Working with Private Money Lenders for Real Estate Investing and Seller Financing

Yeah, we were taught that when we are talking to a seller that we are not going to initiate the conversation about seller financing because if we do, we are coming up with a solution to really our own problem. It's not necessarily solving anything for the seller unless they've indicated something to us that makes it a fit. So asking for seller financing is not really a solution for a seller. Unless they have a reason for that. So I think that we are investigators and relationship builders, and— but it's definitely something that is more common than I think that, like you said, that most people think.

Welcome to the Cedar and Porch Real Estate Investment Podcast. I'm the host, Shona Lepus. Follow along as we unpack and demystify real estate investment strategies through expert interviews and personal experience. From how to find off-market deals to creative financing to long-term and midterm rentals, our goal is to educate and inspire others to gain financial freedom and generational wealth through real estate investing. This podcast was brought to you by the Midterm Rental Playbook course. The Midterm Rental Essential Method teaches real estate investors how to set up and fully book your first midterm rental with great guests so you can have to 2x your cash flow. We cover the basics from planning and how to set up your first midterm rental, how to self-manage and get direct bookings and keep more profit, how to launch your first midterm rental. Learn more and sign up at themidtermrentalplaybook.com. Hello everyone, today I'm super excited to have Lisa Cerullo on. Lisa and her husband Mike began their company in 2018 after becoming empty nesters and moving to Charlotte, North Carolina. Lisa and Mike share an entrepreneurial vision and wanted to build something they could do together. They purchased real estate and invest invests in a mix of long-term rentals and flips. In 2020, Mike joined the business full-time and they started his residential construction and renovation company. I've gotten to know Lisa, uh, through Jeff Stevens' mentorship program and wanted to bring her on to chat about private money lending. So I know a lot of people are interested in learning more about funding deals, and private money lenders can make a great partnership. I do think there is a misconception that people think you must have a lot of money and capital or be rich to buy and invest in real estate. The fact is, we could never make it in this business without our private money lenders from owner-care deals to short-term fix and flip loans. So kudos to private money lenders for putting their 401(k)s, IRAs, and savings account money to work to get a solid return backed by real estate. And before we like jump in, just full disclaimer, this is not financial or legal advice in any way. As always, consult your CPA and attorneys before making any private money real estate investments. So Lisa, thank you so much for joining us today. I'm super excited. Maybe just give us a little bit about your background and, and what your portfolio what it looks like and all that fun stuff.

Yeah, thanks for inviting me. This is so much fun to spend some extra time together. And yeah, we had an interesting journey. I was always an entrepreneur, so when I jumped in, I was just, let's see what we could do with this. And real estate has always fascinated me. Currently we have 8 properties and 10 rental doors. We have 2 duplexes and we have flipped 4 houses in the last since the time we started flipping, so about 18 months. And that's where we are. We love meeting people and doing creative deals. It's a lot of fun to be able to feel like with what we're doing, we're acquiring real estate, which is a great way for us to build our wealth, but we provide awesome housing. And so we're filling a need there. But a lot of times when we do creative financing, we're also partnering with a seller to provide them what they're looking for. So it's like a win-win.

I love that. I just have to unpack a couple of things. The first of all, I feel like you either have the real estate bug or you don't, right? It's just something weirdly you either just are obsessed with it or you're like, that's too risky. And also, I worked with my husband for a long time. It is not easy. We had an agency together and I love him dearly, but not everyone can do that. Uh-huh.

Uh-huh. You can share some stories, I'm sure. Yeah. For sure.

But it's also, I think that's what being an entrepreneur is about. You make your own journey and that's why we love it. I think part of the program we're in is all about owner carry. So the fact, I think that it is such a win and I think it's often framed as like this unicorn or it's only a win for you as the buyer, but it really goes both ways. So I love to hear your kind of point of view on that.

Yeah. We were taught that when we are talking to a seller that we are not going to initiate the conversation about seller financing because if we do, we are coming up with a solution to really our own problem. It's not necessarily solving anything for the seller unless they've indicated something to us that makes it a fit. So asking for seller financing is not really a solution for a seller unless they have a reason for that. So I think that we are investigators and relationship builders, and, but it's definitely something that is more common than I think that, like you said, that most people think. Recently I had a conversation with a real estate agent who was a listing agent for our property. I did not approach that property. The sellers learned about me through some relationships and they came to me and they had a very specific problem that they shared with me. And I was really trying to find a way that I would be able to solve that, but also buy the property and make it work for me. And I did not exclude the realtor because it was a listed property. So that would be unethical. And when I spoke to her, she said something to me that was shocking and a little disturbing. And she said to me, "The fact that you know anything about this seller puts you at an unfair advantage." And I said back to her, "I agree to disagree with you. The fact that I know anything about them means that I can make a proposal that hits the mark." And there's a long-winded story after that. It ended up selling for less than what I was willing to provide to them overall through a combination of them doing a promissory note and me buying it outright, which is really unfortunate again, because when you come back to what that realtor's perspective was, it was, if you're doing this, it must only benefit you. And that was not the case at all.

I think that there's so many misconceptions. Yeah. I think when you, when there's so many middlemen, you can't really, you don't know what their solution is. Maybe it's cash, but maybe they are going to have a capital gains issue. So I think it's unfortunate that there's, there's so many misconceptions about that.

I was going to say in that particular situation, I learned through full disclosure from the seller. It was actually a woman who she was selling the property for her dad and she outright said to me, Lisa, he needs money to live on for the next 15 years. He needs income. He needs to have money coming in to be in addition to his Social Security. And I can just assure you that was not the end result that they got.

That's really sad because it really could have been a true win and I think one of the things about as investors, we go into this for air quotes, passive income, right? Is the fun. I don't think it's very passive, especially when you self-manage. But when you, if an owner, there's like the, there's so many like the leaky pipes and the things like you, you get, you build a team, right? But it's, it is not really passive, right? But I think if you, if it is a good fit and someone decides to sell on an owner carry, like it is truly mailbox money. They are getting a guaranteed return backed buy a property. They don't deal with headaches and turnovers and termites or furnaces or whatever it is. So it's just truly passive like nothing else. That's what I love about it.

For sure.

Yeah. So I think, yeah, I think a lot of times when people talk about private money lending, they talk about like fix and flips and short-term loans. I think you either, and I love the more creative side, How have you been able to leverage your portfolio by creating win-wins with owner carry, just in your experience?

My first experience with— I didn't know anything about seller financing until after I was already in real estate and I met Jeff, who taught me a lot about the, the strategy and really focusing on a seller. I learned all about that from Jeff. But we connected on Facebook when I made a post about a result that I had in contacting a seller. So I had already been in real estate very— it was really the beginning of my journey. And seller financing became another strategy to add to my toolbox. But showing him my journey into private money started because I had none of my own, and so it was going to be the only way that I was going to be able to do it. But it really— it happened so casually and randomly because my husband and I were gonna bid on a house that was coming to auction in where we live. We live in a state where they do a 10-day upset bid process, and so you don't even need to be at the auction to be the winner because whoever's the highest bidder, you have this 10-day period You can continue to outbid the prior person. So we made a connection with the seller 10 days prior to the auction date, and we wanted to help them. We ended up winning the auction. I'm sorry, we didn't— I beg your pardon, we didn't win the auction. What happened was we were able to create an agreement with them where we satisfied their tax bill because they were behind on property taxes. We satisfied the tax bill. We— they gave us the deed, and we let them stay while they were continuing to move out of their home. So we let them stay for a few weeks, and we gave them cash for keys. Their situation was they were not going to be eligible for excess proceeds. They owed the IRS a lot of money. There was just going to be no way they were going to get any money out of this house or this process, and they were going to lose their home. When we started talking to them, we knew we had 10 days until the auction and we were just having dinner with our friends one night and we said, you're not going to believe what we did. We're working this out with this seller and we have no idea how we're going to get this money. So do you guys know anybody who might want to be interested in investing in this? And our friend looked at us and said, yeah, I think that would be me.

Oh my God.

And Shona, truly the only reason why we felt confident not having any money or knowing where it was going to come from as we were going into that process is because those people were going to lose their home. And they did make an agreement with us that was an agreement that we were taking them off the market, if you will. If we weren't able to follow through on the execution of that prior to the auction, they were still going to lose it anyway. So I didn't feel like I tied anything up. If somebody else could come along— I was trying to be really honorable of their situation and wouldn't want to put them at a disadvantage in any other way. They were already at a massive disadvantage. But it was just an example of we were winging it, we were learning as we went, and we asked our friends. And then after that, they were like We love this. And I was like, I love this. This is private money. This is cool.

No, that's organic, right? You weren't like out there pitching and it was just a good story and you, you were helping people.

I love that. Yeah, I definitely feel that way for sure.

I, I think people like, and it's taken me a while, I think part of it is framing as you are helping people. You're not You are, it's really a win-win. It's not a favor. It's like an opportunity for them to make some money and have more agency over their investing. I don't know how you approach it, but it's taken me a while to get there.

Yes, that was definitely a mindset shift that happened as we had the experience of doing it now multiple times. Um, all of our flips were private money. And all of our acquisitions are also private money. We have a couple of DSCR loans, but on those we also have a combination of DSCR and seller financing. So my husband and I have none of our own money in the portfolio at all. And we're proud of that. Because we feel as if we are building wealth and a legacy for us and our family. But at the same time, we're— like you said, we're providing an opportunity for people who want to diversify their portfolio or who just simply like the idea of a safe investment because all of their private money is collateralized. Um, and the third point is that sometimes people are just curious to know where their money is. Like, they could drive by something and see it and touch it or watch it, keep an eye on it. And they love the idea that they're investing in their community. So there's a lot of benefits to private money.

I mean, that you're— you made that dream happen. I think the OPM, other people's money, right? That is, and you're doing it in a way that's just really giving people opportunity, and that's so cool. Yeah, it's such a— for me, it's like physical. I can affect it. I can paint it. I'm like, add value, the stock market, it, it all works. You just have to know where your comfort level is. And I think it's funny because I, now that I've talked to a few people, everyone's— I'm very— all the investors I talk to are like very risk-averse. They all say that universally, and they just— it's very calculated. But so yeah, no, I guess just to unpack a little bit To me, I think the benefits of an asset-based thing is it's secured by an asset versus unsecured debt. So I don't know what your big takeaways are in that or how you explain that when you're talking to someone.

Yeah, absolutely. I really try to be conservative. I don't leverage more than 75 to 80%. So Jeff taught us how to do a game board and I have it. I literally have a board. I can look at it and show you where everyone is secured on that property, and we don't leverage more than 75 to 80%. And we will— if our investors are curious, we like to let them know that we're doing that. We show them where their payment is coming from. And I had an investor, a private investor, whose note was at maturity a few months ago, and we talked about moving forward to, to continue on. And he asked me, can you take use of this amount of money? And I said to him, let me look at my board, because one, there's that— I'm gonna make two guarantees to you, friend investor. One is that your loan is going to have collateral, and so I won't over-collateralize. I will make sure that I keep you safe. That is my personal commitment to do that. And secondly, I will make certain that the income from the property is the thing that's going to make that loan payment on a monthly basis. I'm not going to go out and get a part-time job so I could pay his, his loan. That is going to be on the property, and it's going to be secured by the property, and it's going to be afforded by the property. So I made that personal commitment. And so far everyone has really liked that. And Shona, the other thing that happened is I had a family member who approached me about private lending. She said, I'm so curious what's going on. I'm watching you do all this stuff. And then she was intrigued and she gave me a little bit of money. And then when her loan came to maturity, she was reaching out to me. A month early and she said, it's time to renew. And I thought, well, that's if you would like to renew. And she said to me, this is a no-brainer. I want to double my investment. And she did that in December. And then she called me last week and said, I have some more, which is fun. But I love it because I have earned the trust. I tell people, I don't expect— I can show you what I'll do to secure your money. And I don't just expect you to believe me. I understand that trust Trust is earned, but it's fun to have her come to me and say, this is the best thing I've got going. And she's very happy and wants to continue to move forward with it. So it's a benefit to both of us.

I love that. And it is all about those relationships and that communication. Yeah, that's a really cool story. That's really cool.

Yeah. She was my godmother. And at first, when she decided to give me the little bit of money, which I was able to use, we were doing a, not necessarily a renovation, but we had a rental property where we wanted to improve a couple of things. We were able to use that money, secure it to that property. But she said to me, oh my goodness, I'm so excited and I want to do this, but don't tell my son and don't tell my financial advisor. And I was a little bit like, I was like, slightly not offended, but I was like, darn, that means you think that this is risky. Did I not convince her? But the reality is, I think that some people have no idea that this is a real thing. So it's— if it's new and nobody else knows about it, this must be— I must be crazy to do it.

It's true. And it's not like the stock market is like, or whatever other investment. It's more— I guess it's not— it's more unconventional. And it's more person to person, which, I mean, that brings up a really good point. I think I do want to stress you, when you, if both sides, if you are going to take private money, to your point, you need to have the equity and the cash flow to support it. And also, if you're going to be a private money lender, do your underwriting, do your numbers, get the business case. Don't just trust that it's a good deal, right? Because it is risky, right? It's not guaranteed. It's secured. But so any tips on vetting business investments to that point.

So if you're a private money lender, you mean?

Yeah. If you're, I mean, so if you are interested in this, which I think it's a great opportunity, but also I think there are, we are very ethical, right? I think that's why it would attract to us to Jeff's program, but I think it goes both ways, right? So it's important as a, to vet any investments that you make, especially in real estate, right? Or anything.

Yeah. I think— I don't know that much about stock market investing, but I do know that if you're going to invest in a company, there's a prospectus and you can see what that company's about and what they do, and they probably have a reputation out in the financial world. And so I think that if you're going to be a private money lender, you should expect the same sort of thing with an investment that you're gonna put your money into. And when I show— when I do a proposal to somebody who would like to put their money to work with me, I'm showing them, this is the property, this is what's in the area, this is why this is an investment that I've decided to do, here's how your money is going to be put to use, here's the return, here is the Safety, I show the security, the collateral, and the rent and the lease, and I try to, to provide that same sort of information that a person would expect if they were looking at any other investment.

I think that's so important, and that's just being a professional, right? And that's what anyone should expect if someone— yes, it's secured by NASA, but there's good buys and there's bad buys, right? Especially in this market. I think being very— expect to be conservative on what the after-repair value is, right? Because if you bank on some pie-in-the-sky ARV, that may not come to pass.

Right. I have also had some private money lenders who have said to me, Lisa, this looks great, and tell me how you will plan to give me back my money if we have a term that's— whether it's a year or two year, whatever it is, it doesn't matter. But what is your plan to return this money to me? And I always do have a plan, and I think that's important. Um, sometimes you change— I don't want to say you change your plan— sometimes you have Plan A, B, and C, and when the time comes, maybe you are resorting to Plan B because Plan A is not the best viable fit at the moment. But I always like to have Plan A and B, and if I could have Plan C, I feel a lot better.

For sure. Because you— the market, like, we had done a flip in the summer and we just got it to market, and then everything just flipped and we're like, oh wow, okay, so Plan C is let's rent it for 6 months. And because we had owner carry on it, we had a lot of flexibility, right? We could keep— there was enough cash flow to pay the loans very comfortably. But I was so grateful that we had an owner carry and we had all this flexibility. If I guess that's another point, like when you work with a bank, you can't call them up and be like, hey, plan change. It's— yeah, they have their underwriting and they are not flexible. You're not dealing with the person, right? Not to say that you should treat it any with any less kind of seriousness, but I, I think that's the other bit of, of private money lenders is you get a lot of flexibility with it. On that note, how do you— I mean, it's relationship-based, that's trust, that's really important. I think that's so important. What are some like recommendations for just good communications? Are you running things through an escrow company? How are you structuring it? Just on the weeds a little bit.

As we scale. I could see moving toward that, but every single time it has been personal relationship and preference of the lender. So I have a seller who has a big portfolio that we're working on taking down a chunk at a time. And at the very beginning he said, oh goodness, can you just pay me quarterly? Because this is going to be— I could see this will be a logistical nightmare. I don't want a check every month. And I'm okay, whatever you would like, we could work that out. And then there was another private money lender who I'd never mentioned his name, but it was very sweet. He said to me, I'd like to stay off the grid. I don't want any, I don't want a Zelle, I don't want Venmo. I want you to mail me a check. I was like, whatever you like, you got it. Everybody pretty much has defined their way that they prefer. There is a couple of transactions that I am looking at right now and have been in talks with some people. In some of those, Shona, I have said to myself, if that happens, that one is definitely going to be in escrow. It needs to be completely documented. By the nature of the transaction. So I think some of it has to do with the relationship. I'm sure there would be some people that say absolutely, you'd be nuts not to use an escrow company. I can see that could be the case sometimes, but some of these lenders have been like my best friend and my godmother and my dad and my mom. So we're totally okay with regular communication and like, zel. But it's been, I would say it's individual.

I think that's the beauty of it, right? If someone wants like mailbox money, great. Send a check and they get— that's, that's the cool part about it. And there's also, there, there are, I've, I've done a couple. One of them is through an escrow company and the money comes in and they do all the tax stuff. So makes me feel like I'm not gonna miss payment. They do all the kind of all the number stuff. So yeah, it's definitely, you can structure it however you want. So I guess on that note too, there's so many— I love this toolbox that we have. How, like, what are the kind of levers when you're structuring with a seller or private money lenders? What are those levers that you pull and how do you usually structure to meet their needs? If I can ask that.

So, um, with my private money lenders, each of them have really been a conversation about what kind of money they're talking about, where it's coming from. Some people are using money that was literally sitting in a savings account. Other people are transferring investments from a stock portfolio, let's say, and they just want to use it to diversify. And some people now— I learned a lot more about, and I really would like to educate people about using retirement funds, especially people that are in the retirement age range, because it is my opinion and my experience. This is not— don't— nobody can post this as fact. I'm just saying it is my experience through conversations that I have had and especially seeing it in my own family, that people that are of retirement age are putting money in very safe investments in their IRA because they expect to use that money in the event of an imminent emergency like a medical situation. And so they are not at all willing to risk the principal amount. So I have talked to some people very close to me and have found out that they are literally invested in cash. And their returns are so pitiful that it makes me sad to think that just due to the fact that they want to be safe, that they are getting such a low return. And so, Shona, some of it has to do with their vision for the money and also what their expectation is. People like that have been very happy to say X is the perfect return, it feels great to me. And then I have others who I recognize are very savvy and they were used to and comfortable with risking things and having it in a higher return in the stock market. And so some of the way that I design it is figuring out what each person is looking for in terms of length of time and return. As Jeff taught me, there are people who are like the set it and forget it, or those who want to be actively knowing what's going on. And I have literally asked people that, and I have had a variety of responses. I've had some people say, oh my gosh, no, I'm retired. I'm going to go sit on the beach. I am set it and forget it. You described your program to me. You showed me the asset. I trust it. Just send me my money. And other people are like, I want to be active. I want to turn this money over quicker. I want to see the project, at least know about the projects and invest in what's new. So they just wanted a little bit quicker and more active knowing what's happening.

No, I love that. And I think it just, yeah, it depends on your, whatever your involvement is. If you want something just like long-term set and forget it, if you want to earn points and keep rolling that over, right? But then it's more work. You've got to vet more projects. So there's really, there's just, there's so much creativity, right?

And I also think that as the market has changed, that some of those people who are like, oh no, I want to work on all your flips. And then I'm like, guess what, people, I am going to pull back right now on flips because I don't trust the retail market in this time and space where we are right now. Um, I have actually had a situation or a scenario recently where I have been doing renovations, and if I'm gonna flip it, I am flipping it to investors who I have networked with who've decided that they want real estate but they want turnkey property. I'm building a buyer's list of that. But anyway, the point is, is just that because the end, the exit strategy changed, then so did the beginning strategy. And so some of those people who are like, I want to turn my money in the newest project every 6 months, I couldn't guarantee to them that I was getting the hot new flip every 6 months. So we have really detailed conversations about what are you looking for and what could I provide right now? And then just see the best fit for it if it is a fit.

No, and I love that. And then you're really, you're really, it's a conversation and the best thing will come out versus if you just, I guess going back to owner carry, right? If you buy something on market, you're just like, here's the offer. And then versus talking to a seller, what are you looking for? Like how, how can I help you? How can I structure something that really meets whatever your needs are? I think we both knew all the signs, right? That for someone that maybe is just, I think you either like love that it's like something you really love and get, or what are the signs that maybe that when you're talking to someone, hey, this might be something to bring up. What are you looking for?

Uh, so looking for the seller financing clues.

Yeah, the clues. I think it's such a, it's such a unicorn for most people and it's out there, but it's, yeah.

So one of the things, and I will preface what I'm about to say by saying that you only get to these clues if you're interested in really just getting to know a person, because if you reach a seller and then the conversation goes straight to the house or the asset that you're looking at, you don't get these. And Shona, it's funny because sometimes I have to try to— they'll want to tell me, oh, it's 3 bedrooms, and I'm like, oh, okay, great. So did you grow up in the house? I'm trying to take this off-ramp because I could do the research on the house and we'll get there, but I want to know everything about that person that I can or that they're willing to share, and we'll see how far. In fact, there is a, a property that we're going to be looking to— it turns out that it's an estate situation and it has to go to auction where I live. But I sent a letter, the lady called me, told me a little bit about her situation. I learned that we go to the same church. Oh no way! And before even talking anymore about the house, I just said to her, what are you doing Wednesday? Do you want to grab lunch? And, and that whole conversation at lunch, I tried to not even talk about the house. I wanted to get to know this person, and I learned a lot of insight that— so to answer the main question that you asked, that's how you begin to hear the clues that would lead you to know if this would be a really good advantage to the seller. You might hear about their political views and how they don't want to send money in big capital gains because that's just something that aligns with their value or whatever. You, you learn these things by having a conversation with a person about themselves and their life experience rather than figuring out how old the HVAC is. Um, and so the other thing is when you hear that somebody has owned it for a long time, that'll give you clues. And I love to ask the questions, learned all of this from Jeff. So that's not, none of it was intuitive. It was definitely something that I learned. Just learning. Also think about this. I've had people say to me, Shona, one gentleman. He said he inherited his home, grew up in the home, and I said, oh my goodness. And he's like, there's no mortgage. Oh my goodness, what are you gonna do? What are you gonna do with this like boatload of cash? And I teased him, and this was like 2 years ago, I said, you can invest in crypto. And he started laughing. I was teasing him, right? I don't know anything about crypto anyway. He was like, oh my gosh, no way, I'm gonna put it in a savings account. And I'm Ding, ding, ding! Put your money— yeah, exactly. So you're gonna put your money in a savings account. At that time, savings accounts were like 0.25% interest. Um, think about the service that we could do to— for a person who doesn't even realize that they could be the bank and earn so much more than that. So if I really firmly believe that we are helping people when we expose them to possibilities and opportunities they didn't even know existed and that they could really benefit from.

It's so true. When you get to know the seller, you're really— again, it's just really— when I, I used to always think, wow, this is so good for me, when I really realized, like, it's really helping that seller. If they, like, classic, if they don't want a 1031 exchange, it— they don't want And they don't want to have this huge tax burden. And it's also when you're structuring the deals, what I love too was like, hey, they, you have a note, it's secured by the asset. You choose the beneficiary. They could leave their kids a legacy. And I talked to landlords and they're tired and their kids want nothing to do with these properties. They see how I work all my— I don't know if my kids are— so it's like you're actually leaving a legacy without all the headaches and you're leaving a fine legacy.

Yes, what a gift.

It works. So that's—

I do want to follow that story by telling you that I had further conversations with that gentleman about— gosh, could I— we talked about seller financing from the perspective of you could get a better return on that. This is a consideration and he loved it. And I'll tell you that we met him at a coffee shop twice and when we made the proposal that he accepted, and it was based upon what he said to me, because literally presenting the proposal to him was, Wayne, based on what we talked about, here's a proposal that really hits the mark— I believe hits the mark. And he signed, he got up and shook our hand and said, I'm so happy I met you. And that to me was just like a real testament to the fact that we were creating something that was really going to be a great benefit to him. He could have sold his house to anybody and would have made money, but he was so grateful, and I felt grateful too. It was definitely a— it was a wonderful thing.

That's a moment to walk away and just— that's— and that's only could be done with direct kind of talking to someone, getting to know them, what's going to work, and structuring deal. Like, that— there's no other way to do— on-market stuff is great too, but there is a unique place for kind of creative deal structuring. That's—

sure, that's—

I love that story.

Yeah.

So yeah, like, on that note, like, I think for someone that may— I think again, it's like we're in this, right? Like, we live and breathe it. For someone that's maybe new to it, what is like an example of a creative deal that you did and how you structured it, maybe with the note and just interest only, just for people to kind of just— I think it's interesting for people to hear that if you're cool.

Yeah, no names, but my first, um, seller financing deal was with this person that I met because I, I mailed out some direct mail and he called me. And it was really funny because he owns 90 properties, so he gets a lot of these letters.

Hertz.

And he was like my first phone call. I was so nervous, but I really tried to take all the off-ramps, and I think I did that successfully because he's— now that I know him and I call him a friend, he's— he loves to be the center of attention. And so he loved talking about himself. But, um, towards the end of the conversation, or like midway, I said to him Why did you call me? What was it that made you pick up the phone? And he said, to be honest, I get so many of these, I usually call people to tell them off. He said, but you were so nice, I just couldn't do that. And I really was so impressed and surprised to hear that somebody was calling me who owned 90 properties. And pretty much what I said to him was, I don't know what you have done to get there, but wow, that is impressive. And he basically said, come on down to my office, I'll tell you everything I know. And I'm an open book. And I took him up on it. I was just like, I want to know everything. I don't care if I ever— of course I was hoping I was going to do a deal with him, but I was more interested in learning about this person. It was all about relationship. So what happened, Shona, that sort of to progress the story, He pretty much decided that he wanted to begin liquidating his portfolio, but he cared very much about the people who worked for him and didn't really know how he was going to just sell it out and then have everybody not have jobs. So he decided he could dole them out 5 at a time. And I'm thinking, I can't buy 5 properties, I don't have any money. So what happened was, um, he also said a lot in our conversations leading up to that, that really made me understand that he was very capital gains averse. That came out in the conversations. I didn't need to, like, really tease it out of him. He said a lot that led us down that path. So I knew that. And when we discussed how this might come down, he said that he would be willing to do some seller financing, but that as he was going to begin transitioning his company and wanted to still employ his people, he asked them what other businesses he could buy so that they could get out of the landlord business and move into something. And do you know that they picked two businesses and he used the money that I was able to provide to him from my DSCR lender to buy those other businesses. With all that said, he was willing to seller finance 15%, and— but a major catastrophe happened a week before we were closing on 4 properties, and that was my DSCR— my broker had COVID, He was really sick, so he was out of the office for 2 weeks. There was not a lot of communication, but his boss was now in charge of my file. And so boss calls me like 10 days before closing and said, so I see here in these purchase agreements that the seller is going to carry 15%, which we allow, but it can't be secured to these properties. And I'm like, Where would you like me to secure them? And why did you wait until 10 days? I don't own anything else. This is going to be my first acquisitions. I almost lost my mind. I reached out to Jeff in a frantic, insane phone call and he talked me off the ledge. And basically what happened was he helped me to speak to my seller in such a casual sort of manner. Oh, these banks, aren't they crazy? Like how they have these dang rules. So I don't want to change anything about what we're doing, but what could we do? And he literally looked at me and said, ah, we'll secure them somewhere else. What do you got? And I was like, the house I'm living in. He was like, great. So I was sweating bullets. And so to this day, I had, I got my first substitution of collateral from the get-go, but it was initiation by fire. Had no idea what I was doing. My coach talked me through it. And to this day, which is 18 months later, his liens for those properties are attached to this house that I am living in. And I, now that we're, I can transfer them back to the property. If I want to. But I was like, I have a really low built-in home equity line of credit here, right? But I wouldn't be able to get from a bank right now. And just for anybody listening and maybe thinking through what I've said and said, wait a second, you said that all of your loans are secured by the property. I just want to say I have a little pencil mark on all of those properties. That payment I make from him is still coming from those properties. Like, I won't over-leverage and put secondary debt on top of that without considering the fact that I am making his payments from the income from those properties. But for all intents and purposes, I got a home equity line of credit.

That is amazing. It's funny how when you're in those situations, you, you just figure it out, right? You just have a moment. You freak out.

I literally— no, I had more than a moment. I was— I thought I couldn't breathe. I didn't know what I was going to do.

That's—

and I'm so glad for Jeff. He really talked me through it. But I'll tell you what, it made me realize that, again, you said this in the beginning, when you're working with traditional banks or traditional situations, there is very little room for creativity. And the reality is, as far as he is concerned, he's safe either way. It is— his loan is secured secured by something, and it just happens to be my primary residence. So, and I don't plan to try to lose that, not that I would lose any of my other investments either on purpose, but I'm just as committed to paying his debt as I would no matter where it was secured. But part of that, Shona, was from a relationship because we would continue to meet him. It took about 9 months from talking to him and meeting to him in person prior to our first deal. And I know that a lot of people would— maybe it's, it could be debatable whether that is a good investment of time. Some investors maybe have scaled so much that they would be like, you talked to somebody for 9 months before anything happened? Yeah, I did. And you know what, he's been a great connector, and also he wants to sell all of them to me now. So maybe that was a good investment of my time. So the first properties, he financed 15% and he might have even been willing to do a little bit more. But because it was using the DSCR lender, they also had the secondary requirement that I was bringing at least 10%. Okay, so they needed to see that I brought 10%. He carried 15% and their loan represents 75%. I needed to have, according to the bank, I needed to have an event. I couldn't come and just do all of it creatively. So for all intents and purposes, 15%. The next deal that we did with him, we purchased a home from him in August, and the seller financing on that represents 85— no, I'm sorry, 90% of the purchase price. So he went from seller financing 15% and the next one is 90%. Again, I think it is a combination of the fact that he needed the money from those first sales to be able to invest in new businesses. But I would also like to think that it's relationship, that he felt that we had— we make good on our commitment. We have been doing this for 18 months now and we're continuing. To do that.

That— I love that story.

That is— it was the craziest. It was literally the craziest. But it's funny because Jeff and I talk about when he said to me, gosh, you've grown so much. I said, now listen, I would have liked to, to say that I have believed everything you said. And Jeff, I do, I believe it. But it also makes it so much more real for a person's confidence when you have the knowledge and believe if somebody else did it and I believe you do it, I believe I could do it too. But when you partner that with your own real experience, that just is a huge— it propels your confidence level. So I was like, Jeff, I had to walk through that. Even though he walked me through it, that was a real thing. It wasn't practice. It was like really happening.

No, it's so true, right? And who would have thought, right, starting out? But the— and then when you're talking to someone else, you have this confidence and you have have this history of making the payments and building that. So I have to ask, just going back to that amazing deal, that is— and I think the power of relationships and time, and it takes time, but you're building this relationship, and that's so much better than making some shitty cash offer. Look, you would not be in the place you are today if you had gone the conventional route. But a lot— and the power of mentorship too, right? There's so many mentors out there. You have to find someone that speaks to you, but I think it's, yes, it's an investment, but it can get you to the next level.

Mm-hmm. For sure.

I think that's really important. I've never had so many mentors in my life before I got into this.

Yeah. I, yeah, I love it. I thrive on that. I, I love having having people to talk about big thoughts with and having them hone you in a direction of ironing it out sometimes and just keep you on the straight and narrow. Yeah.

And just the big picture, right? Like you think like in this, but if you have someone, this big picture of the game board, like you're going to be in a different place. I just wanted to unpack a couple of things for Like, I, for— I discovered DSCR loans too. I was like, oh, I didn't know it was a thing. For someone that has not— maybe isn't familiar with what a DSCR asset-based loan— maybe just explain that a little bit because I think it's really powerful.

Yeah, so let me try to figure out with my very limited technical knowledge. DSCR stands for debt service coverage ratio in What that meant was that the asset was going to be verifying the income, if you will, rather than a person. So when you go to buy a personal house that you are going to be living in, a bank decides whether you, the person, can afford to pay it because the income is coming from whatever income you earn. When you buy an investment property, the income is coming from the asset. So what they do is this calculation to ensure that your debt is covered by the income from the property. Now, some people will say— follow that by saying that your credit is irrelevant. It's not really irrelevant because the rates can vary based on your credit score, but it is much more flexible. I liked using that type of lender because the other thing was I needed creative financing. Our income at the time, we like to say in our bio that, oh, Mike just joined the business full-time. That was because he lost his job. Let's be real. So the two of us, like, we did intend for that to happen at some point, but it just happened suddenly. And now I'm an entrepreneur, so I've got self-employment income and he's got no income. So who's going to loan us money? What bank was going to loan us money? We would have needed to have a huge cash reserve, which we didn't have. So I really appreciated the opportunity to have a lender say that the asset that I was buying was a good fit. It was a good fit for lending. And they didn't have a limit for how many loans I could have. So it was just completely based on the asset, which was cool too, in a way.

It's—

I know that investors like to do a pro forma and figure out what their investment is looking like and they're evaluating a deal. But when the lender came by and did their appraisal and looked at the debt structure and said, yeah, this checks the box, that was Nice confirmation too.

For sure. Yeah, no, I love DSRs. I remember we had done during COVID we were in California and we had done a refi on 5 properties and it was like this pile of paperwork. It was like remote signing, like of COVID So when we had this chunk, like small chunk of money and I was like, I want to get a loan. I'm like, you don't have any. We're self-employed. We didn't have all that. We didn't have the W-2. And I was like, I was like, I had this money and I, and then I kept asking and this was a couple of years ago and I finally, my mortgage guy was like, we have this 'Oh, there's this product called the DSCR.' I'm like, 'What's that? What is it?' I was like, but I kept asking and I was like, 'Oh, it's asset-based.' And we bought a duplex and I was just, but it was like so frustrating. I had the money for the down payment in a traditional loan, but yeah, it was like this, 'Oh, a DSCR.' It's great. Cause I think when you are an entrepreneur, right, you don't have that magical W-2 situation.

Yes.

So it's a great tool, right? In the toolbox. And then just, I might have missed this in the story, but the owner carrying that 10%, was that a PML loan that you got to fill that gap or?

Yes.

Okay. Okay.

Yes, absolutely. Because we were able to structure— oh wait, I'm sorry. Moving forward, we did that with him on the last one. Where we got the money for that is another crazy part of the story. Because, so to back up from the beginning where we negotiated this situation, we live in Charlotte and so does he, and so all the properties are like in our neighborhood except for this one house, a triplex that he owned that he called the Big Ugly Alligator out in Grovetown, um, Georgia. And it was literally practically falling down. And there was one tenant that had been in there for 30 years and she was paying way under market. Anyway, all the story, the crazy story about how he— I said, how did you own 90 properties and one over there, like 4 hours from here? Oh, this one time I met this guy, they literally traded title, somebody for a boat and somebody for the house. And I was like, this is so cool. I love hearing about a story. So anyway, because I agreed to buy the 4, he threw in what he called the, the big ugly alligator for $10,000, which I borrowed from my mother. And we went to see it first, so we drove 4 hours to see it, came back home, made a commitment to buy it, purchased it for 10 grand. Wholesaled it for $50,000, and the $40,000 was the down payment on the other 4.

Damn, that's— wow, that's one for the books.

And you know what, Shona, he is a really cool guy, um, totally self-made entrepreneur. And when we told him what we did, he said, good, because that's what you should have done. So I was like, I said to my husband, was he testing us? He totally expected us to do that. And I think that he wanted to see that we would do it, that we would put boots on the ground. Like, we went to see the property, we went there, we put it on Facebook Marketplace, and we held an open house one next weekend. We had 6 people come through. We made appointments, we circled them through. So we, we drove 4 hours each way, 2 weekends in a row. We did a little work for it, but I would do it all over again, that's for sure.

That is just— you've got all the puzzle pieces, right? And you move them around and you made it work, and you got really creative and you hustled. And it just— but you— if you hadn't been in that, you wouldn't have known how to solve that. It's like that action of— yeah, it's It's scary, but that's, that's, I've never heard that full story, so thank you. You're really inspiring me right now. I love it. Um, oh my gosh, I, I could talk about this all day. It's like my favorite topic. Is there anything else that you'd wanna share about? I think just one thing I do wanna say, I think, I don't know, for my personal journey, I've, I was very like in the closet about being an investor and now I'm like more public and I feel like I'm doing good. I think we're both aligned and we provide comfortable housing, and that's an important thing. And I think we're often villainized, but like, how do you— any advice for someone starting out or maybe looking for private money and how they can kind of network and get out there and frame it in a way that feels authentic?

Yeah, I do definitely have an opinion about that because even in some of the groups that I participate in where people are doing real estate and looking for private money, what I see a lot is them either saying, oh no, I have a deal and now I need the money, or they say, I can't do a deal because I don't have the money. So I would say that as an investor, you need to be doing both at the same time. You're looking for deals and you're also cultivating private money relationships. Because I feel like in the beginning I was like, oh gosh, we want to do this and who's gonna come to our rescue and be our private money lender. And now I feel like, hold on, I have an opportunity just as much as they have money. And when you put those things together, it's a win for both sides, but their money isn't more important than my opportunity. So I shifted the way that I look at approaching private money. And so therefore I'm always having these conversations because people are leaning in like my godmother did, and some of our friends are doing— they're now leaning in and they're like, wait a second, what are you doing? They're watching us on social media. We try to be hilarious, put funny things like we're renovating a duplex right now that one side, it's arguable whether anybody should have been living there. I took a video of my husband hauling out an old refrigerator that was filled with bugs. And we're like being just us and providing entertainment value, and our friends are leaning in, that's crazy, tell me more. And when we tell them more and they ask questions, they begin to recognize that they are a fit for lending, and they're like, wait a minute, you mean I could be an investor too? We went home for Christmas and because of COVID we hadn't socialized with some of our friends for 2 years. One of them, we were literally at a pub, we were having a burger and a beer, and one of our friends leaned in and said, I've been watching what you're doing. I heard you say something about an investor. What's that? That might be me. I need to know more. Let's talk later. So people are leaning in and I appreciate that because again, I want to come from the perspective of I need money, but I have an opportunity. And some other people are like, I have some money and I need an opportunity for that. And it's a match. When we're coming from that equal perspective, it's a much more comfortable conversation. I'm not selling anything. We're having a conversation to see if we're a fit. And if we are, we can move forward. But that just seems a lot more comfortable for me. And we're doing that by social media. Were asking questions. I have asked some financial questions, or I've made some kind of out-of-the-box sort of— not that they're out of the box for investors, but for the mainstream, they're like out-of-the-box thoughts. And I'm just posting them as questions on social media. And some of my friends from 10 years ago are starting to private message me, and they're like, wait, I saw what you said, and they're starting a private conversation. And to me, that's just the most natural way to do it. And then I would just follow that up and say, our experience has been that our friends that have really liked their first deal with us told their other friends and we're getting referrals for private money.

I love that on so many levels. It's so organic. It's so genuine. You're not begging someone. And I think when the deal is right, you, and also I think you'll find it and you're cultivating, like you said, both things. I think that's important because you don't want to be in a place like you have this amazing deal that you structure and you're, then you feel like you're a little bit desperate, right? But I, I, I think that's really, and I think it's a mindset. You have to be like, yes, it's an opportunity. It's, and I think people want to dabble in real estate, but it's, you shouldn't start out flipping. Like being a private money, I think is one of the most passive ways to dip your toe, right?

My first investor was my brother, and actually he has a lot of experience. He could flip a house himself, but his career doesn't allow him to be actively doing that. And when we first started, I was so excited to share with him what we were doing. He said to me, oh my gosh, this is so exciting. I wish I could be in that world. I don't have the time. And I said, you can be in that world. I said, the bank is a really sweet place to be in that world. And he was like, oh my gosh, you're right. And he's still investing with us today.

And then you get to see like that trend, like you get to live vicariously through that, like seeing that, right? I think that, and I think people really enjoy that and they get to feel like they were part of that. And if you put your money in the stock market or the account, like you don't know where, you don't know what it's being invested in. It's just like this black hole, right?

Yes, sometimes. Yeah, for sure.

Yeah, we should be the— banks, banks have a good game going, right? Lisa, this has been so much fun. I feel like we could probably talk forever, but I'll try and wrap it up here. Thank you for sharing your stories. I feel like extra inspired now.

Oh my gosh, it was a lot of fun. A lot of fun.

Awesome. So I like— these are questions I like to ask people, um, and this is a little bit— this is probably a little vague, but here we go. What top business or life advice to give someone to live life on their own terms?

I had a conversation with somebody last week and she said to me, she said, I had a gut feeling and I went against that and now I have a situation. And I thought, oh my gosh, I think it's crucial to get the right education and the right support and to have really good habits. To be an entrepreneur, you have to make sure you're staying on track and you're doing your thing and your tasks and all that. But do not ignore the gut. Some people will just call it intuition, some people call it God. I call it God and the Holy Spirit in me. But partnered with that, I would say that voice is there, but it also doesn't always shout, which means that it's really important. And I could easily say this, and I have been very intentional lately about making sure that I am practicing this more. That also means then you have to spend some quiet time to reflect so that you can hear the voice. And so I just think I think that is practical in life and in business.

That's so true. And it's— this is a numbers game, but there is that intuition. You have to feel things. I love that. That is— and I think we forget that we know that, but then every time we don't listen to that, you're like, I knew on some level, right? That's— thank you. That is a good reminder. All right, next question. What is— I know this is— what's your superpower and how do you like use it in your business?

I think that I am strategic and creative. And so a couple years ago, I did— I don't know if you ever heard of the CliftonStrengths. It's like this analysis that you do and it tells you your top 5 strengths. And so I would have told you that I was creative and strategic, and then I actually did— one of my top 5 was strategic. And I looked at it and it says that people that fall into this category, create alternative ways to proceed. I'm like, I've always been like that. Faced with any given scenario, they can quickly spot patterns and issues. And so sometimes I have to be careful to reel it in though. Like my husband will say to me, do you try to make everything work? And I'm like, no, I don't try to make everything work. I just try to make sure that there that I haven't said something's not going to work without making sure I didn't leave a stone unturned. It's a strength, but I just have to be careful not to overdo it. But I love being creative, and I feel like when I'm faced with a situation, 10 thoughts happen at once. I'm like, gosh, I see the possibility.

And especially in this business, that is put to good use, right? Clearly. That's really cool. Um, all right, so I think in this business, I think educating yourself, having a mentor, like, what are, like, a book or a podcast or someone you, we've worked with that you'd recommend and why?

Our coach Jeff has pointed me to a couple of books, and one that I just finished reading was Who Not How by Dan Sullivan. And I loved that because when you think about how like your desire to scale your business. It's like you're just like when we were talking about how many deals could I do with the amount of money I have, right? You have to leverage that. I think you have to leverage in all areas of your life. And so I really just had a mind-opening idea when I read the Who Not How, because I think as a natural creative person and entrepreneur, I was always thinking about how I could do it when really the question is who Who can help me do it? Or who already knows how to do this and can show me? And so I loved that concept. I'm also reading Atomic Habits. I loved learning that motivation is not the thing because I considered myself pretty self-motivated. I'm like, then what's wrong here? And, um, so I loved learning about habit stacking and how to really be more intentional. About making success a possibility.

I've read both of those. I love those. I don't know, I think it's the same author. Another book is The Gap and the Gain. Have you come across that?

Yes, I'm listening to that on Audible right now, and I literally had to come apart the other day. And I told my friend who came to the conference with me, I said, I'm only one chapter in, and I realized that I live in the gap so much. And she looked at me, I said, I'm only one chapter in. I said, please tell me there's an answer at the end of this book. And You're gonna like it.

It is, it's a game changer because I definitely am all about the gap and comparing, but I'm like, I actually, I, there's some wins. Yeah. So yeah, I think it's so important. I think those are great recommendations. So last question, how can people like find you online, work with you, get in touch?

So I'm on Instagram. I need to be on there more than I am, but it's just my name. So Lisa Cerullo Um, my maiden name is in the middle, so it's Allora Lisa. Allora, A-L-L-O-R-A. Sarulo, S-A-R-U-L-O. And we're also on Facebook a lot, so our page is JML Company and Monroe Mike. So Monroe Mike is my husband because he's our contractor now, and we do our fun hilarious videos of refrigerators with, with insects. And, um, JML Company is our company, which we had the company name like 10 years ago knowing we were gonna do something together in life. But anyway, it's just our initials. We call him Just Mike, so it's Just Mike and Lisa, JML Company.

I love that. Oh my gosh, I'll put it in the show notes. Lisa, thanks again. This has been like so much fun. I really enjoyed it. I appreciate you taking the time.

Likewise. It was great to be here, Shona. Thanks for the invitation.

Yeah, you're welcome. Thank you so much for listening. I hope you found it valuable. Please take a minute to hit the subscribe or follow button. It really helps other people find us and share it with a wider audience. We also appreciate 5-star reviews. Also, please take a screenshot and tag us on your favorite social platform. More Cedar and Porch. The show was brought to you by the Midterm Rental Playbook course, your blueprint to setting up a successful midterm rental. Learn more at themidtermrentalplaybook.com, link in the show notes.