didn't know that we were fighting and struggling to get through this. But I did see that it wasn't the biggest Christmases like my friends got, and I didn't, I saw that we couldn't go on the vacations unless we were, you know, riding in the car. I didn't, I didn't ride in a plane until I was a teenager. So we didn't, we just didn't have a lot of that. So I wanted that for myself and my family when I eventually had a family.

Yeah, no, I, I, it's so wonderful that you had that appreciation and that desire to have that, that security, that financial security. I think sometimes people who are given a lot of things growing up, who might even take that for granted don't realize, you know, the struggle and what's required. So maybe it was the tougher road. But you, you definitely were fortunate to get started early and it wasn't terrible.

Right? I mean, we had a good life. It's just, just maybe not as good as some of my buddies or my pals.

So the whole, and maybe now I'm jumping ahead to your book, but just because you talked about using student loans and fha, the whole notion of the no money down. And I remember even in college there was Carlton Sheets. He was late night infomercial, buy real estate, no money down. And you know, when I, when I saw and heard about your book, wanted to really learn more about this approach because oftentimes when people hear no money down, they just assume there's some kind of trick or it's not real or some, you know, there's got to be some kind of catch. So maybe talk a little Bit more about, you know, how you came to that realization early on that you could even do that.

Yeah. So there's a lot of different ways to buy properties. No money down. So that, that I was a little bit creative when I used a student loan as a down payment and I went out and got a conventional loan. I mean, that's something that a lot of people, a lot of investors probably don't think about. But the cool thing about real estate is you could be as creative as you. I mean, there's so many options. You could be as creative as you want to be. Literally, you could do almost anything if you have the right people at the table. So what I learned early on is I can't, I can't go to a realtor and, and go to a mortgage broker and say, hey, let's go find a no money down deal. Can you, can you help me? Let's look in the MLS and let's just go, go look at houses. It doesn't work like that. I, I had to market myself in my company and I'd send out letters and I would pick up the phone and cold call people in foreclosure or knock on their doors. And what I'm trying to accomplish here is getting into the house. Right. Because if I have a person with a situation that I could help and I have the skills and the tools to help them and profit from that, then that creates the exact environment that I want to be in to try to operate the business. And what I didn't mention is I got started as an investment, it was a real estate investment. And then I saw the cash flow. I saw the tenant paying off my mortgage for me. I was making more money on that one little rental property than I was working part time. I was like, if I just had two or three or four of these, what is that going to do? Now I had some advantage there because it was, you know, before 911 in 2001 and everything was going up like crazy. We were seeing double digit appreciation. So I was getting a benefit there. But I, I saw it and so I decided this isn't going to be an investment. This is going to be a career. And that's when I really started focusing in and focusing in on that no money down strategy. Because I was a college kid, I couldn't afford to go get loans. So that's how I learned to go meet with owners individually and then I could have them provide the financing for me. And they don't ask for down payments if you're solving their problem for them.

Why don't we go ahead and dig a little bit more into that. Maybe you could give a specific example because people might still be listening to this and saying, okay, wait a second. So I get. If you're going to get some type of FHA loan and it's three and a half percent down and then you go borrow the three and a half percent from somewhere else. So that makes sense. But you know, if you're basically telling an owner you're trying to solve their problem and, but you're not bringing any cash to the table, I'm not really understanding how that's, that's working. So maybe you could break.

So glad you asked. So there's, there's multiple ways that you could go, you could do this. But I'm going to, I'm going to cover the primary way that I got started in it and then another way that I kind of migrated into, especially because of the way the markets changed, which I want to talk about that. So I'm not trying to lead here, but the lease option is by far the easiest way to get into no money down real estate in my opinion. And the reason for that is a lease option is very simple to understand and it's a very simple transaction to put together. So a lease option is really simple. The unili. It's a lease with an option. An option is a unilateral agreement where I have the right to buy or not buy. Just like a stock option, I could exercise that option or not. They have to sell it. They have already agreed to sell it. It's at a set price for a set period of time. Right. So give you an example, I would do a, maybe a 10 year lease option. I always went really long in case there was market fluctuation. So I say a 10 year lease option and I'd pay simple numbers, $1,000 per month in rent. That solved their problem. Whatever their problem is almost always double payments or some kind of financial, monthly financial pressure. So that monthly not solved that problem, but in exchange for solving that problem for you, I need a set price. It's $100,000 in. And I have to exercise that option if I'm going to do that within the 10 year period. Right, we talked about the 10 year period. So $1,000 a month, $100,000 purchase price. I have 10 years to do it and then I just sublease it out. So maybe I lease it out for 11 or $1200 a month, make sure I cover that $1000 monthly expense. That I just created. And then as the property goes up in value, year 2, 3, 4, 5, then my, that option agreement becomes very valuable because now it might be worth 140, 150, $160,000. And I have the right to buy it for 100. So that gives me a ton of options, right, James? I could sell my option agreement, give me 10 grand and then you're going to get a $40,000 discount on this house. Or what if I exercise my option and then flip it? I could flip the house. I could sell, resell the house for the full value and make my full 40, 50, 60 grand. So that's just one example of how you can get into real estate with no money.

You've just done this on homes or does this work for commercial as well?

It's, it's actually more common in the commercial space. Land too. A lot of options on land. So I've done it, I've done it on up to four units. I haven't personally done a lease option on anything larger than that, but my company is financing one right now. The guy had a, had an option on a retail center and his option is coming due and so we're going to provide the money to fund it. And there's just so much equity in it. It makes us, it's a really simple decision for us to make that loan.

So for those of you listening right now, maybe you're watching us on LinkedIn or on Twitter where we're, we're streaming, you might say, okay, James, I'm, I'm a commercial investor. I'm looking to buy apartment buildings. What are we talking about? Three, four families? And what I would tell you is in this market, creativity is incredibly important in how you structure transactions. So Kevin, appreciate your walking us through this. Now I'm going to try to poke holes in this because, Kevin, if I'm an owner and I'm under distress and you say, okay, I know we're using $1,000 a month to keep it nice and easy, but if you can turn around the next day and rent it for 12, 1300, why do I need you for a thousand a month? And then I have to agree to sell my property to you, why don't I just go find that 12, $1300 a month subtenant myself?

Oh yeah, it's actually a pretty simple process here. When I sit down with an owner of the house, I'm really, my goal is to eliminate four options so that I'm the only one. So what are your options when you're going to sell. And, and I'm using single family houses because that's where the bulk of my experience was. Now I'm doing a ton of commercial stuff on the, on the private lending and finance side. So I understand the commercial as well. Let's just, let's say it's 100 unit apartment building, whatever building you want to use. It's all the same. So if I, what are your options when you're going to sell it? You could list, list it right publicly. You get the MLS or LoopNet or Crexi or whatever it is. You could list it. You could try to for sale by owner, or you could rent it with a property manager, or you could rent it out yourself. So in your objection here, you're, you're going after. Rented out myself. That's, that's what you're suggesting that we, we take a look at. So my job would be to eliminate that option for you. Right? So James, you want to, you want to rent out the house because you know, it might rent for twelve hundred dollars. I totally get it. You probably should do that. I mean tenants are probably going to take care of that property really well. Right? And then, yeah, maybe the tenants will take. Well, how much is it when a property turns over? Or what if, what if you're moving And I'm cruising through examples here, but what if you're moving out of state and that's what's creating the pressure? Well, what if they lock their keys in the house at midnight and you get a call at 1 or 2 in the morning? What's the plan? Let's just talk through the plan so that you're making the best decision.

So Kevin, it's interesting because I'm thinking about what you're describing is probably what Saunders is doing at a much greater scale. They're saying, okay, we're going to basically master lease your entire property and we're going to handle all the subletting. Right? So. Okay, so you're solving my problem because you're dealing with absentee landlords. They don't. It's a headache for them. And you're just. Your steady income stream just, you know, makes, makes checks the box for them for whatever they need to satisfy with their loan payment or whatever, whatever it is. And then I would imagine at the time that option price has to be compelling enough that it's at least at or above current market levels. If not, you know, why, why would they do that? They're obviously not going to give you an under market option so you're basically hoping for future appreciation. And I would push back.

Yeah, I'd push back on that. I, I would never, I mean I guess you could, you could offer more than the house is worth and just hope for appreciation because the worst case it doesn't appreciate and you don't exercise your option. So it's not a huge risk there. As long as you don't have a. You're losing money every month. Right? As long as you could control that monthly, then you, you'll be fine either way. But I wouldn't offer to pay someone more than it, it's worth. I, you should probably give me a discount because I'm fixing your problem. So if we're doing a 100 unit building, maybe it's half vacant. Like what is the problem here that we're trying to solve? Maybe your property manager. Like I had this happen. I, I owned a, a, what was a 26 unit building in Branson, Missouri of all places. And, and my property manager was stealing money from me because there was a cash, it was like a cash operation. They don't, they didn't have in that specific market. They didn't have checking accounts and, and, and bank accounts where they could pay their rent. We didn't, we didn't have automatic payment options. So he literally would go and collect the rent. And I saw maybe half, I have no idea how much, how much of it I saw. So that was a problem for me that I, I really could use an investor in that market to help me with.

So this is interesting that this idea of the, the lease with an option to buy. So what are the other things? And I would assume these are the typ that you have in your book, the 45 Day Investor. So what are some of the other strategies that you talk about in that book?

Yeah, so the lease option really is the primary strategy in that book because I think if you're beginning a newer real estate investor and if you're talking about residential again, that is the tool that could really jumpstart you. That's exactly what happened for me. So I tell a lot of stories about how I was getting started and I focus in on that. But they also have the buy with private money or hard money and leverage it as much as you can. And we could talk about that because a lot of private money lenders don't necessarily care about a loan to cost ratio. They're more concerned with a loan to value ratio. And if you can get a good enough deal and can. And with the construction numbers and Everything and be under a certain LTV loan to value some hard money lenders and some private money lenders will finance 100% of your deal. Right. So that, and then once you get the tenant in, you get it cleaned up, get the tenant in, you're producing income, then it's bankable. Now you go get your Fannie Mae loan or your, your bank loan and pay that hard money lender off. So that's another strategy to get into properties with no money down. So I talk a little bit about that one in the book also, but I really go into great detail on the lease option because that's the one. I really do believe this. I think that's the one that if you're newer and you're really trying to find no money down real estate, that's the one that's going to get you going.

Great. Well, appreciate your sharing that and being a fellow author. I, I know what goes into writing that book. It's a lot of effort, but maybe you can share with us what was the impetus? Why did you decide, okay, I've done this, I've figured this out, now I'm going to go write a book?

Yeah. So we haven't really talked about this so much, but back when I was kind of getting started, I'd go to all the monthly meetings, right? You have your RIA meetings and your networking meet. Now it's meet up, right. Meetup. So I was going to all of these meetings and some of them had online forums, um, much like you'd have with Facebook or LinkedIn right now with the groups. Right. So they would have these different forums and, and there's discussions and, and everybody in the community knew who I was because I was just young kid buying a house or two houses every single month. And, and so they would all come up to me at the meetings. And that, that actually felt really good, which created problems for me and I, I learned the hard way of that. But I was just getting the questions, how are you doing it? How you doing? How did you buy this one? What'd you. So it's just constant questions at these monthly meetings. So I just decided to like, it's better I could help more people than answering these questions to just write the book. And so it started off as a biography, exactly how I did it. And as I was writing, I was like, man, this is really hard to write a biography. Let's, let's just switch this into more of a how to and give actual advice. Like, these are the tips. This is what's going to work. This is not necessarily how I did it specifically, but the tools that will work for you. And so there's scripts and different marketing pieces that you could use for your marketing, and there's the forms and documents and all of that's in there.

So, Kevin, I'm always fascinated by people who share their playbook, if you will. So you figure this out. You're in a market, you're going out, you're networking, you're meeting people, people are asking you how you do it, and you basically turn around and write the book and say, here's the playbook. So were you thinking at the time, wait a second, if I share with everybody what I'm doing now, what I'm doing is basically just fueling the competition or what. Did you have any thoughts there? Because I think it's always an interesting point to consider.

Yeah, you think about that in business all the time, don't you? But I got to tell you, I got an abundance mindset, and I've learned that because of the books and home study courses and the meditations and all the things that we do to improve. So the, what the, what you're describing right here is a very limited mindset. And I think having that type of mindset is going to limit you regardless of you have competition you're trying to keep out or not. And so to me, having the correct mindset of an abundance is much more important than trying to prevent a competitor from, from getting a deal from, from from behind me or under me. But yeah, I could tell you in this industry, and you know this, in the real estate industry, there's more cooperation than any other industry. I've seen people do deals with each other, they wholesale to each other, they partner, they bring in money. I mean, people work together more than I've seen in any other industry.

Yeah, Kevin, I love that and couldn't agree with you more was certainly, you know, you have that pay it forward mentality that, that really, when I think about why did I write the book? Because it needed to be written. Right. No one, obviously, if there was another resource out there that you could recommend and say, okay, here's the book, this is how you do it. But yes, putting that goodwill out there without an expectation for that immediate return and knowing that, look, there's plenty of opportunities for everyone and that mindset that, look, let's think about ways maybe you share with someone on how you're doing something, they're going to let you into the fold. So I'm sure that's Come back to you many times.

For sure. It was Zig Ziglar that said, you can have anything you want or you can have as much as you want, as long as you help enough people get what they want. I. I believe that.

Love that. Good. So, Kevin, I want to go back kind of backwards a little bit on your story, because I'm curious that you spent time on Wall street as a mortgage bond analyst. So was that. So you retire from the military and then you jump straight to Wall street, talk a little bit about that transition and what that job entailed.

Yeah, James. So the Wall street experience, I was more of a. That's. That sounds really great in a bio. Right. But I did do it. But it isn't necessarily something that I'm super proud of. And here's why I got in. I got into analyzing bonds in 2000. Guess what was this, 2015. And it was because my real estate business wasn't going well and I needed some additional cash flow. So I just went out looking for a job, something temporary that I could bring in some income so I can get through the, the challenging time that I was in and working in finance. I had a degree in finance. I, I understood finance. I love finance. And I saw the, the position. The company went public. It's based in Denver, but all of, all the clients of the company were Wall street firms. So you think about the big, the big firms, the Bear Stearns and Lehman Brothers and all of these guys, right, that were buying big mortgage bonds. So we were. I was just analyzing those, and it was. It was a grind. It was like there was this monthly. I guess it was a schedule almost. And so the first of the month, we do this, and it was all spelled out till the, the end of the month. And then that's when we send all the reports to the clients. This is how much money we saved. This is how your bonds are doing, blah, blah, blah. Next month starts over. And so it's just really dry. And it was challenging. And. And so I decided to get out of that as soon as I had enough money that I felt comfortable going back on my own. I never stopped investing. I just. I just needed this. I just needed a little bit of help as I worked through the challenge.

I would like to understand a little bit more just because in thinking about. And if you read Michael Lewis's the Big Short and talking about, you know, the really successful investors that got under the hood and really read all these documents and statements. So I don't know if that was kind of Part of your job to understand what was in these, you know, huge pools of mortgages. But you know, now that we're seeing and right now the news in New York, everybody's talking about the signature loan portfolio and understanding what is, what's really involved there in the collateral. So just maybe only if it's, it's helpful to our listeners the kind of diligence or things you were doing to kind of get under the hood and figure out what, what these bonds actually consisted of.

Yeah, for sure, I'll definitely do that. I think it's, it's kind of fun to talk about this. I did, I was a decade off of my mat on my numbers there because I was thinking 2016 is when I started a new thing, but it was actually 2006. So it was 2004 when I started working in 2004, 2005 when I started working as a bond analyst. So all of this was, that was coming up, all of these really terrible bonds. You know, these are the high, full of loans with high loan to values. No, no credit checks, no income checks and all of that. Those are the bonds that I was analyzing because I was a subprime bond analyst. So I saw all of that. What is so fascinating about the big short and the crash in 2008 is none of us, that entire office, none of us saw this coming. And I know some people claim that they, they did, but I don't know how because, and just like the, the big short like this caught everybody by complete surprise. But now when you look back on it, it's like why are we surprised? Like we literally made loans to people that couldn't afford them. That's, that's what we were doing. But the thing about one thing that I think is important about the secondary market is the bond buyers buy the bonds and then they hire servicing companies to service them. So when you make your payment each month, your more on your mortgage, that's not going to the owner of the bond, that's going to the servicing company of the bond. And the bond servicers or the mortgage servicers are graded right. So they have like Moody's grading and they can charge more and they get more clients if they have higher grades. Well, one of the things that downgrades loan servicers is defaults. So I get questions all the time. If you're doing this creative financing and you're doing lease options because lease options could create a problem for the underlying loan. So if you're doing these types of transactions, why aren't the lenders calling them due. Well, the answer to that is because it's not the lender. The lender doesn't even know it's the loan servicer that might be aware. But why would they call a loan due and put it into a foreclosure when it can affect their rate? Right. As long as the payments are coming in, the servicer looks great. So they want performing loans even when the interest rates go up. So the lender might want to get that money back so they could reload it out at a higher rate. Right, that's what we think. But the reality is nobody wants to go to a foreclosure. They want. They would rather a lower interest rate performing loan than to push a loan from current into a foreclosure status.

Yeah, Kevin, that is really insightful with everything that's going on today and makes a lot of sense. So appreciate your sharing that. And I would imagine when, look, we were all drinking the Kool Aid and it was 2006, 2007, values were just skyrocketing. So I guess to your point, look, if the collateral is every year it's worth more and more your money. Good. Right. So, but kind of crazy, of course, in retrospect to say, okay, how are these loans being made? I think I remember they called them ninja loans. No income, no job.

That's good you remember.

Yep, yep. So, well, interesting. So that experience again, you realize that that was just kind of a means to an end, provided some cash flow that you could redeploy. So about this time, I mean, because I looked and you said you've been involved in 2400 transactions as your, in your career as a buyer, seller, and also as a private money lender. So you got to a point where you're buying a couple homes, couple properties a month. So I would have to think that at some point the volume of all this, that certainly does become a full time occupation. Were you also building out a team to help source these opportunities? How are you really scaling your business?

Yeah, that's a great question. So what I, what I fell in love with in this industry is the financing. So we talked a lot about the, the creative financing, the lease options, and there's a lot of, lots of other ways. But I, that's what I enjoyed. I just love sitting down with somebody and talking through our options and working together to be more creative on a solution. And you mentioned commercial real estate. It's far more creative on the commercial side than residential. Residential owners don't understand any of this. Commercial sellers A lot of them, a lot of them understand this and especially in today's market, they have to provide owner financing to get deals closed. So they are more sophisticated, they understand it better, they're easier to negotiate with. So I would rather be doing commercial to be, to be honest with you. But I love the creativity. And what I fell in love with was that and all the creativity is around the financing. If you really think about it, the way you offer on the, on the house or the, the apartment building, the way you negotiate it, how everything looks, has everything to do with how you're going to fund, has who's your partners, who's, who's the lending, that's how you structure the deal. So I just fell in love with the financing and I started going that direction. I ended up getting recruited before the crash to be a mortgage broker. So I did that for a little while. That was challenging as well. But I love the idea of providing loans to real estate investors. So I just needed to get more control because I, in the, in the conventional lending world, I have no control. But I did learn how, if I could, if I could raise a little bit of capital from private investors and loan that out, I can make good, smart lending decisions. I could service alone, I could take care of my client. And so it just grew from there. I started doing that in 2006, 2008, the crash hit. My partner that I was working with at the time we separated, she wanted to teach real estate. She's very good at that. I like doing deals. I'm more of a in the trenches guy. So I started pine Financial in 2008 and that's where the big numbers come from. You're looking at 2,400 transactions. It's far more than that, to be honest with you. Between the. I've done 150ish on my own and then over 2,400 just in Pine Financial.

As intermediary broker or as a direct lender.

Or direct lenders. Yep, I just, I raised the money. Now we have four mortgage funds. One of them's a public fund. It's a reg A. So we are allowed to advertise. We could bring in non and non accredited investors. And then I also sell off loans sometimes to a group of, of investors that I've worked with for years to help create liquidity. But everything's in house. We originate and service 100% of our deals Right, right here.

So, Kevin, talk about what type of lending you're doing. So what is the profile of the borrower? How Are you structuring those? So let's talk about the loan product first and then I want to talk about how you're raising the capital to provide.

Yep. So really there's, there's two primary loans. We have a rehab loan, which this is what I was alluding to earlier. We don't have a loan to cost ratio. So I'll finance 100% of the, of the deal, purchase, rehab and closing costs, but we have to stay under 70% of the completed value. And, and we issue all the construction money and draws to make sure that we're hitting that value. So that's kind of, that's the one that started. It's like flagship. It's, it's what got me going. But then we're getting some feedback. Well, I don't mind putting a little bit of skin into the deal. We just need a little bit better terms. So we also offer a 90% bridge. There's no construction money in that one. It's just 10% down and we close super fast. We don't get appraisals or anything on that one. That's really a safe loan. So those are our two primaries. On the commercial side, it's all bridge loans. There's not a set. You can't have a set loan in commercial because everything's just so different. But we do, it's all value add bridge. So think about, we keep going back to these apartments, but if you have a 50% vacant building, banks aren't going to want to finance that. So what are you going to do to clean it up? What are you going to do to get tenants in there paying, Are you raising rents? What's the plan? What's going to get you to that stabilized value? And then we'll finance based on that stabilized value. But whatever capex or construction money that you need to do your plan, we want to escrow that and just like a rehab loan and issue it in draws. So I guess there's three loans there, two on the residential side and then we do commercial value at bridge lending.

So Kevin, I would imagine that the most important thing that you're looking at when you're providing debt is what is that ultimate valuation? So how do you get comfortable when you say something like I'm going to loan 70% of completed value or 90% of the acquisition. So I would imagine it's really important that you understand the value. So how do you get your arms, especially with doing this kind of volume? Are you doing appraisals? Are you talk, talk to us about how you're getting comfortable with the collateral.

Yeah, great question. So we do an appraisal on every deal we do except for those 90 percenters. And if you think about it, if we're doing only 90% of the purchase and you're adding value, you know, you're doing, you're funding all of your own construction, that's putting us at a really low loan to cost by the time we get to that, that end value. So that's just, in fact, I don't even know if we've seen a default on, on that product. It's just really a safe loan. So we do our desktop valuation and I think I'm good at valuing properties and my team is, because we look at so many appraisals and we'll do 15 or 20 deals in a month's time. So we've, we see a lot of appraisals and we know how to make those adjustments and, and what to look for. So that one is just a, it's an internal desk review and then the other ones are all full appraisals because we really are highly reliant on that, as you mentioned.

So, Kevin, not to press on this, but I think one of the challenges, especially with these appraisals is that oftentimes the comps, what they're using are rear view indicators. Right. So, you know, we know and we're recording this In September of 23, we had a huge run up in rates and if you're using comps from a year ago, they're definitely dated. Right. So now I know residential, commercial, there's been a different impact in pricing and in some markets residential has continued to go up. But just to depress you a little bit on using these appraisals, how are you still getting the comfort level that that value is going to be there today? If you run into that situation where your borrower doesn't perform well, let's go.

To the commercial side because I think that's the one that's a bigger concern. In fact, I think that we're going to see some significant softening in the space and I would love to chat with you. I know we don't have time, but maybe another time let's, let's get on and talk about what's going on in the commercial real estate market. But we're pretty conservative, so we're at 65% of the value on the commercial side because I do think that we need to create some room for softening and then you're Right. Every. Of course everything's dated because it's what's actually sold. That's what's most important. What's actually sold is way more important that one. Maybe, maybe you're not sell later even if it's pending. Right. So we have to take historic data. Even if it closed yesterday, it's already, it's already old. Right. It's already a day old. So we, the thing about, the thing about data is you could see median types of values and you could see what kind of market adjustments need to be made. So we're starting to see a lot of market adjustments in appraisals across the board. If this is the best comp and it's a year old and interest rates were here and cap rates were here. Well, we think cap rates might be here now. So we're seeing that show up in the appraisal. We have to make an adjustment for an increase in the cap rate. And so they'll, they'll ding the value of the property because of market time. So that's, that's one way we're doing it. But again, the main way is just being ultra conservative on our loan to values.

Great. Really appreciate your going into the details there and I always try to ask the questions that I think our listeners would want to know. So appreciate it.

I love it because you really challenged me. James. This has been great because you're not just taking what I say. You're like, let's, you really know what you're talking about.

Well, so let's. Now that you've explained the, the approach and that that makes a lot of sense, let's talk about how you're raising the capital to do this. So. And I think a lot of our listeners are thinking about how am I going to. Maybe they've already bought a couple of properties. How am I going to scale it? They're on the equity side. But there's probably not a lot of the listeners thinking about putting out debt. But talk about why you've gravitated more to the debt side than the equity side because you, you built up your own portfolio. Obviously you figured out a way to creatively structure, but it looks like you've gone heavy into the debt side. So reason why you've chosen to focus on the debt side.

Yeah. And I'm still buying so behind financials one arm and that produces most of my income. And then I try to pull that money out of the company. As a business owner, that's not always easy. But try to get money out And I'm still doing my own deal. So I want to build my own portfolio on this side. So I'm still doing both. But here I love the debt side. I do. You're spot on. Here's why I love consistency. I want something that I can count on, something that's reliable. I, I lived through 2008. I owned almost 60 houses, single family homes, not just doors. Right. You hear all this. I own all these doors. I own individual 60 individual single family homes. Almost that, that hurt bad. I have scars from that. So I, I want to learn from that mistake and not make that mistake again. So if I have something that's going to produce very consistent something, I could rely on cash flow. I'm, I'm very interested in that. So I, I like the debt side. I also think that it allows me the abundance mindset, again allows me to help more people than if I'm just buying from my own portfolio. So I could be extremely profitable and see other people make money too.

So that makes a lot of sense. But Kevin, once again I'm going to press you a little bit and I'm going to talk about, and not to say that you can't see issues and you talk about those challenges of holding property owing the lender when market conditions change, but also maybe if you overestimated a property's value or maybe you're dealing with maybe not the best borrower and suddenly you find in a situation where your loan goes into default. Now I realize this is very specific to where you are lending. There's judicial, non judicial states. And by the way, for our listeners, if you're thinking about lending, you definitely want to make sure that you have great counsel and an understanding of how to structure these loan documents so you don't get into a sit. But still, I mean, Kevin, I'm sure if you've done this many deals, there's going to be a couple of horror stories where someone defaulted and it took time to work through that. So maybe, Kevin, not, not for you to share some of the horror stories, but what are some of those issues that you've had? Maybe when borrowers have defaulted and how did you remedy them?

Yeah, and I do have plenty of those. Right. So we, our default rate floats around 1.7. So and we use a default rate of when we actually get the property back. So if we get the property back, that's a default. So 1.7% of our loans end up in default. So and oftentimes, I mean I've, we've made more you know, on some of them, because we were right on the value and we withheld the money for construction and they defaulted. A lot of times we see, like a business partnership divorce and the whole deal just falls apart because the two, the two partners can't get along. Right. So there's nothing wrong with the real estate. It's just this problem over here. And if we have to take that back, then we're in a pretty good position. We've had houses that were completely done, but they wouldn't, they weren't willing to lower their price in the mls and so they're just being very greedy. And we had to default. Default that. So it could be. It could be a number of different things. But, yes, sometimes we've taken properties back and it was a bigger problem than we anticipated. Maybe we missed on the value, maybe we missed on the construction. Sometimes we have to undo the construction that they did because they didn't do it correctly. Right. Even though we're inspecting it, we still miss sometimes. And we'll take some time and the.

Legal piece to it because again, I know this is state by state, but you hear these horror stories of being in foreclosure and trying to pursue that for years, and then you get to the finish line and the borrower puts the entity into bankruptcy. That buys them another, you know, more time. So how do you navigate and make sure that you have the right counsel to properly handle this and that it doesn't take on a life of its own?

Well, a lot of that's what you said. It's depending on the state that you're in. So you happen to be in one of the worst states to lend in in the entire country. Right. I wouldn't lend in New York because the laws are. It's going to take me 12 to 14 months to foreclose on a property. Now, I could do it in Colorado in five, I could do it in Texas in one. Right. So absolutely, you want to know what the foreclosure laws are. And these two, three years that you're explaining to me, I've got to believe those examples that are coming to your mind is from COVID because a lot of the country had moratoriums on foreclosures, even on investment loan, investment property loans. So you literally couldn't foreclose on people during that time. Now, that's unprecedented. Right. We can't, we can't plan or underwrite for that. But for me, I would say, yeah, get an attorney that knows, knows the area. I would suggest staying in your own backyard. Unless you have a professional that's loaning your money out for you and they're loaning in their lending areas. If you're out here trying to do it on your own, 100% stay in your backyard with good real estate lending attorney. Not a real estate attorney. A real estate lending attorney is what you're going to want.

That's great.

And maybe have them explain to you what is the foreclose. What should I expect if I have to foreclose? What if I get challenged? Because bankruptcy is just one way that you can get challenged. And then how do I. How do you work through, how do you work through that?

It's great advice and certainly something that I start off my book with is having the right professionals on your team who are specialists. So I'm really glad that you brought that up as well. So now Kevin, talk about your investor base. So when you go out and make these loans, if you're doing this kind of volume, 15, 20 loans a month, I'd be very surprised if you told me you were doing this on a deal specific or maybe sometimes our listeners might have an ultra high net worth individual that they're investing on behalf. But it sounds like you're doing this as a fund structure. So maybe talk about kind of the various vehicles that you've used and then how do you raise the capital for them?

Yeah, so we've done, we actually have done five or six. One of them we dissolved and we can go into that story if you like. But there's only four active funds right now. Three of them are Reg Ds and these are the 506C, 506C maybe 506B but I think it's a 506C where I'm allowed 35 non accredited investors. And then this was all before the new Jobs act came in and 506C allowed for marketing before it was all private. If you didn't know somebody who knew somebody, you were never going to hear about this, this type of, of investment. Now with the JOBS act and, and the SEC being more open to this, you're starting to see more advertising for funds like this. But so Those are all five 506s. And then the one that we are accepting investors in now is a reg A. Now Regulation a, this regulation a plus which is I could raise money in all 50 states up to 75 million. And I don't have to be, I don't have to qualify accredited versus non accredited. The only qualification is we can't accept Investors that are investing more than 10% of their net worth. But the burden is on them. I don't have to document that. It's. They sign something that says, yeah, this is 10% or less of my net worth and then we can accept the investment. So what's really cool about this one is we could bring in people that we could help more people. Again, it's all about helping as many as we can. Someone who just has $10,000 and wants a little bit of stability in their portfolio, we're taking them. We have investors with 17 million. So we have a big, big range of, of investors. But the reg A is our primary source of capital. Right now it's about 45 million on the way to 75 is where we're at. And when we need, I think I mentioned this, but when we need some additional liquidity because we have more loans to fund, we'll sell loans out of the fund and we just sell them at par value and pay a return on those. So it's kind of a multitude of ways and it's just 15 years of doing it.

Great. And I'm sure you would tell us that you had a lot of legal advice on how to structure these funds. And I know going through that process, certainly a reg A, I know there's a lot of steps and disclosures to make sure that you're doing this in the right way.

So yeah, it's not easy or cheap. I mean, but you got to pay for. You pay to play, right. If you want to do it right, which you do. I didn't at one time I thought I was doing it right and I didn't called the authorities and asked them if I was doing it right. That was a big mistake. But you learn, right? So get your advice from attorneys and make sure that they know what they're doing.

Great. So Kevin, what advice? We have a lot of first time investors, maybe people who are in the commercial business, but they're looking to build out their own platform. So if you were to talk to that person today who maybe have interest to get into the lending space, what advice would you give them?

So if they want to loan their own money into the lending space, yeah, I would definitely get.

Raise money from others to put out debt.

You know, it's great that you asked that because there's no book on this. You know, I've been looking. There's. There's nothing, no way. So I am writing another book on this exact subject. Advice I would give. Gosh, get first one you need on Your team is an attorney. And now we're not talking about a real estate attorney. We're not talking about a real estate lending attorney. Now you need a securities attorney because when you're raising capital, you are selling a security. And that's, that's a whole nother world of rules, and it's very, very strict. So have a good securities attorney giving you some advice on how to do this. And do not advertise unless you have the appropriate. The vehicle set up. Because the, the SEC is looking at that. They're looking at websites, they're looking at social media posts. If you're posting to bring in capital and you don't have the correct notifications or the, or qualifications with the sec, they are going to get you.

Kevin.

I guess that's the biggest advice.

Just give me that, because sometimes I read, you know, someone tweets or they talk about fundraising and the types of returns that they're guaranteeing, and I just. To me, that's just red flags. I know, having been involved in two funds myself, understanding even if you are reggae the disclosure, making promising leading statements, solicitation, I mean, there's a lot that you need to unpack there and have good counsel on. But just I think more the decision of whether or not to go into this space. I mean, again, I think most people think, okay, I want to start by buying properties. Would you say that's good to get a couple of acquisitions under your belt so you can kind of understand owning an operating property and what it's like to actually be a borrower before diving in right into the lending space? Or do you think there's anyone listening today saying, hey, you know, I, I'm not sure where pricing's going. I feel more comfortable at lending at a certain basis. And I certainly talk to buyers who say, hey, I'm not a buyer at this level, but I'm a lender. And then you talk about kind of the predictability of the cash flows there. So would you say to the people listening that may be jumping right into the debt side as opposed to the equity side? What would you say to that?

That's a really, really challenging question because now we're talking about someone's specific plan, and everybody has their own passions, their own goals, what they're trying to accomplish? I'm going to try. I'm not trying to dodge the question. I'm going to answer the best that I can. But I just want to preface this. Like, everybody has different, like, different passion, right? I like sitting behind a desk and Underwriting deals, some people like jumping on a plane and going out and visiting in the field. Right. So that would be. That they would go different, like they would go a different route than, than I would go. So I think if you're going to get into the private lending space, you're going to, you're going to probably make less money over time. I think there's more money on the equity side. I think it's going to be very much more consistent though. So if you, if you're looking for some consistency, something that may be a little bit safer, I think the debt side is the way to go for that. If in either case, I think you need to understand how to underwrite a deal, whether you're going to buy it or lend on it. The underwriting is probably the biggest, other than the attorney that we talked about, probably the biggest piece here to staying safe. The good news on the commercial side is if you don't understand the underwriting of a commercial asset, there are people you could pay to do that for you. So get as, as close as you can to, to knowing it's a good, strong deal and then outsource that on several, just to make sure you're making the right decisions. I don't know if that answered your question or not. It just really is a hard.

No, appreciate that. And I think you're spot on. It's not one path for everyone. I mean, it's really. Where do you gravitate to? What are you passionate about? What is your strong suit? So I thought that was a really great explanation. So, Kevin, just with a minute or two left. So the title of this show is the Insider's Edge to Real Estate Investing. So what does that mean to you? And what would you say your insider's edge is that has provided you this incredibly successful career?

Well, James, I think what, what the insiders edge means to me is what we've been talking about today. I mean, look, we talked about digging deep into bond analysts. I have never, in all the interviews I've had well over 50 of these podcasts no one's ever dug into what is it like to under or analyze a bond. That's pretty insider stuff that we talked about. What about getting in the living room and, and negotiating a lease option? I mean, I think that's all pretty insider stuff for me. My insider's edge is just, just the grind and the experience. Like I, I do study and I go to seminars and I listen to podcasts and I do all the things I'm supposed to do, but you don't really know something unless you experience it or do it. So I'm a big believer if I, if I read a book or do a home study course or do a coaching thing, I better damn well implement something and then that's what I'm going to start learning. And that's where you really start getting the insider's edge.

Yeah, I love that. And I get a tremendous amount of these out of these podcasts too, because I'm always learning and 25 years in every single day. And so I think it's really amazing what you've accomplished and congratulations on everything you've done and certainly with the book and look forward to hearing about the, the next book in the works. So, Kevin, if our audience wants to get a hold of you, where's the best place to find out about you and what you're doing?

Well, we talked a lot today about protecting yourself if you want to be on the debt side. So I did write a report because I get calls a lot like how do I, how do I stay safe in this case? Or now what do I do? Because I made this mistake. So I wrote a report to try to help people. I can give that away if you're okay with me sharing that website.

Sure. Please do.

All right. Thepinereport.com it's the pine report.com there's two reports. One on comparing the 90s market crash to what we're going through right now. I think there's a lot more similarities than what happened in the early 90s. And then this report on how to be a safe private lender if you do decide to go onto the debt side. Outside of that, the best way to reach me is just come to our website. You probably get a lot of information there. And then our contact. So it's pine financial group.com awesome.

Kevin, thanks so much for taking the time today and sharing your story. And I love that abundance mentality. So really appreciate your joining us today.

Thank you so much for having me on the live podcast. I had so much fun.

That's it. And thank you all for those of you joining us live and those of us, those of you who are listening, whether it's on Spotify, Apple, wherever you get your podcast and if you did like this episode, please make sure to subscribe. Give a rating. Love the feedback. Also at James Nelson NYC LinkedIn is a great way to connect with me. And last but not least, james nelson.com I built the site for you as a resource. That's where you can find show notes to this episode episode Find out how to connect with Kevin and our other incredible guests that we've had. So wishing you all the best until next week. Thank you again for joining.

Thank you for listening to the Insider's Edge to Real Estate Investing. We appreciate your subscribing and sharing with your friends. If you haven't already, please connect with James at James Nelson NYC on LinkedIn, Instagram and Twitter. Please also visit jamesnelson.com where you can find the show notes and other episodes along with an exclusive video series and other helpful resources so you can gain the Insider's Edge to Real Estate Investing. Until next week.