What Private Money Lending Can Offer To Investors – Heather Dreves

 

Heather Dreves  00:00

We opened up a Regulation A plus Fund, which means anybody can invest in that. So same structure, we lend money out of the fund, and we buy real estate. But now we can let anybody invest in it with as little as $1,000. So that was pretty powerful.

 

Greg Lyons  00:16

Welcome to the passive income brothers podcast. Here, we

 

Tim Lyons  00:19

take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go. Welcome to another episode of the passive income brothers podcast. My name is Tim Lyons. And today I am joined by two really cool folks, one of them being my brother Greg cage on today, buddy,

 

Greg Lyons  00:35

Tim, I’m doing fantastic. And we may have to break out the old dictionary today because we are going to head into some unchartered territory, on the podcast with private money peer to peer lending platform real estate notes, just stuff that we have not covered. So I’m super excited about today. And our guest, and I think we’re gonna get a lot of value out of this episode,

 

Tim Lyons  00:58

no doubt about it. And this is what we always talk about, right? There’s no one way to skin a cat in real estate. There’s literally endless amounts of ways to make money to make a living, to invest to do a lot of things with real estate. So I’m really excited to jump in today with our guest, Heather Dreves. How you doing today, Heather?

 

Heather Dreves  01:16

I’m doing great. I’m excited to be here. Thanks for having me.

 

Tim Lyons  01:19

Well, thanks for agreeing to come on to a show with two brothers. Because you know, we could be frickin frack sometimes, but it’s great, we have a lot of fun. So Heather, this is a fascinating topic. It’s not something that we talk about often on this show. But it’s a way that a lot of people that we know Greg in our circle, that’s how they invested with their retirement accounts, but they’re self directed with looking for cash flow, you know, looking for a place to store their money while they’re looking for their next project. So, Heather, could you tell us a little bit about yourself, bring us like, you know, through the journey, you know, where did you start? What did you do? And what are you up to now, kind of Thank you.

 

Heather Dreves  01:54

Yeah, I find everybody’s journey is interesting. And most people don’t start off on one path and continue on, it takes some curves and turns. So mine is not much different, actually went to college to be a teacher, which was interesting. And then I have my own children and decided I probably would be a terrible teacher. So actually stayed at home with our boys, I have two boys. So I kind of feel like I’m on a podcast with my sons, and had a friend that was in private money, and honestly, kind of fell into it, you know, was staying at home with our boys. And he offered me a job as his assistant, he was an originator a private money originator. And I didn’t know much more about it, other than the fact that I had a mortgage, which is not, you know, the typical in the private money industry. So got on board with him and just kind of, you know, learn from the ground up and my eyes were open to the opportunity, one, the opportunity to get be a passive investor and be able to invest in things outside of your traditional things like stocks and mutual funds, which is important to always diversify, but was able to see the wealth that these clients were creating for themselves through these alternative asset classes. And then also saw the really active side of it, which was the real estate investors that were out buying the properties, fixing and flipping them, you know, buying them to hold his rentals, and realizing that there was funding opportunities out there outside of your bank. And most banks, when you’re looking at, you know, a distressed asset, where you’re going to do a value add to it aren’t too excited about, you know, lending you money to buy it, and then also to rehab it. So I was fascinated that the funding opportunities, if you have a good deal, were limitless, the most important thing was finding the right deal. And that there were so many lenders out there that were looking to put money to work and so just really got entrenched in that, you know, kind of cut my teeth with working for the escrow department learning how to service notes, how to underwrite notes, I had my securities license, and 18 years later here, I am mainly focusing on investor relations and managing our funds. And so I realized I was a much better real estate investor and investor relations persons and I probably wouldn’t be as a teacher, but someone the other day says, But you are teaching people like you’re teaching them that there is another path to financial freedom and wealth. So I feel like it’s come full circle. I’ve got two boys, one’s a fireman. We talked about that before we got started. We’re super proud of them. The other one is an amazing soccer player who probably thinks he’s going to be professional. We told him to have a backup plan but good kids, and we’re active real estate investors with our kids, they have a little trash out business. So we’ll buy distressed properties. They go in and clean them up, they do the dirty work, and have taught them and showed them you know, the Path to Wealth also outside of their day to day jobs. So I feel very fortunate that my path led me here and I’ve been exposed to so much.

 

Greg Lyons  04:46

Well, that’s a really cool story. And I guess we run into this a lot. When we talk to different real estate investors. Everyone usually started somewhere else, right? I’m a recovering college basketball coach. Tim is still a fireman Have you learned to be a teacher and you know, life just takes us down these different journeys, but it’s all the experiences that lead us into what we do today. And you know, who knew that Tim and I were going to be capital raisers for multifamily and self storage properties, we had no idea. But as we take a step back, the one thing that we have in common is the alternative investment worlds. And we’re kind of outside the stock market outside of mutual funds, 401, KS, and we all have a place for that in our portfolios. But the alternative investments are what’s going to kind of create that long term wealth, that passive income that we’re all after. Now, you mentioned a couple of different terms here, that we’re gonna have to rewind a little bit, the funding opportunities outside of a bank, you know, most of us say, Hey, we’re gonna buy some real estate, we have to go down to the local bank, and get a loan, which can be cumbersome, at best, you know, very time consuming. So there are funding opportunities outside of a bank, let’s talk about that there are fix and flips that you’re funding, there are real estate notes. And then the key word, the key phrase you had there was private money, let’s kind of take a step back and answer what is private money? And, you know, how does it help the everyday investor? Absolutely.

 

Heather Dreves  06:19

And I think kind of turning the clock back to my journey to secured investment Corp 10, almost 11 years ago. So we try our motto here is the circle of wealth. And it is our goal for all of our clients to become independently wealthy, and create generational wealth for themselves. And we know that everybody kind of enters this circle at a different place, right? Some people have capital, and they’re looking just to just invest in deploy that passively. Some people are just getting started in there more boots on the ground. And so when we talk about private lending, we really have two categories, we have very active clients, and we have very passive clients. And I’ll talk speak specifically about our active clients. And these are the types of clients that we lend money to, and that’ll kind of bring us full circle to the passive side. So we have clients that will come to us that have identified a property, and sometimes they’re purchasing it, and sometimes they’re refinancing it, but ultimately, they do have to be non owner occupied, so they cannot be living in it, their kids can’t live in it, it has to be for investment purposes only. And we will look at the deal. And depending upon you know what they get that deal under contract for, we have what we would call loan to value limitations, meaning we’re not going to lend more than a 70% loan to value. So if that property is worth 100 grand, we’re not going to lend that borrower more than $70,000. Now, if that borrower can go and get his purchase price and his rehab funds in that $70,000, you know, price, then we could potentially lend him 100%. But as a private lender, meaning we’re not regulated by banks, we’re not doing owner occupied financing, we are making the decisions on what we fund in originate, our limitations are 70% loan to value, again, can’t be living in the property. And then obviously, we have some other guidelines to qualify the borrower, but potentially will lend them alone. And so sometimes private lenders are what they call bridge lenders, people use us to buy properties, add value to the property, and then if they’re going to hold it, they’ll typically go refinance it for more favorable terms, you know, lower interest rates, longer term financing, our loans that we provide are 12 months in nature. So we want them to get in, bring value to the property, and then either refinance us or sell the property and pay us off, right? So it’s private money, it means we have other people investing with us. And sometimes it’s our company’s own capital. And we’re calling the shots on how we write our guidelines and what we fund on. So just to kind of clarify private lending, so we’re not regulated by banks and all those types of traditional Wall Street regulations again, mainly because they’re not owner occupied. If you start lending on owner occupied, that’s a whole nother ball of wax.

 

Greg Lyons  09:10

Sorry that Heather, how do you kind of protect yourself and your investor in that scenario? Are you the first lien holder? How does that work for your protection when you lend your capital out?

 

Heather Dreves  09:21

Yeah, absolutely. So we do a full due diligence package. So we’re going to make sure that we have title insurance on that’s insuring us in a first lien position. We don’t lend in anything other than a first lien. And for people that are on the podcast, you know, basically when you’re lending your money or a lender is lending their money, depending upon what lien position you’re in, that dictates how you can foreclose. So if you’re in a first lien, and there’s a second and a third and a fourth behind you and you foreclose, you’re going to wipe out all those other lenders. It’s not to say that there is an opportunity lending and secondly, you just need to understand what’s in front of you and be prepared. How As a lender to buy out that first if they were to foreclose, so we lend only in a first lien position. The next thing that we want to determine is what’s the value of the property. This is asset based lending, you know, yes, we do qualify our borrowers. But at the end of the day, we lend on deals that we’re comfortable taking back in the event that there’s a default if the borrower doesn’t make their payment. If the borrower doesn’t finish the rehab project, as a lender, we want to be well positioned knowing that if we take that property back, we’re still going to get out hole and get a little bit of yield on our capital. I mean, capital preservation is our first priority, we don’t want to lose our capital or our investors capital. And so we want to back into the value, you know, if they’re rehabbing it, we want to know what they’re doing to the property we want to contractors bid. And then we’re going to order an evaluation based off of that work that’s to be completed. And so a lot of lenders call that ARV value, or what we would call after repair value, what’s our property going to be worth? After Greg goes in and rehabs it that way, we have a very clear idea of what the property’s worth what work has to be done. And then from there, we qualify the borrower, you know, we don’t have a minimum credit score, but we want to see that they don’t have current credit issues, if they did have a blemish in the past, they need to be able to explain that, we want to know that they’re filing their taxes. And then we will also want to know that they have reserves, do they have three months or reserves of the payment amount to make their payments. And then if there is rehab, we want to know that they have 10% of the rehab budget, so that they can front costs, because our rehab loans are reimbursement only we don’t front any cost for rehab projects, they have to do the work, pay for it, install appliances, you know, whatever the case may be, and then we will reimburse them. And so that’s how we protect our lenders, because the risk in private lending is you might foreclosed you better like that property, right. And so that’s really how we mitigate risk there. And then we only lend on single family residences, up to four units. And they have to be under the FHA cap. That’s really kind of our niche. Because we believe if you’re under that FHA cap, which for those that don’t know, when you get above an FHA cap on a home loan for a homeowner, your database of people that have qualified for those jumbo types of loans decreases greatly when you get above that FHA cap. So we want to make sure that there’s more buyers for these types of properties, or even that they could rent them if they got in a bind, hey, can they cashflow that if they can’t sell this property? What kind of rents could this thing bring in if we took it back, or they had to cashflow it because cash flow really is the name of the game, right? Our funds make money when borrowers make their payments when they pay us off. And so we want to make sure that, really the properties can also cash flow. So that’s really kind of our guidelines. And there’s more, I don’t want to bore everybody. But you know, really, like when we originally just look at a deal initially, those are the things that we’re looking for. Well,

 

Tim Lyons  13:06

I gotta tell you, you’re not boring me, because I’m actually taking my second page of notes as we speak. So here’s the thing, like when I got started on my real estate journey, I didn’t know anything, either. You know, I knew that I liked real estate. And I just didn’t know really the difference between active and passive and I didn’t know what was out there. But what does everybody kind of tend to start with is a wall go fix and flip? I’ve seen HGTV I’ve seen flip this house. How hard can it be? Right? They made 50 grand on their first flip? You know, I mean? I can do that. I can beg nails. I love to design right? Yeah, girls get into it, right? The wives like is color schemes. But that is a full time job. That’s a really hard. There’s a lot of what’s called to execution risk when doing fix and flips, right? Supply chains, right buzzword these days. Financing, getting quality workers, right? No one can find workers right now for under, say 30 $35 an hour to do the most minimal task, right. So like, there’s a lot that has to happen unless you’re doing everything right. If this is your full time gig, you know, that’s one thing that kind of got me on the active side. Also, you know, if you’re going to start rehabbing houses, you really can’t I mean, you can but it’s hard to do on the MLS and find a retail home that you can go buy and flip, right. So you have to understand there’s a whole marketing piece behind getting these properties that are you know, quote unquote, stressed or abandoned or neglected or tax deeds or there’s a whole other real estate having you develop towards marketing to, you know, non owner occupied homes to get them at a discount, right. If little Aunt Millie passes away, and the next relative is 4000 miles across the country, and they’re not paying the taxes. Well, you send a nice little note to the relative 4000 miles away saying hey, look, I’ll take this house, but I’ll take it, you know, 60 cents on the dollar. Do we have a deal? So Oh, that’s where wholesalers, right wholesalers make a living basically buying these product contracts and then flipping them to rehabber. So with that being said, though, what I think is so unique about what you do out there is that you service basically the active side of real estate with the rehabbers. Right? And then, you know, then there’s a whole nother component on the other side for passive investment opportunity. So there’s a really clear distinction. And I think we’ve kind of harped on this a lot in our podcasts about active versus passive investing. So I think I just had one quick question about your underwriting criteria. So it’s 70%. loan to value not wanting to cost, right. Correct. And that’s on the ARV value the after repair value. Yeah. Cool. And then do you guys take into consideration the execution risk side of the equation, like have the like, will you fund the first time flipper? Or is that maybe like, you know, come back to me when you have a portfolio or project that you can put in front of us? I mean, how does that work?

 

Heather Dreves  15:57

So we will fund people that don’t have experience. And another part of our model here at secured investment Corp is we actually have education. So we teach people how to fix and flip how to find, like you were saying, we teach them how to find the deals, how to go hire a subcontractor, how to put a rehab project together, how to manage it. And so we will fund people that have not done it before, but they’re not going to get as high of leverage, meaning they may not get 70% loan to value 70% loan to value with no loan to cost calculation is our experienced people that can prove evidence they’ve done it before. They’re repeat clients of ours, someone that maybe doesn’t have as much experience, it’s probably going to be closer to 55 to 65%, where we’ll say, hey, we’ll do the deal for you. We want you to bring a little more money and we want some skin in this deal. And then once you do your first project, guess what now you have reputational capital, you know, Greg gets one deal under his belt with us pays us off, we’re gonna give them higher leverage. So reputational capital for us is really big. And you mentioned it about, you know, you got to market to find the deals, you got to deal with subcontractors, and we teach 1000s of people this strategy, right, but it’s no different than getting a college degree, and then never using it in your field, not everybody’s gonna put it to use and a lot of people, me included, I was like, Hey, we can do this, I’ve watched HGTV, this is going to be great, this is gonna be a good bonding experience, pretty sure we almost got a divorce in the process, because it’s not as easy as you think it is. And so that’s where the passive side of our business came from. It’s like, Okay, if that’s not for you, and you don’t have the time to do that, maybe you have a full time job and a family and trying to fix and flip yourself, it’s a lot of work. Hey, guess what, now we have an alternative, we actually have a fund that we originate loans through and we fix and flip properties through that people can invest as little as $1,000, still get double digit returns on their money, and not have to lift a hammer or deal with a tenant in the middle of the night that’s calling singer toilets plugged up. So there is alternatives that can get you the same types of yields, you know, that you can being hands on. And you don’t have to do it rely on us, you know, learn from our mistakes. And the team we put behind us, we have an acquisition team, they sit outside this room, and they call all day long out of state homeowners, they call in tax liens. We go to foreclosure auction every Friday. So we acquire those types of properties. Next to them is my origination team of about 20 people that originate loans, they’re the ones that create the loans that we lend money out, we have our own contracting crew, we have our own property management crew, and then we’re a Keller Williams agent on top of it to list those properties for sale. So we’re really organic in the sense that we built this. So if people really don’t want to, you know, be as hands on as the active people, they have alternatives to do that in a more passive method.

 

Tim Lyons  18:54

So what I love about this, Heather is that, you know, people tend to say real estate is risky, right, and we’ll talk about this more at the end of the show. But if a first time flipper comes to you, or even a seasoned flipper comes to you, right, and you give them a loan 70% LTV, it’s cruising right along, and then all of a sudden, they run into some disaster, right? Either they can’t execute or I don’t know, pandemic hashtag, you know, shut down for two weeks, something happens, right? And they can execute on what their business plan was, then you’re in first position, you guys, your company gets the you get to take over the home, right? And now you can either finish it out because you put in place a team, right? You have a contracting crew, you have a listing crew that you can rely on, you have a team and that’s like, you know, cardinal rule number one or two with real estate investing is building out a team, right? So now you can take this property you can either now keep it in house and rent it out if there’s like a burr method right to buy rehab. rent out. refi repeat, right? Yeah, I think I got that right. I mean, she’s one of ours, but there’s a way that you’re backing into this hole. Business Plan with protection, right? Yes, you’re lending out capital. But you’re also lending out at probably I’d say, Let me guess 10% In two points upfront. Yeah, like, average rate? Yep. Right. So if you go to a bank, and you’re looking to get maybe seven or eight, you know, I don’t know what you can get now and non owner occupied 30 year fixed rate mortgage, but I’m gonna say it’s maybe seven to eight and a half percent, seven to 9%. But if you’ve gone through the bank, their underwriting team, like they want your firstborn, they want to know everything about you. And by the time you’re done, you’re exhausted. And it takes maybe 90 to, say, 120 days. So I’m gonna guess also had that, that maybe your process takes 30 days or less? Yes, that’s correct, right. So that’s the value of the rehabbers, going into a company, like Heather’s and saying, Look, I got a property, I want to move quick. I got it on the contract. Here’s my thing. Here’s my game plan, you know, and here’s how you’re protected. Right? And that’s how this business kind of plays out. So, now that we’ve covered the active side,

 

Greg Lyons  20:56

hold on, hold on, hold on. Tim, are you on the investor relations team of secured investment Corp. It seems like you did a little homework for this podcast, I’m not gonna lie to you, everyone. Everyone could feel it.

 

Tim Lyons  21:10

I’ve done some homework. But I also I came very close to getting very close to going down the wholesaling rehabbing route before I pivoted and got into my first three family. So as everybody knows, on this podcast, my wife won’t even let me hang a picture on the wall, because my rehab skills aren’t really tight. So now we know kind of how the active side works. So Heather, can you jump into how the passive investors win as well? Yeah,

 

Heather Dreves  21:32

absolutely. So a lot of our clients that we work with, and you guys mentioned this, at the beginning of the podcast, utilize self directed IRAs, and 401, KS, which are so powerful, like, if all anybody takes from this podcast is to start learning more about self directed accounts, I did my job, because I can’t stress how powerful they are to create wealth for yourself in a tax deferred, or even a, you know, tax free environment. So we work with a lot of clients that, you know, I’d say there’s probably two or three different categories that are passive. So we’ve got some clients that have a small amount of capital don’t really want to jump in with both feet, rehabbing fixing and flipping, and maybe don’t have enough capital to go buy a piece of real estate, what they want to sit on and rent. And they’re just looking to get that money working for them. So we have those, we have a lot of really high net worth individuals that have been smart enough to open up these self directed IRA accounts, especially Roth’s like, those things are amazing. And again, they’re professionals. A lot of them are dentists, and doctors and self employed people that have a day to day job. And they’re like, I maybe have made some wealth in the past through real estate, but I don’t want to be hands on. And so a lot of those types of clients will come to us. And we have, what we’ve done is we’ve created funds, and so their real estate funds, much like a syndication but there’s some differences. And these funds are the vehicle that we use to originate all those loans for our borrowers, our active clients. And when I first came on board, 11 years ago, I dialed for dollars, my job was to sit in my office, and when underwriting how to deal get cleared out of underwriting I got on the phone and my team jokes with me because I called it my rolodex and they’re young. They’re like, what’s a Rolodex, I’m like, Okay, I’m dating myself, okay, I call my clients, and I would dial for dollars. And it was frustrating for borrowers and brokers that were ready to go because they’re like, hey, my deal got cleared. And I’m coordinating with, you know, Tim, saying, hey, get your IRA funds in. So we created these funds as what we did. And we said, now we’ve got this pool of capital, and providing that the deal fits our guidelines, we have clearly defined guidelines of what the fund can originate, we’re going to close that deal on the fund, we’ll get our borrower and broker taken care of quick. And then our clients over here that don’t want to be hands on can invest their capital, they get benefits from interest payments, origination points. And so we created these funds. And then we also decided, instead of just being a debt fund, and just lending all that money out, we wanted to sprinkle some real estate acquisitions into it. So we set aside 25% of the balances of our funds, and we buy real estate, but we only do it in our local market. So the debt is nationwide. The acquisitions is only specifically in Spokane, Washington and quarterly in Idaho. So essentially the Pacific Northwest. Because, again, we have our own contracting crew. We have a property manager, we have an acquisition team, we want boots on the ground where we acquire properties. And so this way we’ve got debt and we’ve got the acquisitions in our funds, and it helps juice our yields right like if our origination team isn’t originating enough loans we can ramp up property purchases and sales and vice versa. And then this gave the ability to provide are really passive clients, Hey, you don’t have to go out and rehab a house yourself. You don’t have to go find deals. You know, we’ll do that for you put your money in the fund. And we’ve been consistently providing temporary yields to our clients. Now, the only challenge with that was that accredited investors were the only ones that could put money in this fund. Most funds are what they call a 506. C fund. So you can only let people with a million dollars in assets in it. And the SEC was really strict with that, well, four years ago, they changed a lot of those requirements through the Jobs Act. And we opened up a Regulation A plus Fund, which means anybody can invest in that. So same structure, we lend money out of the fund, and we buy real estate. But now we can let anybody invest in it with as little as $1,000. So that was pretty powerful. Because as you guys can imagine, and you probably deal with this with syndications, you know, not everybody’s accredited. And so you limit your pool of clients that can invest capital with you. And so we felt a passion to help people create wealth, regardless of their financial situation. At the time, when we’re pretty proud of the fact that we were approved for this type of a Regulation A plus fund, it’s not easy, and it’s not a cheap process to get approved. But now we have the two funds. So again, these funds make money for our fund members by lending the money out. And we service all those notes. So we do all the collections here making sure borrowers are making their payments for closing if need be. And then we buy real estate in our local market. So we’ve got probably four different profit buckets coming in, we’ve got rents, we’ve got profit from property sales, we’ve got interest payments, and then origination points. And so again, it’s a way that people don’t have to go and buy that $300,000 investment property and then manage it as a rental, they can put the money in the fund and their hands off. And a lot of clients use self directed IRAs, I’d say 90% of our clientele invest with some kind of a self directed IRA, traditional or Roth, you can even do college savings accounts. Now health savings, I mean, they’ve gotten pretty creative with that. But that is something that’s extremely popular. The other cool thing about our funds, you can reinvest your earnings. So instead of taking a payout, like you would on a note where you get paid every month, you can actually roll your earnings back into the fund. And now you’re compounding your earnings in addition to potentially investing with a self directed account. So it’s pretty powerful.

 

Greg Lyons  27:18

Now this is this is very powerful, kind of what you’re saying. And Tim and I typically spend a lot of our time in the 506 B 506. C area with real estate syndications where the minimums are more like 25,000 50,000 and sometimes 100,000. And to have and you went through a we’ll call a pain, you went through the pain of going through the SEC, of getting a Regulation A plus fund going, which is so great that with for the people instead of just blindly putting money into their 401k. They said, Yeah, I really need to be involved in real estate, but I could do that for as little as $1,000 I can get my money working for me in something totally different than my 401k. So, you know, really, kudos to secured investment Corp for kind of going down that route and giving investors that kind of option that is fantastic. It or, you know, I just had a couple of questions about and this is kind of getting into the weeds a little bit. But when an investor puts money into one of your funds, do they receive depreciation benefits?

 

Heather Dreves  28:23

Really good question. So right now our funds do not offer any depreciation benefits because the assets within there are just turned over and over so we’re not holding anything. I will tell you as the market has shifted, we’ve started holding some for rental properties because the cash flow is amazing we were more profitable to hold them in cash flow I’m than to sell the properties off. So in full transparency in the future, there may be a little bit of benefit for depreciation but I tell clients, you know, that’s not our model. You know, if you’re really looking for that, and and those are typically right, your high net worth individuals that don’t want to show any earnings, they’re probably better off to do a syndication like what you guys might offer some other people out there in the industry. But right now no depreciation benefits. And the thing with our fun too is if someone wants cash flow, like I’ve got dentists that sell their practices, and they’re strategizing how they can replace their income. This fund is nice for that because when they invest they immediately start seeing cash flow. There’s no way there’s no you know, with syndications, you guys know this you typically your upsides in four or five years when you guys sell that property, right? This is something that would provide immediate cash flow, but then also has the opportunity for a growth model to where they can just reinvest their earnings.

 

Greg Lyons  29:41

Yeah, and you know, this is why we have people like you on how they’re because there’s so many different ways to invest in real estate. So we’re just kind of this the passive income brothers show for a reason. We don’t just do it one way. We had a land person on last week, who kind of blew our mind about the way he kind of gets his passive income from land, something I’ve never even heard about. So this is really good information. You know, the other thing I wanted to ask about was, since you are the first lien holder, and sometimes real estate doesn’t always work out, right? How often do you have to foreclose on a property? And if you do foreclose on it? Do you split the profits with the investors after the foreclosure so kind of walk us through if you had to foreclose and how many times you have to do that.

 

Heather Dreves  30:29

So our foreclosure rate is under 2%. That doesn’t mean that we don’t start foreclosure on more because our policy is if we own the lien, and they’re 45 days late, and they are not attempting to figure a solution out, we’re going to start foreclosure, we don’t even ask like we’ve attempted to contact them multiple times before 45 days. And if they’re not communicating with them, we will send them a Notice of Default from an attorney. And most of the time, I mean, again, these properties are written with 30% equity, it’s not common for people to just walk away from them. And we make every effort to coach these people like, Hey, you have a contractor’s issue, let’s help you get back on track, you know, your tenant moved out whatever the case is. But it typically gets our attention real quick, right? They get that Notice of Default, and they’re all sorry, I didn’t call back, that happens most of the time, but under 2%, go all the way to foreclosure. And we take him back. It’s not to say we don’t take him back. We have one right now that we’re foreclosing on. And I think it’s St. Louis, or no Pennsylvania, Philly. And we’re not going to come out ahead of the game. But we look at it as an overall portfolio is right like we’ve had all these wins and made all this profit for the fund, you have to anticipate even as a real estate investor on a smaller scale, you’re going to have some losses. But our opinion is get the property back and get rid of it. The lost opportunity cost that you have when that capital is tied up far affects your returns more than if you just take a loss and move on. And it’s not our goal to take a loss that’s not typical, but just kind of as an example. And so we will start foreclosure quickly if the note that we originated was sold. So we do sell notes, or what they call first lien position notes. We sell those if that note goes in default, and that lender forecloses. We don’t get anything, we already got our principal back, all we were relying on was an interest strip. But that note holder now owns the property if they foreclose, we are out of the deal. So hopefully, that helps. But again, under 2% actually go to foreclosure, most of the time, it’s they get a wake up call. And you know, and we again, it’s not our goal to foreclose, we would just buy them all if that was the case, we want to be a lender, we don’t want to take all these back. But we also have to protect the assets of the fund. Our first goal is capital preservation, we don’t want to lose anybody’s capital, and we haven’t. So we’ve got a good track record. And we take that pretty seriously.

 

Tim Lyons  32:56

out there. I love that I’m smiling over here, because I can’t wait to say this, like, you know, people when we’re talking especially to newer investors, or investors who are just not quite there yet, and just haven’t bought into the idea of alternative investments or quote unquote, alternative investments. They’ll be like, You know what, we’ll real estate is risky. My uncle Charlie, one time he tried to flip flip a property and it got foreclosed on. And now real estate sucks. And, you know, I’m taking my ball and I’m going home, right? Well, yeah, well guess what, if you are a stock investor, I highly encourage you to look at the earnings reports because there might be a write down I’d say $3 billion. Meta today Facebook is getting hammered by like 22% down, because they had a huge write down on their virtual reality. Metaverse, whatever they’re doing. I mean, the only reason I care is because my 457 is tied up in, you know, the firehouse and I’m pretty sure they probably have some Fang stocks with some metal in there. But you know, I’m saying like, here, everybody’s like, Oh, well, stock market this and my 401 K and my 457. Well, guess what? Those guys have massive, massive losses every quarter, right? Sometimes? And yes, maybe their revenue exceeds their losses. So they come out on top. But guess what, this is what we’re talking about, right? The small house in Philly is nothing that’s going to be a blip on the radar screen compared to what are all the other winds that are in your wind column. So I mean, it’s just reframing your financial education around what’s possible, how does it work, right, get the mechanics down. And it’s finding people like Heather in the short term, lending space, I can provide you with the return for the jobs that maybe you don’t want to do. Right, but you want to have that risk adjusted return. I think that’s the most important piece. Does that make sense? Everybody? Oh,

 

Heather Dreves  34:41

yeah. Yeah. I tell people all the time, fine. Know who you’re doing business with. I mean, there’s amazing operators out there. And there’s some really crappy ones. And I can’t tell you how many calls I get from clients that are like, You warned me You told me not to chase yield and I did it anyways. And now I’m in a pickle I you know, this guy didn’t work. Kord anything and it’s like, know who you’re doing business with. I mean, and I tell my team, more than anything, the assets are one thing that we invest in, but people want to know who they’re doing business with, and who the team behind all this is like, how are they going to pull this off? If we have always done residential, and all of a sudden, I tell everybody, we’re going to do a 90 unit apartment complex, my red flag would go up, if I was an investor, like, what’s your guys’s experience with this? How are you guys gonna manage this, you’ve always done residential. So I can’t stress enough how much people need to do their due diligence on operators because, you know, there’s some people out there that are not very forthcoming, and you can lose a lot of money. So know who the team is that’s behind this and whether they can pull it off or not.

 

Tim Lyons  35:43

100%. So, and you pick, I dare anybody to pick up any intro real estate book. Goal number one is to establish your goals. Number two is to realize that you need education around whatever part of real estate you’re doing. Number three is building out a team that you can rely on to get things done. And number four is, you know, processes and number five is whatever, but like, you know, that’s every I just saved everybody a ton of time on real estate one on one books, because that’s basically what they say. Right? So anyway, Heather, this has been a masterclass in private money lending. And we’re gonna have to have you back on, I think, because this is just really interesting stuff. But I won’t be mindful of everybody’s time. And I really want to jump into the last three questions that we ask all of our guests. Are you ready? I’m ready. So the first one is, I think is my favorite one to ask. And, you know, when we’re talking to investors on the phone all the time, I don’t think we get as much now as we did in the early months and weeks of our business, but people will say, Tim, isn’t investing in real estate risky, you know, and I’m like, Oh, how much time do you have? Because I really want to answer this. But so what does it mean to you? Or what is it? You know, when someone says that to you? How do you respond? Yeah,

 

Heather Dreves  36:52

I mean, first of all, there’s risk in any investment you do. And any operator or financial advisor that tells you otherwise, it’s probably not being very truthful with you. I think the biggest difference with this type of real estate assets, whether it’s a fund a note or a syndication is, you have a tangible asset. And there are definitely things that can affect those assets. values can be affected by interest rates, you know, a recession, but at the end of the day, you have a tangible asset that you can ride out turbulent times in a market, right? I don’t feel personally like you have a lot of control over stock market investments, they’re manipulated, and they’re outside of your control. You know, if you lend money on a piece of real estate on a single family, and the guy defaults and you foreclose, you have some options, you can rent it, you can sell it, you can sit on it for a while. And so in my opinion, not that there isn’t risk in doing this, but I think there’s a lot less risk and more ability to, to pivot and strategize your investment strategies in the event of turbulent times. That’s how I would handle it.

 

Greg Lyons  37:59

That’s good. The second question we have comes from Robert Kiyosaki, and especially good one for you. He said that savers are losers, and debtors are winners. What does that mean to you? Well,

 

Heather Dreves  38:13

smart debtors are winners. So, you know, I kind of touched on this, at the very beginning is my eyes were opened by the fact that just because you don’t have the money, but you have a good deal, doesn’t mean you can’t get it done. So there is opportunity out there one, get your money working for you, yes, you should have your emergency funds, but get your capital working for you, you know, there is opportunity to be earning eight to 10%, I can tell you, my 401k is not earning that right now. And so get your money to work. And for the active clients. If you find the right deal. And the numbers make sense. There is capital out there to get that done. And more often than not, you can get the deal done without any of your own capital. You know, you could be buying real estate with a self directed IRA and having profit flow back into your IRA tax deferred. So, smart debt is good. You have to be careful when you talk about debt because some people’s idea of debt is going out and opening 20 credit cards, but leveraging real estate, and even arbitraging it, like pull a HELOC out on your house at 5% and then go deploy the money at 10%. Leverage your whole life insurance policy. We could talk for hours about that. But you know, I think that smart debt and leveraging real estate is a way to elevate you and create wealth for yourself and your family.

 

Tim Lyons  39:33

Dude, I love that answer. I love it that arbitrage if people don’t know what arbitrage means, it’s literally borrowing money short at a lower interest rate and then investing a long at a higher interest rate and then you keep the difference right. So that’s what I do. I have a rather large HELOC on my homes and use them to roll it out. So love that answer, Heather. So the last one is from a guy named Jim Rohn. Who is actually from Idaho? Yep, I forget the name of the town at the moment. But anyway, he’s one of our de facto mentors. And he said something that goes like this. He says, a formal education will make you a living, and a self education will make you a fortune. Heather, I just teed that up real nice for you, and I know you’re going to knock it out of the park.

 

Heather Dreves  40:22

Well, it’s really the strategy. And our goal for our kids is, you know, have your daytime job everybody needs and it doesn’t mean that you have to have that right. But benefits are important, especially when you’re getting started, you know, as a fireman, you know, pensions and insurance. But you’re not going to get rich doing a daytime job and eight to five, you have to have other streams of income to create passive wealth for yourself. And there’s no better way to do that than through real estate, you know, whether you’re fixing and flipping and earning a quick buck on it wholesaling, you don’t even have to have any of your own money into any of those strategies. And then once you build that capital up, just like you said, you start deploying that and you’re earning money, let your money work for you. I think in the past, everybody has this Dave Ramsey opinion, no debt, which is great. But you need to get your money working for you too. And I do believe that you need to have both. That’s one of the things that we’ve instilled in our kids, you know, if you’re going to be a full time real estate investor, that’s fine. But if you’re going to have a daytime job, do that kind of stuff on the side, that’s how you create wealth for yourself, and generational wealth. My goal would be that I leave my kids a legacy, and they leave that on to their kids, and so on and so forth. And I don’t believe in this day and age that you can do that with an eight to five job.

 

Tim Lyons  41:38

I totally agree. It took me till I was 37 to realize that you know what, things just aren’t adding up. I’m working 7080 90 100 hour weeks. And that’s not really that sustainable towards quote, unquote, creating wealth. Well, I have a nice life. Well, I go on to vacations a year, do I max out my 457? Yes, but to quote unquote, build wealth, you really got to use what’s in front of you, and really kind of have that velocity of money. So I love that. Well, Heather, I feel like I could talk to you all day and all night. So we’re gonna leave it there for today. But how can people get a hold of you or reach out to you to find out more about what you guys are up to? Yeah,

 

Heather Dreves  42:15

so they can always visit us on our website. And that website is secured investment Corp, so no plural on the investment is secured investment corp.com. We’ve got a lot of information on there about our accredited investor fund, we’ve got information about what we call the circle of wealth fund, which is the one that’s open to everybody, for $1,000. My team is very experienced working with self directed IRA accounts, we actually help our clients fill out all the forms if they’re using that kind of capital. But by all means, you can also invest personal funds. And you know, I encourage people to go to the website, they can schedule an appointment with myself and my team. And we’ll educate them. We’re not financial advisors or tax accountants by any means. But we are pretty educated on the passive investing side of things. And if you’re an active real estate investor, we can help you with your funding, but just go to the website, schedule an appointment and no obligations. And we you know, we’d love to answer anybody’s questions, get a little more into the weeds with what we do. I feel like an hour goes so fast on these things. And it’s like, I get done. Oh, I should have mentioned this. But yeah, I encourage everybody schedule an appointment. And we’d love to, you know, discuss things further. So secured lending

 

Tim Lyons  43:29

corp.com Everybody, I know where I’m going probably as soon as I hang up this call. So with that being said, thank you for spending another week with the passive income brothers, and we look forward to serving you again next week.

 

Heather Dreves  43:41

Thanks for having me.

 

Tim Lyons  43:42

Thank you for listening to another episode of the passive income brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show, so that you can start building out your passive income streams. Finally, head on over to cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate