The Downside Of Upscaling With Mike Cowper

Episode 414: The Downside Of Upscaling With Mike Cowper

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REIS 414 | Downside Of Upscaling


Everybody wants to scale. However, if you’re not careful, you can actually get yourself in trouble when scaling. Today, Mitch Stephen brings Mike Cowper on the show to talk about the downside of scaling. Mike is the Co-owner at Return on Investments, LLC and the Cofounder at The Inner Circle Elite Mastermind, a mastermind for real estate investors across the country focused on building a better – not necessarily a bigger – business. Curious if you should scale your own business or not? Then don’t miss this episode.

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I have Mike Cowper. We’re going to talk about scaling. Everybody wants to scale. Everyone’s talking about scaling. There’s a downside to scaling. There’s a problem with scaling. You can get yourself in trouble scaling. Ask me how I know. Ask Mike how he knows. You’ve got to be careful with this because it’s not just 1, 2, 3, you’re going to scale. There are a lot of things that go into it. If you don’t have your collective crap together, you could be trying to scale something that has a missing part. It won’t scale and then you’re wasting all your effort.

The way I look at it is you have to have a strong foundation and a core competency that you’re good at before you can scale well. I’ve done the vast scaling. I’ve grown to a huge team and have been in multiple markets. At the end of the day, I found that it was stressful. We weren’t making any more money in terms of net. The gross number kept growing and it is cute to show, say and talk about. What I get to keep is what I care about. A lot of people fall in the trap of trying to start at the finish line. You’ve got to start at the start. You’ve got to take it step by step and build out a strong foundation in place. You and I were talking about this before this got started. I liked what you talked about on how you scaled your business one desk at a time.

I was too afraid and scared. Give a little background on yourself. I want to make sure people know who you are, where you’re from and what you do.

I’m Mike Cowper and I’m out of Metro Detroit, Michigan. We invest in three counties here and we don’t do anything in the city. I bought my first rental property in November of 2014. That’s what my passion was or at least what I thought I wanted it to be, to build up passive income. In the route of doing that, I ended up meeting my partner who was a converted flipper into wholesaler. My corporate background was always in sales. I was always at the top of the leaderboards. I got sent to Hawaii about a month or two before I quit to go do this full-time and got into wholesaling. Wholesale is a great entry point for a lot of people. It’s a great model, but what I’ve found is that it’s one of those things that you always have to stay active in unless you can truly build a scaled-up team and a lot of people to replace yourself.

Even then, if you’re not big enough where you have redundancies, you have to jump back in at some point or another. Let’s say you have a CEO or COO in your team and they’re supposed to be handled for you, but then they quit or they don’t work out well. You’re right back in there and sometimes more stressful than you think it might be beforehand because at least you had your hand on the wheel prior to leaving. With the jump back in, then you need to try and remember everything or get caught up on everything and go into it. We have been wholesaling for years and I was sitting around one day realizing that I was stressed out. I was always running around feeling like I had to work from 4:00 in the morning until 8:00 at night, which at times makes total sense.

You’ve got to do the work sometimes, but I was doing this for months, years, and I was starting to get burnt out. One day I was talking with my friend, Don Costa, and my partner at the Inner Circle Elite over there at Flip Talk. I was talking to them and I realized I forgot about my rental last year. I was busy trying to stay in my active business. I forgot to start buying passive income. That’s where I had that epiphany moment. I don’t think anyone gets into this business to start saying, “I love working all the time. I’m not here for financial freedom. I’m here to be a deal junkie,” which all of us are. It’s exciting, but we want to get into this so we can have our financial and our time freedom. A lot of people get lost in trying to scale to that rather than doing the tried and true method, picking up money that comes in every month whether you’re doing anything or not.

That’s where I have been focused on this past year and a half is raising my baseline, keep increasing that passive income monthly, quarterly and annually. When you do have the ups and downs of the market like COVID hitting, you can sustain those things. That’s where I’ve become more focused on is because if I have that passive income coming in every month, I can take bigger risks. I can then go try to scale. If you hire that wrong person and you make a mistake, you still got that big check coming every single month. You’ve got that money coming whether you do well or not. It allows you to grow your business or take different chances or going to different opportunities.

It allows you to fail forward. I failed because I had the wrong person. What happened to me was I tried to scale five times and failed miserably. The problem was I never gave myself permission not to do 100 houses a year. I was trying to work on my business while I was working in my business doing 100 houses a year more or less. There wasn’t enough of me left over to pay any real attention to scale in the business. What I mean by scaling is I was trying to automate and get myself out. I wasn’t trying to do more. I was trying to scale in the sense of it’s all going to get done without me, which to me is a form of scaling.

The year that I got it done, I was going to quit. I couldn’t force myself to give up a million-plus a year net profit. I kept going. I had my storages. I had my passive income. I never had to work another day in my life with the storages that I have. I have 1,300 people owe me $100 every month. I was tired and burnt out like you. I was going to put it in a box but I thought to my self, “What a shame to walk away from that business. Why don’t I pay half of what I make to some top key people? I’ll give up $500,000 a year of my million-plus and at least get to keep $500,000 or $600,000 and not walk away from the whole thing.”

What happened was that year since I was going to quit, I didn’t care if I did 100 houses. I didn’t care if I did one. That year that we fixed the business, I only did 33 houses. Those houses walked in the office and gave themselves up. They surrendered. I didn’t even go after them. I would have done zero houses. I didn’t care about houses anymore. I was trying to fix the system. It took me about fourteen months but when it finally got done, I knew that it was running without me when I left town for a month. I came back in it and had bought and sold eight houses.

REIS 414 | Downside Of Upscaling

Downside Of Upscaling: You have to have a strong foundation and a core competency that you’re really good at before you can scale.


It bought eight houses but it sold eight on the other end. They’re not the same eight houses but eight houses got sold while eight houses were coming in. I thought it’s working. What was the difference this time? The difference was I focused on work and on fixing my business. I took my time and it was no pressure. I had all this cashflow coming in every month. I was going to get paid whether that business got fixed or not. All the pressure was off. I could take time to fix every seat in the office and find the right person. I did it one chair at a time.

That’s a great message. That’s what I’m going through and learning right now because a lot of us get caught up in competing with others, or trying to chase other people’s dreams, or trying to fulfill someone else’s goals and agenda. If you take the time to sit down and look at, what is it I want to get? I know everyone says begin with the end in mind but we get busy along the way. We start to fill up our day. We start chasing things and we want to go bigger and faster. That’s where I’ve made most of my mistakes. It’s trying to do things too much and too quickly. It’s like the Jack of all trades, master of none old analogy. I would try to do all these things all at once and none of them got done very well.

My biggest year, my third year in business, I did 150 houses. I made more money the year that I only did 65 because as fast as money was coming in the front door, my contractors and everybody were ripping me off out the back door. I did all this volume. It didn’t make any more money than when I did 65. Ron LeGrand was the first one to call me stupid and said, “Doing 150 houses a year with the amount of staff you have is completely stupid. Why don’t you try doing half as many houses and making twice as much money and have a life?” The way he put it to me didn’t make me feel warm and fuzzy but when I went back and thought about what he said, I thought, “I think he’s right.” As much as I hate to admit it, but he was right. I went back and I started not worrying about my volume. I started worrying about my gross or my ROI per transaction.

I want to make sure I give you credit for this one because I got the chance to meet you when I was in San Antonio with our Inner Circle group. Here I’d been focused on rentals. I’d never thought of selling on land contract or contract for deed in other states. I’m sitting and looking out there, running the numbers on ROI and you said, “I sell everything on land contract, 30-year terms and no balloon.” I liked that.

No maintenance and I have no money in it at all. It’s an infinity rate of return because I don’t have any money in it. I click 10% as a down payment, so $10,000 or $12,000 or $15,000 right off the bat. I do the work one time and I’m owed 361 payments. Number one is a down payment and then 360 payments of which I average clearing about $500. In that seller finance business where I buy my houses for $50,000 with OPM, I sell it for $100,000 with 10% down or $10,000 down. Don’t get hung up on the numbers here. I’m giving some round numbers for the theory. I get that payment and then I collect a 30-year note. I’m due 360 payments where I’m going to net $500 a month between what I collect and what I owe. That’s $180,000 on a 360-month note. I work one time and I get paid 361 times over 30 years.

That’s the beautiful part about it and that’s where it clicked. The other thing I noticed here in Michigan is we have insane property taxes. For that $50,000 house, you’re looking at $2,000 to $3,000 a year in property taxes. Our cities have been aggressive towards landlords. They want to inspect the house every 1 to 3 years. You never see an inspector come in the house and not find at least $1,000 to $5,000 worth of work to be done. All of this stuff starts adding up. I’m paying more out in anything. Why not pass that along like you do? It’s a newer experiment for me but I’ve been doing it for almost a year. I’ve already generated probably six new land contract notes. Anytime a house got turned over on rental, I go sell it as is on land contract.

If a house is running good, they’re paying well, and they’re not demanding a bunch of repairs or they’re not a pain in your ass, leave them alone. Don’t go kick a sleeping dog, just let it sleep. When it wakes up and it starts growling or tearing things up, then you can put them up for sale or for a land contract. You can run it both ways. Run it for rent and run it for a land contract, and see who shows up. You might find another great tenant and be able to get the depreciation and everything for another five years or whatever. You call it land contract up there but we do a straight mortgage and deed of trust. We’re the lien holder in Texas because we got very fast foreclosure laws.  

Maybe you find a guy that doesn’t have 10% down, he’s got 25% down. The hell with being a landlord at that point. Let’s take the $20,000 or $30,000 down and get out from under this maintenance proposition. I found there are a lot of people who go into that rent game and be the landlord, the buy and hold game. On paper, they’re supposed to make a lot of money. They’re still telling themselves they’re making money but in reality, when you get your financials back from your CPA, you didn’t make anything.

That is why it clicked when you had mentioned that at our meeting because you’re right. I would look at the financials and maybe $500,000 for the year. I’m supposed to be cashflowing $300, $400 or $500 a month. At the end of the day, the city made me put sidings in a house that was fine, whatever it is. It tends to all come together collectively. Property management costs $99 a month.

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Move out, delinquents, eviction costs, downtime, and vacancies. I tell people that have 401(k) and they think they want to go in the real estate business, you can do that and over a long haul, those properties will be worth a lot of money but you’re going to breakeven in the middle unless you can write a check for the whole house. If you’re trying to hold these things and you have debt and you’re trying to make money between what you collect and what you owe, that’s tough. I could see how you might make some money if you could write a check from your IRA and your IRA owns it free and clear.

Seller finance is a great proposition. When was the last time you got $10,000 or $15,000 or $20,000 as a non-refundable rent deposit? It never happened but I can get a $40,000 down payment on a $100,000 house. It happened to me. It doesn’t happen every day but I got that chance. Every time I put a house up for sale, I’m asking a minimum of 10% down, but I might get 30% down. People go, “Why would they put 30% down when you’re only asking 10%?” Someone sold their house and they don’t want the money to evaporate. They said, “I’m going to roll it over into the next house. Please get this money out of my hands, get it out of my bank account. Let me put it down on this house and it will stay preserved.” People do it all the time. They want small payments.

I found that to be the case so far. I got into this business expecting one thing and over the past years, it’s evolved into this new thing that I’m excited about. It’s a combination of all the little pieces because knowing how to be a landlord is helpful. Knowing how to find and source deals like a wholesaler is helpful. Now I’m in front of the line on deals and I get to choose which ones I want to offer to my investors and which ones I want to cherry-pick for myself. The thing I love most about the creative finance side of this is I get three paydays. I get that down payment. I get the monthly income and I could be wrong but I’m expecting people to refinance these or sell them within probably somewhere between 5 to 15 years. Most people don’t stay in a house for 30 and they pay mostly interest those first 5 to 10 years.

That’s why we like the 30-year note because in 5 or 6 years before they decided to sell the house to somebody else on a new loan through a realtor or whatever, they haven’t paid down anything. I’m on 10 and 15-year notes. I try to sell my properties for 100% over what I owe. If I bought it for $50,000, I’m trying to get in the position where I can sell it for $100,000. It doesn’t always work out that pretty. The most I’ll pay is 65%, $65,000 to sell a house for $100,000. If it starts going over that, I don’t like it but I try to have 100% markup in my houses and that’s how I negotiate.

At some point, you’re going to get a windfall of a big $30,000, $40,000, $50,000 checks. The average mortgage in America lasts 7.5 years in the economic echelon that we’re dealing in, where these people are a little bit flawed. That’s why they’re having to buy houses, seller finance from people like you and me. They’re inherently flawed. They don’t have what it takes to fix their credit and to keep it fixed long enough to get a traditional loan. Maybe their notes will go 10 to 12 years, maybe 15 years average before they fall out.

I’m curious to see what the actual numbers shake out for me. I only sold them so far in the past years. I’m still in the initial collection phases but it’s exciting. The checks show up, I found a servicing company that I’m going to start using designation wide. I had a bugger trying to find somebody here that would do Michigan and I had to reach out to all my network for that. It’s been very pleasantly surprising because now I don’t have to worry about approval for this fix or that fix or tenant gave 30-day notice. Now we’ve got to start remarketing it and my bills are still due. I do the same as you. I borrow on other people’s money and buy the houses, give them a straight payment every single month. They love it.

It allows me to increase my wealth and my passive income stream, which is what I’m focused on. I lost focus on that for a while. What I want to make sure people understand there is if you have lost focus, it’s okay, you can go back to what you were focusing on. It’s like what you said, you were busy building 150 houses for that one year but then you made more money and had more life the year you went down. I’m finding the same thing with COVID. Luckily, we had already started moving more virtual back in October 2019. When this all hit, we were prepped for it. It gave us some lean time where nobody was responding and no one was calling to work on the business, on the system, and on the process. I can go make busy work for myself which I tend to like to do being a type A driver person.

I like talking about two things. Don’t forget to address private money. The seller financing strategy so far survived the Great Recession in 2008. It was a huge recession. That strategy survived with flying colors. We’re finding the pandemic is doing the same thing so far. The story on the pandemic is not finished yet. We’ve got to wait until these stimulus checks run out and get in the hand. We’re going to then see who took care of their resources, who didn’t and how many. One thing about it is I know the people that have rentals were hurting much worse than the people that had seller financed houses because look at who’s in the house. The tenant has no stake in the game. They only put a little bit of money to get involved in that deal.

My seller finance buyers have $10,000, $15,000, $20,000 more in the house. A lot of them have put a lot of money to make that house theirs. They added a back porch, they put in a pool, they poured concrete in the dirt driveway. They put up the picket fence or the rod iron fence. They re-put in all new windows, or re-insulated the attic and put in a new AC. These houses are worth tens of thousands of dollars more than on the day that I sold it to them because those people forced appreciation. Not to forsake just the regular appreciation. We had the regular appreciation and then we had the forced depreciation on top of that. My people are not likely to walk away. I don’t think I have one COVID related foreclosure going right now. The foreclosures I was dealing with were in process before COVID and would have been done by now but COVID shut down the evictions and the foreclosures. I don’t think I have a COVID related default right now.

That’s a great point that you made there too. This feels like it’s been the year of paradigm-shifting for me because I had two houses that I bought. I wanted to go and renovate it, but my contractor was out three weeks. I was like, “Let me try selling this as is.” I got maybe 10% less than what I would have had I put all the work into it and now I put zero money into the actual renovations. I have people that bought them, gave me $10,000-plus down payment on all of them. I was ready to do the work anyway. Should I have to take that house back, which I never want to, I’m comfortable taking it back and then doing the work if I have to.

REIS 414 | Downside Of Upscaling

Downside Of Upscaling: People make the most mistake when they’re trying to do things too much too quickly; they always end up getting none done.


If it goes like it’s supposed to, they’re going to put all their money into your collateral, and all of a sudden this house is worth way more than what they owe you and a ton more than what you bought it for. That’s the magic. You’re one of the guys in that room that caught it when I said, “The best strategy in the whole wide world is buy it, don’t fix it, owner finance it for double and watch the guy sending you payments go over budget, putting money and work into your collateral.” It’s the greatest plan ever. It’s a little tricky. You’ve got to learn how to find the right guy. You’ve got to take a little time and you might go through a couple of people.

Once you hit the guy that goes in and fixes it and you learn how to size up like, “This guy wants to house,” does he have the money to actually fix it? It doesn’t do any good to sell it to a guy who wants to fix it but doesn’t have any money. You verify the money in the bank account. You’ve got to verify, “Does he know how to fix the house?” “He said he’s a contractor.” “Let’s go look at his last two jobs,” because that’s what your house is going to look like in six months. Whatever that kind of job that guy does on these two houses, I’m going to look at what he did. That’s what this house is going to look like. You learn how to size it up. It takes a little more time but what a strategy. I love that strategy.

I’m glad you said the taking time too. It’s been almost a year since we got a chance to meet and you broke my brain. It is a process. You can do this in your sleep now. I was uncomfortable on the first one, second one, but you said this a lot. You either pay somebody or you pay the street. I got in a rush. I put someone in a house right before COVID did hit. I took a down payment way less than I should have. It was $2,500. I didn’t get a single payment from him. He trashed the house and then I had to give him his money back to get him out because we were in the shutdown of foreclosures and evictions, anything like that. I did a cost-benefit. I’m going to lose money either way. I might as well give him his money back and get him out of the house so I can get to work on it.

You don’t get in a fight. You did the right thing on that end. We’ve all done it. That’s how we learn. You paid the street. I got my degree from La Calle U. Calle means the street in Spanish and that’s the most expensive university in the planet. It doesn’t care. It will charge you everything you have and then more. It will put you in debt, plus take everything you have. The problem is it doesn’t even give you a piece of paper. I swear to you, I am going to get a college ring that says La Calle U around the stone right in the middle. I’m going to put 1996 to present. How are you funding your deals?

Two ways. It’s always other people’s money. I know you mentioned this and a lot of people mentioned this, but I probably have 3 or 4 people that I go to most often that fund my deals. They are closer to retirement age or they don’t want to retire quite yet. They’re punching their Social Security and they’re giving me their funds. I’m borrowing it, keeping it as a first lien on these houses, and going that route. The other way I do is I have worked on some creative acquisition skills as well. Buying houses subject-to or having them give me seller finance. I resell it on better terms than I’ve got or higher price. Those are the two ways that I fund them private money and then either creative purchases.

Have you hypothecated notes to a community bank yet?

That is not something I’ve done yet. I was starting to consider how to do that. I don’t know exactly what the hypothecation is. If you don’t mind sharing it with me.

Hypothecation is a fancy word for, “I can’t refinance the houses anymore because I don’t own them.” Let me give you an example. I had borrowed $1.8 million from my private lenders. I had purchased and sold these houses for $4.1 million seller financed. They still owe me $3.7 million. It’s 35 houses that I put on a spreadsheet. I bought them for $1.8 million. I sold them for $4.2 million. They gave me some down payments. The notes were in various stages. Some are six months old. Some are a year or two-year-old. If you added up all the balances that they still owed on the whole 35 houses, they still owed me $3.7 million.

I had sold the houses for $4.2 million and collected some down payments. Now there had been appreciation so they were worth about $4.3 million or $4.4 million. I go to the bank and say, “I’ve got $4.4 million worth of appraised assets.” If you go get the houses appraised, they’re going to be around $4.4 million. These people still owe me $3.7 million in notes. “I want to borrow $1.8 million so can I pledge my $3.7 million worth of notes as collateral and give you an assignment of note in my first lien collateral rights until I pay you back $1.8 million?” They’re giving me the $1.8 million at fifteen years, 4.25% fixed. There’s no adjustment, no renewal, just a fixed loan.

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I go from soft money private loan rates like 8%, 9%, 10% to 4.25% fixed for fifteen years. Two things happened. Even though it’s amortizing and a lot of my other notes were 8% or 9% interest only, I increased my cashflow dramatically because I got a 4.25% rate at fifteen years. I also freed up the $1.8 million of people that already trust me and I can make another run at downtown. In theory, I could buy the whole planet $1.8 million at a time. You buy $1.8 million worth of properties, then you pledge the notes to the bank. You then get the $1.8 million. You go back and you buy another $1.8 million worth of property. It’s just rinse and repeat.

I’m going to explore that strategy. That is always my challenge, how do I get the private financing people out of there? I was considering Dave Ramsey’s Debt Snowball method, but I don’t love that idea. I’d rather keep traditional money on it long-term. I love to get out of garbage debt. I like keeping a certain amount of debt that makes my money grow.

My private money debt is non-recourse collateral only wrapable money. Some of these private lenders will try to pull a fast one right at the end and go, “You are going to sign your signature from me.” I go, “No.” They said, “You don’t believe in your program enough to sign your name?” I said, “No, I believe in it. It’s not like I’m not bankable. It’s not like I’ve not done it. I owe a couple of million dollars right now if not $4 million to bank. If you want to loan me money at fifteen years fixed for 4.25%, I’ll get my pen out right now and we’ll change the papers. I’ll sign it, but for 8% or 9% or 10%, you have to share in that catastrophic risk with me.”

The only way we’re going to have a problem is catastrophic. If Kim Jong-un drops a nuclear bomb in Downtown San Antonio, that’s not my fault. I didn’t cause that. If a meteorite hits in the middle of Texas, that’s not my fault. If you want to make 8%, 9%, 10%, you’ve got to share that catastrophic risk with me. If you want to give me 4.25% fixed for fifteen years, I’ll take it all. They never offered me the 4.25%. They want the 10% and they move forward.

I heard you say something that you do with your private money. I have been doing the interest only to increase the cashflow. Are you doing amortized notes on your private lenders? How does that look?

When you’re trying in the beginning to quit your job and you’re working part-time, you need all the cashflow you can get. Interest only is okay because that $50 or $100 per transaction extra that you’re making because you’re interest only, and you’re not reducing principal. You need that to get free from your job or to hit your magic number where all your overhead is paid. Let’s say your overhead is $5,000 a month. As soon as you get to about $10,000 a month and you have interest only payments, you can switch over now. Everything beyond that, you can start amortizing. I offer to my private lenders, and I want the investors and people who have idle money reading, this is your chance if you want to loan money to me.

This is what I offer. I offer 10% annual interest if you’ll give me a fifteen-year fully amortized note. I offer 9% annual interest if you give me a ten-year fully amortized note. I offer 8.5% annual interest if you’ll give me fifteen-year amortization with a seven-year balloon. I’ll offer 8% if you give me a fifteen-year amortization with the five-year balloon. I never liked to borrow money less than five years because even five years flies. If it’s any shorter than five years, it’s like you just got the loan and now you’re having to work on getting another one or fixing something. It starts to break down tit for tat. I’ll pay you 7% for a seven-year fully amortized loan. I’ll pay a 6% for a six-year fully amortized loan. I’ll pay a 5% for a five-year.

There are little pieces of land and little things that I do that sometimes I can do short notes on. That doesn’t happen all the time. When you’re doing a six-year fully amortized loan, I won’t let you in over 65% of what I can sell this thing for to begin with. You’re reducing your risk every month drastically. That’s why it’s only 6% for a six-year amortized loan because you didn’t have any risks to begin with. It’s decreasing risk with every month I pay you. I’m knocking the bottom out of this debt every month because it’s only a six-year amortization. It’s risk versus reward. If I’m paying less interest, it’s because there’s far less risk in this note.

That makes a lot of sense and I’m glad you said it that way because I’ve always somewhat struggled with that point too when I’m talking with my private money lenders. I get pretty good terms. I’m usually that 6% to 9% range depending on the deal. To be able to explain it that well like your risk is growing down when we amortize this versus the interest only. I’m going to have some conversations with some of them because they’d prefer that, and to my advantage of knocking that debt away.

REIS 414 | Downside Of Upscaling

Downside Of Upscaling: Knowing how to be a landlord is helpful. Knowing how to find and source deals like a wholesaler is helpful.


Let’s try this. You keep those interests only things, but you go out now and you try to find amortize money. As soon as you finding amortize money, replace your interest only money. Take them out. You already have the deals to shop and to show your potential new lenders. Another good idea is if you know a potential lender that has a lot of money, he’s the big bucks guy or the deep pocket guy, and you might need $65,000 on a $100,000 house. In order to get into this guy’s pocket one time so you can call him an associate, talk business with him, and get to know him, leave $30,000 a year money in that deal. Ask him for $40,000 in a first position on $100,000 house. Offer him a no-brainer deal. Take some of your money in your company and give it a second. He’s going to loan $30,000 in the first. You’re going loan $35,000 in the second. There’s still $65,000 worth of debt on the house. It’s just you’re paying yourself interest on it and get that guy with the big money.

I’ve done this before. I said, “I’d like to talk to you about a deal. You don’t know me, but you’re going to know me. I’ve got a $100,000 house. I need to borrow $60,000 in the first position. Does that sound interesting to you?” “It’s not really.” I said, “How about $50,000 in the first position?” He goes, “You’re getting warmer.” I said, “How about $40,000 in the first position?” He said, “Are you serious?” I said, “Last offer, $35,000 in the first position. I’ll give you first lien on my $100,000 house. I’m paying 10%.” He’s like, “Why would you do that?” I said, “I want to raise private money and I need people like you to get to know me. I’m giving you a no-brainer chance to get to know me. What could possibly happen except for you to make more money than 10% because if you get my house, you’re going to make a lot more money than 10%.” That’s how I get in with a lot of people. I’ll just chop the LTV to whatever it takes to get them in.

That’s a great strategy because that’s sometimes the challenge. I’m used to getting all the money including rehab to fund my deals but to break into that new “account” or that new relationship, give them an opportunity to make a little money, see what it’s like, and see that it’s not as scary as they might think it might.

To make sure and see that that check comes on the first just like you told them. I then go to the next deep pocket guy and I’m offering to take the $35,000 guy out. I use that same good deal. I go all the way around the city going, “You want to loan me $35,000 in a first lien position on a $100,000 house for 10%?” As soon as someone says yes, I take this guy out. Hopefully, it’s been 2 or 3 months so he could see that payments come. When a new lender loans you money, they’re happy to see the entire principal come back even if it was short and they only got four months’ worth of payments.

They’ll start complaining after that. “I don’t want to do this where my money comes back every 4 or 5 months. I want it to be out for a little while, a year or two or something.” The very first time that you pay them off and they were only with you for 3 or 4 months, it’s a sigh of relief. They go, “You know that guy, I was a little nervous about him. I didn’t know him. I loaned him $35,000. He gave me a great position. His payments came on time and then he returned my $35,000 principal. I think this guy is honest.” I did this course called Private Money Changes Everything. I used to charge $997 for it, but now I threw it into the owner finance course because it’s such an integral part.

This Private Money Changes Everything course is not bulky. It’s very light but it’s rich. It’s only seven steps. It’s very nichey. It shows you how to talk to private lenders with the backdrop of, “I’m going to seller finance these houses. I’m going wrap your note.” It tells you how to talk about that specific strategy and it’s only about seven steps. The coolest thing about trying to raise private money in my opinion is when you learn how to never ask for it. You learn how to speak to them so that they volunteer or raise their hand and go, “Can I be one of those guys that you’re talking about that loan you money, that make that 10% or 9% or 8%?” You act surprised, “You want to be?” like I wasn’t working towards that all the time.

What happened was all my people were older and that’s why they were interest only. They never wanted to go for a long period of time because they were old. I started telling myself, “I’ve got to have a plan for the younger people that are like 28, 29, 30 and 32.” They can’t even touch their IRAs until they’re 59.5 and they want to set it and forget it. As soon as I decided that there were people out there that would take a fifteen-year fully, I started finding them. It starts right here until I believed or thought or told myself there’s got to be some people out there, then it didn’t happen. What I was telling myself, “Nobody’s going to want to go fifteen-years with me,” then nobody was. I started seeing some other examples out there and someone sent me down and goes, “Mitch, you’re full of crap. There are people out there doing it. You’re just not asking.”

The crazy thing in this whole business and probably life is the distance between our two ears is where a lot of that space makes us afraid. I want everyone out there to know don’t be afraid to succeed. It seems cheesy, but I’ve started to see that more and more. We get so set in the way we think it’s supposed to be and the way we expect it or what people are telling us. Our own mind games will play on ourselves on that, “We’re not good enough. This is too risky.” Take it step by step. Take it slow, and see that it is possible. Like you said, your career was scaling one step at a time and it wasn’t a rush job. That’s the same thing for grazing private money. People want these opportunities. There’s more money out there than there are deals.

They don’t know that you exist.

If you have a good deal, you'll find the money. Click To Tweet

The big thing is you can’t be afraid to put it out there because of rejection. Rejection is one step closer to a yes. I’ve been in sales my entire career. That’s something that you’ve got to be okay with because you’re not trying to reach that 70%. You’re trying to find that 30% of people that are a good fit for you and you’re a good fit for them. That’s what the goal is. It’s to find and identify. If other people don’t like it, fine. You didn’t do anything wrong by offering them an opportunity or offering to buy their house or offering to sell my house on terms. What you’re doing is offering an opportunity to see if it makes sense to work together with people.

I never went to pitch private money and someone shoved a pencil in my eye or stabbed me with a knife or shoot me with a gun. It’s never happened. Most people are very gracious. Some people will turn you off fast and you can’t fit a round peg in a square hole. Leave it be. This is not something you talk people into. It’s just you show them. If it’s a natural fit and they see what’s going on and they like it, they’ll gravitate to you. If they don’t like it, you’ll know. I love that word, “next,” just onto the next one. I tell my people who show up with a good deal, they show up with a good deal.

That’s what brings the money, the deal. Charles Manson could have gotten money from the prison cell after murdering all those people. If you had a good enough deal, he could raise money. He just need to get on the phone. The deal is, are you going to present? I tell people to have a good deal. I challenge you. I’ll bet you $1,000, you can’t get 50 noes in a row. The question is, how bad do you want it? You can’t get 50 noes in a row if you have a good deal. It won’t happen. It’s impossible. I’ll doubt that you’ll go fifteen, maybe twenty.

If you have a good deal, you’ll find the money. I know it’s said everywhere in every REIA group, but it is true. If you’re finding troubles, maybe you’re not asking enough people or you’re asking the wrong people. That took me a little while to learn. I’d go to the REIA groups and try to get those people. Those are all people that know the shark terms. The 2 and 12, 2 and 15, whatever the points and interests. You’re trying to find the people that don’t have access to those deals as easily or readily.

You’re swimming in dirty water. That water has already been polluted. These people already want big high returns on everything. We’ve got to get off that track. It’s all right here. My partner, his obstacle was he was too young. He didn’t even own his own house. All these people with money are usually 50, 60, 70 and he’s 25. He goes, “Why are they going to loan me money? I don’t even own my own house. I’ve only been out of college for two years.” That’s when I sat him down and I said, “You’re giving yourself way too much credit. You’re not even important to this deal. The only thing you’ve got to do is tell people about it.” Here’s the one problem also. He was begging for money. You don’t beg for money. You say, “I have an opportunity I’ll let you in if you’ll make a decision rather quickly within the next 3 or 4 or 5 days. I don’t need you. I’m going to find somebody. You do it or you don’t do it,” but stop begging for money.

That goes even if you’re wholesaling, flipping, acquiring houses, and negotiating. People can smell, feel, and sense desperation. Even if you feel desperate, you’ve got to be able to bottle it up. You’ve got to be prepared for how that conversation may go. You’ve got to be confident in yourself and what you’re offering. That’s where sometimes the experience does come into play. That’s why I love your 50 No challenge. Once you get 5 or 10 of those noes out of the way, if you even get to that point, you’re going to understand what you did right or what you did wrong. Ask them, a lot of people don’t like to ask what they did wrong or why they wouldn’t invest. Why didn’t you sell the house to me? Why didn’t you like this? Most people are going to be pretty open with you about areas of opportunity to improve yourself. We’re all humans. We’re all growing. We’re all trying to become better day by day. Why not get feedback from people that told you no or yes? What did I do right? What did I do wrong? How could I be better?

There’s always that if it’s not for them like, “Do you know anybody I can help that needs this kind of return, that needs this kind of security backing up their investment? Do you know anyone we can help?” “My grandma has a whole bunch of money and she’s not making crap. She’s making 1% in a CD.” I said, “She doesn’t have to put it all with me. Do you think she’ll have enough what it takes to try 1 or 2 deals?” That’s the other thing. All the people have $1 million, $1.5 million, $2 million with me. The most any one person has with me is about $3.2 million. They all started out with the tiniest deal I could give them in the beginning. They all want to put their finger in. It’s a time confidence building thing. The people that have $3 million with me, they’ve been with me for fifteen years. They’ve seen the ups and downs. They see me through the recession. They’ve seen the pandemic.

They had up to $4 million, but during the pandemic, as people would pay me off and I had to pay them off, they wanted to keep a little powder dry because the pandemic was scary. They’re calling right now saying, “We’re starting to see this as all a bunch of BS. We’re going to loosen up here and start getting this money back out again.” Those people have been with me for over fifteen years but they didn’t start out with $1 million. No one ever gives me a lump sum of money. If someone says, “I need to get out $500,000,” then I send them a deal. “Here’s one. You’re going to have a first lien on this house for $70,000. It stands alone, pay as agreed or get my house.” That being said, I’ve never given a house to anyone in my whole career, nor have I ever been foreclosed on, nor have I ever filed Chapter 7 or Chapter 13.

I look at my private lender right in the eye when they’re considering loaning me money and I tell them, “I have two rights every day of my life if you make me a loan. I have the right to pay as agreed or I have the right to walk over my position in this property and assign it over to you.” If you don’t like that collateral for what you’re loaning me, don’t do it. It’s never happened but I have that right every day. It’s a collateral only, non-recourse wrappable loan and that’s how it works. I also have the luxury like you do, Mike, and say, “I’ve got people that I’ve owed money to for decades. I’ve always paid them. You want to call them, here are their phone numbers.” I tell them that mostly, but you better make sure you have an excuse to get off the phone because these little old ladies, all these widows that I deal with their husbands who died a long time ago, they won’t let you off the phone. They’re going to tell you how much they love me. What’s the next plan for you?

REIS 414 | Downside Of Upscaling

Downside Of Upscaling: Stop trying to reach that 70%. Instead, find that 30% of people that are a good fit for you and you’re a good fit for them.


I’m working on something interesting with Don Costa. We started the Inner Circle Elite Group together. That’s where I had a chance to meet you when we had our event there in San Antonio. We’re putting together some courses and materials for newer people. It’s going to be called Ready, Build, Scale. It’s going to be focused on getting ready, building the mechanics, the muscle memory and how to do a deal and get you through those first couples of deals. Build is going to be more about putting your team in place, try to identify the right people, try to find the right systems and tools, and things like that. Scale is going to be more along the lines of our Inner Circle masterminds. It’s going to be higher-level people that are our top producers. They are having the business they want and they’re looking to explore.

I wouldn’t recommend people starting off trying to flip wholesale and be a landlord all at the same time. You want to get yourself to that solid footing like we’ve talked about, and then that’s when you can start exploring. That’s where we’re looking to bring value to people out there. We’re excited about it. Don has twenty-plus years of experience. He got wiped out in the crash, came back, and he’s been on here. You’ve been on his podcast. He’s a truly knowledgeable dude that has been through so much and he’s so giving. I have a different experience in my life being a little bit younger coming up, graduating in the crash, and being able to come from a different angle. He was a flipper first. I was a wholesaler first. Now we can play in all the different exit strategies, but being able to have a truly robust training for people so they have that as well as a support structure around it with the community aspect that we’re putting together. We’re excited about that.

When you get that all together, call me up, and let’s introduce it through my podcast. I’m volunteering because Don is a formidable force. I know him through a few people and I think it’s cool. Whenever you get that ready, let me know, we’ll focus right on what you guys got to offer on that.

I appreciate that.

I’m going to ask you, what’s your advice to maybe the newbie out there. Meanwhile, I’ve got to pay homage to my sponsor, LiveComm.com, check it out. It’s a lead generation system. It is 100% responsible for why my seller financed houses average only nine days on the market and average 12% down. I have 24,000 people that this lead generation system has captured that I can text at will for $0.2 per person every time I have a new owner financed house come up for sale. I put twenty signs around the neighborhood and one sign in the front yard. It has a LiveComm phone number on it. That LiveComm phone number has a text distribution list attached to it and it captures the cell phone number of anyone who calls it.

Over the months, I have collected 24,000 people that want it in my town, that want to know next time I have a seller finance property. In a minute and a half, I can send out a text to all 24,000 of them for $0.2 a piece, direct hit. The cool thing is I send out every quarter a message that says, “If you’re not interested in these products or my product, please reply with the word stop and get off this list and stop receiving these messages.” Despite me doing that every quarter, I still have 24,000 people that are serious about getting my texts. It can work in a hundred different ways. There are all kinds of strategies that I figured out to use it for. Check it out, LiveComm.com. I like to thank the whole audience for stopping by to get you some Mike Cowper. Mike, what have you got to say to the newbies out there that are maybe a little confused and overwhelmed in trying to figure out what to do?

I can still remember being there. I feel that way when I started doing the creative space stuff because I was a newbie in this. I would say where I found the most success in my entire career no matter what it was is finding people that are further down the road than me that’s finding coaching, training, masterminds, mentorship, and going out networking. I truly believe I wouldn’t be here where I’m at now if I didn’t happen to bump into the people that I bumped into and create those strong relationships. When I say bump into people, I intentionally bumped into them. Much like Mitch says, he leads people to ask him how to get involved in deals. I’m proactive about how I bump into people, trying to network with people, trying to find the right people, and making sure that you don’t try to do this alone because it can be challenging and it is lonesome to begin. Have some people to bounce ideas off her talk about it.

If you stroke these big checks in and you’re making $10,000, $20,000 on a deal, it’s hard to talk to your brother-in-law who might be working at Jiffy Lube, and talk about the challenges of it. You need to find people that are in a similar aspiration. What I found to be successful as I’ve grown is it’s nice to have someone to chase, nice someone to have on the same plane as you to share experiences. It’s also nice to try and help coach, teach, and help somebody else up. That way, you’re learning in three different ways. I find that to be helpful and you’re doing a great job if you’re reading this because Mitch’s program is amazing. I’ve got a lot of value in myself out of it. Don’t be afraid to succeed. Don’t be afraid to take risks. Don’t be cavalier about it. Make sure it’s a smart risk. Make sure you think it through, but you can’t always sit on the sidelines. Once you’ve analyzed that deal for the 50th time, maybe it’s time to pull the trigger. You need to get a better clear idea on what that actual criteria you’re looking at should be. You can do it. You can be successful, and I hope to see you do it as well.

Get around the people that you want to be like financially, but also make sure they’re the person you want to be on and off the field because whatever’s happening off the field is going to spill over into the business. There’s no way to separate real life from business in certain levels. Do research. There’s a lot of bullshit artists out there. Make sure they’re doing what you want to do. Follow up, call some people, verify, and then make sure they’re the person on and off the field that you want to be. You can swing the price. It’s going to be well worth it because you can always measure a mentor by how much money they make you, but you’ll never be able to measure your mentor by how much money they kept you from losing or how much time they kept you from losing.

You won’t have a number, so you can’t measure the negative. Don’t just look at, “This is what he made me.” I have saved people from huge mistakes, but they give it very little credit because they felt no pain. It’s one of those things, “I’m going to do this.” “No, don’t do that.” “Okay, I won’t.” That was all that was ever said, but that path would have cost them $15,000. Who knows? Mike, thank you so much for being on. You’re a great guy. If you ever get to Texas down to San Antonio, look me up. We’re out of here.


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About Mike Cowper

REIS 414 | Downside Of UpscalingFounder of The Inner Circle Elite Mastermind – A mastermind for real estate investors across the country focused on building a better business, not necessarily a bigger business. A community designed and ran by owner/operators.

Owner of Return on Investments – Mike Cowper does more than just buy your house. With years of experience assisting homeowners, he is passionate about finding solutions where others can’t – or won’t. No matter what situation someone is in, his goal is simple – to find winning solutions for everyone involved.

If you’ve ever considered investing in real estate, you should reach out to discuss partnership opportunities!


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