Learn Jake’s Private Money 1-2 Punch

One of our long-time students and friend Jacob Evans recently reminded me of just how crafty and smart he really is. You should definitely check out our “uncut” chat with Jake in this month’s Insider Gold CD – he shared exactly how he’s been cleaning up by wholesaling “unwholsaleable” houses. Really good stuff.

But right now let’s focus on wrapping our minds around Jake’s “Private Money 1-2 Punch” strategy for deal funding…

JP: Can you explain exactly how you handle funding on your typical deal?

Jake: Sure, I actually used one of the methods you guys taught me in Private Money Blueprint to find my primary first position lender – I searched closing records at my courthouse. I searched the deeds for anyone who had made a loan on a house and was listed as a private individual, not a lender, or bank or whatever. Then I sent them all letters saying, ‘Hey, I’m interested in buying you a cup of coffee. I’m also in the real estate game, and would like to talk shop with you.’

So basically that’s how I lined up my primary guy. He’s a local business owner, has millions and millions of dollars, and is the backbone of my business. He funds purchase price and initial closing costs.

Then I figured it might actually be a good idea to line up two of those guys. So from there I signed up another guy to do my second position loan, which will cover my rehab costs, and my carrying costs. It’s got to be a private money lender who’s willing to do a second position loan behind someone else’s first. There are guys out there who are perfectly willing to do that.

And that’s how I do every single deal right now – with these two guys in tandem.

JP: What are you paying them?

Jake: My first is 10% and 1 point, simple interest. My seconds range from 8% to 14%, simple interest, no points.

JP: When you say your second lender covers your ‘carrying costs’, does that include payments to your first lender?

Jake: Exactly, yes. I take out a second position loan from guy #2 for just a lump sum all on the day of closing. So let’s say the rehab is 15,000. I’ll take out a $25,000 2nd on the house, and I’ll use those funds to cover the $15K rehab, plus $10K for my carry costs which includes payments to the first loan.

JP: What is the main reason that you would do this instead of just having one private money guy for the
whole shebang?

JP: What is the main reason that you would do this instead of just having one private money guy for the whole shebang?

Jake: Leverage – it’s the name of the game. When I started getting private seconds, it took me from doing two deals a year to doing 20 deals a year, almost overnight.

My original private lender would bankroll me $200,000. I had open access to his check book and would use his funds to buy and fix up the house, carry the house and resell the house, then cash out his one loan. He really wanted to tear it up with me, but we were only able to do two houses a year that way.

One day I came to him and said, ‘What if we brought in another lender, and that person funded some of the deal, and we used your funds to fund whatever else is remaining?’ He was on board, so I gave him an interest rate, and I essentially leveraged his money with another lender in order to do more deals.

JP: I see. A lot of times, if you have two private lenders on tap, it’s hard to keep one of them happy if you’re not giving them any love. But in this situation you’ve got two private lenders making money off of you consistently and a bigger pool of money in total to pull from.

So do you always have the same guy in the first position, and the same guy in the second?

Jake: I do, yes. I have people who will loan me money at a slightly lower rate than either of my current guys. However there’s something to be said for consistency, dependability and scalability. I could go out and find a new lender who’d be happy to fund the entire deal for 8% or 6%. We may be able to do one deal at a time, then I have to find somebody else to the next one.

It’s way more beneficial to maybe pay a little bit more, or set it up in such a way that you’re able to leverage more people’s cash to do more deals.

JP: Yes, and you don’t want your private lenders to feel like a commodity to you. We always stress, this is a relationship you’re cultivating, and nothing turns your “significant other” off more than when they feel you’re just using them for the value they bring to the table.

Jake: That’s very true. From my perspective, go after the big dogs, and maybe pay a little bit more. I can rest my business on the fact that I know exactly how I’m closing all of my transactions. I don’t need to spend time hunting down funds to get these things done.

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