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Private Lending For Profit: Keith’s Interview On The Accelerated Investor Podcast with Josh Cantwell
I’m going to throw up the format. I’m going to change it up a little bit. I’m going to throw something a little new at you and let me explain why. First off, if you’re looking to get rich quick, if you want to make $1 million overnight, then stop reading this blog because that’s not what this is about. This is here to help people like myself, like you, normal everyday working people trying to live the American nightmare in suburbia. We have a fairly decent job. We also like real estate but we’re not going to go quit and become the next Chip and Joanna or Than Merrill. This way we can still participate. We can still be investors. We just do it with our funds, private money, private lending, private mortgages to other real estate investors.
I believe this is going to be episode number 73 and the topic is I ran out of finished episodes. While I’m putting something together and getting interviews recorded, I did an interview with Josh Cantwell who has a very interesting story. I highly recommend you go seek him out and learn. He does coaching and education. He also uses private money. I figured it would be great to do an interview swap with him, which we have done. However, I have miscommunicated with his tech team and I’m still trying to get my side of it. I do have a copy of my interview on Josh’s podcast, which is called Accelerated Investor Podcast and you can find it at AcceleratedInvestorPodcast.com. My episode happened to be called Private Lending for Profit: Part 1. I had a good time and enjoyed my time with Josh before, during and after we interviewed swapped.
At some point, I will post the interview that he did for this show but for the time being, I’m trying to get ahead in my scheduling. My time is getting a little more cramped than usual. I figured this is a great way to buy a week. I’m doing some more solocast. I’m going to start drilling down into different aspects and I’ve got some interesting interviews coming up. The Private Lender Podcast will be sponsoring the Quest Expo. It was Quest IRA, but they changed their name to Quest Trust. This is their second year. It’s going to be in Houston this 2019, August 23rd through 25th. I’m proud to be sponsoring that again.
Even though I’ve canceled sponsors from this show, I will be bringing back Quest Trust as a sponsor. I will have discount codes for tickets and I will have some interviews from some Quest Trust employees. There will be a lot of interesting things about different accounts that you can use for self-direction and for private lending in notes and real estate. That’s going to be fun. I’m going to let that cat out of the bag. I want to get to my interview on the Accelerated Investor Podcast with Josh Cantwell.
I am particularly excited to be with you to talk about private lending with a relatively new friend. His name is Keith Baker and he has an amazing podcast of his own called the Private Lender Podcast. Keith, welcome to the show.
Thank you, Josh. I’m glad to be here.
Tell us a little bit about the Private Lender Podcast. You have a passion for money. You’ve done a bunch of real estate deals, but you also have a full-time job with an amazing opportunity as an owner or shareholder in your existing company. That’s led you to become focused on passive investing as a self-directed IRA investor and a private lender. Tell us about the podcast and your passion for private money.
The podcast was born when I was on vacation with the family. My whole family loves the beach. I don’t. We were sitting down in Florida one day in August. I live in Houston. Heat and humidity are around me all the time. I don’t see why I need to pay extra money to go and feel it on the beach. It all came together that I wanted to tell people about private money. It’s passive. Every time I talk to a real estate investor, “What are your needs?” “I’d love to get more private money. I’d love to have more funding.” More private money, easy, quick, inexpensive, forget the banks, hard money, all that stuff. I said, “I’ve always been told that I have the face for radio, why not go ahead and start a podcast?” I launched on January 1 and have been fumbling my way through it ever since and I love it. I do have a great day job where I bounced around. I did construction. I did the oil field and worked on the rigs. I’ve always enjoyed real estate and the construction aspect of it. For a while, I was a contractor and did a lot of flips for other rehabbers, but I quickly found that I was doing all the work. I’m the one that was getting the hangnails, bleeding fingers and everything.
I have a 9 to 5 and we have a family. I wasn’t the type of person to quit. When I got out of the oil field and went into insurance adjusting, which is what I do now, but I still do it for the oil field. It’s a high-dollar, high-ticket item but I travel at the last minute. I literally have a bag in the closet next to the front door. If something goes boom, I’m on a plane to go. It prohibits me from meeting contractors or future tenants. This was a decade ago. It’s not like what it is now where you can walk up with a smartphone and gain access to a house. I focused on private lending and I had some old 401(k)s because like somebody born in the ‘70s, I’ve bounced around from job to job until I finally landed on the one I’m at now.
I had a bunch of old 401(k)s. I converted them. Fortunately for us here in Houston, there’s a wonderful company called Quest IRA. They gave free education and started walking down that path and became known as a lender. I would loan only to whales in the Houston area, the big names. I often would do at ridiculously low interest rates, but the caveat was that borrower had to walk me through the deal so I could see their business from start to finish on that property. That’s when I saw the power of private lending. It isn’t the money or the debt that you’re getting. It’s the education and the network. It’s the knowledge and seeing things and how people do things. That for me is where the golden nuggets are, not the payments.
I recruit capital often from people that think they want to be active investors. When I educate them about self-directed IRAs, they’re like, “I have this old 401(k) with $300,000 in there, $250,000,” or whatever. They’re like, “Can I actively flip money using this self-directed IRA cash?” I’m like, “You can but all the profit has to go back in your IRA.” They’re like, “Forget it. I don’t want to do, it’s so much work.” I’m like, “You could lend to us. You could lend to these other borrowers and you could follow along the process and learn while you’re getting interest on your money.” It’s very similar to what you’re talking about. Keith, you handle millions of dollars of other people’s money every day. That’s why you become comfortable as a private lender with your own cash. Tell us a little bit about that. You’re managing money in these and take off on planes. You’re used to looking at risk. You’re used to looking and trying to mitigate that risk. How was your day job permeated into your private lending business and managing that risk?
What happens is my background was drilling, usually the upstream stuff. If anytime there’s a good blow-out, there’s a fire or let’s say a refinery or something go boom, that’s when I get to go to work. I’m a loss adjuster. When these things happen, I get on the plane and I go look at them quickly. If it’s an oil well fire, I will write a report. If it’s a refinery, that gets a little more involved. You have to get engineers and accountants. You get into some very complicated financial calculations for things like business interruption where something goes bad. There’s an insurance policy that will pay your monthly revenue or at least the profit side of it. I don’t get to it until I get the accountants into it.
The point being is the people I work for are mostly Lloyd’s of London, syndicates at Lloyd’s of London. It’s their money that’s being paid out to these oil companies. It’s up to me to pour through all the invoices to make sure that everything is relevant to repair. If widget A blows up, then I look at the whole repair process. I will liaise with the engineers on what the cause was, so on and so forth. At the end of the day, it’s all about what is that going to cost the insurance company to reimburse the oil company. I’ve hand-delivered checks for $5,000 to small oil companies in Houston. I also negotiated settlements in excess of $100 million for some famous hurricane claims.
It took me a few years to get over the fact that this isn’t my money and to lose that awe of if I make a mistake, this does cost some money. Fortunately, it doesn’t cost a life at the end of the day. I deal with dumb iron and property. I don’t deal with feelings or soft tissue. Still, people get funny when it comes to money, especially if they feel like they’re losing it. It was a natural fissile because of my adjusting career and jumping on planes at the last minute to go look at things that are burning into, “I can do this passively.” I remember being in a small town in Pennsylvania and getting a call from a property manager about how we’re going to have to evict. I’m like, “Just send me the bill, get it done. I don’t need to be in this process.” If the metrics aren’t met, get rid of them. That’s how I like the passive thing. It’s other people’s money, although it’s my money that I loaned. It naturally progressed from me of looking after someone else’s money and doing it with the oil field to doing the same thing with real estate.
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Are there any criteria specifically that you look at in your real estate private lending practice that you talk about on your podcast? Is there a checklist or a go for flights check off plan before you lend money out?
I am coming up with that. I speak about my criteria. I will give you one of my pillars. Pillar number one is there are two types of ROI. The first is I want to know if I’m going to get the return of my investment back. That’s number one. If I am going to get it back, once I’ve established that it’s going to come back or I’m relatively comfortable with it coming back, then how much am I going to make on that? That’s the first pillar. The second pillar is never lend to family or friends. If you have the money to give, give it with the expectation that it won’t come back. If it does come back to you and they pay it back, great. Thanksgiving and Christmas get odd when people commingle money with friends and family.
Those are the two big pillars. The third pillar is I tell people unequivocally if you’re starting out as a private lender, Josh, not someone like yourself with years of experience, but someone new to the private lending game, stay away from subordinate liens. Don’t loan on seconds, thirds, etc. Stay in the first position lien. It’s the best way to secure yourself until you can get comfortable with somebody’s business model and how they lent. I tell people never to take a second position. I have two seconds in an unsecured note out that I do because I know this based on the people. It is based on their work history and also their investment history. That’s my go-to, stay away from that early on. Get your feet wet and learn how to do it safely. When you are in a second position, you’re not sitting there with your handout because you’ve given up all control over your money at that point.
It’s an unsecured note just handing somebody some money. That’s my hard and fast. Never lend to newbies. That’s what hard money lenders are for. That’s why they charge 15% to 18% and all those points because they look at it the same way I do, but they’re in the business of making money. I’m in the business of investing with money. It’s more passive. It’s different but I look at it the same way as only go to whales, people who have a proven track record. Another thing is in local markets, lend to people who will take a reputation hit if they didn’t pay you back. You put more of their skin in the game. Skin doesn’t have to mean money necessarily.
Obviously, it does. If somebody comes to me and goes, “This is at 72% of after-repair-value all in,” I will say, “We will put it into the 6% or 7%. Get me down to about 65%,” and we will talk all day.” That’s one way you can put skin in the game. The other is if somebody is a whale in a market and let’s say they’re starting off, they’re coaching, or they’re getting students in the area. I will loan to a newbie if they have a coach that I know and trust and I’ve seen them work. It’s not to say that people don’t make mistakes. People with experience make mistakes, but a whale in the market can’t just walk away and go, “I messed up. I’m not going to pay it back. I’m just going to walk away from this.” They’ve got reputation on the line. That is a whole other level of protection and mitigation that a lot of people don’t think of.
Those are some great ones that I haven’t thought about, reputation damage. We don’t talk about that too much but it’s so true.
In your business, if you make a mistake, it’s better to fess up and say, “It’s going to cost X. I need two months to give you the money back. You will be made whole.” If people can go, “This investment didn’t go through but I got made whole. Josh kept his word. He did what he said.” That’s huge. That goes a long way, especially in this day and age.
We’ve got to make people whole, not only get them their principal but their interests at all costs. Not that we’re going to do anything wrong or fraudulent or anything at all costs. In my mindset, it’s getting people when they invest with us, the first thing on our list of things to do in our business and values is making sure we protect our investor’s principal. That’s number one. They’re our number one priority. Before I take any money out of business, before my partners get paid, my staff knows, everybody is on the line to make sure that the private lender gets their money back or their principal at least and their interests too. Rule number one is never lose principal. Rule number two refers back to rule number one.
Keith, you’ve lent out a number of different deals and you’ve given us some amazing pillars of what to look for. What is the traditional type of loan that you like to make? Is it always a first mortgage lien like a private lender loan? Do you invest equity in deals? Are you looking at longer-term equity plays where you can get your principal back and be an owner in perpetuity? Give us a flavor for some of the different deal flow that you’ve looked at.
All the above. There’s a guy I’ve interviewed. His name is Tom Berry from Investor Loan Source. Tom has a similar background to you. He’s a financial adviser, got into real estate and killed it. He had all these private lenders say, “Tom, I’ve got money but it’s not working.” He put it to work and I was going to put my 401(k). I was going to roll it over into his fund and he had this great conversation. It was open and honest and he laid everything out. I decided after that phone call, “I want to do this. I want to learn how to do this. I want to niche down and learn everything I could about that and be known as a private lender.”
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I figured if everyone’s looking for private lenders, that’s the guy I should be. I decided to do that and I did that. I started looking at, “I’m going to do fix and flips. Give me two points. I will give you 10%. You give me two or three points up front. Every few months we’re turning the money around.” I’m happy about my interest rates. I’m happy on my cashflow from the points. It was in my self-directed IRA so I don’t get to see that money, it just accumulates. I started lending to a couple of guys and then business models changed. They went from buying and selling into more of a wholesaling niche because the market was dictating. They didn’t need private money.
I was traveling for my day job. I was in Scotland and I got a phone call and they said, “Would you mind loaning to this guy?” I was like, “I know of him in the Houston area. I will talk to him.” Long story short, that guy is Landon Rothstein. He’s now my partner in Asset REI. He’s a co-owner of 713 REIA and 713 coaching or mentoring. Landon introduced me to people like Mitch Stephens and turn this into a seller finance note and collect on it for many years. I’m still a part of the Atari generation. I do like that instant gratification from the flips.
I don’t mind taking a smaller interest rate for a few years. For example, if it’s going into a project that I believe in where somebody who’s not mortgageable can come in, step into a house, start making payments and have their piece of the American dream. As long as they’re increasing the value of my property or the equity that my loan is tied to, I’m happy. It’s not all about 15% anymore. I won’t turn it down, don’t get me wrong but I’ve gone from the short attention span into the longer attention span. At the end of the day, as much as I love my day job and want to exceed and excel at it, I don’t want to do it forever. I want to be able to sit back and say, “I’ve got X amount of money coming in from either my private lending on my real estate holdings or both.”
That’s where I’m shifting now. You come to me with a good LTV, a good loan-to-value. If I’m all in it 50%, there’s not a whole lot of projects that I won’t shy away from. There are certain areas that I won’t. I’m sure you’ve heard about this little storm called Hurricane Harvey and all the other hurricanes. There are some things along the coast that I won’t get into but as long as it’s a deal, I will at least sit down and listen with whoever is presenting it. That’s a long way of saying I don’t have criteria but I have all the criteria.
The deal dictates.
The first guy that I loaned to, he loaned in a single-family residence. He comes to me and says, “I’ve got this commercial opportunity.” I’m like, “That’s out of my wheelhouse. I’ve got to stay in my single-family lane.” He was convincing enough, successful young guy. He had been doing it already a decade. He jumped in and said, “I need $70,000 for this.” I was like, “As long as it appraises for $150,000 and you get a commercial appraiser with the thick booklet of what this thing’s going to be worth, I will take a look at the loan.” The appraiser came back with a value of $305,000. I called the borrower and I said, “I’m going to loan you this money and you don’t have to pay me back. I will take over. I will foreclose and I will loan to you again and again.” You keep bringing these kinds of deals, almost all my risk went away. Many things could go wrong for $70,000 and still recoup $300,000. That’s when I started. I need to start looking at other things and sharpening other tools. I don’t make it a habit to loan on commercial, but in my free time, that’s what I’m studying up on.
What’s maybe a crazy deal that you didn’t do or deal that you passed on? You said you looked at a lot of different stuff. You’ve probably seen some wicked deals come across your desk that you passed on or things that maybe you funded that you wish you passed on. Tell us about that.
There are a couple of second position liens that I wish I would have passed on. I’m happy to say that it did work out for me, not in the timeline that was agreed. The second positions, when you do that, you take yourself out of control. That’s not a good place to be for someone like myself. Other people are okay with it like, “I’m going to give you my money. I don’t expect to see anything for a few years.” That’s great. There was this old mansion that was going back to the bank. We needed about $120,000 to make everything right with the bank and get the payment going back. We were looking to take it over on the subject-to type of deal. It was about two-and-a-half hours away from Houston, almost to Louisiana. I got up on Saturday. I drove out there and met the owners. It was too much. It was too opulent. The market was so small. The buyer list was so small for something like that. I didn’t want to tie up my money into it. I thank the people for meeting me out there and walking me through.
This was a deal that my buddy and my partner, Landon, had found. I called him on the way home and I said, “I’m not 100% comfortable on that.” If it was $20,000, I wouldn’t have a problem with it, but it’s a $500,000 home. They had converted it into an office. Long story short, my $120,000 would have doubled in about 40 days had I pulled the trigger on the deal but I didn’t because I wasn’t comfortable with it. That’s a successful loss for me because nothing ventured, nothing gained. At the same time, it’s easy to sit back Monday morning and quarterback that deal. In my area, I like deals between $50,000 to $200,000 on the house. You’re going to find plenty of people to get into those homes. $500,000, I know in places like California, it’s a hovel, but in Texas, $500,000 is going to get you a nice spread. It was too nice of a property. At the end of the day, I made the right decision. I wasn’t comfortable. I stuck with my gut. I didn’t lose money, but I could have made so much.
It’s often not the deals though that you don’t do. It’s the deals that you do that go backward and often affects somebody’s financial future forever. A lot of people can’t afford to lose principal. “I could have done this deal. I could have bought Facebook stock,” great, so could the rest of us. However, good investors make good and consistent decisions they usually don’t have a one-time windfall that makes them healthy. It’s usually about consistent decisions and avoiding a big loss. That ultimately makes somebody a good investor long-term. That’s great. Keith, any others come to mind that you either did or did not do?
It is necessary to find a role model – be it a coach, a mentor, a friend, or a family member – with the same passion as you do.
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I paid $5,000 for a house that I can’t get rid of. It was back taxes owed and out-of-state owner. He got tired of getting notices from the city. The city would go by and mow the yard and stuff. I remember looking and going to the house going, “This is the biggest piece of the mess I’ve ever seen,” but I’ve seen worse. When you stick around real estate long enough, you’re going to go from the manure pile to diamond. I thought that was going to make this into a diamond. As long as it pays for itself and doesn’t cost me money at this point, I will be happy. I broke my rules as it’s too close to the water. I don’t like investing. I said, “I will make them get a flood policy.” I didn’t follow up on that and I forgot to put in my attorney instructions to the title company. I have some checklists slowly built up. I’m a one-man shop with the podcast. It takes me a lot longer to get things out. One of the things I look for is I want insurance binders in place both for title insurance property and if it’s in flood in Texas. Anywhere near the Gulf Coast, I require flood insurance. If you can’t pay the $450 a year for the insurance that’s outside of the flood plain, then you don’t have a deal. We will look at it.
Looking back after you’re lending out a lot of money, meeting a lot of people through your podcast, and investing in flips of your own, is there any advice you’d give your younger former self? That you look back and tell our audience or tell yourself, “This stands out?” A couple of things you would have done differently that you can share that would impact other people.
I have few regrets in my life and I’m happy about that. First off, I would have started much earlier than I did. I had some people, not in real estate, friends of the family that tried to take a young seventeen, nineteen-year-old Keith Baker and say, “You’ve got a little windfall cash from someone in the family, put that away.” I’m like, “No, I’m going to college. I’m going to burn all this money.” Now, I go back and talk to these people and I’m like, “If I would have even 10% of what you said many years ago, I’d be so much better off.” One, I would have started much earlier than I did but I was a typical teenager, “I’m going to go to college. I’m going to change the world. My parents don’t know anything. They don’t know what they’re talking about,” then I started paying my own mortgage. I would have started earlier. I would have jumped in. I probably would have niched down a little more. I would have gone a little broad like, “I will try flipping. I will try landlording.”
Find somebody, whether it be a coach, a mentor or even a friend or family member who’s doing what you want to do and follow them. Do it sooner than later. I was in my 30s before I had the a-ha moment. I’ve let several years go by and so there’s that constantly being behind the eight ball and reading. I would have read so much earlier on because now I don’t have the time, wife, kids, jobs, podcast, investing. I try to dedicate about fifteen to twenty minutes a night in reading about real estate, about business, and educating myself. Those are the three big things I would’ve done different and started saving. There’s one negative side to private lending and that’s you’re going to run out of money. There’s only so much you can lend out before you go into brokering or creating a fund and everything. I wish I would have saved more if I could. I could have my hands in more and more projects.
One quick tip, I started doing this. I listen to audiobooks. I built up my tolerance for speed to the point where I could listen to them at 2.0 speeds. At the same time, now I can listen to them and I buy the physical book with a highlighter. I listen to it at 2.0 speed and highlight at the same time. I pause it when I have something that I want to think about or something I want to push down into my core and make sure I use it. For me, listening to 2.0 speeds, I get through some of the minutiae a little quicker and by highlighting I’m retaining way more than I ever retained. I’ve been reading for 42 years. I’ve been reading all my life since college, hundreds and hundreds of books, business books, real estate books, success books, etc. Now I finally feel like I’m retaining more. I’ve always been a slow reader so I didn’t like to read because it would take me forever to get through a book. Take that for what it’s worth. Maybe that will help you.
That’s great because I do a podcast at 1.5 speeds in the car for that same reason. Obviously, I’m not highlighting while I’m driving or I shouldn’t be, but I’m going to incorporate that because you’re reading, you’re highlighting and you’re listening at the same time. That’s reinforcing. I like that idea.
Keith, thanks so much for sharing. Tell us a little bit more about where we can find your podcast and where we can get in touch with you? If our audience wants to reach out, listen to your stuff, approach you about a deal, where can they find you?
PrivateLenderPodcast.com is where you can find me. My email is Keith@PrivateLenderPodcast.com and you can listen to the show on iTunes, Google, Stitcher, SoundCloud, anywhere or any platform that houses podcasts, you should be able to find me there. While we’re at it, you can go right now to the Private Lender Podcast and also go to Josh’s podcast on iTunes and leave us some ratings and reviews. We would greatly appreciate it because it helps get the word out and it helps people to find this. That’s how you get ahold of me.
My team will monitor all those different platforms that Keith has mentioned. If there are questions specifically for Keith, we will grab them off those platforms, we will feed them to him privately and we’ll get you some answers. We will introduce you to the right people that can get you there. Keith, thanks so much for joining us. I enjoyed it.
Josh, I appreciate it. Take care.
I’ll talk to you soon.
If you go to AcceleratedInvestorPodcast.com/2019/04, you can see my ugly mug and my ugly office. I never officially asked Josh for permission to air this, but I don’t think he would have any issues since he did a swap and I’m totally plugging his name and his website. I don’t give any spoilers away, but he’s got a very interesting story. He overcomes a lot, those human interest stories we tend to enjoy. I know I certainly do and Josh is a really cool guy. I’m glad that a mutual friend introduced us and that has worked out well. I do wish Josh all the best. Speaking of wishing all the best, how about you, dear reader? Where are you? What are your goals? You’ve got your family budget. You’ve got your kids’ college covered. If you do it in January, New Year’s resolutions or whatever, take a moment, take a pause, see where your financial goals are, see where your fitness goals are and your relationship goals, business and personal. June is always a good time. People like to get married in June. It’s a good time to look back and take a yardstick of where you’re at or what you’ve done.
Maybe you started in June. I like to mix it up sometimes so I don’t make New Year’s resolutions. Most of the stuff I do starts in February. However, I’m thinking about moving it to June, just so that it’s a nice contrast, June and maybe November, December. That’s my two bits of free advice to you. Where are you? Take a step back. Don’t look behind you, but look around and see where you’re at, where you want to go, and what you can do better. If you’re going to stop and take a look at your financial goals, make one of those goals. Leave a rating and review at iTunes for the Private Lender Podcast. That’s the only price I asked you to pay or tell a friend, shoot this out via text, email, direct message, put it up on Facebook, Instagram, Twitter, whatever you kids are using these days, the Snapchat and all that fun stuff. If you could help me spread the word, I would greatly appreciate it. It’s the only price that I ask and while you’re at it, for fun, connect with me on social, Facebook. Besides health, wealth, happiness and self-awareness, I wish you profitable and safe private lending.
- Private Lending for Profit: Part 1 – Accelerated Investor Podcast past episode
- Quest Expo
- Quest Trust
- Lloyd’s of London
- Tom Berry – previous episode
- Investor Loan Source
- 713 REIA
- iTunes – Private Lender Podcast
- Stitcher – Private Lender Podcast
- SoundCloud – Private Lender Podcast
- iTunes – Accelerated Investor Podcast
- Facebook – Private Lender Podcast
About Josh Cantwell
He is the top residential real estate investor in his community, has been a full-time investor since 2003. Josh has bought and sold over 600+ properties since 2003. He is laser-focused on the distressed property niche including his 6 revenue pillars. Those 6 revenue pillars are Bank Foreclosures (REOs), Short Sales, Lease Options, Buyers, Marketing and Raising Capital.
While his home base is Northeast Ohio, Josh regularly partners up with other investors and even students to close deals in 25 other states. So no matter where you live, Josh is the man to show you how to find, structure, negotiate, and close real estate deals for big profit.
SREC goes beyond teaching how to do a deal and teaches how to build a business in real estate.