245 Investing With Family & Friends | REI Show - Hard Money for Real Estate Investors

Passive Income, Active Wealth - Hard Money for Real Estate Investing

Bill Fairman

00:00:02

Greetings. It's another week,

Wendy Sweet

00:00:05

Ola.

Bill Fairman

00:00:06

Lovely time in the, in the city. The big, big city of Rock Hill. South's, right? Carolina, Excuse me.

Wendy Sweet

00:00:12

Poor guy.

Bill Fairman

00:00:14

Today we're going to talk about investing with family and friends, and we will get to it right after this. Hello win. Thank you for joining us for another episode of Real Estate Investors Show.

Wendy Sweet

00:00:45

We forgot the name again. That's what happens when you're over

Bill Fairman

00:00:48

Hard money for real estate investors, we are Carolina Capital Management. We are private lenders in the southeast for real estate professionals. If you have a project you would like us to look at, please go to carolina hard money.com and click on the Apply Now tab. If you are a passive investor looking for passive returns, go to the accredited investor tab. Don't forget the like, share, subscribe, Hit the bell. And don't forget about Wednesdays with Wendy. So every Wednesday, Wendy gives up 30 minutes of her time to folks that would like to have a real estate conversation. The link to her calendar is over in the chat, which is to the right or underneath your screen, depending on the platform you're viewing us from. She's usually booked up a couple of months in advance, so get on now.

Wendy Sweet

00:01:50

Sometimes I just come into the office. Yeah, well that's what happened yesterday. It was awesome.

Bill Fairman

00:01:56

So apparently since I don't allow people to talk here much, Wendy has to go out of town to do most of her talking. So we have a few events coming up right after this.

Wendy Sweet

00:02:15

Boy, that was quick. Yeah, it's short, Short and sweet.

Bill Fairman

00:02:17

So where, where is it? Where are you going? What are

Wendy Sweet

00:02:20

You doing? Where's Waldo or where's Wendy? That should be it. Right? So the, I think the first one is actually this Saturday Best Her love that name. It's a great, it really, really is her, how you spell her. That's right. And it's in no confidence in spelling that one on, on the tv. It's, it's gonna be this, they're, they're actually having the event this Friday and Saturday, which is what's, what's the weekend this 29th and 30th? Yeah.

Bill Fairman

00:02:51

Yeah. It'd be this weekend

Wendy Sweet

00:02:52

Or maybe it's the following weekend. 29th and 30th is this

Bill Fairman

00:02:56

Weekend. Halloween is on Monday, correct.

Wendy Sweet

00:02:57

Oh gosh. You know what? I forget the days. I, it is the following weekend.

Jonathan Davis

00:03:00

We've really prepared for these shows.

Wendy Sweet

00:03:02

I have to look at my calendar. I'm sorry. But anyway, it's, it's gonna be really good. It's, it's, it's, it's for invest her, it's for the chicks, but the guys can show up too, cuz you'll be able to learn great stuff. And that's gonna be in Winston Salem.

Bill Fairman

00:03:16

You pointing at me personally?

Wendy Sweet

00:03:18

Yeah. And then the next one is

Bill Fairman

00:03:26

Quest Con.

Wendy Sweet

00:03:27

Yeah, Quest Con. So we love Quest Iron

Bill Fairman

00:03:30

And this is about the future. So you have to have your crystal ball.

Wendy Sweet

00:03:33

That's right. And here's an opportunity for you to save $15 on the event. It is online. They call it a live event because it's gonna be on Zoom Live, but you will be able to get a discounted ticket to get on there. It's, it's gonna be great if you attended the Quest event that just occurred, you know, what was it? A couple, maybe a month ago? Yeah, it was fantastic. Great group of people. Almost a thousand people were there. Yeah, the speaking was incredible and it's gonna be similar to that but online. So I'm really looking forward to it. I don't think they've done one similar to this one. I

Bill Fairman

00:04:13

Still want it to be all about me.

Wendy Sweet

00:04:14

Yeah. But I'll be speaking on a panel called Be the Bank. Ah, thanks. So that'll be really good.

Bill Fairman

00:04:21

And,

Wendy Sweet

00:04:23

And

Bill Fairman

00:04:23

Do we have any other,

Wendy Sweet

00:04:29

Oh yeah, I forgot about that one too. Yeah,

Jonathan Davis

00:04:31

No, State Korea Millionaire.

Wendy Sweet

00:04:33

The Upstate Korea is, that's upstate, that's the Greenville Spartanburg Real Estate Investor Association meeting. And they do this millionaire panel, but they invited me to be on it anyway. And it's really just talking about how you got started, you know, what's the worst thing that ever happened and, you know, how'd you get out of it. So it's, it's good stories about scars, which I always think is really excellent. Yeah. And then there might be another one. Yeah. Is there another?

Jonathan Davis

00:05:06

Nope, don't think so.

Wendy Sweet

00:05:08

Nothing that we have online. It's back to your show. I do have a couple more, but we, we'll talk about those later. I, I don't remember the exact,

Bill Fairman

00:05:16

You didn't remember the ones we had listed. I

Wendy Sweet

00:05:18

Know, I know. Oh, I'm speaking at the Raleigh Real Estate Investor Association tria in January. And I'm, I'm really excited about that too. I think that's the 23rd of January. All

Bill Fairman

00:05:28

Right, sweet. So there's a lot going on in the fall and almost early winter.

Wendy Sweet

00:05:34

Well, now's the time to learn, get networking, make sure you understand what's going on. Cuz it changes week to week.

Jonathan Davis

00:05:41

I wanna, yeah, I wanna rescue a word that I think fell off a little bit after a couple years ago in these unprecedented times. It's really good to plug yourself into local areas and, and masterminds and, and people who are in real estate. Yeah,

Bill Fairman

00:05:56

I was kind of, of hoping we had gotten rid of that for a while, but it is coming back. Okay. Little bit of breaking. Okay. This was a nice little headline on, on Fox Business and the headline was that prices, home prices were gonna drop 20% the next year. And this was Alan Shepherdson, which is a Ian. Oh, she, Oh, Alan, yeah, Ian. She, I was confused with the last name.

Jonathan Davis

00:06:41

No worries. You want me to read it

Bill Fairman

00:06:43

For you? No, Chief economist of Pantheon Microeconomics said in an analyst note published last week that really for the first time since 2001, because interest rates have gone up to 7%, he anticipates that home prices will plunge 15 to 20% next year. So, and I thought about that and first I was a little ill because I thought that was kind of dramatic, but

Jonathan Davis

00:07:12

Yeah, well, I mean, get quite clicks, doesn't it?

Bill Fairman

00:07:15

No, that's true. And this was actually on the Fox Business channel too, so it was just taken from one of their segments. But I did a little research, and I'm sure Don can attest to this as well, our upcoming guest, by the way, who we haven't mentioned yet. So I've spoiled the surprise You just did. I went and I looked at my home at the peak of 2018. Yeah, 2018, the highest point at 2018. And then I went all the way to what it's valued now, and I reduced that value by 20%.

Jonathan Davis

00:07:55

It's still higher than

Bill Fairman

00:07:56

20 and it was still 40% higher than it was in 2018.

Jonathan Davis

00:08:00

Yeah, that's, that's, that's, yeah, that's not a

Bill Fairman

00:08:03

Bad fault. And if I take the five years now, let's say we lose 20%, and I take the five years where it's still up 40%, that's an 8% year appreciation for the last five years, which is

Jonathan Davis

00:08:16

Still average, The average

Bill Fairman

00:08:16

Appreciation since the fifties has been three and a half.

Jonathan Davis

00:08:19

It's almost three

Bill Fairman

00:08:20

Times ago. So it's okay to look, listen, there are some people that are gonna feel pain from a 20% reduction, like the person who just bought the house last week

Jonathan Davis

00:08:29

And needs to sell. Yeah,

Bill Fairman

00:08:30

Right. That said,

Jonathan Davis

00:08:33

I'm not sure I subscribed to that, but

Bill Fairman

00:08:35

We need to, we need to have a correction because what we had was unsustainable. And even if it does drop 20%, we're still 40% ahead in most, And

Jonathan Davis

00:08:44

Of course it has to do with the market. There's yeah, there's too many variables. I mean,

Bill Fairman

00:08:47

Like, I'm just saying it's not as bad. Like

Jonathan Davis

00:08:50

What we're seeing right now is like the, the lack of inventory is increasing prices, but the rates are, he like, it's, it's like a tug of war right now and they're still appreciating. Yeah, I mean, I think we're between eight and 9% on appreciation still. It, I mean, unless inventory increases or rates, you know, jump to 14%, I mean, yeah, I think you're gonna have to have something a little more extreme than what we're experiencing right now.

Wendy Sweet

00:09:18

And that's year over year through the end of September, October. Once we get those numbers out, I think we're gonna see a little difference. But not much. Not a

Jonathan Davis

00:09:26

Whole lot. And Brian Max, even if the market does drop, you don't lose money unless you settle. There

Wendy Sweet

00:09:30

You go, buddy.

Bill Fairman

00:09:33

Excuse me. Or unless you're trying to get a big cash out refi and now you're not getting as much money as you thought. That's right. Anyway,

Wendy Sweet

00:09:40

It's getting gone in here. I don't wanna miss out on him. Yeah, I only got

Bill Fairman

00:09:43

15 minutes. Okay. So introduce him.

Wendy Sweet

00:09:46

I I would love that. So folks, not only is this guy just incredible in his industry, he's a real estate agent. A real estate investor. He

Jonathan Davis

00:09:57

Got me out of a problem,

Wendy Sweet

00:09:58

A lender. He's a lender as well. He is just a stellar standup human being. And a dear, dear friend, and I just wanna welcome Don Harris to the show.

Bill Fairman

01:10:10

Welcome, Don.

Don Harris

01:10:17

Hi guys. Good to join you.

Bill Fairman

01:10:20

Yeah, you had, you had your own intro video.

Jonathan Davis

01:10:24

Hey, you're, you're lucky most people don't get on the show until at least 20 minutes in, so

Wendy Sweet

01:10:28

That's right. I had to get Billy to pause.

Don Harris

01:10:31

Yeah. Yeah. Well the good thing about that, it doesn't leave much time for me to stumble on myself, so,

Jonathan Davis

01:10:37

Oh, don't worry. You know, it's, it's a change of pace you stumble on yourself as opposed to Bill doing it.

Don Harris

01:10:44

So,

Bill Fairman

01:10:45

So Don, I our, our theme has been this month a couple of things, but we're kind of focusing in on investing with family and friends. I I understand that you're doing investing with your kids, your wife, other, other friends and, and you're, you're you basically helping them with their ira investing through real estate. Can you give us an idea of what it is you're doing with that?

Don Harris

01:11:12

Yeah, I'll try to give the Readers Digest version of that. But, but that, that is what we're doing. I'm a real estate agent by day and then I'm an investor by night is typically how I say that. And an investor, I strictly loan money as a private lender. Now sometimes we do that in conjunction with like your company and we partner on a note with you, but most of the time it's family and friends. We have a b a lending opportunity. And so my wife and I, we have six different self-directed IRA accounts and we cobble those accounts together. And in the last two years, my, I've introduced my daughter to this lending as investment in a self-directed ira. And many times she will be involved in our lending as well.

Wendy Sweet

01:12:23

Awesome. Now, I've been blessed to be one of your borrowers for my personal investments as well involving your, your wife and your daughter. And what I really, and, and I've been bragging on you to so many other people is what I really love about you is that you don't let your money sit idle in between deals. You have the next one queued up when you know you're about to get paid off on, on on the one you're already in. And h how, how are you keeping up with that? What does that look like for you?

Don Harris

01:13:03

That's a great question. It's the same story that Sue was saying last week, that idle money is not working money. And the good thing about investing is lending is that your money's working for you 24 hours a day while I'm sleeping. It's still earning interest. And so I don't like for, I don't like lazy money that's not working. So we are, you know, I network a lot of the same events that you all do and talking to investors who are building new homes or flipping homes or a buy and sell opportunity that you're helping another family with. And so I've always got my feet on the street listening to opportunities and then qualifying the people that I may potentially invest with. And then when they have a transaction, typically I'm being pitched transactions on a pretty regular basis. So if, if the same that I've heard you say, you need to have a kind, a handful of lenders that you work with, especially if you're dealing with private lenders.

Don Harris

01:14:19

And then you can use capital, Carolina Capital Management as well to where you've, you're always have access to capital if you're the borrower. If you're the investor. Because if you come to me with a transaction opportunity, I may be a hundred percent loaned out at the, at this particular time you said I try to be, but I also anticipate when a note's going to be paid off. And that's when I start having more conversations with people who are about to close on a deal. And so we just try to time it close to when money's in the self-directed IRA and when money needs meets opportunity.

Wendy Sweet

01:15:03

So, you know, there are so many people that wanna do what you're doing, but they have a great fear of how do I really qualify not only the deal, but the person that I'm lending to. What are some of the things that make you say no,

Don Harris

01:15:22

No skin in the game. And I would say no experience, but you can overcome ex lack of experience with skin in the game. So if someone's willing to risk a whole lot more than what they're asking me to do than, and the numbers, the metrics of the transaction work, then we can consider that transaction. But it's mostly the character of the folks that you're doing business with.

Wendy Sweet

01:15:58

Awesome. You know, that's something that's still important to us with the size of the fund that we're dealing with, the number of borrowers that we're dealing with. Character is still number one for us as well.

Don Harris

01:16:12

It's always character number one. And then, then you look at the transaction and you know, it turns out to be repetitive people, right? The good people borrow money, do a transaction, make a lot of money, pay a little bit of interest, and then do it again. And so that, that, that's the majority of our transactions. It's, it's on rents and repeat. And then so have you go ahead here. Here's something else though. When if I don't personally generate a transaction or an opportunity, then I've gone to Carolina Capital Management and asked if you guys have any notes that you would sell, you know, the whole note or part of a note any times I've invested in notes with you guys and that takes capital that is sitting on the shelf and puts it to work, you know, instantly. And that's, that's where somebody who wants to start, that's a great place for somebody without any experience who wants to lend, is to take a piece of a note that you guys may have.

Wendy Sweet

01:17:28

Awesome. Thank you for mentioning that. We we love doing that. That's, Jonathan works on that hard.

Jonathan Davis

01:17:34

Yeah. And you know, just pointing out one thing, it's, you, you, you mentioned it idle money and like when you combine notes or have deals like you can hold out and try to get that perfect situation where you think you're gonna get 12, 14% or you can put your money to work. Now if you wait three months to find that, that situation, you might find it that's three months of idle money that you weren't making anything. So your 14% isn't 14. That's right. You know, so it, it's getting it working and, and you know, sometimes work, I mean, not sometimes all the time working money is better than not working money. So we completely agree with you on that.

Don Harris

01:18:15

And if I can, and what a new investor who wants to, who's just opened a, a self-directed ira, they don't have the experience in lending. They don't know how to qualify a deal yet. They don't know how to qualify a buyer yet. They don't know how to do the paperwork yet. They don't know how to collect the money. They don't know how to even fund the transaction. And so you guys are a good entry ramp into someone who wants to get into that space.

Wendy Sweet

01:18:46

Awesome. I have one more question for you and then I'll let other people talk. I am really curious about how you handle any loans that you've done on your own. Like that people are afraid. What happens if I have to take it back? What happens if I lose money? Has that happened to you and how did you handle it?

Don Harris

01:19:06

You're, you're starting to sound like my wife now

Wendy Sweet

01:19:12

Donna and I are tied.

Don Harris

01:19:14

Yeah, yeah. You, you know Donna real, real well actually we don't do a transaction loan unless we do talk about it. And you know, that's always the question. Well what if they don't pay a properly underwritten loan if it doesn't pay and you end up getting the property back either through, through them de it back to you or through a foreclosure action, you should come out whole or okay. And yes, I've had, I've had multiple transactions that have gone backwards over the years and some of those we've made money on, some we've broke even and some we've lost on. And with all types of investing, you cannot be willing to make the gain if you're not willing to take some of the loss. And you just have to be right. Most of the time you're not gonna be right all the time and you mitigate your risk by not putting all of your eggs in one basket. You spread the risk along as many transactions as you can and you know, your underwriting is probably along the same lines as mine. We're looking to be into a, an investment at no more than 65 or 70% of its after repair value. So if you do get a property back then you still should be in, in the property back of what its actual value is.

Wendy Sweet

02:20:49

Hmm. Now when you say you've lost money in some deals, can you give us kind of a round percentage of what that investment might have been that you lost? I mean, you, you lose it in the stock market. It's bye bye forever. You lose it on real estate. What, what is a common percentage on something that you may have lost funds on?

Don Harris

02:21:14

The most we lost on one was probably 40% and it was a, we just got duped by a repeat person, however. Wow. But we got duped by this person and yet, you know, you learn from it and you moved on from there. Another one early in my lending experience very early on, one of the very first people that we loaned money to, we, we ended up getting the property back. But the, the real problem with the transaction was our paperwork was bad. We got, we got a bad note from our attorney that un closed the, the transaction Wow. And actually collected on their insurance malpractice insurance for part of the shortage. And so we, that's the one we broke even on. So from then I hired John Hier to write a note for me for what we were attempting to accomplish. And at that point in time I was doing equity participation loans. And I remember asking John about that at a conference 10 or 12 years ago and he said, That is an intriguing idea. Send me what you're trying to do. He investigated it, did the research, wrote the note, and then sent me the bill for writing that note. And then since then, you know, on his trails around the country, sold that idea and sold that note hundreds of times.

Jonathan Davis

02:22:58

You didn't make any money off that, those transactions though, did you? I did no

Don Harris

02:23:02

Commissions the residual check, but I did well enough on the notes that we participated in over the years we've built houses with builders around Charlotte, you know, with equity participation notes. That's and just shared in the equity win lose or draw. Right. So if you are willing to make it, you've gotta be willing to lose it. That's right. And so when you do equity participation, it's win lose or draw.

Wendy Sweet

02:23:28

Well said. Well

Jonathan Davis

02:23:29

Said. Well it seems a shame to have him on here, not ask him what he's seeing in the local market. Yeah.

Wendy Sweet

02:23:36

Cause you are now in tune.

Jonathan Davis

02:23:38

So kind kind of give us a, you know, give us your crystal ball, your current Yeah. What are you seeing out there, and then your crystal

Don Harris

02:23:44

Ball. Yeah. Yeah. As a real estate agent, I was kind of cringing when Bill was going through that 20% drop in the market that he was explaining there. I don't, I don't see that happening in the Charlotte market. There may be some markets that are extremely overpriced and have bad politics and have bad economies as a result of that, that people are fleeing from and their prices could very well drop in the Charlotte area. Our job growth is still so strong and is projected to be so strong to where the rate of increase has drastically reduced. But I still think we will get that three to 6% year over year increase in value. We're just used to, you know, we got really spoiled with the 10 to 20 in the last couple years. That was a unique period of time. Sure. And so that's probably ne never going to happen again in our lifetime. But if we just get, you know, 3% year over year as the standard, what is historically done in real estate, then that's a great return. You know, we're approaching the $400,000 range for an average price. Now that 3% is on the $400,000. So even if you've only put, you know, 10% down on the property, 40,000 and it goes up 3% next year, what's a $12,000 return on a $40,000 investment?

Jonathan Davis

02:25:32

Pretty good.

Don Harris

02:25:34

I might have to take my shoes off to do the math, but those are pretty good numbers. And people forget that the, the rate of return is on the whole pie. You know, un unless you're just a cash investor and you're doing a cash on cash calculation,

Jonathan Davis

02:25:50

Isn't it? Right.

Don Harris

02:25:51

And see, let me figure that out. I'm optimistic, I'm, the business has slowed down, but I'm optimistic with the current interest rates has slowed the market down. But next year, you know, people still have to do real estate transactions due to life, diapers, diamonds, death, divorce, default, all still happen.

Jonathan Davis

02:26:15

And

Don Harris

02:26:15

So that's still, those alone will be four plus million in transactions next year. Yeah. And then you add on people who just want to move.

Jonathan Davis

02:26:28

I and I, and I have to say, I had to explain this to someone the other day when these people are talking about 10 or 20% plunges, I, there's a lot of people that are like, if I list it for X and I get 10% less than what I listed it for, the market's falling 10%. No, no. That's, that is not, that is not the definition of a plunging market. That is the definition of, you know, buyers having more power in the market in a market, you know, you know neutralizing. Like, just because you list it for something and you get 10 or 15% less than what you listed for it as an offer, that's not a plunge. That's right. So just wanna make sure people understand that.

Bill Fairman

02:27:04

It's nice that people are able to actually negotiate now. Yeah.

Jonathan Davis

02:27:08

It's a good thing.

Don Harris

02:27:08

Right, Right. It's it, the, the market is balanced back to the buyers and the buyers favor more favorable. The buyers have been abused the last two years

Wendy Sweet

02:27:20

To say the least. And

Don Harris

02:27:21

Most real estate agents are glad to see the, the market balancing out. Yeah.

Wendy Sweet

02:27:26

Yeah.

Don Harris

02:27:26

And so that's my day job. And then lending money and, and investing is my night job.

Wendy Sweet

02:27:32

Well, not only are you an incredible lender, but you are a kicking real estate agent as well. Real estate broker. We, you've sold several houses for us over the past few years. That

Jonathan Davis

02:27:46

One in Concord, I mean, he saved me on

Wendy Sweet

02:27:48

That one. You you really are, you know, there's people that are, are real estate agents and there's people that, that take it seriously and really understand their market and really care for whoever their buyer or whoever their seller may be. And you take it to the extreme and I just, I cannot promote you enough on that. So folks, if you wa you do South Carolina now too, or just the north? Of

Don Harris

02:28:15

Course. Yeah. No, I do not. You

Wendy Sweet

02:28:17

Do both states. So, you know, there's the, there's his email address, Don Harrison, [e-mail]. It's, he's,

Jonathan Davis

02:28:28

We can't, we can't recommend anymore cause we use him. Yeah.

Don Harris

02:28:30

Thank you very much. That's,

Bill Fairman

02:28:33

Well see, this is another benefit of market slowdown. There's been a lot of part-time realtors getting into the market when it was really big. Yeah. And it has, unfortunately, they're not as experienced and they've made some mistakes and it gives realtors a bad name and when the market slows down, that's when the professionals are are still there. That's

Wendy Sweet

02:29:00

Right.

Don Harris

02:29:01

It's still a complicated transaction. Yes. And I never appreciated what a realtor could do for someone until I became one.

Wendy Sweet

02:29:10

Right.

Don Harris

02:29:11

And I had bought hundreds of properties prior to that point and yet I was clueless. And so I, I do know it's a valuable service and yeah, I have a good time doing it, enjoying doing it with family and friends like you guys. So thank you very

Wendy Sweet

02:29:25

Much. Well, there, there's a lot that can go wrong and you are so great at nipping things in the bud to keep things like that from happening and, and you know, we're grateful to you for, for what you've done for us not only as a real estate agent, but also as a lender. So keep that coming.

Don Harris

02:29:45

You can picture me on a show anytime if you're gonna brag and talk.

Wendy Sweet

02:29:48

That's right. Well the truth is the truth.

Bill Fairman

02:29:52

I did, I have to mention this, I did see a post on Facebook that you put up about if that customers that work with you are, have more money or better looking and are much smarter than the average person based on a survey by yourself. Yeah.

Don Harris

03:30:10

That is my survey. And those are the facts.

Bill Fairman

03:30:15

Thank you so much for joining us on our show today, Don. We really appreciate it.

Wendy Sweet

03:30:19

Yeah, enjoy it. Good stuff

Bill Fairman

03:30:21

Folks. Thank you so much for joining us on The Real Estate Investor Show. Damn, I forgot

Wendy Sweet

03:30:28

It again.

Bill Fairman

03:30:31

Hard money for real estate investors. We're gonna show the side of Wendy here as I'm

Wendy Sweet

03:30:35

Doing this, my profile.

Bill Fairman

03:30:37

We are Carolina Capital Management. We are lenders in the southeast for real estate professionals. If you would like us to take a look at a project that you may have going on, go to carolina hard money.com and click on the apply now tab. If you're an accredited investor, click on the accredited investor tab. Don't forget to like, share, subscribe, hit the bell and Wednesdays with Wendy. Have a great week.