PLP-047 Raising Other People’s Money (OPM) For Out Of State Deals with Gustavo Garza

PLP 47 | Raising Other People's Money

PLP 47 | Raising Other People's Money

 

Gustavo Garza, the CEO head guy in charge and main check writer of Clear Path Property Solutions, discusses how to raise other people’s money (OPM) for out of state deals. Going deep into the relationships that start it all, Gustavo talks about the need to build it well with the people and not just ask for money. He shares his own personal journey that eventually got him to start on second liens, giving advice on how to be safe at it. Gustavo shares how he raises money, highlighting the value of networking through social media, conferences, and hosting dinners where people can share the same fears and provide each other solutions. Learn about all of this together with some nuggets about deeds of foreclosure and private lending that will equip you to navigate through investing.

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PLP-047 Raising Other People’s Money (OPM) For Out Of State Deals with Gustavo Garza

Joining us is Gustavo Garza, the CEO, head guy in charge and main check writer of Clear Path Property Solutions. Gustavo, welcome to the Private Lender Podcast.

Thank you.

Thanks for being on. It goes just goes to show you the hustle that’s involved in running your own business. You are a real estate investor full-time. Go ahead and walk us through from the very beginning to your company.

I got into real estate because my wife and I wanted to buy a mobile home park. I was working a six-figure oil and gas job doing well. We wanted to start gaining some passive income. We got to the point of almost closing on this park and we step back and go, “Do you know what you’re doing?” She goes, “No, I thought you knew what you were doing.” I was like, “No, I was pretty much BS all the way up to this point. How about we figure out what we’re doing first before we go and buy an $800,000 mobile home park?” It’s not a small investment at all, so we probably should figure out what we’re doing. That’s when we did one of those real estate programs that everybody likes to knock. I’ll keep their name out of it, but you know who we’re talking about.

That opened my eyes. It was essentially like the scene in The Matrix, “Do you want to take the red pill or the blue pill? Do you want to forget everything and go back to your ordinary life or do you want to embrace the knowledge that you have just received and completely open your eyes to what’s out there?” I felt like that was a decision that was being made. When we did that, out the gate, we started lending money. We did it in the second lien position. We did pretty well our first year. We made a total return on our capital of about 29% between points and interest. We jumped into the home staging of properties that were being done by investors. We started marking for deals. It was a flood of us what can we do, what’s possible and figuring out what interests us.

My wife hates this analogy, I was sleeping around in real estate and I hadn’t figured out who I wanted to marry yet. I’ve got to have a little thought. I’ve got to try a little bit of everything before I figure out where I want to sink my teeth into. Throughout that process, we flipped houses. We’ve wholesaled. We’ve lent money. We learned a bunch of different stuff in the process where it fell into my niche. What I enjoy doing is building the relationships, getting to know people and raising capital for the projects that we have and I’ve been able to do that where I’m based here in Houston Texas. We raised capital for projects in Florida and Iowa and here in Texas. Most of our lenders are from other states outside of those states. They rarely ever see the projects that we’re working on, which I feel is a little bit unique because for the small stuff that we do, we deal with a lot of small investors. I feel that most people want to go see the project that they’re putting that money into. For you to be able to raise money and put it in another state where they’re never going to see the project, where they’re going to rely on you and trust you in order to handle their money properly and to be successful, I feel it takes a certain approach to be able to make that happen.

I would have to definitely agree. I’ll get to the second lien position. You invest not just in Texas but out of state and you are able to raise funds from other out of state investors who will never see the property. Whereas I always tell the newbies to start in your backyard, go see it, touch it, taste it. Go see where the dead body was lying, the outline or the chalk of the house. It helps build the experience for a lender. I met you at a Quest IRA event. You were looking for some funds. Go to the meetings, go press the flesh, shake hands meet people like Gustavo because he can put your money to work for you.

A note to that, I have not been able to raise not one dollar out of Quest because they say, “Where are the projects?” “Iowa.” “I’m not interested. I want to make sure that’s here in my backyard.” There is a big perception and it’s funny because I can raise a lot of money out of doubts. I have been very unlucky in raising funds here out of Houston. Most lenders in Houston want to lend in Houston. They will not even consider even if numbers are fantastic. It’s something I’ll go into a little bit because the fact is with Quest, you show up. You try to raise capital. You can be consistent. The fact is, are you truly building a relationship just going to meetings for 30 minutes? It’s very difficult to do that. That’s where I’ve been able to raise a lot of capital because I’m building those relationships first and not asking for money. This is one of the things that I figured out.

Go see where the dead body was lying, the outline or the chalk of the house; it helps build the experience for a lender. Click To Tweet

I find it interesting that you haven’t been able to raise anything out of Quest. I didn’t quite realize. I knew you’ve got projects all over, but that’s funny. Here’s another thing, a huge red flag went off for me. You said you started with second liens. I’m not going to interject any prejudice into that. What made you decide we’re going to start on second liens? How did you keep yourself safe? Walk us through that.

There is what we call a method to the madness. That’s what they call it. There is a method to this madness because so many people told me whatever you do, do not lien in the second position. You have all these programs saying you can do real estate with no money out of pocket. It’s hard to do that without finding somebody to be in the second position. I feel like it’s two worlds colliding. Don’t do the second position but find somebody that will so that it’s not your money that is doing it. You can make a deal and get no money out of pocket. I am a physical learner. I like to put my hands on things. I don’t like to learn from other people’s experiences. I feel like I’m a replicator. If I can see it, I can replicate it. That’s where my strength is. Part of lending money in a second position was not only validating the deal but negotiating with the people saying, “I want to take part in this project.”

That gave me a hands-on experience to be a second lien position with people that had already been doing the business for a little while get another construction cost, get to know the contractors that were good. Walk the projects. What to look for? How to view what something is going to cost? How did they determine their numbers? How are they able to walk through a house and in under five minutes have a good idea of what their budget is going to be and be accurate with it? All those things were things that truly fascinate me. How can I convince somebody to give me the time of day? “I have money in the second lien position that I’m willing to fund one of your projects in return for all this knowledge.” To me even if I had walked away with not making a dime on that, the experience, the knowledge that I would have gotten from these people would have been worth it because that supercharges my way into where I’ve got today in such a short period of time. That’s how I feel.

I am so glad to hear that because I took a very similar path, but I didn’t do it in the second position. I ended up lowering my interest rate to the borrower. In exchange I said, “You have to walk me by the hand through everything.” We’re going to go look at the property. We’re going to do this. Even if I just got my initial money back, I made no interest payments on that loan, the education that I got from that was tremendous. To me, the biggest part about private lending is those relationships and the learning. I like to say to lend and learn or lend to learn because there are so many different facets to real estate investing. The fact that you went into the second lien, did you have any equity or just a second lien in the beginning?

I went to a lawyer. I said, “I’m going into a second lien lending,” and they’re like, “Really?” I was like, “Yes. Draw up the best documents you can and let me know what I need to do to best protect myself.” It’s the smartest decision I made as far as doing that. I knew that I was bringing value in the second lien. I could even charge higher interest rates and points and so on and so forth. I was reasonable. The second thing I did was I look for people that would lend money back in the second position. I’ll lend you in the second position on the contingent that when it’s time for me to do a project, you will reciprocate. In return, I’ll tell you, “I’ll lend this to you at a decent rate, in return that when I need money, you lend it back at me at the same rate.” It was like a barter or an exchange system. When I got my first deal, I had no problem finding it and having zero money out of pocket because I had built those relationships up when I first started.

PLP 47 | Raising Other People's Money

Raising Other People’s Money: You either lend and learn or lend to learn because there are so many different facets to real estate investing.

 

You are a shining example of what I like to call the alternative economy where we don’t need banks and brokers because you’ve negotiated that, “I’m going to loan you some money in the second position, but I’m going to need that favor back from you.” It’s beautiful and it’s simple and clean. I’ll get the lawyer to draw up the documents, but that’s what they’re there for. That’s a very clean system.

Not everybody followed through with the promise. I can’t force them but the people that did are the people that I have some great relationships with now. I know that for any projects that I have near Houston, call them up and I’ve got some money waiting for me to be able to use it on that project.

That’s what it’s all about. We got through the second lien. You’ve navigated through that minefield skillfully and beautifully. You do a lot of out-of-state investors. Give us a 30,000-foot view of how Gustavo Garza raises money, not in Houston but elsewhere in the country.

I go to a bunch of real estate conferences. What I do is I build up a little social media around it and I go to these conferences and I host dinners. In these dinners that we host, we talk about real estate and everything like that. I tell people exactly what I’m going to do. I’ll say, “Here at this dinner, I want to walk away with at least $100,000 in the new private account. I want to break this down because not only am I looking for your money, I’m going to teach you in the same breath of air how to go raise money yourselves for the projects that you have.” I go, “We have right here fifteen people at this table. I’ll cover the bill for the dinner. We’ll go to these restaurants.” This is the key and I’ll share this with all your listeners because this is a great way to keep your expense down, but what you get out of it is huge. I get this entire table of people, fifteen people. I order appetizers because usually big plate dinners are overpriced. They have way too much food that people can never finish in the first place. I order all these appetizers, cover everybody’s first round of drinks. I get them sat down for an hour or an hour and a half. I have never had a bill for dinner like this go more than $400.

If I’m able to raise $100,000 for a small project out of this dinner for $400 that’s 0.4% of my money going to raise $100,000. I can guarantee anybody out there. Everybody’s heard this before, where did you spent $400 to raise a $100,000? Everybody would be like, “It’s totally a spin.” This is a practical way to do it because now you have fifteen people at a table that you’re talking to. You’re masterminding. You’re asking questions. You’re getting to know them. You’re building the relationships. Here’s the thing that we did. We started doing that at dinners that brought people together. We said, “We want to try something different. I appreciate you coming to dinner. In return, this is all I’m asking for. I want to go around the table and I want everybody to share their biggest fear that they manage or deal with in real estate.” “I am fearful of calling people and negotiating. I am fearful of raising capital. I am fearful of this.”

There is method to madness. Click To Tweet

What it comes down to is a lot of the people at the table share the same fears. Not only do they have people that they can now relate to and build a stronger relationship at that dinner even if it’s not with me. If it’s just like, “We share the same fears. Let’s hold each other accountable to see if we can overcome this.” That just brought everybody so much closer together. With that, everybody just wanted to help each other out. In doing so, I had people come and go, “I don’t have the capital, but I know a guy that does. I liked the dinner. I appreciate you doing all this. I love it. I love to put you in contact with that person.” Doing something like that has helped us grow and bring in some of those bigger moneylenders.

I like that tactic. $400 to get a $100,000, it’s a no-brainer. I do like expensive appetizers just to let you know.

“What do you guys want? We’ll just go two of these, three of these, four of these, six of these.” We just spread it out. They get full. It’s amazing because the appetizers will fill you up so quickly. It just costs so much less on a per person basis. It’s a great tactic. The thing is you’re feeding people and you’re buying them a drink. The thing is this when somebody is covering your drink, you typically don’t order the most expensive. They’ll get like a beer or margarita or something like that and it’s not a big deal.

Of these fifteen that you have at the table, break it down for us, what are some of the common characteristics of them? What do you have to look for a maneuver? You’re dealing with people. We’re worse than snowflakes, no two are alike. After you shared the fear, how do you get money out of them?

My approach is I work to help them solve their real estate problems. When you take care of somebody in return, most people want to do something in return for you. It’s like the saying, “The greatest compliment is a referral.” If I’ve helped you with something, the greatest thing you can do is refer somebody of something I’m looking for. Usually what I’ve done is I go out support other real estate investors. People have called me because they’re looking for solutions or creative ideas and have to do something. I’m going out and I’m taking the time to help people. I’ve helped one of our lenders. They lend us money, a total of about $100,000. They’ve had such a good experience. I’ve helped them in answering questions and do a bunch of stuff that they referred me to a lender that over $1 million. I’m not there going, “I want your money.” I want to make you successful. I appreciate what you’re doing because you’re making me successful. How can I make you successful? In return, I’m going out there and trying to build a network of people around me. It’s not just a one road street. It’s a two-way street. I call them up. They’re like, “Do you need money for a project?” “No, I wanted to call you and ask you what can I do for you? Is there anything I can do to help you?”

PLP 47 | Raising Other People's Money

Raising Other People’s Money: What it really comes down to is a lot of people share the same fears.

 

Since where I spend all my time is raising capital, I have that ability and I have the luxury of time to be able to build those relationships out. They say as a manager, you can effectively manage eight people. If you effectively managed eight relationships, that would be a task for anybody trying to do a full-time position. This is my full-time. I have a list of about 30 people that I consistently call, “What can I do to help you?” I tell them some of the things that we’re doing. I give them new ideas. We just talk about things. When you feel like you had a support system in there, you just wanted to grow because you’re just thankful of what you have and the people that are around you. That’s how I’ve been able to build this. It’s about the relationships. When you have a relationship with somebody and somebody is consistently there for you, what do you not want to do? You don’t want to disappoint them. You want to help them become successful because they’re helping you become successful. When you have that much positivity behind you and all these people going out and looking out for you and wanting to help you grow, it’s almost like bird-dogging, but in a different perspective because I have this group of people around me that are looking out for my best interests. They are networking for me and knowing what I’m looking for and bringing those people to me because of the network we’ve built.

My favorite thing about real estate is it’s the people. It’s the connections. There’s a lot of power in not wanting to let somebody down and having that as motivation for somebody to help you or for you to help somebody else out.

In talking about the relationship aspect, there are two points that I want to bring up that people fall short in as far as when they are looking to raise private capital or if you’re a lender, you probably deal with this on a consistent basis. People take your money for granted. They always expect it’s going to be there. There’s like, “I’m making you this return.” Granted you are providing the service, there is a benefit you are giving them a return. Most people never take the time to ask, “How did you get your money? Did you work in a factory for 40, 50 years with backbreaking work, manual labor to build up this nest egg that you are now lending out so that you can live your retirement? What does that mean to you?” Emotion is tied to everything we do. We cannot make a logical decision. It’s impossible. With that understanding, that emotion takes part in a lot of the decisions that we make. When you like somebody, you have that relationship, you want to do business with people you like. You want to do business with the people that share the same views because you can assimilate a lot of different levels of a relationship.

When you go in and ask a lender, “Tell me a little bit more about how you got to where you are at right now? Did you get bought out or pushed out of your own company that you’ve built up, so you’re passed off and this is the money that you got from it?” There’s more anger than anything that has tied from this money. This is money from an insurance payout because somebody in your family passed away because of a drunken driver or something. This money is tied to maybe a son or daughter you lost or a spouse. There’s a lot of emotion in something like that. Now that you have this money, you will never replace them, but this is what you have left. This is what they left you. If you don’t take that into consideration sometimes, you don’t know how somebody is going to feel about it. I don’t like getting into that touchy feeling subjects usually. In talking to more people and understanding where they got their money, how they got there, what they did to get to it and why they’re lending it out, it helped me understand and respect and know how to just communicate with them. I’ll say, “If your goal is to be able to start this foundation with the money that you’re raising from here, let me help you with that.”

There's a lot of power in not wanting to let somebody down. Click To Tweet

Let’s make sure that we create something that’s sustainable, so this can go on for generations and generations. When you dig down, a lot of people don’t like to share the reasons that they want to do this. Some people say, “I want to make a great return.” Why do you want to make a great turn? What is this for? Why do you want to do this? What is this touching in your life that’s very important? Is it retirement or is it a legacy or do you want to donate this to help avoid drunk driving? Whatever it is, understand what people want to accomplish with money because if we assume those things like this person just wants money so they can cruise around the world, buy nice cars and live in fancy houses that can completely not be what they’re looking for. If you assume that, it’s almost offensive to the lender side because then they feel this person will even know you, “I thought we had a relationship. The person doesn’t even know what I’m doing. They didn’t even know what this means to me.”

When you can help them accomplish their goals, why they’re lending, you can create those win-win situations. That’s very powerful. You also now have an advocate in your corner that’s going to say, “This guy over here is probably one of the best people I’ve ever done business with. It’s not because of the money. It’s because this guy has helped me do what I want to.” When is the last time a borrower has talked about going, “I lent him money, he’s making a great return but he helped me set up his foundation. We put this in place. Now we’re creating a legacy for my son that passed away.” When you give back in that way, you are just going to get a lot of referral. That’s where a lot of my money is coming from now, referrals, because of those relationships that we’re building.

You have dinners. You get people in. You start to learn about them. You look first what you can do for them. That creates allies and friends who want to do it for you. Is there another step up above that? You did say you call periodically to see what your lenders need. I love the whole legacy thing. I assume some people have a legacy of a loved one or something that they’re trying to build for and they’re loaning you their money in order to facilitate that?

Yes. I’m talking to some of the private money lenders. We have one whose father came over here with nothing, but then built this good amount of wealth up. They have that wealth. They want to honor his legacy by helping other people immigrate to this country and have the same opportunity that their father had because it was something that meant a lot to him, being able to come over here, to be able to start a life in the United States, and what he was able to accomplish here. He wanted other people to be able to accomplish that also. There are a lot of great things about real estate. One of the things is that impact people’s lives in some of these ways. One, you’re creating a house for a family to live in. You’re creating something that is going to be a home for a family. Second, you’re creating wealth at different levels, for the person flipping the house, for the person lending the money and everything. The second thing is what you do with that money. Make your money matter. What’s the point of having all this money if you’re not going to do anything with it? What legacy are you going to leave? More and more people are talking about what impact they want to leave on this world. What do they want to be known for? That’s a question that a lot of people get asked.

If you were going to be known for one thing, if somebody looks back on your life and there was going to be one thing that stuck out, what would you want that to be? What are you doing to try to accomplish that? When you look into it, it’s a very tough question. What do you want to be known for? If you’re like, “I want to be known for stopping human trafficking.” Great. What are you doing to accomplish that? “I’ve fallen short.” They’ll say, “Let’s not just have this as a lender-borrower relationship. If that’s what you want to do, let’s put a plan together. Let’s map that out together. Let me help you do this.” Sometimes all people need is that gym partner. They wake up at like 5:00 in the morning. They get out because they don’t want to disappoint that partner. They get out there and do their workout. At the end of a workout, you feel ten times better for that day because you got something accomplished. You’re feeling great about yourself. Without that partner to hold you accountable, we make a lot of excuses and that’s something that we always do.

I feel like in some of those relationships I have, some people just need somebody to nudge them a little bit. At the end of the day, when you look back on the year, what were you able to accomplish? We put a plan together. We started a foundation. We started putting money towards this. I never thought I would be able to get this done. When you talk about building that relationship and you look at that, where do you think that relationship is on a scale of one to ten when you can create that type of impact in somebody’s life by helping them accomplish what they wanted to accomplish, but never took the time to get it?

PLP 47 | Raising Other People's Money

Raising Other People’s Money: We’re worse than snowflakes, no two are alike.

 

That’s more than eleven on the scale of one to ten when you have that impact in somebody else’s life. It’s great because you live and dwell in this area that is very rarely spoken about or talked about in the real estate community. It’s definitely there though. It’s palpable. You can see, you can taste it. I like the fact that that’s your take and you take care of not only the people’s money but the people as well. Have you ever had to do a deed in lieu of foreclosure? Have you lost some private lenders money? How have you navigated through your investing?

I’ve always paid back every penny that we borrowed from a lender. We’ve lost some money on some projects. They weren’t large losses or anything like that. It’s part of the game. We’ve always paid back our lenders. I’m pretty sure every lender will appreciate this. Every borrower needs to know this, just face the music. Just be honest and communicate what’s going on, “We’re going to be losing some money on this project. It’s taken a bit longer.” Just be open about this. Most people can understand most situations if you can just communicate through it. I’ve had those instances and it was almost like karma. I’ve lent money to a guy here in Houston. He needed three extensions because three closings had failed through. He finally was able to sell the property. He lost money out of a paying back every penny I was owed through the extension. He communicated through it.

I had confidence that I was going to get payback because this guy was letting me know everything that was happening through this entire process. The karma side of this is that he lent money to me on a project and I needed an extension on a project that was taking us a little bit longer to sell. We ended up losing a little bit of money on that project but he got paid every back. I called him up and I go, “I’m going to need an extension.” He goes, “Yes, for how long?” Goes, “I’m not sure but I’m going to need an extension.” He goes, “You took care of me. I’ll take care of you. Don’t worry about it because I know you’re good for it. I know you’re going to pay me back, keep me updated and we’ll get through this.” I said, “I’ll keep you posted.” It was funny because it was that easy of a conversation, “I got your back. Don’t worry about it.”

Don't go ostriches. Don't stick your head in the sand and pretend like something isn't going to happen. Click To Tweet

That’s what I tell people, don’t go ostriches. Don’t stick your head in the sand and pretend that something isn’t going to happen. Be upfront, honest, communicate with your lender and let them know. This guy, three closings fall through. The root cause analysis thing here. The only thing he could have done is gotten a different buyer. There’s no scope of work. There’s nothing he can do ahead of time. If there were, it’s very little.

The crazy thing is they backed out at the closing table. It lost money and everything because, at the closing, they were trying to leverage. It was the day of closing and they’re trying to get an extra $5,000 or $10,000 negotiated in a few days before closing for outrageous things. He was like, “No, I’m not going to do it.” They thought that he would bend in and give them what they were looking for versus losing the contract and selling the property. When he told me, he was like, “I’m going to let you know I’m going to back out this contract for these reasons.” He told me why. I was like, “If I was in your shoes, I would do the exact same thing because that is absolutely ridiculous what they’re asking you do.” The house that he put together, it’s priced well that’s why he kept getting buyers, but he just had a bad string of buyers in that area with just outrageous demands at the buyer’s table.

That’s the thing. You totally agree with what he did, his strategies. He communicated that to you. He let know and that is so key. Don’t borrow somebody money and then go run and hide. That’s the worst thing. The absolute worst thing you can do from my lending perspective. You invest in several states, not just Texas. Are you rehabbing, flipping the homes out of state? What’s your business model out of state?

We’re rehabbing houses in all three of those states. A majority of it is in Iowa, in the Des Moines area. We’re doing a lot of there. It’s a very steady, solid market, low price point. It’s very easy to find money for those projects. We’re just turning them over very quickly. It’s been doing very well there. We got into Florida because we were bored and wanted to be able to write off business expenses to a beach location. We’ve been projects in Tampa and St. Petersburg. It’s winter. It’s cold in Iowa. Texas is not that great. We just started doing some projects on the Florida coastline. We can take our families out there and business. We’ve got two projects that are coming to a close. I live in Houston. I’ve got a partner in Iowa. Florida is a remote place that we’re rehabbing. It has taught us so much. I got a little bit of a kick in the rear on those Florida projects. Luckily, we bought them right. We’ll walk away probably with a little profit or breaking even at this point. It’s a whole new perspective because you don’t think about a lot of things when you can’t just go and handle the property. If you’re talking about a flight and going down there, if you fly down there, I might as well spend some time down there and widen things out. Is it worth it? Can we do this?

What we’ve learned is we’ve got to leverage people that have skin in the game on the projects locally so that if the project’s failing, they’re going to lose. We’re bringing in those partners where they’re bringing that second position money, but they’re coming in. They have a lot more skin in the game than we do. Therefore, they are a lot more invested making sure that those projects are successful because they’re bringing the cash together. We brought the main lending, which covers a majority of it. They have all their cash in the game and finding those relationships and understanding the people that could do that, that has been critical. It was a good lesson learned. We figured out people to do business with and not to do business with. Moving forward, we’ll figure out if we want to do it or not or as most people do on real estate, you’re consistently shifting your business model based off of how the market looks and what you want to anticipate to ensure that you can stay profitable and stay successful.

It's almost a comfort knowing that there's a step one through ten that is followed every single time in order to make something successful. Click To Tweet

The shifting business model is probably the most fluid in real estate as the markets change. You said you bought the properties right. I’m assuming you’re talking about your LTV, your loan-to-value on that. Can you unpack how you are able to buy but you’re still going to make money? Maybe not as much as you thought but it’s still going to be a profitable deal.

The first deal we got in Florida, it’s in Dunedin which is right outside of Tampa. We got it from a wholesaler and we bought it. It was 67% of ARV for the purchase and rehab. We’ve got a 33% spread in there when everything is finished and that went well. The one that we did in St. Pete’s, that was a stretch for us. It’s an ARV of $1.3 million. We bought it for $500,000 with a $200,000 rehab. We were in it for $700,000 with an ARV of $1.3 million. The reason we got it cheap is the guy who was selling it was another rehabber, ran out of cash, just couldn’t make another payment on it. He needed to offload it off of his books. The outside of the house had already been done and we just had to redo the inside and do a bunch of landscaping and get everything sorted out. With that project right there, he was looking close to $800,000 and we got them all the way down the $500,000. We got $300,000 off of what he was looking for because he needed to close in three days. We were able to close in three days. That’s one of the reasons why we got it. We bought that so right. Even though we’ve run into some issues with contractors and getting things done with the city of St. Petersburg because this is a historic house, we have enough spread in there that will still be able to walk away from it even after having to pay all of our expenses.

That’s way out of my wheelhouse in the price range of that. I get comfortable with it. For me, it’s a holding cost. It’s the monthly cost that you should be prepared for. All in at $700,000, you can pull $600,000 in the next six to twelve months. I’d say that’s a pretty decent ROI. You talked about your partner in Iowa. That’s what I was also concerned about your teams and the boots on the ground because I’d assume you’re not flying up every week. You’re not taking your beach holiday every week or every month over in Florida going up to Iowa. Personally, I am getting more and more comfortable with the idea of lending out a state slowly but surely. Walk us through the process of how you keep the money is safe and keep them comfortable with the idea of, “I’m in Houston, but I’m going to lend in an Iowa or Tampa?”

We set boundaries for the relationship. We set the expectations of how this is going to go. That’s one of the biggest things. When you don’t set those expectations, then people go, “I can call him at 11:00 PM or 2:00 AM and he should pick up the phone because he said I could call him any time.” That’s one of the biggest mistakes that you can make as a borrower in setting the relationship with the lender. Lenders like to know that there’s structure behind what you’re trying to accomplish. If it’s, “Call me any time. Don’t worry about it. Anything goes,” then it’s like, “Is this guy trying a little too hard? If he has all this time that he can answer a phone call, what is he doing?” With the lenders, one of the things we do is say, “We’ll lend your project. We’re going to secure this way. This is going to be the term. We’ll update you when we’re about halfway through the project and give you another update when we’ve got a contract on the house and it’s out of the inspection.” These are the two updates that you’re going to receive and know that this process no matter where you go is going to be the same. You are going to get a deed of trust or a mortgage. You’re going to get a guarantee. You’re going to get a promissory note.

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These are protections that no matter where you go in real estate, this is how they say that you need to be protected. We’re going to easily provide those documents, get it recorded and go through this entire process. That’s your protection. Nothing that you say or do in-between is going to change how you’re protected or the fact that this note is due in six months or nine months or twelve months. It goes, “We spend our time putting out fires or dealing with the projects and making sure that we get through this and monitoring the market, so that if we do need to make a shift or if the market takes a turn, we can have a conversation not just say we have a problem, but here’s the problem and this is our solution to it. These are the options that we have going forward.” There’s a certain appreciation for that because you’re saying, “Here are the boundaries of the relationship. Here’s our plan. This is what we’re going to do. This is how we’re going to execute.” What questions do you have when somebody lays out in front of you and says, “This is the structure that we follow. This is how we line everything out. This is the process that we go through when we read and repeat?” It’s almost a comfort knowing that there’s a step one through ten that is followed every single time in order to make something successful.

When you ask how we pick up people for other money, the best analogy is to ask, “Do you own stock or mutual funds?” “Yes.” “Where are the headquarters for your mutual funds?” “I don’t know.” “Shouldn’t you know where you’re sending your money?” That’s a good question. “What do they invest in?” “I don’t know. It’s a growth fund in that technology market.” “I’m investing in this company, but I don’t know all the little details and where are they putting the money?” “No,” and it goes, “Wouldn’t you want to know that?” He goes, “As long as their performance shows that they’re making a good return, that’s what I’m focused on.” I go, “Exactly. We have paid back every lender. We have done X amount of projects. Here’s our performance. Does it make a difference if it’s here in Houston, if it’s in Iowa or Florida or anything?” You’re lending based off of history and performance. That’s how we’ve done everything. Why do we buy products? Reviews. Where do you get the reviews? From history and performance.

When you take a look at how we evaluate what we buy and don’t buy or what we put our time and money into, it’s based on those metrics, not the details. Do I need to know what chip is in the phone to process all the things? No. Do people like using the phone? Yes, they look at the overall product that’s being presented and what they want to go after. When you start to break things down like that and people get the idea, “Now I can understand.” There’s still that hurdle. There’s still sometimes out of mind block. You’re getting used to the potential of the idea of less state, but there are still those roadblocks. Why do we have those roadblocks? Because in our mind, there was something that happened to us or there’s something that created an emotion around it that essentially has told us not to do it. Why was it a story that we heard of somebody who did it and lost miserably? “I’ll never do that because I don’t want that to happen to me.” There was that emotion that they brought with an experience that affected you and caused you to veer away from it.

PLP 47 | Raising Other People's Money

Steal the Show: From Speeches to Job Interviews to Deal-Closing Pitches, How to Guarantee a Standing Ovation for All the Performances in Your Life

I like to put the analogy of cliff jumping. You get a line of people and they all jump off this cliff into the water. Everybody survives. Everyone has a good time. You get to the edge of a cliff, you’re looking down you’re going, “No.” You just saw 25 people do it, 25 people are successful, 25 people enjoyed the experience but yet you’re pausing. Why? “What if I can’t do what they did? What if I slip and hit my head on the way down and lose consciousness?” Would we do anything in life if we base our life of what ifs? I feel like some of those roadblocks and the thing is that everybody deals with those different fears a little bit different. This is another question which people say, “Why do you even ask your private money lenders this?” When you’re having the conversation and they’re like, “I have a $100,000 to lend.” I go, “How much are you willing to lose?” They’re like, “Why are you asking me that? Don’t you want my money?” I go, “Yes, but I don’t want you to have a heart attack in the process because if a $100,000 is all you had to lend.”

Let’s say something happens and it’s lost, what is that going to do for you personally? Is that going to create a relationship issue or are you going to potentially get divorced because you just lost all this money in a real estate transaction and your wife hates you for it and she leaves you or vice versa? Is this going to put your family into the position where you can’t afford to pay your bills and you have to sell your house or whatever it is? I don’t want to put people in bad positions. I want to build relationships with somebody where we can grow together. The best way to do that is not put somebody in a position that’s going to create physical or mental anguish by letting out every dime that they have versus what they feel comfortable making a risk on.

It’s also a foundation of risk mitigation. It’s a genius move that you’re the one that puts it out there up front. You deal with it head-on. That’s a good strategy there. You’ve got a lot going on. You’re raising private capital, rehabbing and doing this full-time. How can people get in touch with you if they’d like to learn more about what you do, how you do it or maybe if they’d like to get involved and start lending out a state?

The best way to get a hold of me right now is I’ve got a business page, Gustavo Garza. If you just sign in and look for this beautiful mug on Facebook, I look all cleaned up in a suit and everything. If you just contact me through there, I’m more than willing to help people on any questions. Just reach out to me. I try to respond as quickly as I can. It’s the best way to get a hold of me since I’ve got a lot of phone calls and conference calls. I can respond to those messages quickly and set up time so that we can have a chat. If you have any questions about lending or raising capital or don’t want to talk real estate, I’d love to hear from you. I’d love to see what your questions are and see we can help you get started or if you’ve already started, to help you grow.

I have one more question that I’ve stopped asking guests but you’ve rattled my brain. What book are you reading right now?

PLP 47 | Raising Other People's Money

Green Eggs and Ham

I’m going to give you two answers to that. Typically, I despise people that are always putting up books like, “What book are you reading?” #entrepreneur, all that stuff. I always respond. Dr. Seuss’ Green Eggs and Ham. I go, “That’s the foundation of my business.”

That is a great book.

They’re like, “Really?” I was like, “Whenever I get in trouble in business, I go back to the basics.” That’s what I go after. In reality, I like learning for people. If I want to learn about notes, I’ll go find somebody who’s crushing in notes. If I want to learn about lending, I want to go see somebody who just lends full-time and that’s all I do. I rather pay them to be able to figure out what they know and learn from them than to go try to read it out of a book because I feel books are mostly fluff. You do have content in there, but there’s a lot of fluff. I don’t want to waste my time.

The book I am reading is called Steal The Show. It’s more about public speaking because one of the things that I thoroughly enjoy and what I’ve always done even in the corporate world and what I’m starting to do a little bit more of now is to teach people, coach people, go up on stage, spread some knowledge, do what we’re doing here in the podcast, helping people open their minds. If I say something that’s over here but it can correlate with a

problem that you’re having over here and I can help you solve that problem or come up an idea with something I said, to me that’s one of the greatest things that I can do, expand the human mind. I enjoy doing that. That’s one of the things that I’m personally working on is getting up for more speaking opportunities. That’s why I’m reading Steal The Show to be able to portray that message a lot better.

That’s something you and I both share besides real estate is that very similar vein, very similar vibe that I get and I’m trying to increase speaking appearances. I will definitely check out Steal The Show. One thing I did forget to ask in the beginning, you said you worked in oil and gas, had a lucrative job. What did you do? Where do you work?

I worked at FMC Technologies. I was a Lead Installation Engineer for the Gulf of Mexico, oversaw all the installation of subsea equipment for Anadarko.

I understood every single word you just said and probably only about 25% of the folks listening. FMC subsea basically controls Christmas trees, BOPs and the production equipment that sits on the bottom of the ocean floor.

Yes.

I’m glad you’re in real estate. I’m glad I met you. We’ve got to develop a bit of a relationship and I can’t thank you enough for coming on the podcast and sharing what you do how you do it. The Lender Nation, there’s a lot they can learn from you from this episode. Thank you. If there’s anything I can do for you, let me know.

Thanks for having me on. I appreciate the opportunity.

The pleasure was all mine. Thank you.

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About Gustavo Garza

PLP 47 | Raising Other People's MoneyGustavo Garza, experienced executive, entrepreneur, and seasoned real estate investor parlayed his early accomplishments with Fortune 500 companies into the successful launch of Clear Path Property Solutions, a successful and well-known real estate solutions and investments company based in Houston, Texas.

Clear Path Property Solutions, under Gustavo’s leadership, has grown and diversified into a leading force in real estate and investor solutions. Clear Path Property Solutions has successfully helped clients navigate the volatile and challenging real estate market with tremendous success.

About the author, Keith Baker

My ultimate goal is to create an economy for Real Estate (and other) Investors where banks are no longer needed. An economy where every day people look to each other for leverage and support. During the day I am an insurance adjuster for the oil field, where I handle millions of dollars of other people's money (OPM), and by night I invest in Real Estate and host this podcast. I hope you have an excellent experience and find real value within this website and the Private Lender Podcast. Please leave comments or submit your questions on the Contact Page.

I wish you prosperous, safe and happy lending and investing!

Thanks for listening

-k

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